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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.

U.S. Supreme Court reverses Eleventh Circuit opinion in FTC v. Actavis, Inc

On 17 June 2013, the U.S. Supreme Court (“the Court”) reversed a decision by the Court of Appeals (Eleventh Circuit). The Court of Appeals had upheld a dismissal of a complaint made by the Federal Trade Commission (“FTC”), which claimed that a reverse payment settlement agreement between certain pharmaceutical companies (Actavis, Inc., Solvay Pharmaceuticals, Paddock Laboratories, and Par) violated U.S. antitrust law.

In brief, a reverse payment settlement agreement is one in which, in order to settle a dispute between the alleged patent infringer and the patentee, the patent holder pays the alleged infringer a considerable amount of money to keep the alleged infringer’s product off the market.

Under the Hatch-Waxman Act, a drug manufacturer is able to patent a new prescription drug and place it into the market upon submitting a New Drug Application to the Food and Drug Administration (hereinafter the “FDA”), pursuant to 21 U.S.C. § 355 (b)(1).  Similarly, a generic drug may be marketed by another drug manufacturer, upon submitting an Abbreviated New Drug Application to the FDA, pursuant to 21 U.S.C. §§ 355 (j)(2)(A)(ii), (iv), as long as it states in its application that it contains the same “active ingredients” and has the same effects as the previously branded drug.  The first generic to file an Abbreviated New Drug Application has a 180-day exclusivity period as long as it does not infringe the rights of the already branded drug.

In the case at hand, Solvay Pharmaceuticals introduced its branded drug, AndroGel, into the market in 1999, which was then approved by the FDA in 2000. In the same year Actavis, Inc. (also known as Watson Pharmaceuticals) filed an Abbreviated New Drug Application to the FDA for its generic version of AndroGel, which was approved by the FDA thirty months later.  However, in 2006, Solvay and Actavis reached a settlement in their patent-litigation dispute.  The terms of the settlement agreement provided that Actavis would not introduce its generic product into the market until 31 August 2015 (65 months before Solvay’s patent expires), and Solvay would pay Actavis $19-$30 million annually for nine years in exchange for its settlement.

The FTC claimed that this settlement agreement violated section 5 of the Federal Trade Commission Act, as Actavis had unlawfully agreed to share Solvay’s monopoly profits by abandoning its generic drug patent application, and as a result, eliminating the chance for American consumers to choose a cheaper alternative to the brand-name AndroGel for nine years.

The Court of Appeals held that a patent holder has a “lawful right to exclude others from the market,” and that a patent holder has “the right to cripple competition.” Id. Hence, as a matter of public policy, a reverse payment settlement agreement is consistent with the parties’ right to avoid litigation costs. It dismissed the FTC complaint on the basis that “absent sham litigation or fraud in obtaining the patent, a reverse payment settlement is immune from antitrust attack so long as its anticompetitive effects fall within the scope of the exclusionary potential of the patent.” FTC v. Watson Pharmaceuticals, Inc., 677 F.3d 1298, 1312 (2012).

On appeal, the Court fundamentally disagreed, holding that even if the agreement’s anticompetitive effects fell within the scope of the exclusionary potential of the patent, such fact or characterization cannot immunize the agreement from antitrust attack, since patent and antitrust policies are both relevant in determining the “scope of the patent monopoly”—and consequently antitrust law immunity—that is conferred by a patent.

The Court’s 5-3 decision essentially entails that reverse payment settlement agreements may be a violation of antitrust laws, but the Court took a more pragmatic and fact-based approach to the matter, claiming that the Court of Appeals’ decision would create bad precedent and would incentivize settlements in the pharmaceutical sector in order to claim immunity from antitrust litigation.

The Court acknowledged that reverse payment settlement agreements are not a per se violation of antitrust laws, thus recognizing the impact that such a settlement agreement would have on American consumers in the pharmaceutical market, but their validity should be tested under the rule-of-reason. Yet, the Court did not provide any guidance as to the relevant factors to assess reverse payment settlement agreements, thus leaving to lower courts to ascertain the scope of the existing rule-of-reason precedent to reverse payment settlement agreements.

The Court’s ruling thus conceded that there is a general public interest in settling disputes between parties in order to avoid the heavy costs of litigation, but such large-scale corporate settlements may result in adverse and anticompetitive effects, and that requires analyzing antitrust law and patent law by way of a case-by-case approach.

Justice Breyer, writing for the majority, specifically states that “Solvay’s patent, if valid and infringed, might have permitted it to charge drug prices sufficient to recoup the reverse settlement payments it agreed to make to its potential generic competitors.”  F.T.C. v. Actavis, Inc., 133 S.Ct. 2223, 2230 (2013).  Thus, the Court characterizes this agreement as the creation of a monopoly in that particular brand of drug, AndroGel: if Solvay is able to remove Actavis from the market by preventing Actavis from producing its own generic drug at a lower cost than Solvay, then Solvay would be free to charge whatever price it wishes due to a lack of competition in the market. This, the Court holds, is a monopoly and a violation of antitrust laws (and broadly prohibited by the Sherman Act).

Justice Breyer referred to early precedent set by the Court in the area of antitrust law in order to emphasize that there must be a balancing of interests approach, otherwise known as a pragmatic approach, in order to best serve the interests of both the patent holder, its licensees, as well as the consumers within the general pharmaceutical market. In particular, United States v. United States Gypsum Co., 333 U.S. 364, 390-391 (1948) held that courts must “balance the privileges of [the patent holder] and its licensees under the patent grants with the prohibitions of the Sherman Act against combinations and attempts to monopolize.” Similarly, in Standard Oil Co. (Indiana) v. United States, 283 U.S. 163, 168, the Court held that certain cross-licensing agreements that settled litigation could sometimes “curtail the manufacture and supply of an unpatented product.”

Therefore, Justice Breyer rejects the claim that the dissenting opinion of Chief Justice Roberts that the Court in this decision is creating case law that is unlikely to withstand the test of time.  Contrarily, the Court in its majority opinion attempts to show that indeed previous case law deterred the acts of certain large corporations in order to prevent the anticompetitive effects that could result from such settlement agreements. [Gabriele Accardo and Anthony Reda]

European Commission fines Lundbeck and other pharmaceutical companies for delaying market entry of generic medicines

On 19 June 2013 the European Commission issued a press release stating that it had imposed fines in the amount of € 93,8 million on Lundbeck (a Danish pharmaceutical company) and € 52,2 million on manufacturers of other generic medicines that were producing a cheaper and generic version of Lundbeck’s brand-drug citalopram. The generics manufacturers were notably Alpharma (now part of Zoetis), Merck KGaA/Generics UK (Generics UK is now part of Mylan), Arrow (now part of Actavis), and Ranbaxy. According to the Commission, Lundbeck entered into agreements with these producers in order to delay their entry into the market in breach of Article 101 of the Treaty on the Functioning of the European Union (“TFEU”).

In 2002, citalopram, Lundbeck’s best-selling medicine, was nearing the end of its life-cycle, while its remaining patent protection was limited to certain manufacturing processes. However, as Competition Commissioner Joaquín Almunia noted, when these generic competitors were close to entering the market, Lundbeck did not prevent market entry by successfully enforcing its patent rights. Rather, it simply paid off these other companies. In particular, generic producers agreed not to enter the market in exchange for a substantial sum of money and other inducements (Lundbeck purchased generics’ stock for the sole purpose of destroying it), as well as guaranteed profits in a distribution agreement. Indeed, internal documents discovered by the Commission refer to a “club” being formed and “a pile of $$$” to be shared among the participants.

According to Commissioner Almunia, generics competition brings about substantial benefits in terms of lower prices. In the UK once generic versions of citalopram did enter the market, prices dropped on average by 90%. Furthermore he stressed that “…once the patent over the molecule has lapsed, price competition between the pharmaceutical companies that invented the original medicines and the generic makers plays a crucial role” and that “…competition by generics is also a dynamic force which stimulates pharmaceutical companies to continue to invest in research and to develop innovative treatments, as they cannot rely forever on their blockbuster products.”

Commissioner Almunia confirmed that these so-called “pay-for-delay” deals constitute severe infringements of EU competition law, and must be sanctioned accordingly: “It is unacceptable that a company pays off its competitors to stay out of its market and delay the entry of cheaper medicines. Agreements of this type directly harm patients and national health systems, which are already under tight budgetary constraints. The Commission will not tolerate such anticompetitive practices”. [Gabriele Accardo and Anthony Reda]


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