For several years, the Federal Trade Commission has challenged under the antitrust laws so-called “reverse-payment” or “pay-to-delay” settlements. In such a settlement, a brand-name drug company pays a generic-drug company not to sell a generic equivalent of a drug, thus allowing the brand-name to maintain an exclusive market at a high price for years longer than it otherwise would. These settlements have a significant effect on consumers because the sale of a generic version of a drug, which begins after the brand-name drug goes off patent, makes drugs more affordable to patients and saves money for taxpayer-funded health programs such as Medicare and Medicaid. In 2010, generics captured more than 80 percent of the market within six months of expiration of the brand-name’s patent.
Yesterday, the FTC issued a report on the number of these settlements in fiscal year 2012 (Oct. 1, 2011 – Sept. 30, 2012). The FTC found the number increased compared with the prior year, from 28 to 40. The study also found that in nearly half of the settlements, brand-name companies may have “used the promise that they would not develop or market an authorized generic as a payment to stall generic drug firms from marketing a competing product.” According to the FTC, “patent settlements that include a payment delay generic entry by 17 months longer, on average, than those that do not include some form of payment.” By delaying the entry of generic drugs onto the market, “pay-for-delay deals cost Americans $3.5 billion annually."
This spring, in a case called Federal Trade Commission v. Watson Pharmaceuticals (filings in the case available here), the U.S. Supreme Court will consider whether these settlements violate the antitrust laws. The Court will hear argument in March and decide the matter by the end of June.