Pharma pay-for-delay OK?

Bound by precedent, last month a U.S. Court of Appeals (2d Cir. E.D.N.Y.) panel decided in In re Ciprofloxacin Antitrust Litigation that Bayer AG and several generic drug makers did not violate antitrust laws when they agreed to a reverse exclusionary payment -- or "pay-for-delay" -- settling a patent infringement suit. However, seemingly unhappy with its own decision, the panel encouraged plaintiffs to request re-examination of the case before the full court, in order to address public interest concerns.

In the original infringement suit, generic drug makers (including Barr Laboratories, The Rugby Group, and Watson Pharmaceuticals) had filed Abbreviated New Drug Applications (ANDAs), in order to obtain federal approval to sell generic versions of Bayer's patented antibiotic ciprofloxacin ("Cipro"). Bayer then sued to prevent such approval. As so often happens, Bayer and the generics settled the case with a pay-for-delay arrangement in which Bayer agreed to give Barr more than $398 million in exchange for the generics' promise to delay introduction of generic versions of Cipro. In response, several trade unions and pharmacies slapped Bayer and the generics with over 30 antitrust lawsuits, which the New York trial court consolidated and eventually dismissed in favor of defendants. Citing In re Tamoxifen Citrate Antitrust Litigation, the District Court ruled that pay-for-delay did not violate antitrust laws, and explained,

"The ultimate question ... is not whether Bayer and Barr had the power to adversely affect competition for ciprofloxacin as a whole, but whether any adverse effects on competition stemming from the Agreements were outside the exclusionary zone of the '444 Patent. It goes without saying that patents have adverse effects on competition. However, any adverse effects within the scope of a patent cannot be redressed by antitrust law." (emphasis added)

Interestingly, this case showcases a conflict between the Federal Trade Commission, which views reverse payment agreements as per se illegal, and the courts' more pragmatic approach. At present, Tamoxifen remains judicially binding; unless a patent or its enforcement is fraudulent or "baseless," then no antitrust laws are broken -- "as long as competition is restrained only within the scope of the patent." 

The panel declared itself unable to review plaintiffs' additional argument that reverse-payment agreements violate public policy by depriving consumers of lower-cost generic drugs. Notably, the U.S. government filed an amicus brief urging the Court to overturn Tamoxifen and deem pay-for-delay settlements presumptively illegal, on public interest grounds. Apparently somewhat swayed, the panel suggested:

"[W]e believe there are compelling reasons to revisit Tamoxifen with the benefit of the full Court's consideration of the difficult questions at issue and the important interests at stake. We therefore invite the plaintiffs-appellants to petition for rehearing in banc."