Court could punt "Pay for Delay" back to Congress

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Eight members of the Supreme Court—less Justice Samuel Alito, who recused himself for reasons unknown—heard testimony in the case of FTC v. Actavis this morning, and the fate of so-called “Pay for Delay” settlements hangs in the balance. Witnesses said there were no slam-dunks on either side of the case, a decision on which isn't expected before July. The stakes for both generic companies and pharmas, odd bedfellows on the issue, couldn't be higher.

“Without the ability to settle litigation,” said Actavis CEO Paul Bisaro in a conference call following the hearings, “generics companies would need to seriously reconsider patent challenges, and this outcome would have a detrimental impact on consumers and impede patient access to generic drugs and the billions in annual savings that result.”

Ralph Neas, CEO of the Generic Pharmaceutical Association, said the case places the business model of the generics industry in jeopardy.

“We have been enormously successful because of Hatch-Waxman,” said Neas, referring to the 1984 Drug Price Competition and Patent Term Restoration Act, better known by the names of its authors Orrin Hatch and Henry Waxman. “It's a quintessential American success story,” said Neas. “We now have 80% of prescription drugs nationwide at only 27% of the cost. For the last decade, we have saved the health system $1.1 trillion dollars, according to IMS Health—$193 billion in 2012 alone. Of the 37 settlements in the last two years, 24 have been patent settlements and 70% of those have been patent settlements with some kind of monetary consideration.”

The FTC, which won a similar case before a Federal appeals court last summer, alleges that those monetary settlements—in exchange for delaying the entry of a generic alternative to a prescription drug—amount to the preservation of a monopoly, a win-win scenario for both branded and generic drug makers but an expensive loss for consumers. The generics industry counters that the risks of litigating generic challenges without settlements are greater than the FTC supposes, and that they're playing by the rules Congress established nearly 30 years ago.

One possibility is that the court will punt on the question and decide that it's really best decided by Congress. Justice Kennedy opened his remarks by suggesting just that, said the Coalition for Healthcare Communication's John Kamp, who attended the hearings.

“The Supreme Court is not the final judge of whether these cases should be settled,” said Kamp, noting that there are several pieces of legislation in the works that would address the issue. “Even if pharma wins, they're likely to have to fight the fight in Congress.”

There, the industry would be advantaged by the focus of Congressional energies elsewhere, particularly on deficit reduction, the sequester, the debt ceiling and the debate over the appropriate size and shape of government. But "Pay for Delay" deals would also present a tempting target the next time Congress comes looking for cost-savings.

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