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From Antitrust Law Daily, October 8, 2014

Wyeth’s reverse payment settlement agreement with Teva not anticompetitive

By Jody Coultas, J.D.

Direct purchasers of Wyeth LLC’s antidepressant drug Effexor XR failed to state Sherman Act claims against Wyeth based on a reverse payment settlement agreement with Teva Pharmaceuticals USA, Inc., the federal district court in Trenton has held (In re Effexor XR Antitrust Litigation, October 6, 2014, Sheridan, P.).

Professional Drug Company, Inc., Rochester Drug Co-Operative, Inc., Stephen L. LaFrance Holdings, Inc., Stephen L. LaFrance Pharmacy, Inc. d/b/a SAJ Distributors, and Uniondale Chemists, Inc. alleged that Wyeth prevented and delayed the approval and marketing of generic versions of its drug Effexor XR in violation of the Sherman Act. Specifically, the direct purchasers alleged that Wyeth engaged in sham litigation to block and delay multiple generic companies from entering the generic Effexor XR market; entered into an illegal horizontal market-allocation and price-fixing reverse settlement agreement with Teva Pharmaceuticals; and negotiated settlements with subsequent generic applicants for the sole purpose of preserving and protecting its alleged monopoly and market-division agreement with Teva.

After Teva filed an Abbreviated New Drug Application (ANDA), seeking approval of a generic version of Effexor XR, Wyeth brought suit against Teva for infringement. The parties settled the suit, with Wyeth allowing Teva to sell a generic version of Effexor IR before the original compound patent for venlafaxine expired in June 2008 and agreeing that it would not compete with Teva’s marketing of a generic version of Effexor IR by launching its own authorized generic during that period. Wyeth brought infringement suits against 16 additional generic companies that sought to market a generic version of Effexor XR, and eventually settled each suit.

The Supreme Court set forth the standard to assess the legality of reverse payment settlement agreements (RPSA) between branded and generic pharmaceutical companies in FTC v. Actavis, Inc., 133 S. Ct. 2223 (2013). A RPSA occurs when, in a patent infringement suit, the two companies settle under terms that require the alleged infringer to refrain from producing the patented product until the patent’s term expires, and require the patentee to pay the alleged infringer many millions of dollars. Actavis instructs courts to employ a rule-of-reason approach in order to strike a balance “between the lawful restraint on trade of the patent monopoly and the illegal restraint prohibited broadly by the Sherman Act.” The Supreme Court rejected the previously-used scope-of-the-patent test, under which antitrust attack will be dismissed so long as the anticompetitive effects fall within the exclusionary potential of the patent, and the “quick look” approach, wherein a RPSA was considered prima facie evidence of an unreasonable restraint of trade.

The direct purchaser failed to support its Sherman Act claims, according to the court. The rule of reason analysis requires a large “reverse” payment that is “unexplained.” In cases where a non-monetary payment are alleged, the pleading must demonstrate the reliable foundation showing a reliable cash value of the non-monetary payment through the use of more facts upon which the plaintiff depends. The direct purchasers alleged that the reverse payment was an agreement between Wyeth and Teva that Wyeth would not launch an authorized generic version of Effexor XR during the 180-day exclusivity period, which would benefit Teva. The direct purchasers estimated the benefit of not having to compete with a generic would be over $500 million. The total payment in this case was the value of the no authorized generic promise for Effexor XR for eleven months, added to the value of the allowing Teva to release a generic of Effexor IR before the expiration of the Husbands patent, subtracted by the value of the avoided litigation costs and the royalties Teva would pay to Wyeth during those eleven months.

Although the direct purchasers provided some background on the effect of generic competition and provided estimates of the expected market sales of a generic, it did not provide any explanation as to how those estimations were used to formulate the approximate value of the no-authorized generic agreement. Because the direct purchasers failed to provide sufficient evidence on which to determine the value of the payment, the complaint did not meet the required pleading standards.

Because the direct purchasers failed to provide sufficient evidence for the court to determine the value of the non-monetary payment, the court also could not determine the direction of the payment.

The court also could not determine whether the payment was large. A large payment is one that is large from the perspective of the brand company making the payment. The direct purchasers’ counsel noted that $500 million “may not be an awful lot of money to . . . Wyeth. I’ll bet it’s a lot of money to Teva.” This was insufficient to support the claims.

The agreement between Wyeth and Teva did not constitute an unexplained payment, according to the court. Any alleged antitrust intent held by the parties was negated by the fact that the settlement and license agreements were forwarded to the FTC, evidencing the parties’ willingness to submit those agreement for review prior to the settlement becoming effective. The FTC noted that it had no interest in the case, and a judge approved the settlement agreement.

The case is No. 11-5479 (PGS) (LHG).

Attorneys: John D. Radice (Radice Law Firm, PC), and Peter S. Pearlman (Cohn, Lifland, Pearlman, Herrmann & Knopf, LLP) for Professional Drug Company, Inc. Amy Elizabeth Boddorff (White & Case LLP), and Liza M. Walsh (Connell Foley, LLP) for Wyeth, Inc., and Wyeth-Whitehall Pharmaceuticals. Mayra Velez Tarantino (Lite Depalma Greenberg, LLC) for Teva Pharmaceuticals U.S.A., Inc. Timothy John Slattery for Federal Trade Commission.

Companies: Professional Drug Company, Inc.; Wyeth, Inc.; Wyeth-Whitehall Pharmaceuticals; Teva Pharmaceuticals U.S.A., Inc.; Federal Trade Commission; American Home Products

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