On March 30, 2016, the Federal Trade Commission filed a complaint in the United States Federal District Court for the Eastern District of Pennsylvania alleging that Endo Pharmaceuticals Inc. and several other drug companies violated antitrust laws by using pay for delay settlements to block consumers’ access to lower-cost generic versions of Opana ER and Lidoderm. According to the FTC, this enforcement action is the first FTC case challenging an agreement not to market an authorized generic – often called a “no-AG commitment” – a form of reverse payment.
This enforcement action by the FTC comes thanks to a June 2013 ruling from the United States Supreme Court in FTC v. Actavis, Inc. In a nutshell, writing for the majority, Justice Breyer explained that there is no valid reason for the FTC to be denied the opportunity to pursue reverse payments as an antitrust violation. Breyer, who was joined by Justices Kennedy, Ginsberg, Kagan, and Sotomayor, determined that reviewing courts should apply the rule of reason when determining whether reverse payments violate antitrust law. See Supremes Say Reverse Payments May be an Antitrust Violation. Prior to the ruling in FTC v. Actavis, it was widely believed that the FTC did not have authority to challenge reverse payments as settlements of patent disputes. See Pharma Reverse Payments Are Not an Antitrust Violation.
“Settlements between drug firms that include ‘no-AG commitments’ harm consumers twice – first by delaying the entry of generic drugs and then by preventing additional generic competition in the market following generic entry,” said FTC Chairwoman Edith Ramirez. “This lawsuit reflects the FTC’s commitment to stopping pay for delay agreements that inflate the prices of prescription drugs and harm competition, regardless of the form they take.”
The FTC’s complaint alleges that Endo engaged in a pay for delay scheme by paying the first generic companies that filed for FDA approval – Impax Laboratories, Inc. and Watson Laboratories, Inc. – to eliminate the risk of competition for Opana ER (an extended-release opioid used to relieve moderate to severe pain) and Lidoderm (a topical patch used to relieve pain associated with post-herpetic neuralgia, a complication of shingles), in violation of the Federal Trade Commission Act.
Under federal law, the first generic applicant to challenge a branded pharmaceutical’s patent, referred to as the first filer, may be entitled to 180 days of exclusivity as against any other generic applicant upon final FDA approval. But a branded drug manufacturer is permitted to market an authorized generic version of its own brand product at any time, including during the 180 days after the first generic competitor enters the market. According to the FTC, a no-AG commitment can be extremely valuable to the first-filer generic, because it ensures that this company will capture all generic sales and be able to charge higher prices during the exclusivity period.
The FTC is asking the district court to declare that the defendants’ pay for delay conduct violates the antitrust laws, and further seeking an order that the companies disgorge their ill-gotten gains. Of course, the FTC asks for a permanent bar to prevent the companies from engaging in similar anticompetitive behavior in the future.
On a side note, while I am not about to justify anticompetitive behavior, I do personally find it amusing in a very hypocritical way that the FTC is asking for a permanent injunction to forever prevent anticompetitive behavior. Why would the FTC need a permanent injunction? A patent owner who has successfully demonstrated that a patent, which is a wasting asset, cannot get a permanent injunction to order the infringer to cease and desist all current and future infringing activity. Those who complain that permanent injunctions for patent owners are unfair and unjust say that patent owners simply need to start all over again with a fresh lawsuit if infringement continues. So if that rule makes sense for patent owners how could it not make sense as a limitation on the assertion of government power? After all, the FTC has been among the agencies that have been suspicious of patent owners enforcing their rights. They can be suspicious, I guess, but to then turn around and request a permanent injunction themselves strikes me as enormously hypocritical.
In any event, the FTC complaint makes the following factual allegations about this pay for delay settlement:
- In 2010, Endo and Impax illegally agreed that until January 2013, Endo would not compete by marketing an authorized generic version of Endo’s Opana ER. In exchange, Endo paid Impax more than $112 million, including $10 million under a development and co-promotion agreement signed during the same time period. Endo used this period of delay to transition patients to a new formulation of Opana ER, thereby maintaining its monopoly power even after Impax’s generic entry. In 2010, Opana ER sales in the United States exceeded $250 million.
- In May 2012, Endo and its partners, Teikoku Seiyaku Co. Ltd. and Teikoku Pharma USA, Inc., illegally agreed with Watson Laboratories, Inc. that until September 2013, Watson would not compete with Endo and Teikoku by marketing a generic version of Endo’s Lidoderm patch. In exchange, Endo paid Watson hundreds of millions of dollars, including $96 million of free branded Lidoderm product that Endo and Teikoku gave to Watson. As a result, Endo illegally maintained its monopoly over Lidoderm. In 2012, Lidoderm sales in the United States approached $1 billion.
- Endo and Watson illegally agreed that, for 7½ months after September 2013 (including the 180-day first-filer exclusivity period for which Watson was eligible), Endo would not compete by marketing an authorized generic version of Lidoderm. This agreement left Watson as the only generic version of Lidoderm on the market, substantially reducing competition and increasing prices for generic lidocaine patches. As a result, Watson made hundreds of millions of dollars more in generic Lidoderm sales.
The complaint also names Allergan plc, the parent company of Watson, and Endo International plc, the parent company of Endo Pharmaceuticals Inc.
With the complaint, the Commission also filed a stipulated order for permanent injunction against Teikoku Seiyaku Co., Ltd. and Teikoku Pharma USA, Inc., settling charges for those two defendants. Under the stipulated order, the Teikoku entities are prohibited for 20 years from engaging in certain types of reverse-payment agreements, including settlements containing no-AG commitments like those alleged in the complaint, which on its face is extraordinarily heavy-handed given that the Supreme Court has not said that all reverse payment agreements are per se antitrust violations. The agreed-upon order preserves Teikoku’s ability to enter other types of settlement agreements in which the value transferred is unlikely to present antitrust concerns, such as those providing payment for saved future litigation expenses.
The Commission vote to file the complaint was 3-1, with Commissioner Maureen K. Ohlhausen voting no and issuing a dissenting statement in connection with this vote. In her dissent Commissioner Ohlhausen explained that she did think there was an antitrust violation but disagreed with seeking disgorgement from the defendants.