WASHINGTON (Reuters) - The U.S. Supreme Court will hear arguments on Monday over whether big drug companies can settle patent litigation with generic rivals by making deals to keep cheaper products off the market.
U.S. and state regulators say the practice costs consumers, insurers and government billions of dollars annually.
The Federal Trade Commission, which has dubbed the arrangements “pay for delay,” has fought them in court for more than a decade with mixed success, culminating in the case now before the Supreme Court.
“The continuing stream of monopoly profits is large enough to pay the generic competitors more than they could hope to earn if they entered the market at competitive prices,” the FTC said in a brief.
At the same time, the brand-name manufacturer receives greater profits than it could earn in the face of generic competition, the regulatory agency argued.
The Justice Department, the European Union and more than two dozen U.S. state attorneys general view the deals as illegal, but drug companies defend them as a way to avoid potentially lengthy patent litigation.
“In every case that we’ve been involved in that resulted in a settlement, it has resulted in years being taken off the patent life,” said Paul Bisaro, chief executive of generic drug maker Actavis, Inc. Actavis was formerly Watson Pharmaceuticals.
“It’s very unsophisticated to say ‘Oh, they get paid a bunch of money to stay off the market,’” said Bisaro.
In the case before the court, Solvay Pharmaceuticals Inc, now owned by AbbVie, sued generic drug makers Watson, Paddock Laboratories Inc and Par Pharmaceutical Cos in 2003 to stop them from making cheaper versions of AndroGel, which is used to treat men with low testosterone.
The firms settled in 2006, reaching a deal that generic AndroGel would not be marketed until 2015. The patent expires in 2020.
In exchange, the FTC alleges, the generic manufacturers were each paid as much as $30 million annually. AbbVie’s 2012 sales of AndroGel totaled $1.2 billion.
Solvay internal documents dating from April 2006 which were released at the Supreme Court on Friday, show that months before the companies struck their deal, Solvay concluded that it would make about $1.4 billion from AndroGel if it won the court fight and $359 million if it did not.
The documents also show what appear to be a list of ideas of what to offer the generic firms to make it attractive to them to settle and delay entry. One was to allow Watson to promote the drug to urologists, while Solvay would not.
The FTC declined comment on the documents.
AbbVie spokeswoman Adelle Infante described the papers as “a single document among hundreds of thousands of pages of documents that were provided to the FTC.”
“This internal analysis is insignificant because the negotiated patent settlement led to generic entry years in advance of the expiration of the patent, she said.
The company also said that it expected to prevail.
“The federal district and appellate courts have both previously ruled that the plaintiff’s allegations lacked merit. We are confident that these decisions will be upheld,” Adelle Infante, an AbbVie spokeswoman, said in a statement.
The Supreme Court is expected to issue a decision by the end of June.
AbbVie’s arrangement with the generic manufacturers is similar to the 40 deals made in the 2012 fiscal year, which ended on September 30. That was up from 28 the previous year, despite FTC efforts to stop them. The FTC said the agreements involved 31 different brand-name drugs with total U.S. sales of more than $8.3 billion annually.
The FTC sued to stop the AndroGel arrangement, arguing that it was illegal under antitrust law because the companies divided up the market.
The FTC lost at the district court level and lost an appeal as well. But another appellate court has said the deals were illegal, prompting the Supreme Court to step in.
The FTC also sued Cephalon Inc, accusing it in 2008 of blocking a generic version of the anti-sleep drug Provigil. The case has been stayed, pending the Supreme Court’s decision.
In 2001 the FTC sued Schering-Plough Corp., which was later bought by Merck and Co Inc, because of payments to rivals to delay generic versions of its potassium supplement, K-Dur 20. The FTC lost that case.
But in a private case that also involved K-Dur, the U.S. Court of Appeals for the Third Circuit, in New Jersey, backed the FTC position and found the deals to be illegal.
Opponents of pay-for-delay deals in the United States and Europe are not waiting for a high-court decision, though.
Senator Amy Klobuchar, a Democrat from Minnesota and chairwoman of the Senate Judiciary Committee’s antitrust panel, and Senator Chuck Grassley, a Republican from Iowa, introduced legislation in February to make the deals illegal.
Previous bills have failed, in part because of opposition from the drug industry, both branded and generic.
In Brussels, EU regulators have eight investigations under way involving more than a dozen drugmakers. The European competition regulator says the deals violate antitrust law.
The decision will be made by an eight-member U.S. Supreme Court. Justice Samuel Alito recused himself, without giving a reason.
The case is Federal Trade Commission v. Watson Pharmaceuticals Inc et al, U.S. Supreme Court, No. 12-416.
Reporting By Diane Bartz; editing by Ros Krasny, Kenneth Barry and David Brunnstrom