How ‘Pay for Delay’ Keeps Us Paying More for Prescription Drugs

Last week the Supreme Court heard arguments in a case about prescription drugs that involves a great deal of moneyincluding yours.

The case concerns whether its legal for brand-name drug firms to strike financial deals that delay competitors entry into the market. Drug firms typically are awarded 20-year patents, though some of that time is eaten up while the drug is in development and before it begins earning revenues. In the last few years, would-be generic competitors have challenged the legality of a drugs patent, hoping to be able to sell a generic version before the patent term ends.

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If a generic competitor is successful in their patent challenge and the two companies reach a settlement, some brand-name drug companies have offered to pay the generic firm if it delays bringing its generic versionwhich costs consumers much less money than the brand name drugto the market for a period of time. By keeping a lower-priced generic version of a brand-name drug off the market longer, the brand-name companies stand to make a great deal more money. So much money, in fact, that even paying the generics to not sell their drugs for a time is still profitable for them.

Clearly, consumers end up the losers in these arrangements, by paying more for a drug, longer.

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In these deals the brand firms usually pay the generics firms to stay off the market until the patent actually expires, even though the patent challenge could have made a less expensive, generic version of a drug available to consumers months, or even years, sooner.

Many generics firms have gladly taken the so-called pay to delay payments because they take in more from these deals than they would from sales of a generic version of a drug. Brand-name firm love the deals, of course, because they can eke out millions, or even billions, of dollars on a drug before it faces generic competition and a drastic fall in revenues.

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How ‘Pay for Delay’ Keeps Us Paying More for Prescription Drugs