US drugmakers have been taken aback by an appeal court's decision this week that "pay-for-delay" deals aimed at keeping generic competition off the market are anti-competitive.

And the burden is on the defendant to prove that such deals are not anti-competitive, added the US Court of Appeals for the Third Circuit in Philadelphia, ruling in a case brought by a number of drug wholesalers and retailers against Merck & Co unit Schering-Plough and two generics firms, which had agreed such a deal relating to Schering-Plough's K-Dur (potassium chloride), used in the prevention and treatment of low blood levels of potassium (hypokalemia).

The wholesalers and retailers originally brought their suit in 2001 but in 2010 a lower district court ruled in favour of the company, echoing many such court decisions which have backed the deals provided that they do not delay the entry of generic competition to branded drugs beyond patent expiry dates.

However, the Philadelphia appeals court judges said this week that they could not agree with such courts which "apply the scope of the patent test," because: "in our view, that test improperly restricts the application of antitrust law."

Pay-for-delay deals, also known as "reverse payments" from branded drugmakers to genetic competitors, represent "prima face evidence of an unreasonable restraint of trade," said the appeals judges, who have handed the case back to the district court for re-examination based on its ruling.


The Federal Trade Commission (FTC) - which has long opposed pay-for-delay deals, and filed an amicus brief in this case last year arguing that the district court's analysis conflicted with basic antirust principles, patent law and the Hatch-Waxman Act - welcomed the decision as "a key ruling."

"The Third Circuit Court of Appeals seems to have gotten it just right - these sweetheart deals are presumptively anti-competitive," said FTC chairman Jon Leibowitz. The deals cost US consumers $3.5 billion a year in higher health care costs, says the FTC, which also points to Congressional Budget Office (CBO) estimates that doing away with such agreements would reduce federal government debt by $5 billion over 10 years.

"It's time for pharmaceutical companies to return to the side of consumers," said Commissioner Leibowitz. 

However, the Generic Pharmaceutical Association (GPhA) pointed out that the appeals court's decision was inconsistent with previous federal court rulings which, it said, have "time and again found patent settlements to be a lawful and valuable tool for bringing affordable medicines to market sooner than otherwise would be possible."

"Pro-consumer patent settlements have never prevented competition beyond a patent's expiration. Indeed, they have resulted in making lower-cost generics available months and even years before patents have expired, saving consumers billions of dollars," said GPhA chief executive Ralph Neas.17 of the 22 first-time generics launched in 2011 were the result of patent settlements, he added.