The California Supreme Court has ruled pay-to-delay agreements among pharmaceutical companies violate state antitrust laws.
The decision in the case In Re Cipro Cases I & II follows a 2013 U.S. Supreme Court ruling that determined these deals are subject to antitrust scrutiny and is the first such decision made since the ruling.
The case came about after a brand name pharmaceutical company, Bayer, maker of the blockbuster antibiotic Cipro, paid Barr, a maker of generic drugs, to delay sales of a biosimilar generic drug, thus forestalling competition against Bayer.
Bayer paid Barr $398.1 million between 1997 and 2003, and Bayer’s profits on Cipro exceeded $1 billion during that period. The court ruled this delay of release extended a monopoly for the drug manufacturer and hurt consumers by removing choice and keeping prices artificially high.
Costs to Consumers Estimated
Michael Carrier, a law professor at Rutgers University who specializes in antitrust law and has submitted amicus briefs on behalf of consumer and antitrust organizations in various cases, says
the decision will set a precedent for deciding the legality of such transactions not just in California but throughout the country.
“The ruling shows state antitrust laws can play an important role in challenges to these concerning agreements,” Carrier said.
Mark Lemley, a lawyer and law professor at Stanford University, says the court’s decision will be seen as an important victory for consumers.
“The decision will make pay-for-delay settlements much harder, not only in California but nationwide, as companies that enter into those settlements will likely be violating California law if they do so,” Lemley said.
Alternative to Litigation
Despite the California court’s decision, there may be times when pay-for-delay makes sense, and a blanket ban may harm consumers, says Devon Herrick, a senior fellow at the National Center for Policy Analysis.
“Drug makers view pay-for-delay settlements as an alternative to litigation,” Herrick said. “However, the Federal Trade Commission disagrees, arguing consumers lose when firms collude to keep drug prices high.”
Katie Clancy ([email protected]) is a government relations intern for The Heartland Institute.
In Re Cipro Cases I & II, California Supreme Court, May 7, 2015: https://heartland.org/policy-documents/re-cipro-cases-i-ii
Federal Trade Commission, “Pay-For-Delay: How Drug Company Pay-Offs Cost Consumers Billions: A Federal Trade Commission Staff Study”: https://www.ftc.gov/reports/pay-delay-how-drug-company-pay-offs-cost-consumers-billions-federal-trade-commission-staff
C. Scott Hemphill and Mark A. Lemley, “Earning Exclusivity: Generic Drug Incentives and the Hatch-Waxman Act”: https://heartland.org/policy-documents/earning-exclusivity-generic-drug-incentives-and-hatch-waxman-act