Appeals court ruled that designer drugmakers cannot pay to keep generic copies off the market.
WASHINGTON - It would seem a business executive's dream: legally pay a competitor to keep its product off the market for years.
Congress has failed to stop it, but for more than a decade generic drugmakers and big-name pharmaceutical companies have been winning court rulings that allowed it. Until this month.
Now, a federal appeals court in Philadelphia has rejected the arrangements by ruling that a payment aimed at keeping a low-priced generic copy of the drug off the market for a certain period of time is anti-competitive on its face.
The Philadelphia ruling conflicted with decisions from at least three other federal circuit courts of appeal, setting up the issue for possible review by the Supreme Court within the next few years, if it accepts the case. A decision either way could profoundly affect drug prices and health care costs.
Stakes high for drugmakers
"The 3rd Circuit has rebalanced the issue and teed it up for the Supreme Court," said Eleanor Fox, an antitrust expert and professor at the New York University law school. The agreements between generic and branded drug manufacturers "are cases of competitor collaboration, which the Supreme Court has called 'the supreme evil of antitrust.'"
The stakes are enormous for brand-name drugmakers, which would face lower profits, and for pharmacies, insurance companies and patients, who could benefit from the savings. In the case of Cipro, a powerful antibiotic with annual sales exceeding $1 billion, Bayer paid $400 million to a generic drugmaker, Barr Laboratories, and other companies. In exchange, the generic makers said they would withhold their own lower-priced generic versions of the drug until 2003, when Bayer's patent on the brand-name drug expired.
Last year, the Congressional Budget Office estimated that a Senate bill to outlaw such payments would save the federal government $4.8 billion over 10 years and would lower drug costs in the United States by $11 billion. The legislation remains stalled in the Senate. The federal government is a major buyer of drugs through Medicare and the Veterans Administration.
'One step' closer
Jon Leibowitz, chairman of the Federal Trade Commission, which has greatly increased its scrutiny of what it calls "pay-for-delay settlements" between generic and branded drug companies, said that the appeals court decision "puts us one step -- and a very important one -- closer to solving this very real problem."
The agreements generally work like this: A generic-drug maker comes up with a chemical equivalent to a large-selling, patented drug and applies to the FDA to sell it, arguing that the patent is invalid.
Rather than spend years and millions of dollars defending its patent, the branded company often offers a deal: It pays the generic company to keep its drug off the market for a time, perhaps also offering to let it market an "authorized" generic version later. The Federal Trade Commission said it believed the decision was especially significant because the 3rd Circuit covers Pennsylvania, Delaware and New Jersey, where many pharmaceutical companies have their headquarters.