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Reverse payments can be non-cash according to appellate judges

By Nicole Daniel

On 19 November 2014 in a hearing regarding the possible reopening of a lawsuit over whether GlaxoSmithKline (GSK) unfairly extended the monopoly on its drug Lamictal, an appellate panel of the Third Circuit suggested that reverse payments may be something other than cash.

The issue on appeal has its roots in the US Supreme Court decision in the Actavis case where it was held that a large and unjustified payment to a generic rival by the original brand of the drug in question to stay out of the market can be scrutinized under antitrust rules.

The main issue is therefore whether reverse payment settlements, also called pay-for-delay deals that do not include cash payments, can be deemed a type of payment that comes under the rule of reason analysis according to Actavis to determine whether the reverse payment settlement comes under the scrutiny of antitrust rules.

Drug buyers want the appeals court to reopen a lawsuit against GSK regarding its settlement deal with generic drug manufacturer Teva over the Lamictal drug. In 2005 GSK and Teva agreed that when Teva’s version of Lamictal will be marketed, GSK will not sell its own generic version of the drug, i.e. the authorized generic, for six months. In exchange Teva agreed not to market its generic version of Lamictal until July 2008.

The plaintiffs allege that this reverse payment led to higher prices for the buyers of Lamictal. The defendants argue that there was no payment at all. In 2012 and in 2014 a district court judge agreed with the defendants and threw the case out twice.

So far the courts have differed on the term “payment”. In the Lamictal case in Newark, New Jersey, US District Judge William H. Walls ruled that the Actavis decision made a cash payment a requirement. Another US District Judge, this time in Trenton, New Jersey, ruled that payments need not take the form of cash.

The FTC urged the court not to limit its definition of the word payment to cash alone. Furthermore law professors, consumer unions and 28 states filed briefs urging the Third Circuit to reverse the decision of the lower court.

In the hearing on 19 November 2014 the judges on the Third Circuit questioned the ruling of the lower court which held that a reverse payment need to be in cash to put the patent settlement under the scrutiny of antitrust laws. This is so since a payment is some sort of consideration. Accordingly why is something that is valuable not deemed to be a payment?

Furthermore limiting reverse payment settlements that come under the scrutiny of antitrust rules to cash payments only creates an undesirable loophole for drug manufacturers to elide liability under antitrust rules.

It remains to be seen how the Third Circuit decides on this very important issue.

European Commission fines pharmaceutical companies in pay-to-delay case

By Gabriele Accardo

Last 9 July the European Commission (“Commission”) fined (see press releases here and here) French pharmaceutical company Servier and five generics manufacturers (Niche/Unichem, Matrix (now part of Mylan), Teva, Krka and Lupin) for breaches of the rules on restrictive agreements (Article 101 of the Treaty on the Functioning of the European Union or “TFEU”) and on abuse of a dominant position (Article 102 TFEU). The fines imposed totaled Euro 427.7 million, of which Euro 330 million were imposed on Servier.

In particular, according to the Commission, through a technology acquisition in 2004 and a series of patent settlements between 2005 and 2007, Servier implemented a strategy aimed at keeping cheaper medicines from the market and ultimately protecting Servier’s bestselling blood pressure medicine, perindopril, from price competition to the detriment of public budgets and patients in breach of EU antitrust rules.

While “pay-for-delay” agreements, between originator drug companies and generics companies, may delay market entry of generic medicines have been already investigated in the past, this is the first instance where the Commission also pursued such a behavior under Art. 102 TFEU, i.e. as a potentially abusive (unilateral) conduct by a dominant company. According to the Commission, Servier held significant market power in the market for the perindopril molecule.

Following the expiry of the perindopril molecule patent in 2003, generics manufacturers were intensively preparing their market entry, and accordingly were seeking access to patent-free products or challenged Servier’s “secondary” patents relating to processes and use that they believed were unduly blocking them.

In 2004 Servier acquired a non-protected technology, which however was never put to use, and as a result a number of generic projects were forced to stop, delaying their entry. This prompted the generics manufacturers to challenge Servier’s patents before courts. Yet, between 2005 and 2007, virtually each time a generic company came close to entering the market, Servier and the company in question settled the challenge.

While the Commission acknowledges that it is legitimate – and desirable – to apply for patents, including so-called “process” patents, to enforce them, to transfer technologies and to settle litigation, however, Servier misused such legitimate tools to gain the certainty that the generic producers would stay out of the national markets and refrain from legal challenges for the duration of the agreements.

The anticompetitive nature of such “patent settlements” was also specifically confirmed by the generics manufacturers: one of them acknowledged that it was being “bought out of perindopril”, while another insisted that “any settlement will have to be for significant sums”, to which it also referred as a “pile of cash”.

Interestingly, in 2007, prices of generic perindopril dropped on average by 90% compared to Servier’s previous price level in the UK. This occurred when the only remaining legal challenger in the UK obtained the annulment of Servier’s then most important patent. In internal documents, Servier however commented proudly on their “great success = 4 years won”, referring to the expiry of the perindopril molecule patent back in 2003.

U.S. FTC makes Actavis’ acquisition of Forest subject to conditions

By Gabriele Accardo and Aurelia Magdalena Goerner

On 30 June 2014, the U.S. Federal Trade Commission (“FTC”) stated that, in order to address the competition concerns raised by Actavis’s proposed acquisition of Forest Laboratories, it has tentatively accepted the proposed settlement agreement between the FTC’s Bureau of Competition and the two pharmaceutical companies.

In brief, under the proposed settlement agreement, Actavis and Forest agreed to sell or relinquish their rights to four generic pharmaceuticals that treat hypertension, angina, cirrhosis, and prevent seizures.

According to the FTC’s complaint, the effects of the proposed acquisition, as originally proposed, would violate federal antitrust laws insofar as it may substantially lessen competition in the markets for three generic products that treat hypertension, angina and cirrhosis. In particular, the number of suppliers in the markets concerned would be reduced from three to two (for angina) and from four to three (for hypertension and cirrhosis), whereas market concentration would increase substantially post-merger.

Moreover, the proposed transaction would delay the introduction of generic competition against Lamictal ODT, the branded lamotrigine orally disintegrating tablets used to prevent seizures, manufactured by Forest and marketed by GlaxoSmithKline (“GSK”). No companies currently market a generic version in the U.S., whereas Actavis holds the only approved abbreviated new drug application to market generic Lamictal ODT. Thus, absent the proposed acquisition, Actavis is likely to be the first generic entrant and would be the sole competitor to Forest/GSK’s branded Lamictal ODT product for a significant period of time.

In particular, under the proposed settlement agreement, the companies have agreed to relinquish their rights to market generic diltiazem hydrochloride to Valeant Pharmaceuticals International, sell generic ursodiol and generic lamotrigine ODT to Impax Laboratories, and sell generic propranolol hydrochloride to Catalent Pharma Solutions.

The proposed settlement will preserve competition in the markets for these important drugs and is part of the FTC’s ongoing effort to protect U.S. consumers from higher heath care-related costs.

A description of the consent agreement package will be published in the Federal Register by the FTC shortly. Following a public consultation that will last until 30 July 2014, the FTC will decide whether to make the proposed consent order final. A monitoring trustee will then oversee the swift implementation of the consent order.

It may be recalled that last June 2013, the U.S. Supreme Court reversed the eleventh Circuit opinion in the landmark FTC v. Actavis case (see Newsletter 3-4 2013, p. 3 for more background), holding that reverse payment settlement agreements may violate federal antitrust laws but are not a per se violation, thus recognizing the impact that such settlement agreements would have on American consumers in the pharmaceutical market. Yet the validity of such agreements will still be tested under the rule-of-reason. 

U.S. FTC files an amicus brief in the Court of Appeal urging to reverse the District Court finding in the Lamictal Direct Purchase Antitrust Litigation

By Nicole Daniel

On 28 April, 2014 the Federal Trade Commission (“FTC”) field an amicus brief in the Court of Appeals for the Third Circuit in the Lamictal Direct Purchase Antitrust Litigation urging the court to reverse the District Court finding in this case.

In the Lamictal Direct Purchase Antitrust Litigation the plaintiffs allege that Teva Pharmaceuticals (“Teva”) was paid by GlaxoSmithKline (“GSK”) to forgo entry of their authorized generic version of the Lamictal drug in return for GSK’s promise not to compete. The district court decided that this agreement which included GSK’s commitment not to introduce an authorized generic does not violate antitrust laws under FTC v. Actavis since this agreement did not involve the exchange of cash.

In its amicus brief the FTC explains why the conclusion of the District Court is wrong. In the Actavis case the Supreme Court held that reverse-payment patent settlements are to be evaluated using antitrust factors, i.e. they are not immune from antitrust scrutiny.

The District Court in the Lamictal case distinguished the agreement from the Actavis case as the compensation took the form of an agreement not to compete in contrast to compensation in cash.

The amicus brief explains that the commitment not to compete raises the same antitrust concerns which were identified by the Supreme Court in Actavis.

An empirical study by the FTC showed that consumers pay higher prices for the generic product if the brand company itself does not introduce an authorized generic during the exclusivity period for the first-filing generic under the Hatch-Waxman Act.

The amicus brief further states that in the Actavis decision no distinction between the forms of compensation for potentially problematic reverse-payment settlements is made. Accordingly the narrow reading of the District Court may serve to undermine the Supreme Court’s decision in the Actavis case and lead to potentially anticompetitive reverse-payment settlements being structured as to avoid cash and therefore antitrust scrutiny.

The FTC, in its amicus brief, additionally explains that the Supreme Court in the Actavis case affirmed that antitrust principles apply to agreements between a brand-name and a generic competitor undertaking as well as settlements between potential competitors with reciprocal agreements not to compete.

It will have to be seen how the Court of Appeal will decide this issue.

U.S. District Court holds that Actavis requires monetary payments for antitrust scrutiny to be applicable

by Nicole Daniel

On January 24, 2014 U.S. District Judge William H. Walls dismissed an antitrust class action against GlaxoSmithKline LLC (“GSK”) and Teva Pharmaceutical Industries Ltd. (“Teva”) regarding their agreement to postpone the production of a generic epilepsy and bipolar disorder drug since no reverse payment with cash was involved to keep the rival off the market. According to Actavis antitrust rules therefore were not applied to the case at hand.

In 2002 Teva filed an application to produce a generic version of the Lamictal drug to the U.S. Food and Drug Administration. GSK in turn sued Teva for infringing its patent. In 2005 the companies reached settlement under the following terms:

  • Teva was allowed to start selling its generic Lamictal drug before the patent expired, i.e. chewables 37 months and tablets six months before the expiration of the patent,
  • Teva agreed to withdraw the claim to challenge GSK’s patent (one of the patents had already been declared invalid by court) and
  • For an exclusivity period of 180 days GSK declared that it would not compete with Teva’s generic drug by releasing its own generic drug once Teva’s drug entered the market.

In February 2012 the plaintiffs Louisiana Wholesale Drug Company Inc. and King Drug Company of Florence Inc. filed suit against GSK and Teva regarding the aforesaid deal between them in 2005 and alleged that GSK tried to protect its patent on the Lamictal drug and its dominance on the Lamictal drug market.

In December 2012 Judge Walls dismissed the case holding that antitrust scrutiny only applied for deals that involve cash settlements where the competitor was being paid not to compete. Under the K-Dur decision it was held that cash settlements were presumptively anti-competitive. However, the exclusivity period in the present case did not amount to a reverse payment.

The plaintiffs appealed and in February 2013 the Third Circuit granted a defense motion to stay the case until a decision by the Supreme Court in the Actavis case. In the Actavis case the FTC appealed a ruling by the Eleventh Circuit which exonerated a deal Solvay Pharmaceuticals Inc. (“Solvay”) struck with some drug makers to prevent them from attempting to produce generic forms of their testosterone gel AndroGel. In the Actavis decision the quick-look test the Third Circuit spelled out in the K-Dur case was replaced with the rule of reason analysis, which is typically applied in antitrust cases.

A few weeks later the case against GSK and Teva was sent back to the district court after the new legal standard was articulated in the Actavis case. Judge Walls held Actavis requires antitrust scrutiny on patent settlements only if they contain reverse payments which must be monetary. Judge Walls disagreed with decisions by two other district judges (In re Lipitor Antitrust Litig. and in re Nexium (Esomeprazole) Antitrust Litig.) which held that Actavis also applied to non-monetary patent settlements. Furthermore, the Actavis ruling rendered specific forms of settlements explicitly exempt from antitrust review.  The same type of exempted settlement, i.e. permitting the generic to enter the patent holder’s market before the patent expires, was at issue in the present case.

Even if the appellate court might find that Actavis was not limited to settlements including the exchange of money Judge Wells concluded that the settlement satisfied the rule of reason spelt out in Actavis.

Judge Wells therefore affirmed its grant of GSK and Teva’s motion to dismiss the claim.

In the present case the settlement was explicitly exempted from antitrust scrutiny according to Actavis; however it has to be seen how other district courts decide on this issue where the settlement is not explicitly exempted. Furthermore an interesting issue is what the appellate court and other district courts will hold on the issue of whether reverse payment settlements have to be monetary or not.

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