The Third Circuit Court of Appeals in Philadelphia, United States, yesterday (16 July) ruled that Merck & Co's Schering-Plough unit should face charges over its agreement with competitors to protect its K-Dur 20 (potassium chloride) franchise from generic competition, thus overturning a lower court anti-trust decision that has substantial broader implications for the industry.
IHS Global Insight Perspective | |
Significance | The announcement represents a blast from the past for the drug industry and revives the pay-for-delay controversies that plagued the industry for many years—the initial K-Dur case was not heard by the Supreme Court in June 2006 following an appeal from federal anti-trust investigators. |
Implications | The branded drug industry has successfully used patent settlements, alongside authorised generics and creative price strategies, to stave off generic competition. This has led to a general repositioning of the generics industry, which has also developed significantly closer ties to the branded industry over the last 10 years. Certainly, returns have been diminishing for some time for first-to-file generics in light of authorised generics, and patent settlements can offer an attractive, comfortable solution for generics firms. The timing here is particularly crucial, given the ongoing patent cliff that the pharmaceutical industry is facing with the expiration of several key blockbusters. Many of these franchises have been protected through patent settlements and authorised generics, and thus the wider implications of the latest ruling are potentially substantial. |
Outlook | The K-Dur case will now go back to the courts for further trial proceedings. Specifically, it means that drug wholesalers and retail pharmacies will be able to have their case heard, related to alleged overpayment of the drug due to the artificially high prices for K-Dur resulting from no generic competition. |
The Third Circuit Court of Appeals in Philadelphia, United States, yesterday (16 July) ruled that Merck & Co Schering-Plough unit should face charges over its USD60-million agreement with Upsher-Smith Laboratories (US) in 1997 to protect its K-Dur 20 (potassium chloride) franchise from generic competition until 2001. The decision overturns a lower court anti-trust decision and comes after several years in which drug wholesalers and retail pharmacies have sought to attack the practice of so-called "pay-for-delay" deals, or patent settlements. The Federal Trade Commission (FTC) and Department of Justice (DoJ) have also been involved, arguing that the settlements violate anti-trust rules and result in artificially high prices for branded drugs in the absence of a fully functioning generic market. The decision is available for review here.
Although the deal under investigation is 15 years old, it has very real and tangible implications today for the drug industry in general, and Merck & Co (which acquired Schering-Plough) in particular. The industry has had a significant degree of success in staving off controversies over patent settlements over recent years, and in June 2006 the Supreme Court set an important precedent by refusing to hear the K-Dur case. The federal appeals panels in New York, Atlanta, and Washington have generally argued that these agreements are legal if they do not delay entry of generics beyond the patent expiration of the drug. Antitrust organisations, however, have argued that they set in place false incentives to protect branded franchises. The FTC estimates that 28 patent settlements were signed last year.
The K-Dur case itself had a complicated history:
- In 1995, US-based Upsher-Smith and ESI Lederle (then a subsidiary of American Home Products, now Pfizer) filed abbreviated new drug applications (ANDAs) with the US FDA for generic versions of K-Dur.
- Schering-Plough brought a separate action against each company, alleging that their products infringed Schering-Plough's patent. Schering-Plough and the parties settled before trial, and licences were agreed to, allowing Upsher-Smith and ESI Lederle to bring their products to market in September 2001 and January 2004, respectively.
- In 2001, wholesalers and pharmacies sued Schering-Plough.
- In June 2002, the FTC initially dismissed the case.
- In December 2003, the FTC then reversed this decision.
- In March 2005, an appeals court subsequently ruled in favour of Schering-Plough, and lower courts reinforced this in 2010.
Outlook and Implications
Broadly speaking, the issue has much wider implications that touch upon the very nature of generic competition as a means of controlling pharmaceutical costs and guaranteeing supply. The branded drug industry has successfully used patent settlements, alongside authorised generics and creative price strategies, to stave off generic competition. This has led to a general repositioning of the generics industry, which has also developed significantly closer ties to the branded industry over the last 10 years. Certainly, returns have been diminishing for some time for first-to-file generics in light of authorised generics, and patent settlements can offer an attractive, comfortable solution for generics firms. The timing here is particularly crucial, given the ongoing patent cliff that the pharmaceutical industry is facing with the expiration of several key blockbusters. Many of these franchises have been protected through patent settlements and authorised generics, and thus, the wider implications of the latest ruling are potentially substantial.
Related Articles
United States: 27 June 2006: Supreme Court Dismisses Schering-Plough Anti-Trust Case
United States: 25 April 2005: K-Dur Saga Continues, as FTC Asks for Reconsideration of Schering-Plough's Exoneration
United States: 10 March 2005: Schering-Plough Wins Appeals Court Ruling in Anti-Trust Case
United States: 16 March 2010: Pay-for-Delay Deals: Are Their Days Numbered?