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Federal Judge Puts Narcolepsy Drug Horizontal Conspiracy Claims to Bed

On Monday, June 23, 2014, a Federal Judge in the Eastern District of Pennsylvania granted summary judgment for five pharmaceutical companies on horizontal conspiracy claims brought by Apotex Inc. and direct purchaser and end payor plaintiffs regarding the popular narcolepsy drug Provigil.  Provigil’s key ingredient is modafinil, “a wakefulness-promoting agent” used to treat sleep disorders like narcolepsy.  Apotex and the Provigil buyers claimed that Cephalon, Inc. unlawfully restrained trade and maintained a monopoly on modafinil sales by facilitating a horizontal conspiracy through reverse payment settlements with generic-drug manufacturers.

Cephalon, which manufacturers Provigil, entered into reverse payment settlements (also known as “pay-for-delay”) between 2005-2008 to settle patent infringement litigation with Teva Pharmaceutical Industries Ltd., Ranbaxy Laboratories Ltd, Mylan Inc., and Barr Laboratories, Inc.  Although Judge Mitchell Goldberg previously held the plaintiffs’ claims were sufficient to withstand a motion to dismiss, on summary he judgment he found insufficient evidence of a conspiracy.

Judge Goldberg held that the plaintiffs lacked sufficient evidence to demonstrate the existence of the alleged hub-and-spoke conspiracy.  He reasoned that evidence of “conscious parallelism” among the defendants’ behavior was not enough to levy an antitrust claim when equally plausible independent explanations for their behavior exist.  For example, the generic-drug manufacturers were separately compensated and some would receive favored treatment regarding royalty rates.  The “pay-for-delay” settlement agreements also created contingent launch provisions, reassuring generic companies that they would not lose the opportunity to launch if another generic-drug manufacturer obtained an earlier date.  Had the agreements been contrary to the generic-drug manufacturers’ self-interest, the claims would have more closely resembled noteworthy hub-and-spoke conspiracy cases.

Judge Goldberg cautioned, however, that the court’s opinion does not address the legality of each individual “pay-for-delay” settlement agreements between Cephalon and the generic-drug manufacturers.  The Federal Trade Commission is separately challenging the settlements under antitrust law.

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Pay-for-delay to Stay FTC’s Top Priority

In a recent interview, Federal Trade Commission (FTC) Bureau of Competition chairwoman Deborah Feinstein announced that targeting pay-for-delay arrangements by pharmaceutical companies would continue as a top priority for the FTC.  Pay-for-delay deals arise when pharmaceutical companies marketing branded drugs pay a pharmaceutical company to enter into a patent settlement with manufactures of generic drugs.  Under the patent settlements, the branded pharmaceutical company pays a large fee to the generic pharmaceutical manufacturer in order to delay entry of the generic drug into the market.  The FTC views such deals as anticompetitive and harmful to consumers because they stifle competition by preventing a lower-cost alternative from entering the market.

Feinstein stated that in addition to two ongoing litigation matters challenging pay-for-delay arrangements, the FTC continues to vigilantly monitor fillings submitted under the Medicare Prescription Drug, Improvement and Modernization Act.  Likely, the FTC will open additional investigations into pay-for-delay deals.  Feinstein also commented that the FTC will proactively advance federal antitrust law and its policy toward pay-for-delay through amicus brief filings in private litigation matters.

Earlier this year, the Supreme Court ruled in FTC v. Activis, Inc. that pay-for-delay deals are subject to antitrust scrutiny and should be assessed under the rule of reason to balance the procompetitive benefits against the anticompetitive effects.  Additionally, the antitrust Subcommittee of the Senate Judiciary Committee has held hearings focusing on the anticompetitive effects of pay-for-delay arrangements.  Several senators, including Senators Al Franken (D-Minn.) and David Vitter (R-La.) have proposed legislation promoting pharmaceutical competition by offering alternatives to non-settling generic drug companies for challenging a patent and entering the drug market.  Effectively, this would permit some drug companies to circumvent market restrictions created by pay-for-delay deals.

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FTC’s New Chairwoman Ramirez Says Health Care Continues To Be Top Priority

by Hillary Webber

In remarks made this week at the International Competition Network annual conference, Federal Trade Commission (FTC) Chairwoman Edith Ramirez stated that health care will continue to be a top priority for the FTC.   Referring to health care and hospital mergers in particular, she said that the Commission will "guard[] against what we consider to be consolidation that may end up having adverse consequences for consumers."  The Chairwoman’s comments indicate that the recent leadership change at the FTC from former Chairman Jon Leibowitz to Chairwoman Ramirez has not altered the Commission’s priorities.

Recent months have seen a flurry of FTC activity in the courts related to health care.  For example, two FTC cases came before the U.S. Supreme Court this term — the FTC’s challenge to Phoebe Putney’s acquisition of Palmyra Park Hospital in Georgia and the FTC’s challenge to "pay-for-delay" patent infringement litigation settlements between branded and generic pharmaceutical manufacturers. 

In February, the Supreme Court ruled that the state action doctrine did not immunize Phoebe Putney’s hospital transaction from federal antitrust scrutiny, and the FTC has subsequently filed renewed motions in federal district court to stop further integration of the two hospitals even as it prepares for a full administrative hearing on the merits that will begin in August. 

A decision on the "pay-for-delay" case is expected in June.  The Supreme Court’s ruling may have a large impact on further FTC efforts against what it perceives as anticompetitive efforts to delay generic drug entry.

Health care clients considering acquisitions are advised to consult antitrust counsel early in the transaction process.  Given the FTC and DOJ’s close scrutiny of health care transactions, early advocacy before the antitrust agencies is often critical to a deal closing on schedule.  

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Supreme Court Hears Oral Argument in “Pay-for-Delay” Patent Settlement Antitrust Case

by Jeffrey Brennan and Glenn Engelmann

The Supreme Court’s ruling in Federal Trade Commission v. Actavis, Inc., will almost certainly have major implications for the viability of Federal Trade Commission and private suits alleging that pay-for-delay settlements are anticompetitive, and for the level of antitrust risk facing companies that enter into such settlements.

Click here to view Jeff Brennan discuss the case on PBS‘ “Nightly Business Report.” 

To read the full article, click here.

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U.S. Supreme Court to Rule on “Pay-for-Delay” Antitrust Issue

by Jeffrey W. Brennan and Wilko van Weert

The Supreme Court of the United States has granted the government’s petition for a writ of certiorari in FTC v. Watson Pharmaceuticals, agreeing for the first time to address the antitrust and patent law implications of so-called “pay-for-delay” or “reverse payment” patent settlement agreements between branded and generic pharmaceutical manufacturers.  The Court’s ruling will likely resolve this contentious issue, which has divided the federal courts and which the Federal Trade Commission has pursued for more than a decade.

To read the full article, click here.

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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

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 [...]

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Update on Reverse Payment Settlements

by William Diaz, Raymond A. Jacobsen, Joseph F. Winterscheid and Jeffrey W. Brennan

On October 31, 2011, a California state court of appeal affirmed a lower court’s ruling upholding a "reverse payment" (pay-for-delay) settlement between Bayer (Bayer) AG and Barr Pharmaceuticals (Barr).  Bayer had sued Barr for patent infringement pertaining to the latter’s planned production of a generic form of Bayer’s Cipro.  The case was settled with Bayer paying Barr to delay entry until the expiration of Bayer’s patent in 2004.  Thereafter, consumers filed a class action lawsuit challenging the settlement agreement under California’s state antitrust laws.  The appellate court upheld the settlement agreement because it concluded that the agreement did not restrain competition beyond the scope of the Bayer patents.  This court’s ruling is consistent with the predominant view among the courts that these agreements do not violate the antitrust laws when the period of the delay and products at issue are within the scope of the relevant patents.

For years the Federal Trade Commission (FTC) has expressed serious concerns about reverse payment settlements.  Most recently, on October 25, 2011, the FTC released the findings of its study into the prevalence of these agreements and their effects on consumers.  The FTC noted that "pharmaceutical companies continued a recent anticompetitive trend of paying potential generic rivals to delay the introduction of lower-cost prescription drug alternatives for American consumers …drug companies entered into 28 potential pay-for-delay deals in FY 2011 (October 1, 2010 through September 30, 2011).  The figure nearly matches last year’s record of 31 deals and is higher than any other previous year since the FTC began collecting data in 2003.  Overall, the agreements reached in the latest fiscal year involved 25 different brand-name pharmaceutical products with combined annual U.S. sales of more than $9 billion."  This latest report demonstrates the FTC’s continued commitment to enforcement in this area.  Further, the FTC’s Chairman has continued to urge Congress to pass legislation that restricts reverse payment settlements.

These recent events highlight the need to work closely with antitrust counsel to ensure that any settlement agreements are properly vetted and take into account the latest antitrust developments.

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FTC Issues Report on Authorized Generics

by Joseph F. Winterscheid

On Wednesday, August 31, the Federal Trade Commission issued a report on "Authorized Generic Drugs: Short-Term Effects and Long-Term Impacts."  In the report, the Commission indicated that it would take a hard-line approach to pay-for-delay deals in which brand-name drug makers agree to defer introduction of their own generic formulations in exchange for competitors delaying entry into the market.  The report signals that the FTC pay-for-delay pharmaceutical patent settlements continue to be a "hot button" at the FTC, including deals that contain commitments by branded players to withhold generic versions of their own products.  

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