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From Antitrust Law Daily, September 9, 2014

Kos, generic drug manufacturer must defend alleged reverse payment agreement

By Linda O’Brien, J.D., LL.M.

In a class action by direct purchasers and end payors of the brand name drug Niaspan against the brand drug manufacturer for allegedly entering into a reverse payment agreement with a generic manufacturer to delay entry in the market with a generic version of Niaspan, the federal district court in Philadelphia has ruled that the plaintiffs plausibly alleged the existence of a reverse payment for delayed entry and an antitrust injury. However, the end payor plaintiffs’ state antitrust claims were dismissed for lack of standing (In re Niaspan Antitrust Litigation, September 5, 2014, DuBois, J.).

Kos Pharmaceuticals markets and sells Niaspan, a brand name drug primarily used for the treatment of lipid disorders, such as high cholesterol. The active ingredient in Niaspan is niacin. In 1990, Kos developed a time-release version of niacin and was issued several patents for the development of various dosages of Niaspan. In 2001, Barr Pharmaceuticals filed an abbreviated new drug application with the Food and Drug Administration (FDA), seeking to manufacture a generic equivalent to Niaspan. Kos filed a series a patent infringement suits against Barr, alleging infringement of its Niaspan patents. Subsequently, Kos and Barr entered into three separate but interrelated contracts—a settlement and licensing agreement, a co-promotion agreement, and a manufacturing agreement—resolving the litigation.

Direct purchasers and end payors filed a series of putative class action suits against Kos and Barr, alleging that the defendants entered into an illegal contract in restraint of trade under which Kos paid Barr substantial consideration in exchange for Barr’s agreement to delay bringing its generic version of Niaspan to the market, in violation of sections 1 and 2 of the Sherman Act and state antitrust laws. The defendants moved for dismissal.

Reverse payment. The court found that the plaintiffs plausibly alleged the existence of a large, unjustifiable reverse payment. The defendants argued that the “no authorized generic” (AG) provision in the settlement and licensing agreement did not constitute a reverse payment because it involved only non-monetary transfers from Kos to Barr. In rejecting this argument, the court noted that a reverse payment did not have to be in the form of cash consideration. The “no AG” provision had tremendous value to Barr and induced it to agree to enter the market at a date later than it otherwise would have, based solely on the estimated strength of its litigation position.

Additionally, the co-promotion and manufacturing agreements were expressly contingent on Barr’s agreement to delay entry of its generic Niaspan. The plaintiffs’ allegations were consistent with the contention that the payments under the co-promotion and manufacturing agreements reflected Kos’ desire to ensure that Barr would not market its generic version of Niaspan or otherwise challenge the validity of its patents, according to the court.

Antitrust injury. The plaintiffs sufficiently pleaded that they have suffered an antitrust injury that flowed from the allegedly anticompetitive settlement agreements. The plaintiffs alleged that Barr spent more than $2.3 million conducting extensive research analysis concerning potential infringement or invalidity of Kos’ patents and that Kos knew there was a substantial risk that it would lose the patent litigation. Furthermore, the plaintiffs alleged that Barr planned to launch its generic at-risk before the conclusion of the patent litigation because it was confident that Kos’ Niaspan patents were invalid. These allegations were sufficient to show an antitrust injury, the court determined.

State law claims. However, the court found that the end payor plaintiffs lacked standing to assert claims under the laws of states where they did not reside, did not purchase Niaspan, or did not reimburse their members for purchases of the drug. To establish Article III standing, the named plaintiffs must show that they have been personally injured. In this case, the named plaintiffs could not seek relief on behalf of themselves or other members of the class for claims in states in which they did not reside or in which they suffered no injury, the court concluded.

The case is No. 13-MD-2460.

Attorneys: Andrew Coyne Curley (Berger & Montague PC) for Rochester Drug Co-Operative, Inc. Thomas M. Sobol (Hagens Berman Sobol Shapiro LLP) for Professional Drug Company, Inc. Howard J. Sedran (Levin Fishbein Sedran & Berman) for Value Drug Co. Kenneth A. Wexler (Wexler Wallace LLP) for United Food & Commercial Workers Union, and Midwest Health Benefits Fund. Steve D. Shadowen (Hilliard Shadowen LLC) for United Food and Commercial Workers Local 1776 & Participating Employers Health and Welfare Fund. Karen N. Walker (Kirkland & Ellis) for Barr Pharmaceuticals Inc. Colleen D. Lynch (Drinker Biddle & Reath LLP), and Gregory M. Sergi (Munger Tolles & Olson LLP) for Kos Pharmaceuticals, Inc.

Companies: Rochester Drug Co-Operative, Inc.; Professional Drug Company, Inc.; Value Drug Co.; United Food & Commercial Workers Union; Midwest Health Benefits Fund; United Food and Commercial Workers Local 1776 & Participating Employers Health and Welfare Fund; Barr Pharmaceuticals Inc.; Kos Pharmaceuticals, Inc.

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