Antitrust Law Daily FTC brings ‘pay-for-delay’ claims against Endo Pharmaceuticals, generic rivals
Thursday, March 31, 2016

FTC brings ‘pay-for-delay’ claims against Endo Pharmaceuticals, generic rivals

By Jeffrey May, J.D.

Endo Pharmaceuticals Inc. orchestrated anticompetitive pay-for-delay agreements with potential generic competitors in order to block lower-cost generic alternatives to its two most important branded prescription drug products—opioid Opana ER and pain-relief patch Lidoderm—according to a complaint filed under seal yesterday by the FTC in the federal district court in Philadelphia. The seal was lifted today. This is the FTC’s first enforcement action challenging a “no-AG commitment” —an agreement under which the brand company agrees not to market an authorized generic for a specified period—as an illegal reverse-payment agreement (FTC v. Endo Pharmaceuticals Inc., FTC File No. 141 0004, Civil Action No. 2:16-cv-01440-PD).

The agency alleged that Endo paid Impax Laboratories, Inc. and Watson Laboratories, Inc. to eliminate the risk of competition for Opana ER and Lidoderm, respectively. In addition, pharmaceutical patch manufacturer Teikoku Seiyaku Co. Ltd., which developed Lidoderm and granted Endo a license for the exclusive right to sell Lidoderm in the United States, was charged with entering into the anticompetitive agreement concerning Lidoderm. Teikoku Seiyaku Co. Ltd. and its subsidiary Teikoku Pharma USA, Inc. were the only entities named in the complaint to agree to settle the FTC charges. Under a proposed consent decree, Teikoku has agreed to refrain from engaging in similar allegedly anticompetitive conduct in the future.

Endo-Impax agreement. According to the complaint, Endo agreed to pay Impax millions of dollars to abandon a patent challenge and forgo entering the market with a lower-cost generic version of Opana ER for two and a half years. Endo purportedly used this period of delay to transition patients to a new formulation of Opana ER, thereby maintaining its monopoly power even after Impax’s generic entry.

In addition, once Impax entered the market with its generic, Endo agreed to refrain from offering an authorized generic of its own branded Opana ER during Impax's initial 180-day exclusivity period. The agency contends that this type of no-AG commitment can be extremely valuable to the first-filer generic, because it ensures that this company will capture all generic sales and be able to charge higher prices during the exclusivity period.

Endo-Watson agreement. Endo and its partner Teikoku also were charged with illegally agreeing with Watson (now Allergan plc) to abandon a patent challenge and forgo entering the market with a lower-cost generic version of Lidoderm. In this scenario, Endo allegedly agreed to refrain from offering an authorized generic of Lidoderm for the first seven and a half months of Watson's generic sales and to provide Watson with $96 million of free branded Lidoderm patches. In addition, under the Lidoderm agreement, Watson allegedly acquired an exclusive field-of-use license that temporarily prevented Endo from launching an authorized generic and substantially lessened competition in the generic lidocaine patch market in violation of Section 7 of the Clayton Act.

FTC Chairwoman’s statement. “Settlements between drug firms that include ‘no-AG commitments’ harm consumers twice—first by delaying the entry of generic drugs and then by preventing additional generic competition in the market following generic entry,” said FTC Chairwoman Edith Ramirez in announcing the action. “This lawsuit reflects the FTC’s commitment to stopping pay-for-delay agreements that inflate the prices of prescription drugs and harm competition, regardless of the form they take.”

Relief sought. The FTC is seeking injunctive relief against the non-settling defendants to prevent similar conduct in the future. In addition, it has asked the court to grant equitable relief, including restitution or disgorgement, to redress and prevent the recurrence of the defendants’ violations of the FTC Act.

Dissent. Commissioner Maureen K. Ohlhausen opposed the issuance of the complaint and issued a dissenting statement, calling for a Part III administrative proceeding, instead of the court complaint seeking disgorgement. While the Commissioner had reason to believe that the defendants violated Section 5 of the FTC Act by entering into pay-for-delay agreements, she did not believe that seeking disgorgement in this case served the public interest.

“The Part III process grants the Commission a unique tool to advance the law,” said Ohlhausen. “Employing it here would allow the Commission to render a thoughtful decision applying the Actavis standard, providing much-needed guidance to courts and firms around the country.”

In the past, Ohlhausen has expressed concern about pursing disgorgement remedies in competition cases. For example, she dissented from the Commission's pursuit of disgorgement in a monopolization action against Cardinal Health, Inc. Cardinal Health—the operator of a chain of radiopharmacies—agreed to pay $26.8 million in disgorgement to settle FTC charges that the company monopolized 25 markets for the sale of radiopharmaceuticals to hospitals and clinics. The Cardinal Health settlement represented the second largest monetary settlement the Commission has obtained in an antitrust case.

Pending private actions. The FTC is not alone in challenging the agreements targeted in the complaint announced today. Direct purchasers of Opana ER are pursuing a challenge in the federal district court in Chicago. The court recently denied the defendants' motion to dismiss in that case. In addition, an antitrust action challenging the Lidoderm agreement is moving forward in the federal district court in San Francisco, although the court has scaled back many of the claims in that matter.

Attorneys: Markus H. Meier for FTC. Joseph A. Meckes (Squire Patton Boggs US LLP) for Teikoku Pharma USA, Inc. and Teikoku Seiyaku Co.

Companies: Allergan plc; Endo Pharmaceuticals Inc.; Impax Laboratories, Inc.; Teikoku Pharma USA, Inc.; Teikoku Seiyaku Co.; Watson Laboratories, Inc.

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