Pay-for-delay deals can go on, Court rules, but not without legal risk

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Pay-for-delay deals can go on, Court rules, but not without legal risk
Pay-for-delay deals can go on, Court rules, but not without legal risk
The Supreme Court split the baby on “pay-for-delay” settlements, allowing them to continue but opening manufacturers that make them up to lawsuits.

The Court ruled 5-3 to toss a Federal appeals court decision shielding such deals from legal reproach, but didn't go as far as the Federal Trade Commission wanted. In its case against Actavis over and Paddock over deals they cut to hold up generic versions of Solvay's AndroGel, the FTC had argued that such deals were inherently anticompetitive and could be deemed as such on the basis of a “quick look” review. The majority said their legality should be adjudicated using the “rule of reason,” a principle of antitrust law which holds that unreasonable restraint of trade – and not monopoly power in and of itself – is what's out of bounds.

Actavis said in a statement: “We believe this decision continues to provide for a lawful and legitimate pathway for resolving patent challenge litigation in a manner that is pro-competitive and beneficial to American consumers,” but bemoaned “an additional and unnecessary administrative burden on our industry” from the decision.

In practice, the ruling means manufacturers are likely to proceed more cautiously on deals delaying generic entry, said Bernstein analyst Tim Anderson.

This will raise the bar on how settlement deals need to be constructued such that they don't run afoul of the ‘rule of reason,'” said Anderson in an analyst note that deemed the decision a “partial win” for branded drug makers.

“While the bar has likely been raised for these deals passing scrutiny, it is still a bar that can probably be crossed in certain instances,” said Anderson, pointing to Novartis' Gleevec and Lilly's Alimta as likely candidates for such deals in the near term. Lilly's $3 billion Alimta's “composition of matter” patent expires in 2016, but the drug's “use patent” goes through 2022, Anderson noted, while Gleevec's composition of matter patent expires in 2015 but an additional patent covering “polymorphs” of imatinib goes to 2018. A Gleevec deal would raise Novartis' EPS by 10% for each year generic entry was put off, Anderson estimated, and would facilitate switches from Gleevec to follow-on Tasigna, which now accounts for around a fifth of franchise sales.

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