If you buy prescription drugs, a U.S. Supreme Court ruling announced Monday will likely save you money.
The top court's decision allowed federal regulators to go after pharmaceutical companies that pay their rivals to temporarily keep less expensive generic drugs off the market. The Federal Trade commissiion estimates so-called pay-to-delay deals cost consumers about $3.5 billion a year.
Brand name drugs are a gold mine for the companies that develop them because patents ensure they will be the only company selling the drug for a number of years. That allows the companies to recoup their research costs and make a profit, so it's a reasonable way to encourage innovation.
But when a brand name drug maker has a patent extended, or wants to fend off a legal challenge, it often pays a generics company to temporarily hold a less expensive substitute off the market.
The U.S. Supreme Court ruled Monday that the FTC can sue drug companies to cancel such pay-to-delay deals.
American consumers spend $320 billion a year on prescription drugs. According to the FTC brand name drugs accounted for 18 percent of the prescriptions written in 2011, but a startling 73 percent of consumer drug spending. That's because generic alternatives typically cost only 15 percent as much as the brand name drug.
The court ruling involved a group of companies that cut a deal to postpone generic competition for a drug called AndroGel used to treat low testosterone in men. The U.S. licensee for the drug is Solvay Pharmaceuticals, Inc. In 2003 two companies hoping to sell cheaper substitutes challenged a new patent on certain formulations of the drug. After years of litigation Solvay paid the companies tens of millions of dollars to drop their suits and keep their substitutes off the market.
The Supreme Court's decision wasn't a slam dunk for consumers. It didn't say all pay-to-delay arrangements are illegal. But it did clear the way for the FTC to go to trial to block the AndroGel deal, and to sue to cancel other pay-to-delay arrangments it believes are illegal. That's good news for consumers.