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Pay-for-Delay Is Heading Toward Supreme Court Again

By Mari Serebrov
Washington Editor

WASHINGTON – In a decision that's likely to head to the Supreme Court, a federal appellate court struck down pay-for-delay settlements between makers of brand and generic drugs, claiming they violate antitrust laws.

In the opinion handed down Monday, the Court of Appeals for the Third Circuit said such settlements are "prima facie evidence of an unreasonable restraint of trade." The only way such agreements wouldn't violate antitrust law is if they are for a purpose other than delayed entry of a generic or they offer a pro-competitive benefit, the court added.

Last year, the Supreme Court refused to consider a pay-for-delay case brought by Louisiana Wholesale Drug Co. Inc. against Bayer AG and Barr Laboratories Inc. But the Third Circuit's opinion puts it at odds with three other federal appeals courts, setting the stage for the Supreme Court to finally take up the issue. (See BioWorld Today, March 9, 2011.)

The Third Circuit acknowledged its difference of opinion with the other circuits, which have upheld the settlements, also called reverse payments, so long as they don't expand the scope of patent protection.

In fact, the 11th Circuit upheld the two settlements at issue in the Third Circuit. Both settlements involved Schering-Plough Corp.'s K-Dur, a sustained-release formulation of potassium chloride that had patent protection through Sept. 5, 2006.

Schering, now part of Merck & Co. Inc., reached a $60 million settlement with Upsher-Smith Laboratories in 1997 in which Upsher agreed to delay its K-Dur generic. The agreement granted Upsher a nonexclusive license to market a generic beginning in September 2001, and Schering licensed a number of Upsher drugs, including Niacor-SR, a sustained-released niacin product used to treat high cholesterol.

Schering reached the other settlement, which added up to $15 million, with ESI Lederle, now part of Pfizer Inc., as the result of court-supervised mediation. The agreement granted ESI a royalty-free license to begin marketing its generic in 2004.

Four years after the settlements, the FTC filed a complaint against all three companies, alleging antitrust violations. When the FTC's administrative law judge (ALJ) dismissed the complaint, the FTC reversed the ALJ's ruling. Schering appealed to the 11th Circuit.

Meanwhile, several pharmacy companies filed antitrust suits against the drugmakers. Those cases were consolidated and then dismissed by a federal district court in New Jersey. The pharmacies, led by Louisiana Wholesale Drug, appealed to the Third Circuit, with the FTC submitting an amicus brief.

In reinstating the suit, the Third Circuit rejected the "scope of the patent test" the other appellate courts have used, telling the district court it must instead use a "rule of reason analysis based on the economic realities of the reverse payment settlement."

The Third Circuit also argued that the presumption, held by the other circuits, of the validity of the patents involved in such lawsuits is not the issue. Instead, it agreed with the FTC's presumption that pay-for-delay settlements are, on their face, anticompetitive.

The FTC, which has had a string of court losses on the issue, welcomed the Third Circuit's opinion. "These sweetheart deals . . . cost American consumers $3.5 billion a year in higher health care costs," FTC Chairman Jon Leibowitz said. "Restricting these arrangements, as many in Congress have proposed, would reduce federal government debt by $5 billion over 10 years, according [to] the Congressional Budget Office." (See BioWorld Today, April 27, 2012.)

The latest congressional attempt targeting pay-for-delay settlements was adding the FAIR Generics Act as an amendment to the FDA Safety and Innovation Act, which reauthorized PDUFA for another five years. While the amendment was considered in the Senate, it wasn't included in the final bill. (See BioWorld Today, Nov. 18, 2011, May 21 , 2012, and May 24, 2012.)

The Generic Pharmaceutical Association (GPhA) was disappointed by Monday's ruling, as the settlements are "a valuable tool for bringing affordable medicines to market sooner than otherwise would be possible," GPhA President and CEO Ralph Neas said.

According to the industry organization, 17 of the 22 first-time generics launched last year stemmed from patent settlements. By bringing generics to market before patent expiration, the settlements save consumers billions of dollars, GPhA maintained.

The Washington Legal Foundation, which filed a brief in support of the drugmakers, said it will support efforts to get the Supreme Court to review the Third Circuit's decision, which it claims will discourage court-encouraged settlements by undermining their finality.

FDA in the Hot Seat

Things are heating up for the FDA over its "spying" on several scientists who complained to congressmen and White House staff about the approval of what they claimed was an unsafe device. "FDA's misconduct cannot be ignored," Sen. Chuck Grassley (R-Iowa) told FDA Commissioner Margaret Hamburg in a letter Monday, as he informed her the incident is being kicked up to the Department of Justice for further investigation.

In addition to the spying, the agency has continued to stonewall congressional inquiries into the monitoring of the scientists' email correspondence, Grassley claimed, noting that he has yet to receive a complete response to his Jan. 31 query as to who authorized the monitoring.

"I have reminded FDA in the past that interfering with a congressional inquiry is against the law, that denying or interfering with employees' rights to furnish information to Congress is also against the law, and that federal officials who deny or interfere with employees' rights to furnish information to Congress are not entitled to have their salaries paid by taxpayers' dollars," Grassley said.

He told Hamburg that he is aware of an internal memo from the FDA's general counsel's office, explicitly authorizing the monitoring. What the senator wants to know is who asked the general counsel for the memo.

Grassley also cited a "scoping document" in which the FDA specifically targeted communications with congressional offices that were to be intercepted. The document expressed concern about emails from the FDA scientists "indicating a collaborative plan to produce a document defamatory to HHS/FDA that will be passed to Joan Kleinman, leaked to the press on Chris Van Hollen's letterhead and returned to Van Hollen's office," according to Grassley's letter. Kleinman is district director for Rep. Van Hollen (D-Md.).

The FDA has claimed it monitored the correspondence out of concern that confidential trade information was being leaked.

While the FDA has withheld the scoping document from Grassley, he said it was inadvertently posted online by an agency contractor, along with thousands of pages of confidential communications between FDA whistleblowers, their attorneys and Congress. Included in that cache were screen shots of email correspondence between the scientists and Grassley's Senate Finance Committee staff and Rep. John Dingell's (D-Mich.) Energy and Commerce Committee staff. The correspondence was sent from the scientists' personal email accounts.