Schering-Plough's K-Dur pay-for-delay ruling reversed

Merck & Co.'s Schering-Plough unit must face a challenge to its pay-for-delay arrangement with would-be generic competitors for its drug K-Dur, an appeals court ruled, reversing a lower-court antitrust decision.

Wholesalers and pharmacies sued Schering-Plough beginning in 2001 over allegedly unlawful agreements to delay the entry into the market of generic versions of K-Dur, a treatment for low blood levels of potassium. Consumers incurred extra costs of more than $100 million because of the deals, according to the plaintiffs.

A lower court ruled in favor of the company in 2010. The federal appeals court in Philadelphia overturned that decision today and asked the lower court to reconsider its ruling.

"This is a landmark decision that clarifies why these pay- for-delay deals violate mainstream antitrust law," said David Balto, a Washington-based antitrust attorney who represents consumer groups opposed to such agreements. "The decision will finally reverse the past decade of misguided decisions that have cost consumers billions in higher drug prices."

Ron Rogers, a spokesman for Whitehouse Station, New Jersey- based Merck, didn't immediately return a phone call and e-mail seeking comment on the ruling. Merck bought Schering-Plough in 2009.

Appeals panels

Federal appeals panels in New York, Atlanta and Washington have upheld such agreements as long as they don't delay generic drugs beyond the expiration of the underlying patents. The U.S. Federal Trade Commission has campaigned to block the deals, which are sometimes reached on the eve of patent trials, saying they cost consumers about $3.5 billion a year in higher prescription drug prices.

"We cannot agree with those courts that apply the scope of the patent test," the Philadelphia panel said in its opinion. "In our view, that test improperly restricts the application of antitrust law."

The agreements, also known as reverse payments, permit the sharing of "monopoly rents" between would-be competitors without any assurance that the underlying patent is valid, the appeals panel said.

The appeals court directed the lower court to apply an analysis based on "the economic realities of the reverse payment settlement rather than the labels applied by the settling parties."

The case is In re K-Dur Antitrust Litigation, 10-2077, 10- 2078, 10-2079, U.S. Court of Appeals for the Third Circuit (Philadelphia).

(Published by Bloomberg - July 16, 2012)