Everything You Need to Know about Pharmaceutical
“Pay-for-Delay” Settlements
Sponsored by the Antitrust and Life Sciences Practice Groups
December 9, 2011
Noon-1pm Eastern
Presenter:
Seth C. Silber, Partner,
Wilson Sonsini Goodrich & Rosati, Washington, DC, [email protected]
Presenter and Moderator:
Saralisa Brau, Deputy Assistant Director,
Bureau of Competition, Federal Trade Commission, Washington, DC, [email protected]
1
Disclaimers

Saralisa’s remarks reflect her own views and not
necessarily those of the Federal Trade Commission or
any individual Commissioner
2
Agenda






Background - Saralisa
 Goals of the Hatch-Waxman Act
 Price Effects of Generic Entry
“Pay-for-Delay” Patent Settlements
 Theory - Saralisa
 Cases - Seth
 Trends – Seth
Case Example: FTC v. Cephalon (E.D. Pa.) - Saralisa
Counseling – Seth and Saralisa
Federal Legislation - Seth
Developments to Watch – Seth and Saralisa
3
Background
4
Goals of the Hatch-Waxman Act

Maintaining incentives to develop new drugs


E.g., patent term extensions, 5-year exclusivity for new chemical
entities, 30-month stays
Increasing availability of lower-priced generic drugs

Abbreviated process for FDA approval

Special procedures to facilitate patent challenges
5
Hatch-Waxman Provisions
Facilitating Patent Challenges

Patent listing

Paragraph IV certification

30-month stay

“First filer” and 180-day exclusivity
6
Price Effects of Generic Entry

First generic enters at 70% - 75% of the brand’s price
and takes at least 50% of sales within one year

Subsequent generics compete the price down further

A Congressional Budget Office report estimated that
consumers saved $8 to $10 billion at retail pharmacies in
one year alone by purchasing generics
7
Generic Cardizem Entry
300
New Prescriptions
250
200
CARDIZEM CD Aventis
150
Generic Cardizem Total
100
50
0
1
2
3
4
5
6
7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Months Since Generic Entry
8
Impact of Multiple Generic Entry
Price Ratio (Generic/Brand)
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
1
2
3
4
5
Number of Generic Sellers
9
Frank and Salkever, “Generic Entry and the Pricing of Pharmaceuticals,” 6 J. of Econ. and Mngmt. Str.75, 84 (1997)
The FTC’s View of the Incentives to Pay to Delay Generic Entry
Monopoly
Incumbent’s
Profits
Competition
Retained Monopoly
Payment
to
Entrant
Entrant’s
Profits
Incumbent’s
Profits
Incumbent’s
Profits
Consumer
Savings
10
10
“Pay for Delay” or “Reverse Payment”
Settlements
11
Pay-for-Delay Settlements – Definition

Brand and generic companies in “Paragraph IV” litigation
settle their case:

Generic agrees to refrain from going to market until an agreedupon date, and
 Settlement includes a payment or other consideration from the
brand to the generic, such as:






Cash
Intellectual property license
Co-development agreements
Manufacturing agreements
Supply agreements
Distribution agreements
12
Theory of Anticompetitive Harm

Parties should be able to reach settlement with patent split based
upon their objective views of the patent merits
 If compensation to generic is introduced into the settlement, the entry
date (the patent split) must move back in time in exchange for the
compensation
 This delays generic entry and results in consumer harm
Settlement
Entry Date
2011
2014
Patent Expires
2017
13
The Legal Issues



Are there antitrust limits to patent settlements?
 FTC: Yes. The sharing of monopoly profits to eliminate a potential competitors is
an antitrust violation. The existence of a patent doesn’t change that because
patent rights are not ironclad. No need to decide the patent merits
 Defendants: The patent laws trump the antitrust laws. An antitrust violation
exists only if the exclusionary effect of the agreement exceeds the scope of the
patent. The law favors settlements of litigation
Does the legitimate use of a patentee’s “right to exclude” extend to paying an
accused infringer to stay off of the market?
 FTC: No. The “right to exclude” means invoking the power of the courts to
exclude the alleged infringer by seeking a preliminary injunction. The patentholder doesn’t get to use a self-help remedy.
 Defendants: Yes. There is no reduction in competition because a patent entitles
its holder to exclusively practice the patent during its term.
When a patentee pays an accused infringer to stay off the market, what is the source
of the exclusion?
 FTC: The monopoly profits
 Defendants: The patent
14
Key Cases
15
Key Cases Historically

Appeals Court Decisions
 Cardizem (6th Cir. 2003)
 Interim patent settlement held per se unlawful
 Contained reverse-payment, and agreement by generic
not to introduce “non-infringing product”
 FTC v. Schering-Plough (11th Cir. 2005)
 Reversed FTC Opinion finding agreement unlawful –
reversed on both the facts and the legal theory
 Must examine “exclusionary power of the patent”
 Tamoxifen (2d Cir. 2006)
 No antitrust liability where reverse payment present,
unless patent suit was sham or otherwise baseless
16
Key Cases Historically

Appeals Court Decisions (cont.)
 Ciprofloxacin (Fed. Cir. 2008)
 No antitrust liability where reverse payment present,
unless patent suit was sham or otherwise baseless
 Ciprofloxacin (2d Cir. 2010)
 Panel invited plaintiffs to petition for rehearing en banc,
and gave reason to believe that the Tamoxifen
standard might be revisited, however, the Second
Circuit declined to hear the case en banc

Supreme Court Has Not Weighed In
 Denied Cert. in Schering, Tamoxifen, and Ciprofloxacin
17
Key Cases Pending

FTC v. Cephalon (E.D. Pa.)



FTC v. Watson (N.D. Ga.)



Complaint filed in February 2008.
The FTC survived Cephalon’s motion to dismiss and discovery completed
Complaint filed in January 2009.
After the case was transferred from C.D. Ca. to N.D. Ga., the FTC lost on
Defendants’ motion to dismiss. Presently, the FTC is appealing the district
court’s decision to the Eleventh Circuit
Direct/Indirect Purchaser Suits Against Pfizer and Ranbaxy for Lipitor
Settlement

In November 2011, several complaints were filed alleging that Ranbaxy
agreed to a later entry date for generic Lipitor in exchange for Pfizer’s
agreement to allow Ranbaxy to sell an authorized generic version of Lipitor in
seven foreign countries
18
Trends in Settlement Activity
And
Current FTC Posture on Enforcement
19
FTC FY 2011 Patent Settlement Report
According to the FTC “FY 2011 witnessed the continued trends of (a) record
numbers of brands and generics resolving patent litigation prior to a final court
decision on the merits and (b) significant numbers of such settlements potentially
involving pay-for-delay.” 18 of the 28 agreements, where there is potential for
“pay for delay,” involved first-filers. A chart released as part of the 2011 patent
settlement report, which shows settlement trends over time since 2004, is included
below.
Following 11th
Following 2d
Circuit opinion in
Schering
Circuit opinion in
Tamoxifen
FY2004
FY2005
FY2006
FY2007
FY2008
FY2009
FY2010
FY2011
Final Settlements
14
11
28
33
66
68
113
156
Potential Pay-for-Delay
0
3
14
14
16
19
31
28
Potential Pay-for-Delay
Involving First Filers
0
2
9
11
13
15
26
18
20
“No-AG” Agreements as Compensation in
Patent Litigation Settlements

In its final authorized generic report, issued on August 31, 2011, the
FTC concluded that there is strong evidence that agreements not to
compete with an authorized generic have become a way for brandname companies to compensate generic competitors for delayed
market entry.

Between 2004 and 2010, 39 of 157 patent settlements with first-filer
generics (approximately 25 percent) contained such provisions.
 The average generic entry delay for the 39 agreements was 37.9
months, and the total market for the drugs involved in these settlements
exceeded $23 billion.
 The length of time during which the brand agreed not to launch or
sponsor an AG ranged from 10 days to 45.5 months, with the average
length of the restriction being 9.6 months and the median restriction
being 6 months.
21
“Side Deals” in Patent Litigation Settlements

FTC categorization of “side deals” (i.e., involve elements not directly
related to the resolution of the patent litigation) with “compensation”:







Intellectual property licenses
Co-promotion arrangements
Supply agreements
No authorized generic
Development agreements
Distribution agreements
FTC testimony on such agreements:

“This pattern indicates that such ‘side agreements’ may be serving as a vehicle
to compensate a generic challenger for its agreement to a later entry date than
the generic firm would otherwise accept” (May 2007 before House Commerce
Committee)
22
Current FTC Posture on “Pay-for-Delay”
Settlements

Despite Three Adverse Circuit Court Rulings
 FTC continues to investigate pharmaceutical patent settlements

Since loss in Schering at Eleventh Circuit in 2005, FTC has
continued to bring additional suits against patent settlements
 Cephalon (complaint filed February 2008; FTC survived motion
to dismiss and discovery completed)
 Solvay/Par/Watson (complaint filed January 2009; FTC lost on
motion to dismiss and is appealing district court decision to
Eleventh Circuit (oral argument on 5/13/11))

Pursuing “pay for delay” cases remains a top priority for Chairman
Leibowitz
23
FTC 2011 Annual Report (April 2011)
…
24
The FTC’s Three-Pronged Approach on “Payfor-Delay” Patent Settlements



Prong One: Litigation/Investigations
 Goal: Create Circuit split so that Supreme Court will set legal standard
 Leibowitz: “matter of public knowledge that [FTC] is looking to bring a
case that will create a clearer split in the circuits” (January 2007
Testimony)
Prong Two: Legislation on “Pay for Delay” Patent Settlements
 Commissioner Rosch: “Although the Commission will continue to be
vigilant in this area, litigating another case to conclusion will take years,
and the outcome of such litigating is uncertain given the Schering,
Tamoxifen, and Cipro decisions. . . . Legislation could provide a
speedier and more comprehensive way to address this pressing
concern.” (March 2009 Testimony)
Prong Three: FTC Rulemaking
 Commission has suggested that it may seek to exercise its rulemaking
authority, for example, by issuing a rule providing that “pay for delay”
patent settlements are “inherently suspect” under the FTC Act
25
Case Example: FTC v. Cephalon (E.D. Pa.)
26
FTC v. Cephalon (E.D. Pa.) (filed Feb. 13, 2008)




Provigil - $800 million brand sales
6 years delayed entry
Complaint alleges that Cephalon unlawfully induced four
first filers to refrain from marketing generic Provigil until
2012 by entering into over 13 side deals that transferred
substantial value to the generics
Discovery completed
27
FTC v. Cephalon
The World Before the Provigil Settlements
FDA
approves
Provigil
Four first
filers file
ANDA’s
Cephalon
sues four
first filers for
patent
infringement
Dec 2002
Dec 1998
End of 30
month
stay
Jun 2006
Mar 2003
GENERIC
ENTRY LIKELY
Estimate of
final
appellate
decision on
Provigil
2009
Provigil
patent
expires
Apr 2015
FTC v. Cephalon
The World at the Time of Settlement
Summary
judgment
fully briefed
FDA
approves
Provigil
Four
first
filers file
ANDA’s
Cephalon
sues four
first filers for
patent
infringement
Dec 2002
Dec 1998
Nuvigil
delayed
Sparlon
issues
Fall 2005
Expiration of
NCE and 30
month stay
Jun 2006
Mar 2003
GENERIC
ENTRY LIKELY
Provigil
patent
expires
Apr 2015
FTC v. Cephalon, Inc.
Settlements Allegedly Delay Entry By 6 Years
Summary
Judgment
fully briefed
FDA
approves
Provigil
Four
first
filers file
ANDA’s
Cephalon
sues four
first filers for
patent
infringement
Dec 2002
Dec 1998
Mar 2003
Nuvigil
delayed
Sparlon
issues
Four
settlements in
two months. 13
side
deals
Teva
Ranbaxy
Mylan
Barr with
payments
of at
Settles
Settles
Settles
Settles
least $XXX
million.
Fall 2005 Dec Jan
Feb
2005 2006
2006
Generic entry
delayed by 6 years
Jun 2006
GENERIC
ENTRY LIKELY
Generic
Provigil
enters
market
Apr 2012
Provigil
patent
expires
Apr 2015
3 years off
patent
FTC v. Cephalon, Inc.
Settlement Terms and Timeline
• 5 side deals
• 4 side deals
• 2 side deals
• payments of
$XXX million
• payments of
up to $XX
million
Dec 4
Noteworthy
Side Terms:
Dec 22
2006
• 2 side deals
• payments of
$XX million, plus
upside
Jan 9
• $X million to Barr,
plus substantial
potential value
• payments of $XX
million to Chemagis
Feb 1
Teva
Settlement
Ranbaxy
Settlement
Mylan Settlement
Barr/Chemagis
Settlement
IP license
($125 million)
API supply
IP license
2 product
development
deals
Settlement of
unrelated litigation
(Actiq)
Bars noninfringing
versions of
Provigil
Bars noninfringing versions
of Provigil, Nuvigil
and Sparlon
API supply
API supply
Bars noninfringing
versions of
Provigil,
Nuvigil and
Sparlon
Co-development
deals
Bars non-infringing
versions of Provigil
31
Counseling Clients on Patent
Litigation Settlements
32
MMA Patent Settlement Filing Requirements

Pharmaceutical patent settlements required to be filed with FTC (per
2003 Medicare Modernization Amendments)

Why Congress Enacted This Requirement
 Waxman: “to re-emphasize the Hatch-Waxman Act’s original
intent of enhancing competition, not collusion, between generic
and name-brand drug manufacturers”

Only NOTICE to FTC
 NOT approval
 No waiting period (like HSR regime)
 BUT lack of FTC inquiry doesn’t mean FTC cannot challenge
later
33
MMA Patent Settlement Filing Requirements

Types of agreements required to be filed:
 Brand-generic agreements where generic filed Para IV, and
 Enters into an agreement that relates to marketing, manufacture, or
sale of brand or generic product, or
 Enters into an agreement relating to the 180-day exclusivity period
as it applies to the generic or another generic applicant
 Generic-generic agreements where
 Two Para IV ANDA-filers enter into agreement that relates to the
180-day exclusivity period

Other Requirements:
 File within 10 business days after agreement executed
 Submit entire agreement including provisions “not reduced to text” (See
BMS/Plavix criminal plea)
34
BMS/Apotex Settlement on Plavix



Settlements at Issue
 Original Settlement – FTC did not approve because included provision
that BMS would not launch authorized generic
 Revised Settlement – Did not include authorized generic provision, but
BMS orally represented it would not launch authorized generic
Both Settlements Submitted to FTC
 Required under prior BMS consent, which required FTC approval
 Required under MMA filing requirement
 Apotex submitted letter with MMA filing noting oral terms
 BMS signed FTC certification confirming no oral terms
Ramifications for BMS
 DOJ Criminal Investigation and Plea Agreement with BMS (two felony
counts and criminal fine of $1 million)
 BMS Senior VP Andrew Bodnar ($100,000 fine, one year jail time,
required to write book on experience)
 State Attorneys General ($1.1 million fine for misleading States
regarding settlement (violation of 2003 Order with States))
 FTC ($2.1 million in civil penalties for misleading FTC regarding
settlement (violation of 2003 FTC Order and MMA violation))
35
Sanofi/Watson/Synthon Settlement on Ambien CR

In May 2011, the FTC sent letters to Sanofi-Aventis, Watson, and
Synthon, alleging that the companies violated the MMA by failing to file
agreements—specifically, joint stipulations—related to patent litigation
settlements concerning Sanofi’s insomnia drug Ambien CR

While the Bureau of Competition ultimately recommended that the
Commission not pursue an enforcement action, it put the industry on
notice that it “will consider enforcement recommendations, including
appropriate penalties, in the future when the MMA filing requirements
have not been met.”

Letters made clear that the FTC takes an expansive view of the
language requiring agreements to be filed under the MMA. Specifically,
“agreements” that must be filed include joint stipulations, regardless of
whether the terms have binding effect without court action, and
regardless of whether there is any exchange of consideration
36
FTC Review of
Patent Settlements
37
How FTC Investigations Start


MMA Filing
Conduct initial staff review

Read the agreement(s)
 Conduct market research from public sources
 Talk to counsel, if necessary


Convene “pharmaceutical screening committee”
Decide whether to initiate an investigation
38
Three Questions the Staff Asks When
Analyzing MMA Agreements

Does the agreement restrict generic entry?

Is there compensation to the generic?

Are the parties sharing monopoly profits?
39
Investigations of Settlements

Staff seeks documents and sometimes testimony, using
voluntary and compulsory process (e.g., civil
investigative demands)

Staff looks at, among other things:

Parties’ competitive expectations before settlement (the “but for”
world)
 Settlement negotiation history
 Sales and financial analyses pre- and post- settlement
 Patent prosecution history and litigation docket
40
What Settlements Pose
The Greatest Risk?
41
Evaluating the Antitrust Risks

The “Pay for Delay” Settlement Players

FTC
 Private Parties
 States
 DOJ


The Risks

FTC as an “investigatory” threat
 FTC as a litigation threat
 Private follow-on suits
 Criminal prosecution

Factors

Aggressiveness of conduct (e.g., large payments, long delay relative to
remaining patent life)
 Size of market
 FTC resources
 Company’s risk aversion
42
Likelihood of FTC Investigation

Agreements UNLIKELY to raise antitrust scrutiny

“Patent split” with no compensation or side deals
 Compensation limited to brand firm’s litigation costs

Agreements that are LIKELY to draw FTC interest





Outright cash payment
Side deals where terms are unusual or do not look commercially
objective
Brand agrees not to introduce authorized generic
Agreements where terms or negotiations indicate “pay for delay”
settlement
Restrictions on non-infringing products
43
Private “Follow-On” Suits

FTC Actions Followed by Private Antitrust Actions

Occurs when FTC settles case or brings suit






Occurs in some instances upon FTC investigation


Hoescht/Andrx (Cardizem patent settlement)
Schering/Upsher-Smith/AHP (K-Dur patent settlement)
Mylan (supply agreement)
Warner Chilcott/Barr (Ovcon supply arrangement)
Solvay (AndroGel patent settlement)
Cephalon (Provigil patent settlement)
Burdens of Private Antitrust Litigation


Complex proceedings – involve purchasers at various levels (and possibly States and
FTC as well), class action certification
Lengthy proceedings – Tamoxifen antitrust suit (patent settlement) lasted six years
(complaint to Supreme Court decision not to review)
44
Federal Legislation On
Paragraph IV
Patent Settlements
45
Legislation on Patent Settlements

Several legislative proposals were first introduced during the 110th Congress (2007-2008)
regarding “reverse payment” settlements following FTC loss in Schering

111th / 112th Congress -- General Approaches in Legislation

H.R. 1706 (Rush/Waxman – introduced March 25, 2009)

Bans payment of “anything for value” to generic in exchange for restriction on
generic entry

Allows for settlements where: only a patent split (no compensation), or waiver of
patent damages based on prior marketing of drug

FTC Rulemaking to exempt certain agreements FTC “finds in furtherance of market
competition and for the benefit of consumers”

Certification with MMA filing by senior company official that all agreements have
submitted
46
Legislation on Patent Settlements

111th / 112th Congress -- General Approaches in Legislation (Cont’d)

S. 27 (Kohl/Grassley – introduced January 25, 2011)
 Authorizes the FTC to initiate an administrative adjudicative proceeding to enforce
the provisions of S.27. In such a proceeding, “an agreement shall be presumed to
have anticompetitive effect and be unlawful if




(i) an ANDA filer receives anything of value, and
(ii) the ANDA filer agrees to limit or forego research, development, manufacturing,
marketing, or sales of the ANDA product for any period of time.”
The presumption, however, shall not apply if the parties “demonstrate by clear and
convincing evidence that the procompetitive benefits of the agreement outweigh the
anticompetitive effects of the agreement.”
In considering whether parties have sufficiently rebutted the presumption, the factfinder will consider several factors, including:






(1) the length of time remaining until the end of the life of the relevant patent, compared
with the agreed upon entry date for the ANDA product;
(2) the value to consumers of the competition from the ANDA product allowed under the
agreement;
(3) the form and amount of consideration received by the ANDA filer in the agreement
resolving or settling the patent infringement claim;
(4) the revenue the ANDA filer would have received by winning the patent litigation;
(5) the reduction in the NDA holder’s revenues if it had lost the patent litigation; and
(6) the time period between the date of the agreement conveying value to the ANDA filer
and the date of the settlement of the patent infringement claim.
47
Legislation on Patent Settlements

111th / 112th Congress -- General Approaches in Legislation (Cont’d)

S. 27 (Kohl/Grassley – introduced January 25, 2011) (Cont’d)

Safe Harbor Provisions:

“Nothing in this section shall prohibit a resolution or settlement of a patent infringement
claim in which the consideration granted by the NDA holder to the ANDA filer as part of
the resolution or settlement includes only one or more of the following:
 (1) The right to market the ANDA product in the United States prior to the expiration
of (a) any patent that is the basis for the patent infringement claim, or (b) any patent
right or other statutory exclusivity that would prevent the marketing of such drug;
 (2) A payment for reasonable litigation expenses not to exceed $7,500,000; and
 (3) A covenant not to sue on any claim that the ANDA product infringes a United
States patent.”

S.27 has been voted out of the Senate Judiciary Committee and placed on the
Senate Legislative Calendar
48
Developments To Watch
49
Legislation on Patent Settlements

Likelihood of legislation being enacted
 Generics and brands in rare agreement: both generally oppose ban on settlements with
compensation

However, FTC has renewed focus on this issue
 Leibowitz as Chairman, with strong ties in Congress
 Most recently, the FTC has urged the Joint Select Committee on Deficit Reduction
(i.e., the “Super Committee”) to include the legislation in its deficit reduction plan

Obama
 Stated that his Administration will seek to prevent “anticompetitive agreements and
collusion between brand name and generic drug manufacturers intended to keep
generic drugs off the market.”
 Obama was a cosponsor of prior Senate bill to ban “pay for delay” settlements

Support for legislation from other groups
 AARP, PCMA, AMA
 Some generic companies
50
Case Developments

How will the Third Circuit rule on “pay-for-delay” settlements in a
case of first impression in K-Dur?

Oral argument 12/12/2011; FTC filed an amicus brief
 Also pending in the E.D. Pa.: FTC v. Cephalon (Provigil) and private
actions; discovery completed

Will the Eleventh Circuit clarify its “pay-for-delay” standard in FTC v.
Watson Pharmaceuticals (AndroGel)?


Oral argument 5/13/2011
Will the Supreme Court accept cert in a “pay-for-delay” case?
51
Questions?
52
Everything You Need to Know about Pharmaceutical “Pay-for-Delay” Settlements © 2011 is
published by the American Health Lawyers Association. All rights reserved. No part of this publication
may be reproduced in any form except by prior written permission from the publisher. Printed in the
United States of America.
Any views or advice offered in this publication are those of its authors and should not be construed as
the position of the American Health Lawyers Association.
“This publication is designed to provide accurate and authoritative information in regard to the subject
matter covered. It is provided with the understanding that the publisher is not engaged in rendering
legal or other professional services. If legal advice or other expert assistance is required, the services
of a competent professional person should be sought”—from a declaration of the American Bar
Association
53