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Extending K-Dur’s Reach? FTC Files Amicus Brief Arguing that Pharmaceutical Patent Litigation Settlements Containing “No-AG” Provisions are Anticompetitive

Posted in FTC Developments, IP Antitrust

by Jeffrey W. Brennan

The Federal Trade Commission (FTC) filed an amicus brief on October 9 in U.S. District Court (D.N.J.).  In it, the FTC spells out its arguments why, as part of a pharmaceutical patent litigation settlement agreement, a branded company’s promise not to launch an authorized generic (AG) version of its product during the generic firm’s 180-day marketing exclusivity period is a "pay-for-delay" agreement in violation of the antitrust laws, if the agreement also contains the generic’s promise to defer its entry.  The FTC argues that so-called "no-AG" agreements fail under the antitrust analysis recently articulated by the Third Circuit in the K-Dur decision, which is the subject of pending petitions for certiorari in the U.S. Supreme Court. 

The complaint in the underlying case, Louisiana Wholesale Drug Co., Inc. v. GlaxoSmithKline (GSK) and Teva Pharmaceuticals, can be found here. The GSK drug at issue is Lamictal, which is used in the treatment of epilepsy, bipolar disorder and other medical conditions.  The FTC does not take a position on the ultimate merits of plaintiff’s allegations against GSK and Teva.

Under the Hatch-Waxman law, the first filer of an Abbreviated New Drug Application (ANDA) – i.e., an application to launch a generic version of a branded product – qualifies in certain circumstances for 180-day generic exclusivity. This means that the FDA cannot grant final approval to any other ANDAs for the same drug during that period.  Generic exclusivity is an incentive contained in Hatch-Waxman to spur generic companies to file qualified ANDAs as quickly as possible, to expedite competition to the brand from generics that do not infringe the brand’s patents.  Hatch-Waxman does not prohibit the branded company from launching a generic version of its own product – i.e., an AG – during that period.  

The launch of an AG creates substantial competition to the generic product and typically cuts deeply into the generic product’s revenues. The FTC contends that a branded company’s promise not to launch an AG is tantamount to a "payment" to the generic firm, because the absence of AG competition results in substantially greater revenues for the generic product during its 180-day exclusivity period.  Under the FTC’s pay-for-delay theory of patent litigation settlement agreements (which the Third Circuit adopted, albeit not in a no-AG case, in K-Dur), a branded company’s no-AG promise coupled with the generic company’s promise to defer its entry is anticompetitive. The FTC argues that, absent the no-AG promise, the generic firm would either (i) settle for sooner entry to obtain those revenues, (ii) launch at risk to obtain those revenues, or (iii) continue to litigate — all of which are probabilistically better results for consumers than the agreement.

According to the FTC:

Indeed, the economic realities of no-AG commitments require that such promises be analyzed like other forms of compensation paid to generics. Practically, a no-AG commitment has the same capacity to purchase delay as a monetary payment. When a brand competes through an AG, it siphons substantial revenues from the first-filer generic company. When the brand agrees to forgo selling an AG, it essentially hands these revenues back to the first-filer generic company and, in return, gets a delayed generic entry date.

This amicus brief reflects the substantial boost given the FTC by the K-Dur decision (at least temporarily, depending on whether and how the Supreme Court addresses pay-for-delay agreements).  The FTC repeatedly ties its arguments to K-Dur, for example, in stating that "[a]llowing pharmaceutical companies to sidestep the K-Dur rule by simply making non-cash payments would elevate form over substance, in direct contravention of the K-Dur court’s instruction to credit ‘the economic realities of the reverse payment settlement rather than the labels applied by the settling parties.’"

Interestingly, the FTC has not filed a lawsuit itself challenging a no-AG patent settlement agreement, even though it has been on record for some time opposing them.  The K-Dur decision fundamentally changed the risk landscape for brand-generic patent settlement agreements.  Companies contemplating such a settlement should obtain antitrust counseling very early in the process.