Oral Arguments in FTC v. Actavis (SC pay for delay case)

By Adriana Benedict

As Jonathan Darrow notes below, on Monday, the Supreme Court heard oral arguments in Federal Trade Commission (FTC) v. Actavis, the “pay for delay” case questioning whether or not reverse payment settlements in Hatch-Waxman litigation should be presumptively anticompetitive, a question on which the Circuit Courts are divided.  This particular case involves Solvay Chemicals Inc., whose patent on AndroGel cream, a synthetic testosterone formulation (set to expire in 2020) was challenged by three generic pharmaceutical companies that filed ANDA applications in 2003 for generic version of AndroGel (which is 1/6 the cost of the branded version).  Following a 30-month stay triggered by Solvay’s subsequent infringement lawsuit, the FDA approved the generic version of Androgel in 2006, at which point the generic companies’ motion for summary judgment on the validity of Solvay’s patent was ready for decision.  Instead of risking the judgment, the parties settled, with the generic companies agreeing to stay out of the market until 2015 in return for an estimated $186 – 252 million from Solvay over the course of six years.  The FTC, expressing concern that consumers would ultimately bear the costs of delayed generic entry, unsuccessfully challenged this settlement as presumptively unlawful restraints of trade.  The Eleventh Circuit affirmed the District Court’s decision in 2012, which rejected the FTC’s approach in favor of a “scope of the patent” test.  Several months later, though, the Third Circuit reached the opposite verdict in a similar case, accepting the FTC’s position that reverse payment settlements are presumptively unlawful agreements not to compete. The Supreme Court granted cert to resolve this conflict.

I found a couple features of yesterday’s oral arguments particularly striking.  First was Justice Breyer’s statement that he thought one of the four briefed scenarios in which a reverse payment settlement may rebut an anticompetitive presumption was “neutral”:

JUSTIC BREYER: [B]the person’s already in the market thinks that the next year or two or three years is worth $100 million a year, and the person who’s suing thinks it’s worth 30 million a year. And so he says, hey, I have a great idea, I’ll give him the 30 million and keep the 70. And — and that, I don’t see why that’s anticompetitive if that’s what’s going on.

While the outcome of the case doesn’t really turn on the validity of this rebuttal, I was surprised that Justice Breyer would label such a scenario “neutral,” as it seems to go to the very definition of collusion at the cost of consumers.

More importantly, I was glad that Justice Kennedy attempted to address the perennially ambiguous representations of actual drug development costs by the pharmaceutical industry:

JUSTICE KENNEDY: Is there anything in the record that shows the development cost of this drug?
MR. WEINBERGER: This particular drug, I don’t know. I mean, there are lots of studies of how much average drugs cost, and that figure is over a billion dollars.
JUSTICE KENNEDY: It can be a billion.
MR. WEINBERGER: Easily a billion dollars.
JUSTICE KENNEDY: Anything in this case?
MR. WEINBERGER: This particular drug -­
JUSTICE KENNEDY: Anything in the record?
MR. WEINBERGER: No, because we are on 12(b)(6) motion to dismiss . . .

While I understand why counsel for the drug manufacturers is technically correct that drug development costs are not properly at issue in a motion to dismiss, I was left wondering whether these numbers exist at all or if the pharmaceutical industry is just holding out on disclosing them for as long as them can.  The lack of transparency in individual drug R&D costs has for a long time shielded the pharmaceutical industry from prying critics hoping to point out that extensive monopoly profits are not indeed  justified by R&D expenditures.  While these figures may not be directly relevant to the question in this case, I wonder what could ever compel pharmaceutical companies to increase their R&D transparency if not a Supreme Court Justice repeating his question four times.

For now, though, a drug company’s ability to pay off competition and continue to hold a monopoly on their drug remains in limbo, and consumers are left guessing as to how much of their monopoly profits are actually justified to promote “progress of the useful arts and sciences”.  If the Supreme Court agrees with the FTC, though, there will at least be weaker incentives for generic drug manufacturers to delay bringing their drugs to market, which will lead to more generics at competitive prices.

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