FTC Moves as Amicus in Effexor Litigation, and Gets Its (Well-Earned) Comeuppance

by McDonnell Boehnen Hulbert & Berghoff LLP

[author: Kevin E. Noonan]

Federal Trade Commission (FTC) SealThe Federal Trade Commission, in an attempt to extend the scope of its signal (and sole) victory in its crusade against reverse payment settlement agreements in ANDA cases, In re K-Dur Antitrust Litigation, has moved for leave to file an amicus brief in another case in a district court in the Third Circuit asserting antitrust and unfair competition from such an agreement, in Professional Drug Co., Inc., et al. v. Wyeth, Inc. (aka In re Effexor Antitrust Litigation).  Having backed off from its previous stance that reverse payment settlement agreements were "naked" restraints of trade and thus per se violation of the Sherman Act, to the Third Circuit's imposition of a rebuttable presumption of illegality to be assessed under a "quick look" rule-of-reason, the FTC seeks to include within the scope of the presumption agreements where the branded drug company agrees not to market an "authorized generic" form of its drug during the 180-day exclusivity period granted the successful first ANDA filer.

WyethIn the case at issue, which is on-going, the agreement was between Wyeth and Teva in ANDA litigation under the Hatch-Waxman Act (35 U.S.C. § 271(e)(2)) over Effexor® (venlafaxine).  Wyeth and Teva settled their ANDA litigation and, as first filer, Teva was entitled to 180 days of exclusivity as the only generic provider of Effexor®.  The plaintiffs in the litigation, brought as a class action by Professional Drug Co., Inc. (a "direct purchaser" of the drug) alleged fraudulent procurement by Wyeth of three Orange Book listed formulation patents relating to extended-release (XR) forms of the drug and sham ANDA litigation to enforce these patents.  The effects of these alleged shenanigans were to delay generic entry from June 2008 (when the venlafaxine patent expired) to "at least" June 2010.

As part of its settlement with Wyeth, Teva was able to sell its generic (instant release) Effexor® more than 18 months before the original venlafaxine expired, and Wyeth agreed not to sell an authorized generic version of instant release Effexor® during this period.  Wyeth also granted Teva an exclusive license to sell extended-release Effexor® that did not begin until about two years after the original venlafaxine expired and likewise agreed to refrain from marketing an authorized generic version of extended-release Effexor® during a "fixed duration" of Teva's license.

At the same time, Wyeth also entered into settlement agreements in ANDA litigation with several other potential generic entrants, including Impax (granting a license to market extended-release Effexor® no earlier than January, 2011); Anchen (terms "undisclosed"); Lupin (terms "undisclosed); Osmotica (terms "undisclosed"); Sandoz (parties "working on a resolution"); Mylan (a license on "undisclosed" terms); Biovail (a license on "undisclosed" terms"); Apotex (a license on "undisclosed" terms); Torrent (a license on "undisclosed" terms);  Cadila (a license on "undisclosed" terms); Aurobindo (a license on "undisclosed" terms); and Orchid (a license on "undisclosed" terms).

The District Court is considering Wyeth's motion to dismiss, and the FTC filed a motion for leave to file an amicus brief.  In its motion for leave, the Commission argues that it can provide "a unique institutional perspective" to the Court, based on its role as "an independent agency charged by Congress with protecting the interests of consumers by enforcing competition and consumer protection laws."  The motion cites in particular a "270-page, empirical study" the Commission conducted in 2011 "on the effects of [authorized generics] on branded drug firms, on generic drug firms, and on consumers."  The motion cites Third Circuit and District of New Jersey authority on the standards for granting leave for amicus filings.  Chief among these is that courts have discretion to grant leave if the "proposed brief is timely, useful and expressed a special interest not represented competently or at all in a case."  In addition, while an amicus "should not be 'partial to a particular outcome in the case' [it] need not be 'totally disinterested.'"

Teva #2In its substantive brief, the Commission makes three arguments.  First, the brief asserts that authorized generics (AG) "destroy[] a significant amount of the value that a generic company otherwise would obtain from [the] 180-day [] exclusivity period.  Second, a branded company's agreement not to market an AG "enables the generic company to maximize its revenues during the first-filer exclusivity period."  Finally, the brief argues that these "economic realities" compel the conclusion that "a no-AG commitment is without doubt a method of paying a generic company for delayed entry."  The brief argues that the K-Dur precedent mandates that antitrust challenge to a settlement of ANDA litigation "must treat any payment from a patent holder to a generic patent challenger who agrees to delayed entry into the market as prima facie evidence of an unreasonable restraint of trade," citing the K-Dur decision.  The FTC maintains that the agreement between Wyeth and Teva, which does not contain any "overt" payment of money from the branded to the generic company does the equivalent, by increasing Teva's profits from generic drug sales during the exclusivity period.  The first argument is supported almost entirely by "empirical" data from the Commission's 2011 study, which purports to establish the economic consequences of a branded drug company forswearing to enter the market with an authorized generic.  This can amount to "hundreds of millions of dollars" for a "blockbuster" drug like Effexor®, according to the brief.  Somewhat simplistically, the brief cites the case of GlaxoSmithKline's Paxil®; in that case, the brief asserts that "[p]rior to launch, [first ANDA filer generic company] Apotex expected dales for its paroxetine product [] to be in the range of $530-575 million during the 6-month exclusivity period" but in view of GSK's marketing of an authorized generic "Apotex only generated $150-200 million in total sales."  As a consequence, "[t]here can be no doubt that the [branded company's] authorized generic crippled Apotex' 180-day exclusivity" and "reduced Apotex' entitlement by two-thirds -- to the tune of $400 million."  Thus, the brief argues, this establishes that Wyeth's agreement not to market an AG amounted to an effective payment of $400 million from Wyeth to Teva (because the total sales of branded Paxil® and Effexor® were about the same (~$2.4 billion).

Permitting this outcome would "nullify the Third Circuit's decision and permit anticompetitive settlements to proceed unchecked."  In the final substantive portion of the brief, the Commission argues that branded and generic drug companies have already developed alternatives to overt cash payments:

After the FTC began challenging cash-only reverse payments, pharmaceutical companies turned to other payment methods in what one pharmaceutical industry observer described as a "sophisticated version of three-drug monte" in an effort to evade antitrust scrutiny.  Another academic analysis acknowledged this shift and suggested that ''this process of continuing evolution threatens the ability of existing antitrust institutions, particularly courts, to keep pace.  Allowing pharmaceutical companies to sidestep the K-Dur rule by simply making non-cash payments would elevate form over substance, in direct contravention to 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.

The Commission also takes the opportunity to challenge Wyeth's allegations in its brief that the FTC has supported authorized generics in 2004.

The District Court was not persuaded by the FTC's arguments in support of its motion for leave.  In denying the motion, the Court noted first that the Commission had not "expressed an interest that is not represented competently in this case, noting that the 2011 Report relied upon in the Commission's brief "is publicly available and has been cited by the Plaintiffs in their briefing to this Court."  Moreover, "Plaintiffs are represented by competent counsel who have ably addressed the relevant issues relating to the motions to dismiss."  Permitting the Commission to file an amicus brief would be "[d]oing little more than duplicating arguments raised by the parties" which "is not the proper role of an amicus curiae."  However, the District Court leaves its most scathing critique of the FTC's "wolf-in-sheep's-clothing" ruse as an amicus as follows:

Additionally, the Court finds that the extent to which the FTC is partial to a particular outcome weighs against granting the agency's motion.  As noted by one court in this district, "[h]istorically, the term amicus curiae has been used to describe an impartial individual who suggests the interpretation and status of the law, gives information concerning it, and whose function is to advise in order that justice may be done, rather than to advocate a point of view so that a cause may be won by one party or another."  . . .  The Court recognizes that "there is no rule that the amicus must be impartial," however, the degree of partiality is an appropriate consideration for the court with regard to the appearance of an amicus curiae.  . . .  Here, it appears that the FTC, itself a litigant in past and present proceedings in which similar issues have arisen or may arise, is significantly partial to a particular outcome in this case.

(citations omitted).

The Court is also considering a motion for stay until the Supreme Court resolves the circuit split created by the Third Circuit's K-Dur decision.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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