By Sheri Qualters, From The National Law Journal

Drug companies’ “pay for delay” deals scrutinized.

Two years after the U.S. Supreme Court’s landmark decision in Federal Trade Commission v. Actavis erected a roadblock against pharmaceutical companies paying competitors to delay bringing generics to market, appeals courts are extending the ruling beyond cash deals.

“What we’re seeing is an explosion of litigation in the aftermath of Actavis,” said Scott Hemphill, a New York University School of Law professor who studies competition in the pharmaceutical industry. “Actavis set the table for lower courts, and lower courts are now scrambling to fill in all the details.”

The high court held that government agencies and private parties could challenge “pay-for-delay” settlements between generic and brand-name drug companies. These agreements, also known as reverse-payment settlements, involve inducements by brand-name drug companies to generic manufacturers to keep out of the market. They generally come in the form of settlements of brand companies’ patent lawsuits against generic drug makers seeking market entry.

Since straight cash payments are more likely to face antitrust scrutiny, brand drug companies are coming up with increasingly creative ways to compensate generic drug companies. Challenges to those deals are making their way to state and federal appellate courts. The trend reflects the length to which brand companies will go to protect market dominance, said Michael Carrier (left), a Rutgers School of Law – Camden professor who participated as amicus in several post-Actavis appellate cases. “There’s a lot of money at stake with these blockbuster drugs, and the brand companies are doing everything possible to delay generic entry as long as possible.”

In June, the U.S. Court of Appeals for the Third Circuit, in King Drug Co. of Florence v. Smithkline Beecham, analyzed an antitrust lawsuit involving Glaxo­Smith­Kline PLC’s epilepsy and bipolar drug Lamictal. After the district court judge found Glaxo’s main patent claim for the drug invalid, the parties reached a settlement whereby Glaxo allowed Teva Pharmaceutical Industries Ltd. to roll out a generic of its chewable version, which has a $50 million annual market size.

Glaxo agreed not to launch its own unbranded version of the tablet form of the drug, which has an annual market size of $2 billion, during Teva’s 180 days of market exclusivity as the first generic authorized by the U.S. Food and Drug Administration. The Third Circuit said that deal was subject to antitrust scrutiny. “[It] may represent an unusual, unexplained transfer of value from the patent holder to the alleged infringer that cannot be adequately justified,” Judge Anthony Scirica wrote. The panel judges, he wrote, “do not believe that Actavis’s holding can be limited to reverse payments of cash.” The court vacated the District of New Jersey’s dismissal of direct purchasers’ case against the two and remanded to the trial court.

It was the first court of appeals ruling applying Actavis, and also the first to frown on this sort of agreement by a brand drug company, said Markus Meier (right), who heads the health care division of the Federal Trade Commission’s Bureau of Competition. “The decision makes clear that it does and can give rise to antitrust liability,” Meier said. His agency filed an amicus in support of the plaintiffs and participated in the oral arguments.

Glaxo continues to defend such agreements. “Settlements like this one are pro-competitive because they allow parties to resolve expensive, business-disrupting litigation and permit competition,” spokeswoman Jenni Brewer Ligday said in an email. Teva declined to comment.

Two consolidated First Circuit cases confront the same issue. Direct purchasers and end-payers of the Loestrin 24 Fe contraceptive are suing Warner Chilcott PLC and generic makers including Lupin Ltd. and two units of Actavis Inc. over side deals that delayed generic entry. Actavis acquired Allergan and Warner Chilcott and later changed the corporate name to Allergan PLC.

In May, the California Supreme Court in In re Cipro Cases I & II offered the first state appellate guidance on a pay-for-delay settlement post-Actavis. The court found that Barr Laboratories Inc.’s $398.1 million agreement with Bayer A.G. to postpone its generic version of the antibiotic Cipro violated state antitrust laws. The deal stemmed from Barr’s challenge to Bayer’s patent. The court held that a payment “purchasing freedom from the possibility of competition” is illegal.

“The decision is a big win for consumers, because it means that the vast majority of pay-for-delay settlements will be illegal in California, and companies will be less likely to enter into those agreements if they are banned in the country’s largest market,” said Mark Lemley, a Stanford Law School professor and Durie Tangri partner who argued for the plaintiffs.

Kirkland & Ellis partner Edwin U, who argued for Barr’s parent company, Teva, did not respond to a request for comment.

Courts are also grappling with disputes involving more intricate deals. The Second Circuit held in May that Actavis’ withdrawal of Alzheimer’s drug Namenda IR near the end of its patent monopoly term was anti-competitive. The move forced patients to switch to a different formulation, Namenda XR, which relied on different patents. The court found that Actavis hoped through this so-called “product hopping” to maintain its monopoly in the face of expected generic drug entrants.

INJUNCTION AFFIRMED

Judge John Walker Jr.’s opinion affirmed a December preliminary injunction in the Southern District of New York requiring Actavis to continue offering the first formulation.

New York Attorney General Eric Schneider­man’s office brought the case, People of the State of New York v. Actavis, but declined to comment on the outcome. The company intends “to continue our strong efforts to convey the significant benefits” of the new formulation, said then-Actavis chief executive Brent Saunders, now Allegan’s chief executive, in a press release. Meanwhile, a District of Massachusetts case filed in late June against Novartis A.G. and two subsidiaries alleged the corporation filed a sham patent case against generic company Sun Pharmaceutical Industries Inc. so it could broker a settlement that delayed a generic version of Novartis’ myeloid leukemia drug Gleevec for seven months. Two end-payer plaintiffs seek a permanent injunction to stop the companies from enforcing their agreement.

According to a press release from Hagens Berman Sobol Shapiro of Seattle, one of five plaintiffs firms that filed the purported class action, this is the first time drug buyers have tried to stop antitrust overcharges or damages tied to a delayed generic launch before it happened.

In an email, Novartis spokesman Eric Althoff wrote, “We will vigorously defend our patent rights and litigate these improper allegations.”

The biotechnology and pharmaceutical worlds are watching the case, said Troy Groetken, a partner at Chicago intellectual property firm McAndrews, Held & Malloy whose practice includes litigation and transactional work. If Novartis’ patent case was in fact frivolous, it would represent a new delay tactic, he said. “The outcome of this case will definitely set the tone for whether or not the court would allow such litigation tactics by brand against generics,” he said.

IMAGES:

iStockphoto/Felipe Caparrós Cruz

Professor Michael Carrier of Rutgers School of Law, during a panel discussion at the National Press Club titled “Competition Law & Patent Assertion Entities: What Antitrust Enforcers Can Do.” June 20, 2013. Photo by Diego M. Radzinschi/THE NATIONAL LAW JOURNAL.

Markus Meier, who heads the healthcare division of the Federal Trade Commission’s Bureau of Competition.   HANDOUT.

For more on this story go to: http://www.nationallawjournal.com/id=1202732509104/An-Antitrust-Litigation-Explosion-#ixzz3gRjhnvhb