Consumers will have billions of dollars on the line today when the Supreme Court hears the government's case charging antitrust collusion between brand-name and generic drugmakers.
What's in dispute, though, is whether the questionable deals cheat consumers -- or whether they come out ahead.
The Federal Trade Commission has been on a decade-long crusade to stop settlements in which brand-name drugmakers pay generics to stay out of the $250 billion U.S. drug market for a specified number of years. Those deals have been increasing annually, from just three in 2005 to 40 last year, according to government data.
Drugmakers say that without such settlements, millions of dollars would be wasted in litigation, and when generics lose patent challenges, the lower-cost drugs would remain off the market even longer, until the patent expires.
Federal appeals courts have issued split decisions, forcing the Supreme Court to consider what have become known as "pay-for-delay" settlements.
The case of Federal Trade Commission v. Actavis involves the topical drug AndroGel, which raises testosterone levels in men. To ward off three generic companies that were challenging its patent, Solvay Pharmaceutical agreed to pay them $31 million to $42million annually through 2015, at which point they could enter the market, the FTC says.
"The reverse-payment agreement eliminated potential competition that could have saved consumers hundreds of millions of dollars a year," the Justice Department charges in its Supreme Court brief.
Indeed, if the generics had won the legal challenge and entered the market earlier, consumers would have benefited, but if they lost, the patent would extend until 2020, keeping prices high. Therein lies the rub.
Federal courts generally have declared the settlements legal, particularly because they replace patents which by their very nature are anti-competitive. Drugmakers and others -- notably technology companies -- need patents to recoup the massive investments they make in product development. It takes 10 to 15 years on average to bring a drug to market, at a cost of $1.3 billion.
Although a 1984 law passed by Congress was intended to speed generics to the market, it created the process that has led to the pay-for-delay settlements. Drugmakers contend the ends justify those means -- even in cases involving hundreds of millions of dollars. The largest settlement came in 1997, when Bayer paid $398 million to preserve its patent for Cipro.
"The settlements have brought enormous benefits to consumers by speeding up the entry of generic drugs to the market. These agreements are pro-competitive and should be sustained," says Ralph Neas, president of the Generic Pharmaceutical Association.
That's only because generics lose about half the cases seeking to topple or get around brand-name patents, Neas and others say. The FTC disputes that, claiming generics win about three in four cases.
Paul Bisaro, CEO of generic drug manufacturer Actavis, says consumers have saved billions of dollars from settlements such as the one that ended the patent for the popular cholesterol-fighting drug Lipitor. He accuses the FTC of practicing "bumper-sticker politics" to make its case.
The drug industry has received support from groups ranging from the National Association of Manufacturers to the American Intellectual Property Law Association. The government is backed by 36 states, doctors, insurers, retail and wholesale drugstores, and consumer groups, including the AARP.
"The problem of pay-for-delay is getting worse, not better," FTC Chairman Jon Leibowitz said last year. "More and more brand and generic drug companies are engaging in these sweetheart deals, and consumers continue to pay the price."
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