The Federal Trade Commission (FTC) filed an antitrust complaint this week against Endo Pharmaceuticals and several generic companies, alleging that these companies entered into anticompetitive “reverse payment” settlements of patent infringement litigation under the Hatch-Waxman Act. In its 2013 FTC v. Actavis opinion, the U.S. Supreme Court held that certain settlements involving “reverse payments” may raise antitrust issues, because they represent a payment to a competitor to stay out of the market, rather than reflecting traditional and proper settlement considerations. While the agency’s focus on reverse payments is nothing new, the FTC reports that this is its first complaint targeting a no-authorized-generic (“no-AG”) commitment as a form of reverse payment.
Under the Hatch-Waxman statutory scheme, the first generic company to file a “Paragraph IV” challenge to a patent-protected branded drug is entitled to 180 days of generic market exclusivity when it eventually is approved and launched. However, this exclusivity period is not truly exclusive, since the brand-name manufacturer is permitted to market its own competing “authorized” generic. Since it has been estimated that a “first filer” makes 60 to 80 percent of its profits during this 180-day period, competition from an authorized generic may significantly reduce the generic drug maker’s profits during this crucial 180-day period. Therefore, a branded manufacturer’s agreement to forego marketing its authorized generic during this period may have significant value to the generic first filer, which can charge higher prices in the absence of competition.
In the complaint, the FTC alleges that Endo Pharmaceuticals made “large” and “unjustified” reverse payments to Impax Laboratories for the purpose of delaying the market entry of generic Opana ER, an opioid pain treatment. Of note, the FTC alleges anticompetitive effects not only because the delay extended the length of time during which Endo could charge monopoly prices, but also because the delay allegedly gave Endo time to move the market for Opana ER to a reformulated crush-resistant version that would not be subject to automatic generic substitution. The FTC has expressed concern that certain practices surrounding “product hopping” might raise antitrust concerns. While the complaint does not allege that Opana ER’s “hop” constituted anticompetitive conduct, it is identified as a factor that exacerbated the anticompetitive harm caused by the delayed entry.
The allegedly anticompetitive reverse payments to Endo had two components. The first was a no-AG commitment with a provision to compensate Impax if the market for generic Opana ER turned out to be less valuable than forecast at the time of the settlement. The provision was triggered, the FTC claims, because Endo’s “product hop” successfully destroyed the market for the original Opana ER. The second component was a co-promotion deal for an Impax drug in development for which, the FTC alleged, Endo significantly overpaid.
The complaint also includes claims relating to Endo’s settlement agreements with Watson Pharmaceuticals settling litigation relating to Endo’s Lidoderm product, a transdermal lidocaine patch. Again, the alleged reverse payment consisted of two components – a no-AG commitment and a side deal in which Endo allegedly provided free products potentially worth over $200 million to Watson’s distributor subsidiaries. Of note, with respect to Watson, the FTC asserts not only that the no-AG commitment constitutes an anticompetitive reverse payment because of its value to the first filer, but also that the no-AG commitment itself independently violates the antitrust laws as an unlawful agreement not to compete.
This action will not surprise those who have followed the FTC since the Actavis decision. The FTC has consistently sought to apply the Actavis analysis wherever – in the FTC’s view – the economic logic of that opinion applies. The agency has argued in favor of applying Actavis to noncash payments, an argument that has already prevailed in the circuit courts. The FTC has also indicated that it will scrutinize side deals that accompany settlements to assess whether they might mask an unlawful “pay for delay” arrangement. This week’s filing confirms that the agency will act to enforce these principles as well.