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Court: Can drug companies pay to delay generics?

Monday - 3/25/2013, 3:14am  ET

FILE - In a Jan. 7, 2008, file photo then-Attorney Donald Verrilli talks to media outside the Supreme Court. Now President Barack Obama's top Supreme Court lawyer, Solicitor General Verilli will argue before the Supreme Court this week whether it is legal for patent-holding pharmaceutical companies to pay rivals, who make generic drugs, to temporarily keep those cheaper versions of their brand-name drugs off the market. The Obama administration is taking the position that the agreements are illegal if they’re based solely on keeping the generic drug out of consumer's hands. (AP Photo/Evan Vucci, File)

JESSE J. HOLLAND
Associated Press

WASHINGTON (AP) -- Federal regulators are pressing the Supreme Court to stop big pharmaceutical corporations from paying generic drug competitors to delay releasing their cheaper versions of brand-name drugs. They argue these deals deny American consumers, usually for years, steep price declines that can top 90 percent.

The Obama administration, backed by consumer groups and the American Medical Association, says these so-called "pay for delay" deals profit the drug companies but harm consumers by adding 3.5 billion annually to their drug bills.

But the pharmaceutical companies counter that they need to preserve longer the billions of dollars in revenue from their patented products in order to recover the billions they spend developing new drugs. And both the large companies and the generic makers say the marketing of generics often is hastened by these deals.

The justices will hear the argument Monday.

Such pay-for-delay 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 copycat drug in a few years -- but years before the drug's patent would expire. Often, that settlement comes with a sizeable 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 to what would happen if the generic companies won the lawsuits and could begin marketing right away.

A study by RBC Capital Markets Corp. of 371 cases during 2000-2009 found brand-name companies won 89 at trial compared to 82 won by generic drugmakers. Another 175 ended in settlement deals, and 25 were dropped.

Generic drugs account for about 80 percent of all American prescriptions for medicines and vaccines, but a far smaller percentage of the $325 billion spent by U.S. consumers on drugs each year. Generics saved American patients, taxpayers and the healthcare system an estimated $193 billion in 2011 alone, according to health data firm IMS Health.

But government officials believe the number of potentially anticompetitive patent settlements is increasing. Pay-for-delay deals increased from 28 to 40 in just the last two fiscal years and the deals in fiscal 2012 covered 31 brand-name pharmaceuticals, Federal Trade Commission officials said. Those had combined annual U.S. sales of more than $8.3 billion.

The Obama administration argues the agreements are illegal if they're based solely on keeping the generic drug off the market. Solicitor General Donald Verrilli, speaking at Georgetown Law School recently, noted that once a generic drug gets on the market and competes with a brand-name drug, "the price drops 85 percent." That quickly decimates sales of the brand-name medicine.

"These agreements should actually be considered presumptively unlawful because of the potential effects on consumers," Verrilli said.

In the case before the court, Brussels, Belgium-based Solvay -- now part of a new company called AbbVie Inc. -- reached a deal with generic drugmaker Watson Pharmaceuticals allowing it to launch a cheaper version of Solvay's male hormone drug AndroGel in August 2015. Solvay agreed to pay Watson an estimated $19 million-$30 million annually, government officials said. The patent runs until August 2020. Watson, now called Actavis Inc., agreed to also help sell the brand-name version, AndroGel.

Actavis spokesman David Belian disputed the government's characterization of the agreement with Solvay. Belian said that in addition to licensing agreement over Solvay's Androgel patents, Watson was being compensated for using its sales force to promote Androgel to doctors.

AndroGel, which brought in $1.2 billion last year for AbbVie, is a gel applied to the skin daily to treat low testosterone in men. Low testosterone can affect sex drive, energy level, mood, muscle mass and bone strength.

The FTC called the deal anticompetitive and sued Actavis.

The 11th U.S. Circuit Court of Appeals in Atlanta rejected the government's objections, and the FTC appealed to the Supreme Court.

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