U.S. appeals court revives suit against Schering-Plough

A federal appeals court in Philadelphia shook up the pharmaceutical industry Monday when it challenged an arrangement between Schering-Plough and rival firms designed to delay the sale of a generic drug.

Under such arrangements, called “pay for delay,” brand-name drugmakers facing a patent challenge from generic competitors pay them to temporarily stay out of the market.

For more than a decade, the Federal Trade Commission has pushed to restrict these kinds of deals, arguing that they are anti-competitive and harmful to consumers. But in recent years, courts have consistently upheld such arrangements. The Schering-Plough litigation appeared to be headed in the same direction until Monday.

“It’s a major decision which can put an end to the worst abuses of the sweetheart deals and save American consumers and the federal government billions of dollars,” FTC Chairman Jon Leibowitz said. The government buys a third of all pharmaceuticals, he said.

The case involves a pay-for-delay settlement that Schering-Plough reached with two generic firms involving its drug K-Dur, used to treat people with potassium deficiencies. More than three-dozen drug wholesalers and retailers — including CVS and Rite-Aid — sued the company for entering what they alleged was an illegal agreement.

The case did not go to trial. Instead, in 2009, a New Jersey district court ruled in Schering-Plough’s favor. The wholesalers and retailers appealed the case to the U.S. Court of Appeals for the 3rd Circuit in Philadelphia, and on Monday, that court ruled in their favor.

The federal court sent the case back to the lower court and directed it to apply a different legal standard than had been used in previous cases.

In the past, several courts had ruled that pay-for-delay arrangements were permissible as long as the brands and generics agreed that the generic would not stay out of the market for longer than the life of the patent.

On Monday, the federal court took a different tack. It said that these deals should be presumed anti-competitive and that the burden is on the defendant to prove otherwise.

That position is in line with what the FTC and the Justice Department advocated in briefs filed with the appeals court in the case.

The FTC, which had previously challenged the K-Dur deal but lost, noted that the appeals court has jurisdiction over district courts in New Jersey, Delaware and Pennsylvania — where many drugmakers are based.

But the drug companies say the ruling is a setback for them and consumers.

Merck, which now owns Schering-Plough, said through a spokesman that it is disappointed with the opinion and is reviewing its options.

The Pharmaceutical Research and Manufacturers of America, which represents brand name drugmakers and biotech firms, said protecting drug patents is vital to innovation and job creation. “Those patents, by fostering innovative [research and development], also help to save millions of lives,” said Matthew Bennett, a PhRMA senior vice president.

And while the FTC says that allowing pay-for-delay agreements costs consumers $3.5 billion annually, the Generic Pharmaceutical Association says that consumers lose more money when these types of agreements are not reached.

During the past decade, through these agreements, brand name drugmakers have allowed dozens of first-time generics to come to the market many months and even years before the brand-name patents expired, said Ralph G. Neas, the group’s chief executive.

Seventeen of the 22 first-time generics launched last year were the result of patent settlements, including Zyprexa, Solodyne, Levaquin and Lipitor, he said.

“We think that the policy, the law, the facts, the history are all on our side,” Neas said. ”We believe this is an outlier case.”

Dina ElBoghdady covers housing policy for The Washington Post.
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