After months of anticipation, the US Supreme Court yesterday heard arguments about pay-to-delay deals in which a brand-name drugmaker agrees to pay a settlement to a generic rival in exchange for ending patent litigation and launching a copycat medicine at a future date. As we have noted previously, at stake is a decision that could influence the cost of medicines for most Americans, because the ruling is expected to determine the pace at which lower-cost generic drugs become available. Drugmakers have struck dozens of these deals over the past decade or more, prompting increasing scrutiny at a time of rising health care costs.The pharmaceutical industry claims the deals save consumers money because lower-cost generics become available sooner than they would otherwise, while the US Federal Trade Commission argues the agreements are anticompetitive and hurt the public pocketbook (back story with briefs). We spoke with Jeff Brennan, a partner at the McDermott Will & Emery law firm, where he advises drugmakers, and a former head of the FTC's Health Care Services and Products Division, where he was responsible for managing antitrust investigations, litigation, and policy initiatives focused on health care competition. Here is his takeaway from the arguments…
Pharmalot: What was the anticipation before today?
Brennan: I wouldn’t have speculated about where the court is going to go and for this reason. The opposition to reverse payment paradigm, or pay-for-delay, as some call it, has been supported by the FTC under the leadership of two political parties (the Bush and Obama administrations). There was bi-partisanship in terms of the FTC position. So it’s easy to say one side this way and other side that way. But that’s not been the case here. As for teasing out what the justices might be looking for and which would they would go, that would have been hard to predict.
Pharmalot: And now? Any thoughts after the arguments?
Brennan: I’m still not making a prediction. From the questions and comments from the different justices, it seems like certain views of the merits about one side or the other was implicit. But I hesitate to read too much into that because the dynamics can be hard to know from the outside.
Pharmalot: Was there anything that struck you as compelling from any of the justices?
Brennan: Justice Breyer’s comments and questions seemed to suggest sympathy for the view that some of these agreements can be anticompetitive under certain circumstances, but less sure about the appropriateness of the FTC framework for how the courts should decide these settlements.
"The FTC argues that these (agreements) are presumptively anticompetitive and the burden should be shifted to the defense to prove that they’re not. I’d thought going into the Supreme Court argument that it was a difficult argument for the government based on case law. Three out of the four circuits that have decided this issue, not counting another circuit with some unrelated issues, found against the FTC or its legal theory. Yet with that case law history, the FTC is asking the Supreme Court to apply a rule that these agreements are presumptively anticompetitive and that defendants have to prove they’re not, which is different from the usual rule that the burden of proof is on government. … Persuading the Supreme Court to apply a rule of presumptive illegality may be difficult. … Breyer’s questions indicated he had some concerns about administering that type of rule.
Pharmalot: What did you make of Scalia's questioning? [EDITOR'S NOTE: Scalia asked whether the incentives from the deals were a mistake created by the Hatch-Waxman Act and why the court should 'address' the mistake - read the transcript here.]
My read is that Justice Scalia thinks reverse payments may pose a competitive problem at least in some cases. Hence, his statement about a "mistake" in Hatch-Waxman. But, he does not embrace the FTC's presumptive illegality standard for fixing the mistake, which he said would "overturn understood antitrust laws." My inference is that he is suggesting that Congress should fix the mistake, not the court through the FTC's proposed standard.
Pharmalot: So might this be a close call?
Brennan: I just don’t know the answer… In this particular argument, the chief justice only had one response or question other than running the argument…
Pharmalot: Let’s say the court sides, mostly, with the FTC. How will this change things for pharma?
Brennan: It’ll be very significant for sure. Because a lot of pharmaceutical companies have entered into these types of agreements in the last several years. Many settlements have occurred without pay for delay provisions too. There’s a lot of litigation in the ANDA space. If the Supreme Court adopts the FTC mode of analysis, I think it’s pretty obvious that companies settling patent infringement litigation will have to be exceedingly careful about including any brand-to-generic payments in those agreements unless there is compelling evidence to show that the payment is not a quid pro quo for delay.
We have to see what the Supreme Court says. If the court rules for the FTC, there could be openings in the Court’s decision that would let defendants know, in these types of cases, that if they can make a certain showing, they can avoid liability. If the Court endorses the FTC view, it will be a major development for pharmaceutical companies and change the way many of them have previously settled cases.
If the court says the agreements are presumptively unlawful and clarifies what kind of proof is necessary to overcome the presumption, the ultimate effect of such a ruling will depend on whether parties try to meet those factual showings, and if so, how they fare in court. If the FTC wins, I expect it will be much less likely that brand and generic settlements will have reverse-payment provisions.