(CN) – The 3rd Circuit blazed a possible path to the Supreme Court with its ruling that pharmaceutical companies’ payments to keep generic drugs off the market should be treated as “evidence of an unreasonable restraint of trade.”
The ruling is at odds with decisions from the 2nd Circuit, the 11th Circuit and the D.C. Circuit, which have upheld the so-called “pay-to-delay” settlements between brand-name and generic drug makers.
The agreements stem from the 1984 Hatch-Waxman Act, meant to lower drug costs by streamlining the process of obtaining Food and Drug Administration approval for generic drugs.
In their abbreviated applications, generic drug makers must certify that their proposed drugs do not violate any patents listed with the FDA. One way to do so is by challenging the validity of the brand-name drug maker’s patent. The patent holder then has 45 days to file an infringement lawsuit that would bar the FDA from approving the generic drug for 30 months or until the court rules on the patent’s validity, whichever is earlier.
However, many brand-name drug makers prefer instead to simply pay the generic drug competitors to drop their patent challenge and delay producing the generic version for a certain amount of time, often until the patent on the brand-name drug expires.
The courts have generally upheld these “reverse pay agreements” or “exclusive agreements” until this month, when the three-judge panel in Philadelphia held that a reverse payment is, on its face, “evidence of an unreasonable restraint on trade.”
Judge Dolores Sloviter said the goal of Hatch-Waxman “is undermined” when the patent holder pays its potential generic competitor not to compete, because that typically raises rather than lowers consumer drug costs.
“[T]his approach nominally protects intellectual property, not on the strength of a patent holder’s legal rights, but on the strength of its wallet,” Sloviter wrote.
Last November, the Congressional Budget Office estimated that a Senate bill to eliminate “pay-to-delay” arrangements would save the U.S. government $4.8 billion over 10 years and would lower drug costs by $11 billion. The bill is stalled in the Senate.
The case underlying the 3rd Circuit’s ruling was a class action against Schering-Plough, maker of the brand-name potassium chloride supplement K-Dur 20. Wholesalers and retailers claimed they paid too much for the drug because Schering-Plough had paid two potential competitors a combined $70 million to keep their generic versions off the market.
Other circuit courts have found similar payments permissible, so long as they do not exceed the exclusionary scope of the patent. Such conflicting rulings make the case a prime candidate for Supreme Court review.