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From Antitrust Law Daily, August 23, 2017

Contraceptive purchasers’ antitrust claims against Warner Chilcott, generic manufacturers proceed

By Linda O’Brien, J.D., LL.M.

In a consolidated class action by direct and indirect purchasers of the oral contraceptive Loestrin 24 FE against pharmaceutical companies for allegedly conspiring to delay generic competition through the use of so-called reverse-payment agreements, the plaintiffs sufficiently alleged that the settlement agreements constituted unlawful large and unjustified payments, the federal district court in Providence, Rhode Island has decided. Thus, the drug manufacturers’ motion to dismiss was denied (In re Loestrin 24 FE Antitrust Litigation, August 8, 2017, unsealed August 21, 2017, Smith, W.).

Pharmaceutical company Warner Chilcott manufactures oral contraceptives under the brand name Loestrin 24 Fe. Warner holds U.S. Patent No. 5,552,394 (the '394 patent), which covers a contraceptive method of administering the active ingredients in Loestrin 24—norethindrone acetate and ethinyl estradiol—with a 24-day dosing regimen. When Watson Pharmaceuticals, Inc. and Lupin Ltd., manufacturers of generic drugs, submitted applications to the U.S. Food and Drug Administration (FDA) for approval to sell generic versions of Loestrin 24, Warner filed suit asserting patent infringement of the '394 patent. Warner subsequently entered into settlement agreements with the generic drug manufacturers to induce them to withdraw their patent challenges.

Four groups of plaintiffs, including several drug and grocery retailers that operate stores that dispense prescription drugs to the public and employee welfare benefit programs that reimbursed subscribers who purchased Loestrin 24, filed class action suits against the pharmaceutical companies, alleging violations of Sections 1 and 2 of the Sherman Act and/or state antitrust laws.

In June 2013, the U.S. Supreme Court held in FTC v. Actavis, Inc., 133 S.Ct. 2223 (2013), that settlement payments in patent infringement suits made by a patent holder to alleged infringer in exchange for the infringer’s promise to delay production of the patented product may violate federal antitrust law and were subject to the rule of reason test. The cases over efforts to delay generic competition for Loestrin 24were consolidated in October 2013. In September 2014, the court granted the defendants’ motion for dismissal, finding that Actavis applied only to cash payments. The U.S. Court of Appeals in Boston vacated the dismissal and remanded the case. The plaintiffs amended their complaints and the defendants again sought dismissal on the ground that the plaintiffs failed to state a claim.

Reverse payment agreements. The plaintiffs plausibly alleged that Warner’s agreements with generic drug manufacturers Watson and Lupin constituted large and unjustified payments, the court determined. The agreement with Watson provided a no-authorized generic (AG) provision, a six-month period of generic exclusivity, and two promotional deals. In rejecting Warner’s argument that a no-AG agreement was not an unlawful reverse payment as a matter of law, the court noted that the complaints plausibly alleged that the agreement was both very valuable to the generic manufacturer, inducing it to stay out of the market, and had a potential anticompetitive effect. The plaintiffs’ alternative theory—that Warner reformulated Loestrin 24 to create a second, similar product in order to stem looming losses from generic entry—was not consistent with the plaintiffs’ primary allegations.

The defendants’ contention that the two promotional deals could not constitute reverse payments also was rejected. The court stated that the plaintiffs sufficiently alleged that each deal was not for fair value. Thus, the burden shifted to the defendants to present evidence justifying the payment as the brand name manufacturer’s own saved litigation and not a payment for delay.

Warner’s agreement with Lupin comprised of a license to market a separate oral contraceptive manufactured by Warner called Femcon, a licensing deal to sell a generic version of Warner’s anti-inflammatory drug Asacol, and a $4 million cash payment. In the agreement, Warner and Lupin settled two distinct patents suit—one concerning Loestrin 24 and the other for Femcon. While a jury might need to ultimately parse out the two settlements, the plaintiffs plausibly alleged facts to show that the Femcon promotional deal was part of an unlawful reverse payment to Lupin to induce it to stay out of the Loestrin 24 market, the court explained.

Viewing the two agreements as a whole, the court determined that the plaintiffs plausibly alleged that the Watson and Lupin agreements were two complex settlement agreements that amounted to both a payment to the generic manufacturers to induce a generic-entry delay and a sacrifice of monopoly profits to protect a perceived weakness in the '394 patent.

Fraud, sham litigation. Additionally, the court found that the plaintiffs had sufficiently alleged that the asserted patent was obtained through knowing and willful fraud on the U.S. Patent and Trademark Office (USPTO) within the meaning of Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172 (1965). Here, the plaintiffs alleged that the applicants of the '394 patent intentionally omitted a failed human study that undercut patentability, withheld material prior art, and misrepresented information about the amount of estrogen in prior art oral contraceptives. The facts underlying each set of fraud allegations support a reasonable inference that a specific individual, the patent inventor and applicant, intended to deceive the USPTO.

The plaintiffs also plausibly alleged that the litigation was objectively baseless such that no reasonable litigant could realistically expect success on the merits. According to the court, in Warner’s suit against Watson, Watson attacked the '394 patent on the grounds of invalidity, unenforceability, and non-infringement. The complaints allege that Watson would have prevailed in the litigation because Warner knew that the applicants procured the '394 patent fraudulently before the patent was listed in the Orange Book and before Warner asserted the patent in suits filed against Watson, Lupin, and Mylan. The facts supported a conclusion that Warner could not have expected to prove that the generic manufacturers infringed a valid patent and that the patent infringement suits were sham litigation.

Product hop. A product hop occurs when a brand name drug manufacturer tweaks a drug to prevent pharmacists from substituting a generic equivalent when presented with a prescription for a newly modified brand name drug, the court explained. The plaintiffs alleged that Warner intended to suppress competition and make monopoly profits in executing the product hop by reformulating Loestrin 24 to create a second, similar product Minastrin 24. Warner’s argument that the courts should not police innovation by deciding how much of a product tweak was sufficiently innovative to withstand antitrust scrutiny was rejected. The court noted that the plaintiffs’ allegations of a combination of Warner’s withdrawal of Loestrin 24 and introduction of Minastrin 24 in the context of generic substitution laws were sufficient to state a claim for exclusionary or anticompetitive conduct.

Preemption of state law claims. Finally, the court determined that the state law claims by the indirect purchaser plaintiffs were not preempted by federal patent law. Those plaintiffs alleged that the patent was procured by fraud on the USPTO and therefore enforced in the marketplace in bad faith. The state law claims required entirely different elements than those required for inequitable conduct before the USPTO and did not frustrate the objectives of federal patent law.

The indirect purchaser plaintiffs also sufficiently pleaded their state law claims with particularity. The plaintiffs’ complaints provided 96 pages of factual allegations that served as the basis for their state law claims, along with a listing of the state laws under they claimed relief. Therefore, the plaintiffs had drawn a connection between the statutes and the defendants’ offending conduct such that the court and the defendants could draw inferences that the elements of their claims exist, the court concluded.

The case is No. 1:13-md-02472-S-PAS.

Attorneys: Donald A. Migliori (Motley Rice LLC) for City of Providence, Rhode Island. Jeffrey B. Pine (Jeffrey B. Pine, PC) for American Sales Co., LLC. John A. Tarantino (Adler Pollock & Sheehan PC) for Warner Chilcott Public Ltd. Co.

Companies: American Sales Co., LLC; Warner Chilcott Public Ltd. Co.; Watson Pharmaceuticals, Inc.; Lupin Ltd.

MainStory: TopStory Antitrust RhodeIslandNews

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