Supreme Court weighs deals to delay generic drugs

WASHINGTON — A government attorney urged the Supreme Court to allow authorities to crack down on cash deals among prescription drug makers that delay the introduction of generic drugs and keep consumer prices high.

The so-called pay-for-delay deals, which allow brand-name drug companies to keep cheaper generic drugs off the market for a time, violate antitrust laws, the Federal Trade Commission argued Monday.

“It’s unlawful to buy off the competition,” said Malcolm Stewart, the deputy solicitor general who represented the FTC and the Justice Department. “It’s an agreement not to compete,” he said, which is “presumptively illegal.”

The FTC said that more than two dozen such deals cost consumers $3.5 billion last year. Companies such as CVS Caremark Corp., Rite Aid Corp., Walgreen Co., Albertson’s and Safeway Inc. joined the FTC in urging the court to rein in the deals.

But the FTC’s attorney ran into skeptical questions from several justices who said the government’s argument ignored the patent rights of the brand-name drug makers. A patent gives a drug maker 20 years to sell a drug exclusively and to earn monopoly profits. So long as the patent it still valid, the brand maker is entitled to keep out competitors, they said.

Justice Antonin Scalia said he did not understand how the brand-name makers would be seen as violating the law if they were “acting within the scope of the patent.”

The issue has become complicated because another federal law, known as the Hatch-Waxman Act, encourages generic makers to enter the market as soon as possible and, in some instances, to challenge the validity of patents. These suits sometimes lead to the settlements that the FTC sees as suspect.

The case before the court illustrates the issue. A company called Solvay Pharmaceuticals Inc. applied for a patent in 2000 for AndroGel, a topical gel which dispenses synthetic testosterone. The key ingredient — synthetic testosterone — was not covered by a patent, but the patent for the gel extended to 2020.

Watson Pharmaceuticals Inc., a generic drug maker, announced plans to market a generic version of the gel. Solvay feared that its profit would fall $125 million a year if a generic version of the gel were on the market, and it sued Watson for patent infringement.

That suit ended after nearly three years with a deal that kept a generic gel off the market until 2015 and paid Watson $19 million to $30 million a year, ostensibly for marketing assistance.

The FTC then sued Watson and Solvay on antitrust grounds, alleging that this was a deal to share monopoly profits and prevent generic competition. But a federal judge and the U.S. 11th Circuit Court of Appeals in Atlanta rejected the complaint, saying the brand-name firm had acted within its rights under the patent laws.

Jeffrey I. Weinberger, a Los Angeles attorney for Solvay and Watson successor firm Actavis Inc., urged the justices to reject the FTC’s antitrust argument and uphold the validity of the settlement. A “good-faith settlement” of a lawsuit is not illegal, he said, so long as the patent itself was valid.

“What if it isn’t in good faith?” asked Justice Elena Kagan. What if it’s clear “they are splitting the monopoly profits and the person who is injured is the consumer out there?”

Weinberger countered that these settlements are rare and usually arise after an extended period of litigation. They are not automatic or routine, he said.

The justices spent the hour debating how to apply antitrust principles to patent law, and they did not give a strong hint about how they might rule on the issue. A decision is expected by late June.

A similar case is pending before the California Supreme Court. The state attorney general’s office intervened in a lawsuit against Bayer over a deal to delay a generic version of its Cipro antibiotic.

“During its monopoly period, a single Cipro pill costs consumers upward of $5.30, while with generic competition, the same pill should have cost only $1.10,” the state said.

That appeal is pending.

david.savage@latimes.com