The economics of pay-for-delay agreements are clear – branded drug makers benefit from an extended amount of time on the market free from generic competition, and generic manufacturers receive payment to temporarily delay entry into the market.  Although pay-for-delay agreements have grown in popularity in an attempt to settle legal battles over patents, the Supreme Court recently reviewed these reverse payment settlements in light of antitrust laws.

There are varying situations where these pay-for-delay or reverse payment settlements are created.  One of the most common is when generics companies challenge a current branded company’s drug patent in hopes to launch their generic drug before the end of the patent.  Lawsuits are typically filed, and when the victor is not clear, often these agreements are created.

Federal Trade Commission (FTC) v. Actavis came about as a result of a similar scenario. Actavis and another company filed for the right to produce a generic version of Solvay’s AndroGel.  The FDA approved Actavis’ generic, but Actavis entered into a reverse payment agreement with Solvay where they agreed to not introduce their generic for a specified number of years.  The FTC then filed suit on the basis of antitrust laws, claiming Actavis was “unlawfully agreeing to abandon their patent challenges, to refrain from launching their low-cost generic drugs, and to share in Solvay’s monopoly profits.”

Earlier this week, this case was heard by the Supreme Court, and in a 5-3 vote determined that these pay-for-delay deals are in fact subject to the antitrust test known as the “rule of reason.”   The FTC Chairman viewed this vote as a victory for “American consumers, American taxpayers, and free market.”   The Generic Pharmaceutical Association (GPhA) was also pleased that “the court clearly recognized that settlements require a case-by-case assessment.”  Others, including the dissenting view of the court, think that this decision “weakens the protection afforded to innovators by patents.”

The key question, though, is how this decision will impact these pay-for-delay deals in the future.  Kali Borkoski writing on the Supreme Court of the United States (SCOTUS) blog, says the ruling is “likely to essentially put an end to such payments in the future.”  Others, like Sanford Bernstein analyst Ronny Gal, are a bit more skeptical.  He believes this ambiguity will allow for reverse payments to continue, but perhaps in more creative ways.  He drives home his point by saying, “If I were a patent attorney in the drug world, I would be opening a bottle of Champagne right now.”