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The Federal Trade Commission (FTC) filed an amicus
brief on
October 9 in U.S. District Court (D.N.J.). In it, the
FTC spells out its arguments why, as part of a pharmaceutical
patent litigation settlement agreement, a branded company's
promise not to launch an authorized generic (AG) version of its
product during the generic firm’s 180-day marketing
exclusivity period is a "pay-for-delay" agreement
in violation of the antitrust laws, if the agreement also contains
the generic's promise to defer its entry. The FTC
argues that so-called "no-AG" agreements fail
under the antitrust analysis recently articulated by the Third
Circuit in the K-Dur decision, which is the subject of
pending petitions for certiorari in the U.S. Supreme
Court.
The complaint in the underlying case, Louisiana Wholesale
Drug Co., Inc. v. GlaxoSmithKline (GSK) and Teva
Pharmaceuticals, can be found
here. The GSK drug at issue is Lamictal, which is used in
the treatment of epilepsy, bipolar disorder and other medical
conditions. The FTC does not take a position on the
ultimate merits of plaintiff's allegations against GSK and
Teva.
Under the Hatch-Waxman law, the first filer of an Abbreviated
New Drug Application (ANDA) – i.e., an
application to launch a generic version of a branded product
– qualifies in certain circumstances for 180-day generic
exclusivity. This means that the FDA cannot grant final
approval to any other ANDAs for the same drug during that period.
Generic exclusivity is an incentive contained in
Hatch-Waxman to spur generic companies to file qualified ANDAs as
quickly as possible, to expedite competition to the brand from
generics that do not infringe the brand’s
patents. Hatch-Waxman does not prohibit the branded
company from launching a generic version of its own product
– i.e., an AG – during that
period.
The launch of an AG creates substantial competition to the
generic product and typically cuts deeply into the generic
product’s revenues. The FTC contends that a
branded company's promise not to launch an AG is tantamount to
a "payment" to the generic firm, because the
absence of AG competition results in substantially greater revenues
for the generic product during its 180-day exclusivity
period. Under the FTC's pay-for-delay theory of
patent litigation settlement agreements (which the Third Circuit
adopted, albeit not in a no-AG case, in K-Dur), a branded
company’s no-AG promise coupled with the generic
company’s promise to defer its entry is
anticompetitive. The FTC argues that, absent the no-AG
promise, the generic firm would either (i) settle for sooner entry
to obtain those revenues, (ii) launch at risk to obtain those
revenues, or (iii) continue to litigate -- all of which are
probabilistically better results for consumers than the
agreement.
According to the FTC:
Indeed, the economic realities of
no-AG commitments require that such promises be analyzed like other
forms of compensation paid to generics. Practically, a
no-AG commitment has the same capacity to purchase delay as a
monetary payment. When a brand competes through an AG, it
siphons substantial revenues from the first-filer generic
company. When the brand agrees to forgo selling an AG, it
essentially hands these revenues back to the first-filer generic
company and, in return, gets a delayed generic entry date.
This amicus brief reflects the substantial boost given
the FTC by the K-Dur decision (at least temporarily,
depending on whether and how the Supreme Court addresses
pay-for-delay agreements). The FTC repeatedly ties its
arguments to K-Dur, for example, in stating that
"[a]llowing pharmaceutical companies to sidestep the
K-Dur rule by simply making non-cash payments would
elevate form over substance, in direct contravention of the
K-Dur court’s instruction to credit 'the
economic realities of the reverse payment settlement rather than
the labels applied by the settling
parties.'"
Interestingly, the FTC has not filed a lawsuit itself
challenging a no-AG patent settlement agreement, even though it has
been on record for some time opposing them. The
K-Dur decision fundamentally changed the risk landscape
for brand-generic patent settlement agreements. Companies
contemplating such a settlement should obtain antitrust counseling
very early in the process.
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