By Jeffrey May, J.D.
Fifth Circuit holds that there was more than enough evidence to support the unanimous view of the five commissioners expressed in a 2019 opinion that Impax engaged in a so-called "pay-for-delay" agreement to block consumer access to a lower-cost generic version of Endo’s branded extended-release opioid pain reliever Opana ER.
Generic drug company Impax Laboratories LLC violated antitrust laws by accepting payments ultimately worth more than $100 million to delay the entry of its generic version of Endo Pharmaceuticals Inc.’s branded extended-release opioid pain reliever Opana ER for more than two years pursuant to a "reverse payment" settlement of patent litigation, the U.S. Court of Appeals in New Orleans has ruled. The appellate court rejected a challenge to a 2019 FTC opinion concluding that Impax had failed to show that the settlement had any procompetitive benefits and that the purported benefits Impax identified could have been achieved through a less restrictive agreement. An FTC cease-and-desist order enjoining Impax from entering into similar reverse payment settlements going forward stands (Impax Laboratories, Inc. v. FTC, April 13, 2021, Costa, G.).
The decision is a significant win for the FTC, which has been challenging these types of patent settlement agreements for decades. According to the agency, its efforts have been largely successful. The FTC has reported that the number of anticompetitive reverse payments in drug company patent litigation settlements has been dropping. The appellate court noted that the case against Endo and Impax was the agency’s first post-Actavis reverse payment case. In its 2013 decision in FTC v. Actavis, the U.S. Supreme Court held that settlements that extend the brand drug’s monopoly can have anticompetitive effects that violate the antitrust laws.
Background. In 2017, the FTC sued Endo and Impax over their agreement. Endo settled. Following administrative litigation against Impax, which initially resulted in a loss before an administrative law judge (ALJ), the five-member Commission held that Impax violated antitrust laws. In an opinion written by Commissioner Noah Joshua Phillips, the FTC concluded that the reverse payments replaced the "possibility of competition with the certainty of none." Moreover, it held that the purported benefits Impax identified could have been achieved through a "less restrictive alternative" than the agreement. Impax petitioned for appellate court review of the Commission’s opinion and final order and that petition has now been denied.
Rule of reason analysis. In its 2019 opinion, the Commission explained that the case provided its first opportunity to apply Actavis, and to develop the rule of reason analysis that it directed. The appellate court agreed with the Commission’s application of the test.
Anticompetitive effects. The first step of the rule-of-reason analysis focuses on anticompetitive effects that harm consumers, according to the appellate court. There was no dispute that there was in fact a reverse payment. Impax did not challenge the ALJ’s original determination that it received valuable consideration in exchange for delaying entry. However, just showing a large payment was not enough to establish anticompetitive harm. The payment had to be not otherwise justified. And the Commission correctly found no such justification. It also found that this large and unjustified payment generated anticompetitive effects.
The appellate court rejected Impax’s contention that the Commission needed to do more at this first stage of the rule of reason. Impax unsuccessfully argued that the Commission needed to evaluate "the patent’s strength, which is the expected likelihood of the brand manufacturer winning the litigation." The court held that Actavis squarely rejected Impax’s argument. "The fact that generic competition was possible, and that Endo was willing to pay a large amount to prevent that risk, is enough to infer anticompetitive effect," the court explained.
Impax also argued that the settlement did not look anticompetitive in hindsight. Endo allegedly engaged in a so-called "product hop" to switch consumers to a reformulated version of the drug before pharmacists started substituting Impax’s generic version. However, the product hop failed. Endo eventually withdrew the reformulated Opana ER from the market, leaving Impax’s generic as the only extended-release oxymorphone available to consumers. Moreover, since the settlement, Endo obtained more patents for Opana ER and proved their validity in court. The appellate court responded that a basic antitrust principle is that the impact of an agreement on competition is assessed as of "the time it was adopted."
"Less restrictive alternative" finding. Although the parties vigorously contested the Commission’s finding of "no nexus" between the restraint and the procompetitive benefits asserted by Impax, the appellate court decided that it did not need to resolve the question because it could uphold the Commission on its alternative ruling that "Impax could have obtained the proffered benefits by settling without a reverse payment for delayed entry—which is a practical, less restrictive alternative."
Substantial evidence supported the Commission’s conclusion that Complaint Counsel had established a less restrictive alternative, the appellate court held. It explained that the conclusion was supported by three evidentiary legs: (1) industry practice, (2) credibility determinations about settlement negotiations, and (3) economic analysis.
FTC acting chair’s response. "This case is an important milestone in the decades of work by FTC staff to stop pay-for-delay agreements," said FTC Acting Chair Rebecca Kelly Slaughter in a statement. The statement noted that the Commission’s final order bars Impax from entering into any type of reverse payment that defers or restricts generic entry, including no-Authorized Generic commitments, as well as certain business transactions entered with the branded pharmaceutical manufacturer within 45 days of a patent settlement. The order also bars Impax from entering any agreement with another oxymorphone ER manufacturer that prevents or restricts competition between oxymorphone ER products, it was noted.
Professor Hovenkamp’s reaction. The Fifth Circuit panel "interpreted the Supreme Court’s Actavis decision correctly to conclude that the validity of the challenged agreement under the antitrust laws did not depend on the likely outcome of the underlying patent infringement case," commented Professor Herbert Hovenkamp following the decision. He noted that the decision, which was peppered with references to Hovenkamp’s treatises—Antitrust Law: An Analysis of Antitrust Principles and Their Application and IP and Antitrust: An Analysis of Antitrust Principles Applied to Intellectual Property Law—was issued by a panel that was both unanimous and diverse. The opinion was authored by Circuit Judge Gregg J. Costa, who was appointed by President Barack Obama, and joined by Trump appointee Stuart Kyle Duncan and Bush appointee Leslie H. Southwick.
Latest FTC challenge. In January 2021, the FTC announced that it had brought a new action against Endo and Impax, and Impax’s owner Amneal Pharmaceuticals, Inc. for illegally eliminating competition in the market for oxymorphone ER. That case is pending before the federal district court in Washington, D.C. According to that complaint, Endo partnered with Impax in August 2017 to bring a new oxymorphone drug to market. The FTC alleges that the agreement eliminated potential competition from Endo by sharing Impax’s monopoly profits, with Endo in the role of a potential entrant paid to stay out of the market. Impax was allegedly able to exercise and maintain monopoly power in the market for FDA-approved oxymorphone ER tablets.
The case is No. 19-60394.
Attorneys: Jay P. Lefkowitz (Kirkland & Ellis, L.L.P.) for Impax Laboratories, Inc. Bradley Grossman for the FTC.
Companies: Impax Laboratories, Inc.; Endo Pharmaceuticals Inc.; Amneal Pharmaceuticals, Inc.
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