Case pits generic drug makers against insurers, stores

Generic drugs have dramatically changed the pharmaceutical and health-care landscape in the last 25 years and now account for about 80 percent of prescriptions in the United States, with lower prices for consumers and insurers.

But a U.S. Supreme Court case scheduled for argument March 25 pits drug companies, generic and branded, against government officials who argue that prices for consumers would be even lower if those companies did not strike deals to restrain trade. Drugstore chains and health insurers back the government's side.

Trying to buttress his case, Ralph Neas, president of the Generic Pharmaceutical Association, said in a conference call with reporters Tuesday that the ruling "will define how an entire industry does business." An adverse decision will hurt drugmakers, consumers, and taxpayers, who pay the drug bill through public or private insurance, he argued.

Teva Pharmaceutical Industries Ltd., whose American headquarters is in North Wales, was among the pioneers of a practice leading to the debate. Teva joined other generic drugmakers in filing a brief in support of the four companies sued by the Federal Trade Commission. Local brand-name companies Merck and Shire also filed briefs in support.

"The facts, public policy, and the law don't support the FTC," Neas said.

In its suit, the FTC says generic and brand-name drugmakers enter "reverse payment" or "pay-to-delay" deals violating the Sherman Antitrust Act.

Such arrangements typically work like this: A brand-name company pays for research to gain Food and Drug Administration approval to sell a patented drug, for which the company gets market exclusivity until the patent expires, often 12 or more years. Such exclusivity allows the manufacturer to charge high prices, recoup costs, and make profits. A generic company then files an FDA application, claiming its version is close in safety and efficacy but does not copy the original. Then the brand-name firm sues for patent infringement.

Sometimes, the suit goes to trial. But often, the sides negotiate a settlement that allows the generic company to sell its drug earlier than if it waited until the patent expired, but not as early as it wanted. The brand-name company often pays the generic company, figuring the certainty of costs and revenue is better than the uncertain chance for greater profit.

According to the FTC, in fiscal 2012 there were 40 such deals, 12 more than the year before, involving 31 products whose sales were more than $8.3 billion.