* Most drug settlements may still be allowed
* Companies' share prices steady on Monday
By Lawrence Hurley and Diane Bartz
WASHINGTON, June 17 The U.S. Supreme Court ruled
on Monday regulators can challenge deals between brand-name drug
companies and generic rivals that delay cheaper medicines from
going on sale, which regulators say increase costs to consumers
by billions of dollars.
But the court, in a 5-3 vote with Justice Samuel Alito
recused, declined the Federal Trade Commission's request to
declare the deals to be presumed to be illegal. The regulatory
agency has fought the practice for more than a decade.
"While we believe the Supreme Court decision will open the
door to broader FTC scrutiny of brand/generic settlements, we
believe a majority of settlements will still be allowed even if
reviewed by the FTC," JP Morgan analyst Chris Schott said in
reaction to the ruling.
The companies in the case were brand-name drug maker Solvay
Pharmaceuticals Inc, now owned by AbbVie ; generic
makers Actavis Inc, previously Watson Pharmaceuticals;
Paddock Laboratories Inc, now part of Perrigo Co, and
Par Pharmaceutical Cos.
Solvay had sued generic drugmakers in 2003 to stop the sale
of cheaper versions of AndroGel, a gel used to treat men with
In a settlement of the lawsuit, Solvay paid as much as $30
million annually to the generic drug makers to help preserve its
annual profits from AndroGel, estimated at $125 million.
Under the deal, the three would keep their generic versions
off the market until 2015. The patent expires in 2020.
Generic drugmakers like the "pay for delay" arrangements
because if they bring out their products before patent
infringement litigation is over, they run the risk of paying
triple damages on sales if they are found to have infringed.
FTC FILED SUIT
The FTC filed a lawsuit against the companies in 2009,
arguing that the companies had simply split up Solvay's monopoly
profits and prevented the generic firms from bringing out a
cheaper version of the drug.
The FTC lost at the district court level, and that loss was
affirmed by 11th Circuit Court of Appeals. The Supreme Court
overturned the appeals court ruling and sent the case back to
the lower courts for further proceedings.
"This definitely legitimizes the role of antitrust law in
these settlements that the FTC has been pursuing for a while,"
said Noah Leibowitz, a patent expert with Simpson Thacher &
"Any settlement is going to be more difficult and companies
will think much more carefully about how they settle these
cases," he said.
The prices of AbbVie, Actavis and Perrigo shares were steady
on Monday. Around midday on Monday, Actavis was at $124.96, down
just under 1.5 percent, while AbbVie was down less than 1
percent at $43.01 and Perrigo was at $119.79, up about 1.2
FTC Chairwoman Edith Ramirez said the court had "taken a big
step toward addressing a problem that has cost Americans $3.5
billion a year in higher drug prices."
"We look forward to moving ahead with the Actavis litigation
and showing that the settlements violate antitrust law," she
said in an email statement.
Actavis also indicated that the court fight was not over.
"We are pleased that the court ... did not rule that
settlement agreements are presumptively unlawful. Rather, the
court has ... left it to the lower courts to determine if the
benefits of the settlement outweigh harm to consumers," said
Paul Bisaro, CEO of Actavis in an emailed statement.
MORE LITIGATION AHEAD?
Jeffery Cross, an antitrust expert Freeborn & Peters LLP,
predicted more litigation.
"The winners here are the trial lawyers," he said. "There
will still be reverse payment settlements. ... However, the
parties will be more savvy to avoid 'unexplained' large reverse
payments that suggest that the patent is not that valid."
In his opinion for the majority, Justice Stephen Breyer
wrote that the deals have the potential to hurt competition.
"Settlement on the terms said by the FTC to be at issue here
- payment in return for staying out of the market - simply keeps
prices at patentee-set levels, potentially reducing the full
patent-related $500 million monopoly return while dividing that
return between the challenged patentee and the patent
challenger," Breyer wrote. "The patentee and the challenger
gain; and the consumer loses."
The court suggested that drug companies may be able to show
that some pay for delay deals are legal under the "rule of
reason," the opinion said.
"This is sort of the end of the first act. We need to see
how the rule of reason is applied," said Seth Bloom, a former
aide to now-retired Senator Herb Kohl who as chair of the
Judiciary Committee's antitrust subcommittee sponsored
legislation to make "pay for delay" deals illegal.
Senators Amy Klobuchar, a Democrat, and Chuck Grassley, a
Republican, introduced similar legislation this year.
Spokesmen for Paddock and Par were not immediately available
The case is Federal Trade Commission v. Watson
Pharmaceuticals Inc et al, U.S. Supreme Court, No. 12-416.