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From Antitrust Law Daily, August 22, 2017

Dismissals reversed in challenges to Lipitor, Effexor XR reverse-payment settlement agreements

By Edward L. Puzzo, J.D.

The U.S. Court of Appeals in Philadelphia has reversed the dismissals of challenges by direct purchasers and end payors to reverse-payment settlement agreements between Pfizer and Ranbaxy regarding generic Lipitor, and between Wyeth and Teva regarding generic Effexor XR (In re: Lipitor Antitrust Litigation; In re: Effexor XR Antitrust Litigation; August 21, 2017, Smith, D).

The court heard two consolidated appeals of antitrust claims: one consolidated appeal concerned Lipitor, a cholesterol-lowering pharmaceutical drug generically known as atorvastatin; the other consolidated appeal concerned Effexor XR, a depression-relieving pharmaceutical drug generically known as venlafaxine. The Lipitor plaintiffs included a putative class of direct purchasers, several retailers asserting direct purchaser claims, and a putative class of end payors. They alleged Sherman Act violations by Pfizer, holder of the original patent on Lipitor, and Ranbaxy, a generic drug manufacturer that had reached a reverse payment settlement agreement with Pfizer. The Effexor plaintiffs included a putative class of direct purchasers, several retailers asserting direct purchaser claims, a putative class of end payors, and individual third-party payors. They alleged Sherman Act violations by Wyeth, holder of the original patent on Effexor, and Teva, a generic drug manufacturer that had reached a reverse-payment settlement agreement with Wyeth.

Reverse payment settlement agreements. The court noted that the U.S. Supreme Court had ruled in F.T.C. v. Actavis, Inc., 133 S. Ct. 2223 (2013), that reverse payment settlement agreements—under which a patentee pays the alleged infringer in return for the infringer’s agreement not to produce the patented item—could give rise to antitrust liability. Under Actavis, reverse payments may be anticompetitive if the basic reason for the payment is a desire to maintain and to share patent-generated monopoly profits, which may be shown by if the payment is large and unjustified by traditional settlement considerations. The court also noted that the payment need not be in cash form; it could take the form of a "no-AG" agreement whereby the brand-name manufacturer agrees to refrain from producing an authorized generic (AG) which would compete with the generic manufacturer’s product.

Lipitor. Drug manufacturer Ranbaxy had launched a generic version of Pfizer’s Accupril, which caused Pfizer a $450 million loss in sales in one year. Pfizer sued Ranbaxy for patent infringement and was likely to prevail, with Ranbaxy potentially liable for substantial damages in lost profits. Despite this, the parties reached a settlement agreement whereby Ranbaxy agreed to pay Pfizer $1 million—much less than its potential liability under Pfizer’s lawsuit. Plaintiffs alleged that the generic Accupril settlement on terms favorable to Ranbaxy was an anti-competitive inducement to ensure a delay in Ranbaxy’s release of a generic version of Lipitor. At the district court, the defendants argued that the settlement had been commonplace, and that even if the settlement could be characterized as an unlawful reverse payment, plaintiffs had not sufficiently alleged that the payment was "large" and "unjustified." The district court agreed, requiring the plaintiffs to plead a more reliable monetary estimate of the dropped Accupril claims.

The appellate court ruled that the lower court had improperly applied a heightened "probability" standard of pleading, rather than the appropriate "plausibility" standard. Plaintiffs were not required to meet any special valuation requirement, the higher court stated. The court found that the plaintiffs’ allegations were sufficiently specific and detailed, and showed that the size of the payment—the release of a claim worth hundreds of millions of dollars—was large enough to allege a large reverse payment that lacked sufficient justification in reduced litigation costs. Under those circumstances, the court continued, the defendants have the burden of justifying the large reverse payment. Even if a justification for the reverse payment was ultimately shown to exist, that possibility did not justify dismissing the plaintiffs’ complaint, the court stated. The plaintiffs sufficiently alleged the absence of a convincing justification for the reverse payment and were not required to plead more than that.

Effexor. In the challenge to the reverse-payment settlement agreement between Wyeth and Teva in connection with Effexor, the plaintiffs alleged that Wyeth’s agreement amounted to over $500 million in value given to Teva in exchange for Teva’ promise to delay the entry of its generic Effexor XR. The district court ruled that the allegations insufficiently pleaded a large and unjustified reverse payment. The defendants also alleged that Teva had actually received little for the generic Effexor XR delay because Wyeth did not intend to produce an authorized generic anyway. But the appellate court found that the plaintiffs had plausibly alleged that Wyeth would have produced an authorized generic but for the agreement. The size of the benefit to Teva was unquestionably large and plausibly unjustified. The appellate court again viewed the pleading standard applied by the district court as improper, and ruled that the plaintiffs’ claims sufficiently alleged that the reverse-payment settlement agreement was large and unjustified.

The appellate court thus reversed the dismissals in both consolidated actions.

The cases are Nos. 14-4202, 14-4203, 14-4204, 14-4205, 14-4206, and 14-4602.

Attorneys: Monica L. Kiley (Hangley, Aronchick, Segal, Pudlin & Schiller) for Rite Aid Corp. Dimitrios T. Drivas (White & Case LLP) for Pfizer Inc.

Companies: Rite Aid Corp.; Pfizer Inc.; Ranbaxy Laboratories Ltd.; Wyeth, Inc.; Teva Pharmaceutical Industries, Ltd.

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