Viewpoint: Supreme Court Decision May Cost Patients at the Pharmacy

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Lower-cost generic drugs can save patients millions in medication costs, but only if they make it to pharmacy shelves.

A Supreme Court ruling that gives the Federal Trade Commission (FTC) greater license to scrutinize deals made between pharmaceutical companies and the generic manufacturers that challenge them could push generic makers to think twice before launching efforts to market their medications.

Since a 1984 law allowed makers of lower-cost generic versions of brand-name medications to challenge drug patents before they expired, these companies have frequently turned to the courts to earn the coveted first rights, which include a 180-day monopoly over the market, to make off-patent medications.

Arguing that the patent was too broad or covered well-accepted techniques or technology, the generic makers would then be sued by the pharmaceutical company. At some point, the parties would settle, often with a reverse payment or pay-to-delay condition: the brand company would pay the generic maker to delay bringing the generic product to market, in some cases buying itself less time than the 20 years of the original patent but a few more years than if the generic had prevailed in court and entered the market. According to an FTC report, generic makers prevailed 75% of the time in questioning the validity of drug patents when cases were litigated to their conclusion.

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That process can be costly, however, and fraught with uncertainty, despite the success rate. So for both parties, settlements became more appealing. The result? Of the 37 generic drugs that hit pharmacies in 2010-2011, 24 resulted from pay to delay settlements. (In 2007, only 14 such deals were made, according to the FTC.) Generic versions of the breast cancer drug tamoxifen and the antibiotic Cipro were both affected by such settlements.

The FTC, however, has long been after both brand and generic companies over the practice, which raise antitrust concerns since the settlements essentially crowd other generic makers out of the market for a period of time. The agency sued Actavis, which produces a generic form of the patented testosterone gel AndroGel made by Solvay Pharmaceuticals, for restraint of trade over the settlement between the two companies.

Yet the Supreme Court did not rule that such settlements violated antitrust laws, as the FTC had hoped. Instead, it left lower courts to decide, based on the amount of the payment and the timing of the suit with respect to the patent’s expiration date, whether pharmaceutical companies and generics were colluding to corner the market for a particular medication.

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That could set a higher threshold for generic manufacturers to raise a challenge, and potentially delay getting cheaper medications to market. “It isn’t business as usual for brand name and generic companies,” Lesli Esposito, an antitrust attorney at DLA Piper said in an email response to TIME. “The Supreme Court’s decision did not close the door on reverse payment settlement agreements, but they did change the legal framework under which such agreements will be scrutinized. Brand name and generic companies will need to be prepared to justify their settlement agreements.”

Such scrutiny could make generic companies more skittish about pursuing opportunities to launch before patents expire. “What generics and brands had for the last 10 years was some degree of certitude,” says Ralph Neas, president and CEO of the Generic Pharmaceutical Association. “We knew what we got going into [the decision]. “Now it’s a question mark.”

If generics hold back on making patent challenges, that could delay the appearance of their less expensive products on pharmacy shelves, and patients might continue paying brand name prices for longer periods of time. It all depends on how the lower courts interpret the Supreme Court’s ruling. “I don’t think we’ll know the effect on cost until we get further guidance from the low courts on how they view these agreements,” says Esposito.

Teva Pharmaceuticals, the U.S.’s largest maker of generic medications, told TIME that it was too early to determine what impact the decision would have on their business. But with the FTC now able to look more carefully at potential antitrust violations in these patent settlements, the uncertainty could lead to changes in the way brand and generic manufacturers view the market.

In a statement responding to the ruling, Mit Spears, executive vice president and general counsel of the Pharmaceutical Research and Manufacturers of America (PhRMA) said “We are disappointed that the majority failed to provide clear and unambiguous guidance as to how patent settlements could be structured to avoid antitrust exposure short of litigating a patent dispute to the end.” Which means that drug makers’ attorneys – both for the pharmaceutical companies and generic makers – will have plenty to keep them occupied in coming years.