NY Attorney General forges new ground in scrutiny of pharmaceutical agreements with first-filer exclusivity no-challenge settlement

The New York Attorney General’s (NYAG) office has announced that it has reached a settlement with two generic drug manufacturers regarding allegations that an agreement between the firms not to challenge each other’s eligibility for regulatory exclusivity was anticompetitive. Although not a traditional reverse payment patent settlement agreement between branded and generic drug companies, the settlement reflects a move by antitrust enforcers to apply reverse payment case law and principles to a broader range of agreements in the pharmaceutical space in the wake of FTC v. Actavis. Interestingly, the case was brought by the NYAG alone; the FTC, which is typically very active and aggressive on these matters, was not part of the settlement.

Background

The settlement resolves an investigation by the NYAG into a 2010 agreement between Ranbaxy Pharmaceuticals, Inc. (Ranbaxy) and Teva Pharmaceuticals USA (Teva) related to atorvastatin calcium, the generic version of Lipitor®. In 2002, Ranbaxy was the first generic drug company to file an Abbreviated New Drug Application (ANDA) to market atorvastatin calcium. It was expected to be eligible to enjoy the 180-day exclusivity period that is generally granted to the first generic drug company to file an ANDA for a branded product coming off of exclusivity. Teva and other generic drug companies also filed ANDAs for atorvastatin calcium. Although Pfizer, the maker of Lipitor, sued Ranbaxy, Teva, and other ANDA filers for alleged infringement of the atorvastatin calcium patents, that litigation settled and Ranbaxy received a license to market atorvastatin calcium. The license permitted Ranbaxy to enter the market in late November 2011, and Ranbaxy’s first-filer exclusivity would have lasted until late May 2012.

However, before Ranbaxy’s ANDA was approved, the FDA suspended its substantive review of the ANDA due to concerns about some of the data underlying its application. Because of this delay, Ranbaxy was concerned that it would not be prepared to enter the market as of the date on which the Pfizer license was to commence. In the face of this risk, Ranbaxy approached Teva and reached an agreement under which Teva would launch its generic atorvastatin drug in place of the Ranbaxy product and the two firms would split the profits.

 The agreement also contained another provision, however, which was unrelated to generic atorvastatin and served as the focus of the NYAG’s scrutiny. The provision provided that for a period of at least two years neither Ranbaxy nor Teva would “challenge the other Party’s right to First to File Exclusivity for any ANDAs filed as of the Effective Date, or the viability, completeness or status of any ANDAs, filed with FDA as of the Effective Date.” Assuming Ranbaxy or Teva entered the market in November 2011, the agreement would last until May 2014, and Ranbaxy did indeed enter in November 2011. 

Under the terms of the settlement reached with the NYAG, the parties agreed to pay the state US$300,000 and terminate the agreement.

Analysis

In its findings, the NYAG explicitly analogized the so-called “No-Challenge” provision to a reverse payment patent settlement because, according to the NYAG, “the effect of a successful challenge to a [Sole First Filer Exclusivity] is not unlike the effect of a successful challenge to a brand manufacturer’s patent — faster and greater entry of multiple generic competitors, leading to faster and greater price reductions.”

 The core theory of harm reflected in the NYAG’s findings and its announcement of the settlement — namely, that the agreement served only to protect each firm’s market position and reduce the risk that either would be deemed ineligible for first-filer exclusivity — is strongly reminiscent of language in the U.S. Supreme Court’s recent ruling on reverse payment patent settlements in Actavis. In Actavis, Justice Breyer, writing for the majority, described the competition concern in that context arising because a patentee was using its monopoly profits to “prevent the risk of competition.” (emphasis added)

Although the NYAG’s analysis relies heavily upon Actavis and other principles that have been applied in the context of traditional reverse payment patent settlements, the settlement also suggests that the NYAG is looking to push beyond the bounds of Actavis. Specifically, in its findings the NYAG also analogizes the No-Challenge provision to “an agreement between competitors to divide markets,” which if not per se illegal, is at a minimum “inherently suspect under the antitrust laws and would be presumed unlawful by a court.” In Actavis, the Supreme Court explicitly declined to adopt the position advanced by the FTC in that case that reverse payment patent settlements should be presumptively unlawful and subject only to “quick look” rule of reason analysis. 

The NYAG also considered whether the No-Challenge provision was reasonably necessary to facilitate the sharing of confidential information in furtherance of the atvorastatin arrangement, and therefore a lawful ancillary restraint to an otherwise pro-competitive agreement. The NYAG ultimately concluded that it was not for three primary reasons:

• the parties only needed to share a limited amount of confidential information in order to carry out the atorvastatin arrangement and other provisions contained in the agreement were sufficient to address these concerns;  
• the No-Challenge provision was not “narrowly tailored to address any legitimate confidentiality concerns” because the No-Challenge provision covered a broad range of drugs and prohibited any and all challenges, regardless of the legal or factual basis; and  
• the parties could have used a less restrictive means to address any confidentiality concerns (e.g., firewalls).

Conclusion

Although the specific type of agreement at issue here is likely to be rare, the analytical framework applied by the NYAG is potentially applicable to countless types of other agreements entered into by branded and generic drug companies alike. In particular, in the event this approach is adopted by other antitrust enforcers such as the FTC or other state attorneys general, it could usher in scrutiny of agreements that have not previously been a primary focus of regulators and private plaintiffs. Thus, it remains important to carefully consider the antitrust implications of any agreement in the pharmaceutical space relating to the timing of generic entry into the market.