Third Circuit Delivers Jolt to Pharmaceutical Industry

The Third U.S. Circuit Court of Appeals, based in Philadelphia, delivered a jolt to the pharmaceutical industry on Monday, coming down hard on settlements in which branded drug companies pay generic drug makers to stay off their backs. 

They are called “reverse payments” or “pay-to-delay” settlements. 

Generic drug makers can challenge the validity of brand manufacturers’ patents in federal court, in a bid to bring their generic drugs to market faster. But brand-name drug manufacturers can pay their way out of the litigation. Essentially, they give generic companies money — lots of it — to temporarily stay out of the market. 

Until Monday, the prevailing law on these settlements presumed they were perfectly legitimate, as long as branded drug makers weren’t paying to keep (much cheaper) generic drugs off the market after patents on their brand-name drugs expired. 

The U.S. government hates these settlements — because they allow for the possibility that weak patents that otherwise would have been wiped out by a legal challenge can live on if the patent holder is willing to pay to protect them. Thus, it takes longer for a given generic drug to get to the market and consumers pay more in the meantime. (A 2010 analysis by the FTC found that reverse payment settlements cost consumers $3.5 billion annually.) 

The Third Circuit decided it was time for a change, in a case concerning the drug K-Dur, a potassium chloride supplement made by Schering-Plough that is used to treat side effects from blood pressure medication. Several pharmacies and a class of purchasers of the drug sued to challenge the settlements Schering-Plough (a unit of Merck & Co.) reached with generic drug companies.

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