Dose of competition

Supreme Court offers cure for generic drug delays

The US Supreme Court has offered up a cure for generic drug delays. The justices on Monday allowed antitrust suits against pharmaceutical firms like Solvay that pay rivals not to peddle cheaper generic medicines. The practice might still pass legal muster, but the threat of lawsuits could diminish the anticompetitive effects.

Until now, judges have generally permitted companies to settle lawsuits over patented drugs if generics aren't blocked beyond a patent's scheduled expiration. Firms can even pay generic manufacturers to withdraw claims that a patent is invalid or should expire early. In effect, drugs firms make it worth their rivals' while to delay attempts to compete.

The Federal Trade Commission has argued for more than a decade, however, that such agreements keep drug prices high by preserving monopolies when the patents involved may be weak. That's the case the agency made against Solvay Pharmaceutical's deal to pay Actavis and others as much as $30 million a year in return for holding off until 2015 before selling their generic version of Androgel, a treatment for low testosterone.

The companies also agreed not to challenge Solvay's patent, which expires in 2020. Despite the FTC's position, two lower courts refused to overrule the settlement, which on its face shortened Solvay's monopoly over Androgen by five years.

The Supreme Court declined to decide that settlements like this should be presumed to illegally harm competition. But they pointed out that Actavis and the other generic manufacturers were being compensated handsomely just to stay out of the market, thereby helping to preserve Solvay's estimated $125 million in annual profits from Androgel. While that might be justified in certain cases, they said, it merits close scrutiny.

The justices could have been tougher. Protecting the intellectual property rights of big pharmaceutical companies allows them to recoup the enormous expense of bringing drugs to market. But they shouldn't earn outsized profits for longer than they deserve. The hefty sums Solvay was willing to pay generic competitors suggest its grip on the Androgel monopoly was hardly ironclad. With the FTC now allowed to pursue a test case, other drug makers could decide the best way to avoid costly court challenges is to charge consumers less.