In its latest effort to thwart pay-to-delay deals, the US Federal Trade Commission filed a lawsuit on Wednesday against Endo Pharmaceuticals and three other drug makers for allegedly paying generic rivals to delay launches of copycat versions of two painkillers. This is the first lawsuit, however, in which the agency argues that a deal involving a so-called authorized generic thwarted competition.
In pay-to-delay deals, a brand-name drug maker settles a patent lawsuit by paying cash or transferring something else of value to a generic rival, which agrees to delay launching a copycat medicine. In 2012, the US Supreme Court ruled the deals may be subject to antitrust review, but left open to interpretation whether only a cash payment should be considered questionable when a settlement is reached.
For its part, the FTC has consistently maintained that other deal terms may be anticompetitive because any arrangement that causes consumers to wait longer for a lower-cost generic causes economic harm. In particular, the FTC has cited authorized generics. In such instances, a brand-name drug maker would agree not to sell its own lower-priced version of its medicine, which it might otherwise do to compete with a generic drug maker.
A deal in which the brand-name company agrees not to sell its own authorized generic version “can be extremely valuable” to the generic drug maker with which it reaches the agreement, the FTC said in a statement. Why? The agency argues this is “because it ensures that (the generic) company will capture all generic sales and be able to charge higher prices” until the agreement expires.
In its lawsuit, which was filed in federal court in Philadelphia, the FTC alleged that Endo carried out such agreements with other drug makers —Watson Pharmaceuticals, which is now part of Allergan (AGN), and Impax Laboratories — in order to delay lower-cost generic versions of its Opana ER and Lidoderm painkillers.
“This is the first time we’ve seen something like this” lawsuit, said David Rosen, a public policy lawyer with Foley & Lardner, who specializes in health law. “This will impact how companies craft these settlements. If a brand-name drug maker offers a settlement (in which it agrees not to sell its own authorized generic), they have to assume it will be subject to further scrutiny.”
“This shows there is increasing momentum to treat ‘payment’ in pay-for-delay deals as broader than just cash,” said Michael Carrier, a Rutgers University School of Law professor who specializes in intellectual property issues, told us. He also filed a friend-of-the-court brief on behalf of Consumers Union and the American Antitrust Institute in another case that hinges on whether anything other than a cash payment is anticompetitive.
For years, the agency has argued that pay-to-delay deals cost Americans about $3.5 billion annually in higher health care costs. For its part, the pharmaceutical industry counters that these deals are not only legal, but allow lower-cost generic drugs to reach consumers faster than if patent litigation dragged on for years.
The courts, however, have been somewhat divided over the extent to which anything other than a cash payment should be subject to antitrust review. Last month, a federal appeals court decided that other terms of a settlement between drug makers warranted antitrust review, and this was the second time that a federal appeals court had reached that decision.
This may have emboldened the FTC to file the lawsuit. “The FTC has a nice wedge here,” wrote Sanford Bernstein analyst Ronny Gal in an investor note.
Still, the issue has not been decided. Last month, in fact, GlaxoSmithKline (GSK) petitioned the Supreme Court to review a ruling made last June by another federal appeals court. In that case, the court determined that a deal between Glaxo and Teva to delay a generic version of a medicine was problematic, even though cash was not exchanged.
In the case involving Endo, the FTC alleged that in 2010, Endo and Impax Laboratories illegally agreed that, for three years, Endo would not compete by marketing an authorized generic version of its own Opana ER painkiller, according to its lawsuit, which was filed in federal court in Philadelphia.
In exchange, Endo paid Impax more than $112 million, including $10 million under a development and copromotion agreement signed during the same time period. Endo then delayed transitioning patients to a new formulation of the drug, which the FTC said allowed the company to maintain monopoly power even after Impax began selling a generic.
In May 2012, Endo and its partners — Teikoku Seiyaku and Teikoku Pharma USA — illegally agreed with Watson Laboratories that until September 2013, Watson would not compete with them by marketing a generic version of Endo’s Lidoderm patch. In exchange, Endo paid Watson hundreds of millions of dollars and maintained a monopoly over Lidoderm, the FTC said.
Endo and Watson also illegally agreed that for nearly eight months in 2013 and 2014, Endo would not compete by marketing an authorized generic version of Lidoderm. As a result, Watson sold the only generic version of Lidoderm, which reduced competition and increased prices for generic patches. As a result, the FTC said Watson made hundreds of millions of dollars more in generic Lidoderm sales.
An Endo spokeswoman wrote us that the company is “disappointed by the FTC’s decision to initiate litigation … Endo believes that both settlements were … competitive … for a number of reasons, including that they permitted the entry of generic competition to Endo’s branded pharmaceutical products well before the relevant patents expired, and, therefore, benefitted consumers through increased availability and lower pricing.” The company, she added, believes the case is without merit and Endo will “vigorously defend itself.”