Regulators Prescribing Higher Dose Of Pharmaceutical Antitrust Enforcement

By Ankur Kapoor

Antitrust enforcers returned to their offices after Labor Day, refreshed and ready to tackle what they view to be anticompetitive practices by pharmaceutical companies to delay entry of lower-priced generic drugs.

In addition to recent enforcement efforts by antitrust regulators, two federal courts have issued opinions supporting the theory underlying the enforcers’ new efforts to police so-called “reverse payments.”

On September 8, 2014, the Federal Trade Commission (FTC) filed an antitrust complaint in the U.S. District Court for the Eastern District of Pennsylvania against AbbVie Inc. (a spinoff of Abbott Laboratories’ portfolio of proprietary pharmaceutical and biologic drugs) and generic giant Teva Pharmaceuticals. FTC v. AbbVie Inc. is the FTC’s first action against “reverse-payment” or “pay-for-delay” agreements between patent-holders and generic competitors since the FTC’s 2013 Supreme Court victory in FTC v. Actavis, Inc., which held that such agreements could run afoul of the antitrust laws under certain circumstances.

Typically, reverse-payment agreements settle patent infringement litigation between patent-holders and generics with the generic agreeing not to launch its allegedly infringing product for some period of time, in exchange for some payment by the patent holder (instead of the allegedly infringing generic paying the patentee for damages, hence the term “reverse payment”). Antitrust enforcers have long argued, and the Supreme Court last year agreed, that sufficiently large reverse payments in exchange for generics’ agreements not to compete are anticompetitive and cost the healthcare system billions of dollars in lower-priced drugs.

The FTC has taken the position that a potentially anticompetitive reverse payment could be pretty much anything of value that the patent-holder gives to the generic manufacturer, and that FTC v. Actavis is not confined to monetary or cash reverse payments. In its complaint in FTC v. AbbVie, the FTC has demonstrated how far it will take this position.

The FTC alleges that Teva agreed not to market a low-testosterone therapy that competed with AbbVie’s AndroGel®, in exchange for which AbbVie “paid Teva in the form of a highly profitable authorized generic deal for another product [generic Tricor®, a cholesterol drug]. . . . This authorized generic deal does not make sense for AbbVie . . . as an independent business transaction; it only makes sense as a means to induce Teva to drop its patent challenge and refrain from competing with AndroGel for several years.” Compl. ¶ 9 at 4-5. In other words, the FTC is alleging that providing generic competition, by allowing an authorized generic (for Tricor®), was itself the predicate anticompetitive act in the market for low-testosterone therapies.

While the legal validity of the FTC’s new and arguably paradoxical position should be a major focal point in the litigation as it develops, one takeaway is clear: the FTC has been emboldened by its victory in Actavis and will expand its enforcement efforts in the pharmaceutical industry beyond cash reverse payments.

Just four days before the FTC filed its complaint, the U.S. District Court for the District of Massachusetts issued a major, 155-page opinion rendering a split decision on summary judgment motions challenging reverse-payment claims in In re Nexium (Esomeprazole) Antitrust Litigation. In Nexium, although the court granted summary judgment for the defendants on several of the plaintiffs’ claims, it held that the plaintiffs could proceed to trial on a theory that a reverse-payment settlement caused actionable antitrust injury. Id. at 153-54.

The Nexium court held that FTC v. Actavis does not require reverse payments to be cash or monetary in order to violate the antitrust laws, id. at 57, lending support to the FTC’s enforcement effort in AbbVie. First, profitable deals provided to generic manufacturers, e.g., authorized-generic deals or agreements for the generic to supply the patent-holder with certain products or services, may permit a jury’s “reasonable inference” that the deals were “lucrative” consideration for an agreement by the generic not to compete. Id. at 61-62. Second, the patent-holder’s agreement not to market an authorized generic in competition with the generic manufacturer—a “no-authorized-generic” agreement—could constitute another form of a valuable reverse payment subject to antitrust scrutiny. Id. at 64. And third, the court held that the patent-holder’s forgiveness of a debt owed by the generic, e.g., for patent infringement of another product, could qualify as an anticompetitive reverse payment if there is sufficient evidence of the debt’s amount. Id. at 116-17.

Similarly to Nexium, the court in In re Lipitor Antitrust Litigation, Civil Action No. 3:12-cv-02389(PGS) (D. N.J. Sep. 12, 2014), held: “it is true that Actavis never indicated that a reverse payment had to be a cash payment; but it is also true that Actavis emphasized cash payments.” Slip op., at 32. The Lipitor court therefore held that non-cash reverse payments could be anticompetitive, although “the non-monetary payment [a forgiveness of Accupril® patent-infringement damages] must be converted to a reliable estimate of its monetary value so that it may be analyzed against the Actavis factors.” Id. The court dismissed the plaintiffs’ complaint for failure to “plead a reliable foundation upon which to estimate the value of the compromise of Pfizer’s damages in the Accupril II litigation.” Id. at 34-37.

There are signs that increased state antitrust enforcement may be added to the expected increase in the FTC’s and private plaintiffs’ challenges to reverse-payment settlements. The Antitrust Bureau of the New York State Attorney General’s office filed an antitrust case this week against Actavis and its recently acquired, wholly-owned subsidiary Forest Laboratories.

In New York v. Actavis, PLC, Case No. 14-CV-07473 (S.D.N.Y. Sep. 15, 2014), the New York Attorney General alleges violations of state and federal antitrust law in connection with Forest’s withdrawal from the market of its Alzheimer’s therapy, Namenda IR® (taken twice daily), for the purpose of forcing those with Alzheimer’s to switch to Forest’s once-daily formulation Namenda XR®. According to the Attorney General, “once patients have switched to Namenda XR, it will destroy the market for the generic form of Namenda IR because of the dramatically increased burden, cost, and time needed to arrange for patients who have been switched to Namenda XR to switch back to the original version.” Compl. ¶ 4 at 2. “Because Namenda XR is protected by patents for many years longer than the original Namenda IR, Defendants’ goal is to use the ‘forced switch’ to reap several more years of monopoly profits than they would have earned otherwise.” Id. The Attorney General alleges that there was no justification for Forest to withdraw Namenda IR from the market; there was no question of the drug’s safety or efficacy, and Forest actually sacrificed profits from the withdrawal. Id. ¶¶ 101-02 at 31-32, ¶ 111 at 34 n.14. The complaint also alleges that “the benefits of a switch from Namenda IR to Namenda XR are marginal.” Id. ¶ 77 at 24.

In short, it’s already been an eventful early autumn in pharmaceutical antitrust as enforcers and the courts build on both the letter and the spirit of the Supreme Court’s watershed decision in FTC v. Actavis. Antitrust enforcers have taken the Supreme Court’s strong concern for generic-drug competition as their mandate to continue and expand their enforcement efforts in this industry.

– Edited by Gary J. Malone