January 27, 2015

2014 Year in Review: Antitrust Developments in the Pharmaceutical Industry

Arnold & Porter Advisory

In 2014, both unilateral business conduct and M&A transactions in the pharmaceutical industry were subject to significant antitrust scrutiny by the courts and enforcers.1 Much of the activity on the conduct side was shaped by the Supreme Court's 2013 decision in Federal Trade Commission v. Actavis, Inc.,2 which subjects reverse-payment patent litigation settlements to a rule of reason analysis. The Actavis decision has increased the level of private plaintiff litigation and given new life to the Federal Trade Commission (FTC)'s reverse-payment enforcement agenda, as the FTC has sought to restart two ongoing litigations and has initiated its first new reverse-payment challenge since 2009. The success of the FTC's efforts in this regard remain to be seen, and 2015 looks to be a critical year for determining the potential implications of Actavis. The last year also saw private and government challenges to a range of unilateral conduct in the pharmaceutical industry, including alleged decisions by branded drug manufacturers not to sell their products to generic drug manufacturers and efforts by branded drug manufacturers to substitute new products, such as extended releases, and to stop promoting or selling the prior versions of their products.

In addition, there were numerous large M&A transactions in the pharmaceutical sector in 2014, a number of which resulted in divestitures through consent orders from the FTC. In particular, FTC leadership announced a focus on deals with implications for potential competition.3 Finally, the FTC also issued Hart-Scott-Rodino (HSR) premerger notification rules on the transfer of pharmaceutical patent rights. Those rules are now subject to an Administrative Procedure Act challenge by the Pharmaceutical Research and Manufacturers of America (PhRMA) that is pending in the D.C. Circuit.

Post-Actavis: Reverse-Payment Conflict Continues

The Supreme Court's decision in Actavis rejected the "scope-of-the-patent" test and instead held that reverse-payment patent litigation settlements are subject to a rule of reason analysis. In 2014, challenges that had been on hold pending resolution at the high court began to restart, including two FTC litigations: the Actavis case itself, which had been dismissed prior to the start of discovery, was remanded to the Northern District of Georgia, and Federal Trade Commission v. Cephalon, Inc.,4 which involves the settlement of patent litigation that allegedly delayed the entry of generic Provigil, a treatment for narcolepsy. The FTC also issued a complaint in September challenging the use of patent infringement lawsuits by AbbVie Inc., and its partner Besins Healthcare, Inc., to delay the introduction of generic versions of Androgel, the testosterone replacement drug also at issue in Actavis.5 The FTC alleges that AbbVie then settled its allegedly "baseless" lawsuit through an anticompetitive reverse-payment settlement agreement with Teva Pharmaceuticals USA, Inc. to further delay generic entry.6 AbbVie has argued that the FTC has failed to state a claim under Actavis because, among other things, there is no anticompetitive effect from the agreement.7

Although Actavis requires courts to engage in a rule of reason analysis, the Supreme Court left it to lower courts to determine the exact contours of that analysis.8 Perhaps predictably, district courts have differed widely in how they apply Actavis, and have struggled with a gating issue: whether the Actavis decision applies to a settlement including the delay of generic entry in exchange for non-cash compensation, such as a license agreement or an agreement by the branded drug manufacturer not to launch an authorized generic version of the drug. District courts have split, with some limiting Actavis to cash payments and others finding that non-cash compensation sufficed to bring the agreements within the ambit of Actavis.9

In November, the Third Circuit heard oral arguments in In re Lamictal Direct Purchaser Antitrust Litigation, where plaintiffs appealed a District of New Jersey decision dismissing a challenge to a "no-AG" agreement.10 As the first appellate review post-Actavis, the Third Circuit's decision in Lamictal may have important implications for reverse-payment challenges going forward.

"REMS" and Refusals to Deal

Another hot topic in 2014 was whether and under what circumstances branded drug manufacturers may decide not to sell samples to generic drug manufacturers. The Hatch-Waxman Act requires that before the Food & Drug Administration (FDA) can approve a generic product, a generic drug manufacturer must, among other things, show that its generic product is "bioequivalent" through testing against samples of the relevant branded drug.11 The court in Mylan Pharmaceuticals, Inc. v. Celgene Corporation recently denied in part a motion to dismiss Mylan's allegations that Celgene refused to sell samples of its cancer drugs, Thalomid and Revlimid, to Mylan for bioequivalence testing purposes.12 Generic drug manufacturers typically can purchase samples on the open market, but certain drugs, including Revlimid and Thalomid, are subject to Risk Evaluation and Mitigation Strategies (REMS) programs required by the FDA. To ensure that patient safety is not compromised, REMS programs sometimes place limitations on the sale and distribution of the drug and require that purchasers meet certain standards.13 Here, Mylan alleges that Celgene effectively refused to deal with Mylan by imposing what Mylan claims are voluminous and unnecessary requests for additional information prior to sale, to prevent Mylan from accessing samples of Thalomid and Revlimid.14 Celgene contends that its insistence on such restrictions and guarantees were motivated by patient safety considerations and potential products liability concerns, and argues further that it has no affirmative duty to deal with Mylan under the antitrust laws or any other statute.15

Members of Congress also engaged on this issue. In September, Congressmen Steve Stivers (R-OH) and Peter Welch (D-VT) introduced the Fair Access for Safe and Timely (FAST) Generics Act. This proposed legislation would have amended the Food, Drug & Cosmetic Act to require branded drug manufacturers to sell samples of REMS-restricted drugs to FDA-authorized recipients.16

Substitution of a New Drug for Older Drugs

Another business practice that was the subject of litigation in the last year is the introduction by branded drug manufacturers of a new drug formulation coupled with the withdrawal of an older formulation targeted by generics. Because of state generic drug substitution laws, pharmacists routinely substitute a bioequivalent generic version of a drug if one is available, unless the prescription specifies that the branded drug be used. Branded drug companies sometimes offer a new, more advanced or improved formulation of a branded drug before the introduction of generic competition for the older formulation, and may halt the manufacture of the older formulation. If the new, more advanced or improved formulation is a success, generic versions of the older formulation are likely to be less profitable.

In 2014, the New York Attorney General's office obtained a preliminary injunction to stop Actavis from halting sales of an immediate release version of its Alzheimer's disease drug, Namenda, in favor of a new, extended release version.17 The appeal is now pending in the Second Circuit Court of Appeals. A private challenge to similar allegations survived a motion to dismiss in In re Suboxone (Buprenorphine Hydrochloride and Naloxone) Antitrust Litigation, where private plaintiffs accused Reckitt Benckiser Inc. of preventing generic competition by introducing sublingual Suboxone film for the treatment of opiod dependence and publicly disparaging the safety of the original formulation, sublingual Suboxone tablets.18 The court in the Eastern District of Pennsylvania held that these allegations, when combined with other allegedly anticompetitive conduct, were enough to survive a motion to dismiss.19

FTC Continues Aggressive Merger Enforcement

In 2014, the FTC continued its aggressive efforts in the pharmaceutical industry and accepted consent orders in eight pharmaceutical transactions.20 In particular, the FTC has been concerned with the impact of deals on potential competition, focusing on instances in which one or both of the merging parties has a potentially competing drug in the pipeline.21 In these circumstances, the FTC has required the merging parties to divest rights and assets associated with the potentially overlapping product. For example, in Medtronic, Inc.'s acquisition of Covidien plc, both companies were developing drug-coated balloon catheters to treat peripheral artery disease but neither had FDA approval. Under the consent order, Medtronic and Covidien agreed to transfer the rights and assets related to Covidien's drug-coated balloon catheter products, which are currently in the clinical-trial stage of the FDA approval process, to Spectranetics Corporation.22 Similarly, to resolve competition concerns with Akorn, Inc.'s acquisition of VersaPharm, Inc., the FTC required Akorn to divest its Abbreviated New Drug Application for generic injectable rifampin (for the treatment of tuberculosis) to Watson Laboratories, Inc.23 According to the FTC's complaint, only VersaPharm and two other companies had FDA approval for generic injectable rifampin.24 The FTC alleged further that absent the acquisition Akorn likely would have entered this market and competed with VersaPharm in the near future.25 As a result, the FTC required a divestiture to protect what it viewed as potential competition.

Pharmaceutical Patent Transfer Rules

In November 2013, the FTC issued HSR premerger notification rules on the transfer of pharmaceutical patent rights. The rules require reporting for the transfer of "all commercially significant rights" to a pharmaceutical patent (assuming the transaction meets the size-of-the-person and size-of-the-transaction tests for reportability), even if the transaction includes only a partial transfer of rights under that patent. The rules expand the type of patent transfer agreements that must be filed under the HSR Act, but the expansion is limited to pharmaceutical patents. PhRMA challenged the FTC's authority to enact the rules, on the grounds that the rules discriminate against a particular industry. In June, the District Court for the District of Columbia upheld the rules, holding that Congress did not intend to limit the FTC's ability to issue industry-specific rules.26 An appeal by PhRMA of the district court's decision, in which PhRMA argues that the rules are arbitrary and capricious, is currently pending before the District of Columbia Circuit.

Forecast for 2015

In 2015, we expect continued enforcement attention and private litigation on these and other issues. In particular, courts seem poised to refine reverse-payment patent settlement law under Actavis and to provide more guidance on a variety of business practices in the pharmaceutical industry. Finally, the FTC is likely to maintain its focus on acquisitions and issues of potential competition in the pharmaceutical industry.

  1. For a discussion of EU antitrust developments in the pharmaceutical industry, please see the Arnold & Porter Advisory on that market authored by our colleagues in Brussels.

  2. 133 S. Ct. 2223 (2013).

  3. See A Discussion with Director of the Bureau of Competition at the FTC Deborah L. Feinstein, Antitrust Health Care Chron., Oct. 2014, at 4-5; Deborah L. Feinstein, Director, Bureau of Competition, Federal Trade Comm'n, Remarks to IBC Legal's Advanced U.S. Antitrust Conference - San Francisco 2014: The Forward-Looking Nature of Merger Analysis (Feb. 6, 2014), at 12-16.

  4. First Amended Complaint, No. 2:08-cv-2141 (E.D. Pa. filed Aug. 12, 2009).

  5. Complaint, FTC v. AbbVie Inc., et al., No. 2:14-cv-05151 (E.D. Pa. filed Sept. 26, 2014).

  6. Id. at 1.

  7. Memorandum in Support of Defendants' Motion to Dismiss Complaint at 4-5, No. 2:14-cv-05151 (E.D. Pa. filed Nov. 12, 2014). AbbVie contends that the agreement would not be anticompetitive under Actavis because the consideration was neither "large" nor "unexplained" and, in fact, increased competition through an early-entry license agreement for Androgel and a supply agreement on an unrelated drug. Id. at 1-4. Furthermore, AbbVie asserts that, even if Teva was able to launch its Androgel product, that product was determined to be not "therapeutically equivalent" and was unlikely to compete with branded Androgel. Id. at 4-5.

  8. 133 S. Ct. at 2238.

  9. Compare In re Nexium (Esomeprazole) Antitrust Litig., No. 12-md-02409, 2014 WL 4370333, at *23 (D. Mass. Sept. 4, 2014) ("unlawful reverse payments are not limited to monetary payments.") with In re Lamictal Direct Purchaser Antitrust Litig., 18 F. Supp. 3d 560, 568 (D.N.J. 2014) ("the Supreme Court considered a reverse payment to involve an exchange of money.").

  10. 18 F. Supp. 3d 560.

  11. See 21 U.S.C. § 355(j).

  12. See Oral Opinion, No. 2:14-cv-2094 (D.N.J. Dec. 22, 2014).

  13. See 21 U.S.C. § 355-1.

  14. Complaint at 3-4, No. 2:14-cv-2094 (D.N.J. filed Apr. 3, 2014).

  15. Brief in Support of Defendant Celgene Corporation's Motion to Dismiss at 2-4, 14-23, No. 2:14-cv-2094 (D.N.J. filed May. 25, 2014).

  16. H.R. 5657, 113th Cong. (2014). It is unclear whether the same bill, or one similar, will be introduced in the 114th Congress.

  17. New York v. Actavis PLC and Forest Labs., LLC, No. 14 Civ. 7473, 2014 WL 7015198, at *1 (S.D.N.Y. Dec. 11, 2014).

  18. No. 2445 13-MD-2445, 2014 WL 6792663, at *1 (E.D. Pa. Dec. 3, 2014).

  19. Id. at *11.

  20. The eight consent orders in pharmaceutical transactions include Eli Lilly and Company's acquisition of Novartis Animal Health, in which the parties agreed to divest a product line of medications for treating heartworm disease in dogs.

  21. See A Discussion with Director of the Bureau of Competition at the FTC Deborah L. Feinstein, Antitrust Health Care Chron., Oct. 2014, at 4 ("One of the big issues is the recent wave of pharmaceutical mergers. . . . We are looking at those very carefully. We are seeing a number of brand-generic deals and generic-generic deals. Often, these involve future competition, where two companies are developing competing drugs.").

  22. In re Medtronic, Inc. and Covidien plc, No. 141-0187, 2014 WL, 6806844, *1 (F.T.C. Nov. 26, 2014).

  23. In re Akorn, Inc., Docket C-4479, No. 141-0162, 2014 WL 3884137, *1 (F.T.C. Aug. 1, 2014).

  24. Id. at 2.

  25. Id.

  26. Pharm'al. Research and Mfrs. of Am. v. FTC, No. 13-1974, 2014 WL 2431242, *14 (D.D.C. May 30, 2014).


Matthew Tabas
Matthew Tabas
Senior Associate
Washington, DC
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