AbbVie and Teva USA recently got slapped with an antitrust class action suit regarding an old Hatch-Waxman reverse payment settlement agreement between Barr Pharmaceuticals, Inc. (“Barr”) and Kos Pharmaceuticals Inc., (“Kos”) regarding Niaspan®, the most effective drug on the market for raising a person’s “good” HDL cholesterol. According to the Complaint, the two companies entered into an alleged “Market Allocation Agreement,” in order to extend Kos’ Niaspan® monopoly. Unless the Supreme Court affirms the Eleventh Circuit’s “scope of the patent” test in Federal Trade Comm’n v. Actavis Inc., et al, (formerly captioned Federal Trade Comm’n v. Watson Pharmaceuticals, Inc., et al.) you can bet that an avalanche of similar antitrust class action suits will follow.
Kos obtained FDA approval to market Niaspan® in 1997. Niaspan® (extended-release niacin), is a once-a-day prescription therapy used to treat mixed lipid disorders. It is also referred to as vitamin B3, as it was the third distinct “B vitamin” to be discovered. The drug is prescribed to patients at risk of, or suffering from, cardiovascular disease and arthrosclerosis progression. By the time it launched Niaspan®, Kos had applied for and obtained nine formulation and method-of-use patents relating to the drug. Given Niaspan®’s unique ability to raise HDL and its effectiveness as a treatment for lipid disorders and arthrosclerosis, it was not surprising when first-filer Barr filed its Abbreviated New Drug Application (“ANDA”) and Paragraph IV certification challenging the validity of Kos’ patents in 2001. In response, Kos filed four patent infringement suits against Barr under Hatch-Waxman — staying final FDA approval of Barr’s ANDA until March, 2005. However, because trial on the consolidated suits was not scheduled until early 2006, and because Barr was prepared for an at-risk launch of generic Niaspan® following FDA final approval but before for trial, Kos made preparations to launch its own generic version of Niaspan® in early 2005, which would have deprived Barr of its 180 day period of generic exclusivity, while simultaneously seeking a preliminary injunction prohibiting Barr’s at-risk launch. Given the high stakes for both companies, Kos and Barr entered into a settlement agreement on the eve of FDA’s scheduled approval of Barr’s ANDA in March, 2005.
Under the terms of the settlement, the two companies entered into licensing, co-promotion and supply agreements, Kos provided Barr with a one time $5 million payment plus quarterly payments until September, 2013 (three months before expiration of the last Niaspan® patents) and Kos agreed not to license an authorized generic of Niaspan®. In return, Barr agreed not to enter the market with its generic version of Niaspan® until September, 2013. Based on the Kos-Barr reverse payment settlement agreement, Kos was able to continue selling branded Niaspan®, earning approximately $435 million in annual sales in 2005. The settlement, which guaranteed Kos patent exclusivity for Niaspan® for the next eight years, was significant to Kos’ fortunes. In 2006, Abbott Laboratories sought to (and eventually did) acquire Kos in order to capitalize on Niaspan®’s potential. It was a smart move. Although Abbott paid over $2 billion for Kos, it used its big pharma market muscle to turn Niaspan® into a $1 billion-plus per year drug. Since the Kos acquistion, Abbott — and since, January, 2013, AbbVie (Abbott’s pharmaceuticals operations subsidiary) – has continued to pay Barr its quarterly payments and Barr (which was acquired by Teva in 2008) has stayed off the Niaspan® market.
Current Antitrust Class Action Suit
The plaintiff, a New York hotel workers union, filed an antitrust class action suit earlier this month decrying the Kos-Barr licensing, co-promotion and supply agreements as a sham settlement agreement and labeling the settlement as an anticompetitive and illegal market allocation agreement that enabled Kos, Barr and its corporate successors to divide unlawful monopoly profits by delaying the entry of cheaper, generic versions of Niaspan® going back to March, 2005. See New York Hotel Trades Council & Hotel Assoc. of New York City, Inc. Health Benefits Fund v. AbbVie, Abott, et.al., Case No. 2:13-cv-02523. Accordingly, the union, on behalf of a class consisting all “end-payors,” is seeking treble damages from AbbVie and Teva on their alleged unlawful profits earned since March, 2005, and a declaratory judgment and injunction against the settlement agreement, which is still in effect for most of the remaining year.
It is not surprising that the class action plaintiff’s attorneys in this case filed the present suit in the Eastern District of Pennsylvania, which lies within Third Circuit. As we noted in an earlier post discussing the Actavis pay-for-delay case before the Supreme Court, the Third Circuit in In re K-Dur Antitrust Litigation rejected the broad “scope of the patent” test followed by the Eleventh, Second and Federal Circuits (in which patents are presumed valid) in favor of the quick look “rule of reason” test (in which patents are effectively presumed invalid, at least where a reverse payment is involved). (See “Pay for Delay and Drug Design Defect Cases Take Center Stage at Supreme Court”). If the Supreme Court were to reverse the Eleventh Circuit’s scope of the patent test, as most observers are predicting, every reverse payment settlement over the past 10 years could very well be subject to the same kind of lawsuit filed against AbbVie and Teva, even if the Court doesn’t go as far as adopting the Third Circuit’s rule of reason test. Moreover, as we discussed in our last post regarding the Amphastar v. Aventis lawsuit (see “Amphastar’s Qui Tam Suit Against Aventis Shows Importance of Patents”), once you begin presuming that patents are invalid, why stop calculating damages at some arbitrary point like a settlement date? If the generic drug company that files a Paragraph IV certification is always going to be presumed to be correct when it certifies that the branded drug manufacturer’s patent is invalid, not infringed or otherwise unenforceable, then it won’t be long before the plaintiffs’ lawyers argue that damages should be calculated not from the point of the reverse payment settlement, but from the point of the branded drug’s launch. Litigation along these lines could be devastating for branded companies (and would hurt generics that have entered reverse payment settlements too).
On a final note, I feel compelled to make this disclaimer: as the former Chief Compliance Officer for Kos, I (as well as all other Kos employees) was a beneficiary of the Kos-Barr settlement agreement, which ended the threat of Barr’s at-risk launch and settled the question of the validity of Niaspan®’s patents. Moreover, I have had low “good” HDL cholesterol for many years and have taken Niaspan® to boost my HDL numbers. So, although I am a little biased about Kos and the merits of Niaspan®, I would like a cheaper version of Niaspan® same as the next guy. However, if the generic-branded pendulum keeps tilting against branded manufacturers, it will be less likely that innovative products like Niaspan® will be developed in the future. Such may be the unintended consequences of a Supreme Court decision that bolsters the myopic view shared by many that branded drug profits are always a bad thing.