Quo Vadis Post-Actavis?

For more than 15 years, one of the FTC’s top priorities has been to put an end to anticompetitive reverse-payment settlements between brand-name drug makers and their potential generic rivals. In our view, these settlements are anticompetitive agreements not to compete in which the brand pays the generic to refrain from marketing a lower cost, generic product for a period of time. FTC economists estimate that these agreements cost consumers, insurers, and taxpayers billions of dollars each year in higher drug costs. Moreover, they undermine the regulatory framework of the Hatch-Waxman Act, which was intended to speed the entry of generic drugs and stimulate innovation by research-based pharmaceutical companies.

After many years of advocating against these settlements, in court and elsewhere, the FTC had our break-through moment in June 2013: the Supreme Court resurrected our claims in FTC v. Actavis, Inc., rejecting lower court rulings immunizing reverse-payment settlements that were within the “scope of patent,” and allowing antitrust scrutiny under a rule of reason analysis. The Court made clear that brand pharmaceutical companies cannot avoid the risks of competition simply by sharing the monopoly profits that would otherwise be competed away through lower prices.

The decision was an important victory for consumers and a vindication of basic antitrust and free market principles. But the work necessary to stop anticompetitive reverse-payment settlements did not end there. In establishing the legal standard to be applied in pending and future cases, the Supreme Court left to lower courts the job of fashioning how to apply the legal standard. Far from being the end of the road, it could be viewed as a new beginning.

Today, the FTC continues to devote significant resources to combating anticompetitive pay-for-delay agreements. Shortly after the Court’s decision, the Commission outlined its post-Actavis agenda. Here’s an update on our work-to-date on that to-do list:

1. Pursue pay-for-delay matters currently in litigation and seek appropriate relief for consumers.

One immediate effect of the Court’s decision was to return the Actavis case to the district court for trial. Discovery in that case will close soon, and summary judgment motions are due early next year. But our other case pending before Actavis ended right before trial last June, when Cephalon’s new owner, Teva, agreed to settle charges related to reverse-payment settlements covering Provigil, a sleep disorder drug. As part of the stipulated order entered by the court, Teva made available $1.2 billion in ill-gotten gains to compensate purchasers, including drug wholesalers, pharmacies, and insurers, who overpaid. In addition, Teva, the world’s largest generic drug manufacturer, agreed not to enter into similar pay-for-delay agreements for any of its U.S. operations.

2. Monitor private litigations alleging pay-for-delay agreements and leverage Commission experience and expertise by filing amicus briefs where appropriate.

Since June 2013, the FTC has filed eight amicus briefs to aid a number of district and appellate courts in interpreting the teachings of Actavis. By filing amicus briefs on discrete issues, the Commission can leverage its resources to help advance the development of post-Actavis case law.

For example, one of the threshold issues before courts is whether agreements that include non-cash forms of payments are subject to antitrust scrutiny. In amicus briefs to the First and Third Circuits, we explained that patent litigation settlements that don’t involve cash but instead contain a promise by the brand-name drug firm not to launch its own authorized generic raise the same antitrust concerns addressed by the Supreme Court in Actavis—that is, that potential rivals are agreeing to avoid competition and share the resulting monopoly profits. The Third Circuit recently adopted this position in Lamictal Direct Purchaser Litigation.

This month, the Commission filed another amicus brief in the Wellbutrin XL Antitrust Litigation, focusing on the anticompetitive harm that gives rise to a reverse-payment claim and on possible justifications a defendant can offer in the rule-of-reason analysis. With respect to the anticompetitive harm, the brief explains that a reverse payment from a brand-name drugmaker can violate the antitrust laws by eliminating the risk of generic competition regardless of whether the settlement fully resolves the patent litigation. Paying to eliminate the possibility of an at-risk launch during the pendency of an infringement action raises the same type of competitive harm at issue in Actavis. Further, the brief cautions against confusing antitrust liability, which requires a general showing of harm to the competitive process, with antitrust injury, which requires a specific showing that a party has suffered threatened harm or damages because of the antitrust violation. A reverse-payment settlement can violate the antitrust laws regardless of whether the generic definitively would have otherwise entered the market sooner than permitted by the settlement. On justifications, the brief explains that a reverse payment is not justified by a procompetitive benefit unless the defendant shows how the payment directly promotes that benefit and explains the presence of the reverse payment. For example, the two justifications specifically identified in Actavis—saved litigation expenses and compensation for other services—indicate that the generic company’s decision not to market its product was based on “traditional settlement considerations,” not a sharing of monopoly profits preserved by avoiding competition.

3. Investigate pending pay-for-delay matters, including any new settlements that raise anticompetitive concerns.

The Commission’s first post-Actavis reverse-payment case also involves AndroGel, the product at the center of Actavis. In September 2014, the FTC alleged that AbbVie Inc. and its partner Besins Healthcare Inc. filed baseless patent infringement lawsuits against potential generic competitors to delay the introduction of lower-priced versions of AndroGel. According to our complaint, while the lawsuits were pending, AbbVie then entered into an anticompetitive pay-for-delay settlement agreement with Teva Pharmaceuticals USA, Inc. to further delay generic drug competition. The reverse-payment claim was dismissed by the district court in May 2015, but the sham litigation claim remains pending before the federal court in the Eastern District of Pennsylvania. The Commission seeks injunctive and other equitable relief, including equitable monetary relief.

Today, the Commission filed a second post-Actavis reverse-payment case, alleging that Endo Pharmaceuticals Inc. entered anticompetitive reverse-payment settlements between 2010 and 2012 on its two bestselling branded pharmaceuticals products, Opana ER and Lidoderm. The complaint charges that, in each case, Endo paid the generic company eligible for first-filer exclusivity and that the generic company agreed not to market its generic product for a period of time in exchange for a no-AG commitment—in which Endo agreed not to sell an authorized generic (or AG) for at least the first six months of generic sales—and other compensation. Other companies named in the complaint are Impax Laboratories, Inc. (the first generic on most dosages of Opana ER), Watson Laboratories, Inc./Allergan plc (the first generic for Lidoderm), and Teikoku Pharma USA, Inc./Teikoku Seiyaku Co., Ltd. (Endo’s partner for Lidoderm). With the complaint, the Commission also filed a settlement with the Teikoku entities, in which they agree not to enter into similar reverse-payment agreements for a period of 20 years. Against the remaining defendants, the Commission seeks injunctive and other equitable relief, including equitable monetary relief. This is the Commission’s first case challenging a no-AG commitment as a form of reverse payment.

4. Issue regular reports on pharmaceutical settlements filed with the Commission.

Since 2004, brand-name and generic drug manufacturers have filed certain agreements with the FTC and DOJ as required by the Medicare Prescription Drug, Improvement and Modernization Act (also known as MMA filings). The Bureau of Competition reviews these filings and issues an annual report on the number of final patent settlements filed as well as the incidence of certain terms that may operate as anticompetitive reverse-payment agreements between the brand and a generic entrant.

Our latest (and eleventh) annual report on MMA filings contains some promising signs. As we noted in a previous blog post, in the first year of data since the Actavis decision, potentially unlawful reverse-payment settlements appear to be declining. Even though the number of overall patent settlements filed in FY 2014 was higher than ever before, the percentage of settlements containing reverse payments dropped. Indeed, in the vast majority – more than 80 percent – pharma companies settled patent disputes without any compensation to the generic company. These statistics confirm what the Supreme Court said in Actavis: “parties may well find ways to settle patent disputes without the use of reverse payments.” The recent decline in settlements with reverse payments may signal that the Commission’s commitment to combat anticompetitive agreements is finally paying off.