Money, drugs and the Supreme Court: The multi-billion dollar case you haven’t heard of

bigstock_vitamins_pills_and_tablets_16253030The Supreme Court has been front and center this week with its oral arguments on same-sex marriage. That is not, however, the only big issue before the justices this week. On Monday, the court took up a really important health policy case, one with billions of dollars riding on the verdict.

The lawsuit centers on a practice known as "pay for delay," where pharmaceutical companies essentially pay a settlement to a competitor to hold off on bringing a generic version of their drug onto the market. It's a form of settlement in patent litigation that can actually be pretty advantageous for both parties—and one that both generic and brand-name drug makers don't want the Supreme Court to abolish.

The big pharmaceutical with a blockbuster drug gets to have the only product on the market for a little longer. It also doesn't have to deal with price competition. The FDA estimates generics usually cost 80 to 85 percent less than brand-name drugs—not great news for the maker of the brand-name medication.

As for the generic drug maker,it has to hold off on coming into a given market—but it also gets a settlement from a pharmaceutical, often in the millions. Not a shabby deal either.

The Federal Trade Commission, which brought the suit, has a completely different take. It argues that this is horrible for consumers, who end up with higher drug prices as generics stay off the market longer than they otherwise would. With more than a dozen pay-for-delay deals struck annually, the FTC estimates that these settlements will cost consumers $35 billion over a decade.

pay for delay

The case before the Supreme Court was one involving a prescription testosterone product called AndroGel, manufactured by a company called Solvay. Nina Tottenberg has helpful background:

Generic competitors challenged Solvay's patent, contending that the patent on the synthesized testosterone used in AndroGel had expired decades ago and that whatever innovative changes were made in the formula were not enough to justify a new patent that would bar generics from making similar products.

 

The litigation pressed on for two years with both sides gathering evidence. But as the lawsuit progressed into its third year, one generic won FDA approval for its competitive product, and was preparing to market it at prices that were six times cheaper than the brand named AndroGel. That would have put AndroGel's $400 million annual sales into the tank.

So, they settled: Solvay paid the generic challengers as much as $42 million annually, on the condition they would not market their product for another nine years.

The FTC has argued in court that this pay for delay agreement, and others like it, violate anti-trust laws and increase consumers' medical costs.

The payments "subvert the competitive process by giving generic manufacturers an incentive to accept a share of their rival's monopoly profits as a substitute for actual competition," deputy solicitor general Malcolm Stewart argued on behalf of the FTC on Monday.

Drugmakers, meanwhile, think this is how the system should work. These challenges typically come up at some point in the 20-year lifespan of an FDA patent, just as the AndroGel challenge did. If the two parties want to meet in the middle on how much longer the patent lasts, what right do courts have to step in the way?

"The patent gave the patentholder the legal right to exclude," Jeffrey Weinberger argued for defendants. "So unless there's a reason, there's some reason to believe that it couldn't reasonably assert that patent, it's entitled to monopoly profits for the whole duration of the patent."

That is, in a nutshell, the case at stake. If the government wins, it will be a lot harder for courts to sign off on these pay-for-delay settlements. If it loses, business will continue as usual. Between the two options, there's $35 billion at stake.

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