Supreme Court Rules Pay-to-Delay Agreements Can Be Challenged

The court’s decision makes it more likely that generic versions of medications will be made available before their patents expire and will likely lead to reduced drug costs for consumers.

The Supreme Court has ruled 5-3 that agreements in which a brand-name drug manufacturer pays another manufacturer to keep a generic version off the market can be challenged in court. The decision in Federal Trade Commission v. Actavis Inc is generally a victory for the FTC and the Obama Administration and is likely to lead to reduced drug costs for consumers.

The court’s majority opinion, written by Justice Stephen Breyer, reverses an appeals court ruling that would have protected the pharmaceutical companies against lawsuits regarding pay-to-delay agreements from lawsuits. The agreements are also called reverse payments because the branded manufacturer pays the generic manufacturer it has accused of patent infringement rather than the other way around.

“A reverse payment, where large and unjustified, can bring with it the risk of significant anticompetitive effects,” Justice Breyer wrote in the opinion.

However, the decision does not agree with the FTC’s argument that the agreements should be presumed to be anticompetitive; instead, it states that the agreements should be evaluated on a case-by-case basis. (The appeals court decision would have allowed the agreements to be challenged only when the initial patent litigation between branded and generic manufacturers was a sham or when a manufacturer agreed to delay marketing of a generic version even after the drug’s patent had expired.)

The case before the court dealt with AndroGel (testosterone gel), produced by Solvay Pharmaceuticals, whose patent will expire in 2020. Actavis (formerly Watson Pharmaceuticals) filed for FDA approval to market a generic version of AndroGel in 2003, and Solvay sued for patent infringement. In 2006, the FDA approved the generic version, but the companies’ lawsuit remained unsettled. Later that year, Actavis agreed to help with marketing of AndroGel and keep its generic version off the market until 2015 in exchange for a payment of tens of millions of dollars per year. (By 2015, Solvay reportedly planned to introduce a new medication with no generic equivalent to market to patients who had been using AndroGel.)

The FTC argued that the agreement effectively extended Solvay’s monopoly on AndroGel, which otherwise would have ended in 2006, forcing consumers to pay more for the medication. The companies countered that the agreement helped consumers by paving the way for a generic version to be made available 5 years before the patent was set to expire.

According to the FTC, generic drugs sell on average for 15% the price of branded drugs, and a branded drug loses approximately 90% of its market share in terms of unit sales when a generic competitor is introduced. In the case of AndroGel, the agency argued that Solvay faced the potential loss of $125 million per year in profits were a generic competitor to have been made available in 2007, prompting it to pay generic manufacturers to delay introduction of their products.

In the majority decision, Justice Anthony Kennedy joined the court’s liberal wing—Justices Stephen Breyer, Ruth Bader Ginsburg, Sonia Sotomayor, and Elena Kagan. Three members of the conservative wing—Chief Justice John Roberts and Justices Antonin Scalia and Clarence Thomas—dissented. Conservative Justice Samuel Alito recused himself from the case.