(Bloomberg) — Supreme Court justices suggested they will open drugmakers to suits over so-called pay-for-delay agreements, hinting at a ruling that would rewrite the rules governing the release of generic medicines.

Hearing arguments this week in Washington, D.C., the justices voiced skepticism about the accords, which the Federal Trade Commission says cost buyers as much as $3.5 billion a year. The antitrust agency says brand-name drug companies are paying generic rivals to forestall low-priced versions of popular treatments.

The accords benefit the companies “to the detriment of consumers,” Justice Elena Kagan said.

The FTC says 40 more pay-for-delay accords were struck in fiscal 2012 alone. Bayer AG, Merck & Co. and Bristol-Myers Squibb Co. units already have faced lawsuits. Companies say the accords are legitimate patent settlements.

Several justices suggested they weren’t comfortable with the FTC’s proposed test to determine whether the accords are anticompetitive. The antitrust agency says courts should start with the presumption that a payment from a brand-name drugmaker to a generic rival is illegal. Justice Stephen Breyer called that test “rigid.”

Justice Anthony Kennedy, often the court’s swing vote, suggested that brand-name drugmakers at least shouldn’t be allowed to pay generic companies more than the generic companies could expect to get by winning patent litigation.

The disputed settlements are a product of the economics of the pharmaceutical industry, where companies can reap billions of dollars from blockbuster drugs — and then see those sales plummet the moment a generic alternative appears. The FTC says generic drugs sell for an average of 15% of the original price, with the brand-name company losing 90% of its market share by unit sales. Generics have saved purchasers $1.1 trillion in the last decade, the industry says.

Pharmaceutical patent settlements typically arise when a generic-drug maker has either secured, or is poised to receive, Food and Drug Administration approval. At that stage, only the brand-name company’s patents stand in the way of generic competition.

The FTC and its allies say they have no quarrel with settlements that merely set the date for generic entry. They say that type of agreement simply reflects the companies’ assessments of the chances that a court would invalidate the brand-name company’s patent.

A payment is different, they say. If a brand-name drugmaker with $100 million in annual sales can pay a generic rival $20 million to wait an extra year, both companies come out ahead -- at the expense of purchasers, the FTC argues.

 A 2010 FTC study found that the accords cost purchasers $3.5 billion a year, a figure the drug industry contests.

Register or login for access to this item and much more

All Employee Benefit News content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access