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From Health Law Daily, May 7, 2015

Androgel® settlement was procompetitive, not an unwarranted ‘reverse payment’

By Harold M. Bishop, J.D.

A Federal Trade Commission (FTC) complaint charging several major pharmaceutical companies with illegally blocking consumers’ access to lower-cost generic versions of the topical testosterone replacement drug AndroGel® was dismissed by a federal district court. The court found that underlying patent infringement litigation between the patent holders and their generic competitor was not a sham and that settlement of the litigation was actually procompetitive and did not amount to an unwarranted “reverse payment.” (FTC v. Abbvie, Inc., May 6, 2015, Bartle, H.)

Background. The FTC’s complaint alleged that AbbVie, Inc. (AbbVie) and its partner Besins Healthcare Inc. (Besins) filed baseless patent infringement lawsuits against potential generic competitors to delay the introduction of lower-priced versions of the testosterone replacement drug AndroGel. While the lawsuits were pending, AbbVie then allegedly entered into an anticompetitive pay-for-delay settlement agreement with Teva Pharmaceuticals USA, Inc. (Teva) to further delay generic drug competition. In 2013, the U.S. Supreme Court, in FTC v. Actavis, held that pay-for-delay settlement agreements (reverse payments) may be an anticompetitive restraint of trade when the payment is large and unjustified, even if it anticompetitive effects fall within the scope of the disputed patent (see Pay-for-delay settlements may violate antitrust laws, June 17, 2013).

The FTC’s complaint sought a declaration that the conduct violated the FTC Act, ordering the companies to disgorge their ill-gotten gains, and permanently barring them from engaging in similar anticompetitive behavior in the future. The FTC’s lawsuit made two basic allegations of anticompetitive conduct:

  • Sham lawsuit. AbbVie and Besins filed sham patent infringement lawsuits against generic drug marketer Teva to delay FDA approval of a generic version of AndroGel and extend the monopoly profits for the branded version.

  • Reverse payment. After countersuing AbbVie and Besins and alleging that the infringement suit was a sham, Teva subsequently accepted illegal payments from AbbVie to drop its patent challenge and refrain from bringing its competing testosterone gel product to market.

At issue in the alleged sham patent infringement suit was an ingredient in branded AndroGel, called isopropyl myristate (IPM). IPM is known as a “penetration enhancer” because it speeds the delivery of the drug’s active ingredient, testosterone, through the skin and into the bloodstream. The patent on branded AndroGel covers only a formulation using IPM as the penetration enhancer, according to the FTC’s complaint.

Although Teva developed testosterone gel products that did not contain IPM and used different penetration enhancers than AndroGel, AbbVie and Besins sued Teva for patent infringement. Under federal law, this lawsuit triggered an automatic 30-month stay of the FDA’s authority to approve Teva’s applications to market their testosterone gel products, regardless of the merits of the infringement claims.

The FTC alleged that AbbVie and Besins had no reasonable basis to contend that Teva’s penetration enhancers were equivalent to IPM and therefore covered by the narrow AndroGel formulation patent. In fact, AbbVie and Besins had surrendered any claim to those penetration enhancers in gaining patent approval for AndroGel from the U.S. Patent and Trademark Office.

Thus, the actual motivation for filing the infringement suits, according to the FTC, was to extend the large profits AbbVie and Besins were making from AndroGel sales in the U.S. market, at the expense of consumers and competition.

Under the settlement agreement, Teva abandoned its countersuit and agreed to refrain from launching its lower-cost AndroGel alternative until a specified date. In exchange, AbbVie paid Teva in the form of an authorized generic deal for an unrelated product – a cholesterol drug called TriCor, with annual U.S. sales of more than $1 billion in 2011– that was highly profitable for Teva, but made no independent business sense for AbbVie.

Abbvie, Besins and Teva moved to dismiss both the sham lawsuit and reverse payment claims due to a failure to plead facts sufficient to obtain relief.

Sham lawsuit claim. To support its sham lawsuit claim, the FTC alleged that Teva conspired with Abbvie and Besins to bring a frivolous patent infringement action against it and then settled with the knowledge that the patent infringement litigation was groundless.

The court found that the FTC’s reasoning was flawed because no judicial determination of the sham issue had been made when the parties settled and Teva could not know until then that the lawsuit was a sham. In addition, the court further found that if it were to accept the validity of the FTC’s line of reasoning, it would mean that a party in Teva’s position would risk antitrust liability by claiming the underlying action brought against it is baseless and thereafter agreeing to settle. The only way for Teva to avoid the risk of antitrust liability would have been not to raise the issue of sham patent litigation or to litigate the action fully with all the attendant expense and use of judicial resources.

Reverse payment claim. The court found that the settlement agreement was materially different that the prohibited reverse payment agreement in FTC v. Actavis. Here, the settlement merely allowed Teva to enter the market with its generic product early, but unlike the claimed infringer in Actavis, did not receive any payment, reverse or otherwise. The court found that this actually promoted competition. In addition, the court found that receiving TriCor for less than market price was not an unwarranted reverse payment under Actavis. In fact, Teva buying TriCor and selling in competition with patent holder was procompetitive, according to the court.

Conclusion. The court granted the motion to dismiss the reverse payment claim and granted the motion to dismiss the sham litigation claim to the extent it is founded on the settlement of the patent infringement litigation.

The case is No. 14-5151.

Attorneys: Markus Meier (Federal Trade Commission) for the Federal Trade Commission. Adam R. Lawton (Munger Tolles & Olson LLP) and Paul H. Saint-Antoine (Drinker, Biddle & Reath LLP) for Abbvie Inc., Abbott Laboratories and Unimed Pharmaceuticals, LLC. Gregory E. Neppl (Foley & Lardner LLP) and Paul H. Saint-Antoine (Drinker, Biddle & Reath LLP) for Besins Healthcare, Inc. Christopher T. Holding (Goodwin Procter LLP), Gregory L. Skidmore (Kirkland Ellis LLP) and Joseph E. Wolfson (Stevens & Lee) for Teva Pharmaceuticals USA, Inc.

Companies: Federal Trade Commission; Abbvie Inc.; Abbott Laboratories; Unimed Pharmaceuticals, LLC; Besins Healthcare, Inc.; Teva Pharmaceuticals USA, Inc.

MainStory: TopStory AntitrustNews DrugBiologicNews GenericDrugNews PrescriptionDrugNews

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