The U.S. Supreme Court ruled on Monday to permit lawsuits against drug manufacturers engaging in ‘reverse payments’ with other manufacturers. ‘Reverse payments,’ more commonly known as ‘pay-to-delay,’ are arrangements where the manufacturer of a certain drug pays its competitor to delay putting on the market its generic and less expensive version. The court’s ruling, allowing lawsuits and scrutiny of such practices, will likely have far-reaching effects.
By paying to delay the sale of the generic and less expensive version, the original brand name drugs will be able to keep their prices artificially high. When the practice became public, lawsuits and outrage spread. The companies, however, defended the practice by arguing that they needed consumers to pay for the drugs they researched and developed.
For example, Pfizer’s brand name anti-cholesterol drug, Lipitor reduced in price by 50% once its generic counterpart was put on the market. Even generic drugs have special protections on the market. Under the Hatch-Waxman Act of 1984, the first rival manufacturer of generic version is given a 180-day grace period in which it may sell the generic version exclusively.
This decision comes in the wake of the Supreme Court’s previous decision to overrule genetic patents. Drug manufacturers may take a hit from these decisions, eroding their control over their products and eating at their profits. However, even without patents or ‘pay-to-delay’ arrangements, drug manufacturers still have the first mover advantage and may preserve their trade secrets.
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The Court was fairly divided over the issue with three justices dissenting and Samuel Alito recusing himself. Now, without genetic patens and with increased scrutiny from antitrust commissions, drug manufacturers will have to significantly alter their business practices.