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From Antitrust Law Daily, September 12, 2013

AstraZeneca, generic drug manufacturers must defend alleged reverse payment agreement involving Nexium

By Jody Coultas, J.D.

Direct purchasers of AstraZeneca AB’s heartburn product Nexium adequately alleged that AstraZeneca entered into reverse payment agreements with generic drug manufacturers to keep generic versions of Nexium out of the market in violation of federal antitrust law, the federal district court in Boston (In re Nexium (Esomeprazole) Antitrust Litigation, September 11, 2013, Young, W.). The court, however, limited the scope of the claims, in light of the four-year statute of limitations.

Wholesale drug distributors (Direct Purchasers) and health and welfare benefit funds (End-Payors) alleged that AstraZeneca and three generic drug manufacturers, Ranbaxy Pharmaceuticals, Inc., Teva Pharmaceutical Industries, Ltd., and Dr. Reddy’s Laboratories Ltd., entered into the reverse payment agreements to block generic competition for Nexium. The End-Payors alleged that the reverse payment agreements were designed to deprive the putative class members of a market in which generic drug manufacturers made commercial decisions based upon the strength of drug patents, balanced against the countervailing risks of litigation, free from the distortive influence of brand manufacturers’ payments.

After the generic manufacturers filed applications to market generic versions of Nexium, AstraZeneca filed patent infringement suits against the companies. Ranbaxy allegedly entered into a reverse payment agreement in which AstraZeneca agreed to dismiss the claims in exchange for the companies admitting that the generics infringed the patents. Ranbaxy secured prospective revenue between the commencement of the reverse payment agreement and the end of Ranbaxy’s 180-day period of marketing exclusivity in 2014 envisaged by the agreement. Teva and Dr. Reddy’s also allegedly entered into reverse payment agreements with AstraZeneca.

The U.S. Supreme Court has recently held that courts should use a rule of reason test to determine whether a reverse payment agreement was valid. Courts should consider whether the alleged agreement involved the exercise of power in a relevant economic market, whether it had anti-competitive consequences, and whether those consequences outweighed efficiencies or other economic benefits, the court explained.

The Direct Purchasers pled sufficient facts to establish that AstraZeneca exercised power in the relevant economic market, according to the court. AstraZeneca argued that the Direct Purchasers failed to allege a plausible relevant market and that the alleged market—Nexium and generic equivalents that also share its active ingredient, esomeprazole magnesium—was too narrow because it excludes other products that were similar in chemical composition or used to treat comparable medical conditions. A relevant market is made up of projects reasonably interchangeable by consumers for the same purposes. The fact that other drugs may be used to treat heartburn and related conditions was immaterial to the present inquiry, and the accuracy of the Direct Purchasers’ characterization of the reasonable interchangeability of Nexium with other drugs was best left for a jury to decide. The Direct Purchasers sufficiently alleged that AstraZeneca, in its position as a monopolist, was able to charge supracompetitive prices for brand Nexium.

The reverse payment agreements had anti-competitive consequences, according to the court. The generic manufacturers argued that the Direct Purchasers failed to allege how the settlement agreements caused a cognizable injury to competition, and it was too speculative to suggest that the generic manufacturers would have entered the market but-for the agreements. The fact that the manufacturers had launched at-risk products in the past undermined this argument. The no-authorized generic agreement between AstraZeneca and Ranbaxy and AstraZeneca’s forgiveness of Teva’s and Dr. Reddy’s contingent liabilities related to the infringement of non-Nexium-related patents sufficiently implicated adverse anticompetitive consequences to allow the Direct Purchasers’ claims to proceed. The Direct Purchasers were not explicitly required to show a monetary transaction took place for an agreement between a brand and generic manufacturer to constitute a reverse payment.

The balance the economic detriments and benefits of the agreements at issue weighed in favor of finding that that the rule of reason applied, according to the court. The defending parties failed to present any affirmative evidence that the agreements produced any countervailing pro-competitive benefits whatsoever.

Noerr-Pennington doctrine. The court held that the Noerr-Pennington doctrine did not immunize the defendants from antitrust liability. The Noerr-Pennington doctrine grants antitrust immunity to persons and organizations who, with the intent to restrain trade and diminish competition, act in concert to petition the government to adopt laws and implement policies that are anticompetitive in nature. AstraZeneca argued that because a New Jersey District Court entered consent judgments sanctioning the settlement agreements, any anticompetitive harms from the agreements were properly attributable to governmental, rather than private, action. The distinction between private settlements and consent judgments is modest at best, since the means employed in reaching a consent judgment are the same as those used to enter into private settlement or any private commercial contract. A decision of a court that merely memorializes a bargained-for agreement that could have otherwise been resolved without judicial intervention cannot benefit from Noerr-Pennington immunity.

Statute of limitations.

To the extent that the Direct Purchasers seek to challenge the AstraZeneca/Ranbaxy reverse payment agreement, the court held that the claims were barred by the four-year statute of limitations. Federal antitrust enforcement actions are subject to a four-year statute of limitations. An exception applies where the defendant’s conduct constituted a continuing violation of the Sherman Act that inflicted continuing and accumulating harm. The agreement between AstraZeneca and Ranbaxy was entered into more than four years before the Direct Purchasers filed the claims.

However, every time the Direct Purchasers were overcharged for brand Nexium, they suffered a cognizable injury. Therefore, the court declined to dismiss on statute of limitations grounds claims related to continuing harms suffered as a result of the reverse payment agreements.

State law claims.

The End-Payors’ state law claims challenging the AstraZeneca/Ranbaxy reverse payment agreement itself were barred by the statute of limitations in 23 jurisdictions which are subject to a four-year, or lower, limitations period, according to the court. AstraZeneca argued that the End-Payors’ state law claims were barred by the states’ statutes of limitations from challenging the AstraZeneca/Ranbaxy Agreement. None of the relevant exceptions to the ordinary running of the four-year statutes of limitations in the initial 23 jurisdictions apply. However, the End-Payors may still seek to challenge the AstraZeneca/Ranbaxy Agreement in the three states which have a six-year statute of limitations.

The court held that the End-Payors had Article III standing to assert the state law claims. AstraZeneca argued that the End-Payors only had Article III standing to assert claims in the states in which they suffered an injury, and that the alleged injuries occurred in the state in which the End-Payors resided. For a plaintiff to have Article III standing, there must be evidence of a personal injury fairly traceable to the defendant’s allegedly unlawful conduct and likely to be redressed by the requested relief. The End-Payors’ reimbursement of, and simultaneous co-payment with, their members for their purchase of drugs at supracompetitive prices, allegedly obtained through illegal means, was properly characterized as a monetary injury fairly traceable to the anticompetitive conduct alleged.

The court granted AstraZeneca’s motion to dismiss, with prejudice, the End-Payor claims arising under Illinois and Puerto Rico law, and dismissed without prejudice the claims arising under Utah law. The court denied the motion to dismiss the End-Payor claims arising under Arizona, Massachusetts, Mississippi, New York, North Carolina, South Dakota, Tennessee, and West Virginia law.

The case is No. 12-md-02409-WGY.

Attorneys: David B. Franco (The Dugan Law Firm, APLC) for Allied Services Division Welfare Fund. Ashley E. Bass (Covington & Burling LLP) for AstraZeneca AB.

Companies: AstraZeneca AB; Ranbaxy Pharmaceuticals, Inc.; Teva Pharmaceutical Industries, Ltd.; Dr. Reddy’s Laboratories Ltd.

MainStory: TopStory Antitrust MassachusettsNews

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