The Supreme Court struggled Monday with whether it should allow federal officials to challenge deals between pharmaceutical corporations and their generic drug competitors that the government says could keep cheaper forms of medicine off the American market for longer periods of time.
Justices heard arguments from the Justice Department against what they call “pay-for-delay” deals or “reverse settlements.”
Such deals arise when generic companies file a challenge at the Food and Drug Administration to the patents that give brand-name drugs a 20-year monopoly. The generic drugmakers aim to prove the patent is flawed or otherwise invalid so they can launch a generic version well before the patent ends.
Brand-name drugmakers then usually sue the generic companies, which sets up what could be years of expensive litigation. When the two sides aren’t certain who will win, they often reach a compromise deal that allows the generic company to sell its cheaper drug in a few years — but years before the drug’s patent would expire. Often, that settlement comes with a sizable payment from the brand-name company to the generic drugmaker.
Numerous brand-name and generic drugmakers and their respective trade groups say the settlements protect their interests but also benefit consumers by bringing inexpensive copycat medicines to market years earlier than they would arrive in any case generic drugmakers took to trial and lost. But federal officials counter that such deals add billions to the drug bills of American patients and taxpayers, compared with what would happen if the generic companies won the lawsuits and could begin marketing right away.
“What the brand name is attempting to purchase is protection from the possibility that it will have its patent invalidated, and it will suffer a large competitive advantage,” Justice Department lawyer Malcolm L. Stewart told the justices.
But it could also just be good business, Justice Antonin Scalia said. Drug companies are saying that “instead of giving them a license to compete, you know, we’ll short-circuit the whole thing,” Scalia said. “Here’s the money. Go away.”
“But the point here is that the money is being given as a substitute for earning profits in a competitive marketplace,” Stewart said.
What if a brand-name drug company is making $100 million, and a generic drug company says its product will reduce that to $10 million, so both companies agree that the brand name company would give the generic company $25 million to stay off the market, Justice Elena Kagan said.
“It’s clear what’s going on here is that they’re splitting monopoly profits, and the person who’s going to be injured are all the consumers out there,” Kagan said.
Justice Sonia Sotomayor said the government seems to be arguing that the generic vs. brand name drug fight should be settled by the generic paying a royalty or negotiating an early release date for the generic drug instead of by the two companies agreeing to share profits. “What’s so bad about that?” she said.
Pharmaceutical company Actavis’ lawyer Jeffrey L. Weinberger said most cases aren’t settled like that, and in case of a strong brand-name drug patent, generic drugmakers wouldn’t have an incentive to settle with brand name companies.
They would say, “‘Why would I drop this lawsuit to get an entry date in 2025 or 2028? That doesn’t meet my business needs — I have shareholders, I have investors, I have to run a business, and I’m going to keep on litigating unless you give me something of value,’” Weinburger said. “So that’s what these agreements are about.”
The court shouldn’t let the government interfere with the ways companies have decided to resolve these disputes, Weinberger said.