FTC Files Amicus Brief in Antitrust Suit to Challenge “Pay-for-Delay” Generic Drug Deal

This posting was written by Cheryl Beise, Contributor to IP Law Daily.

The Federal Trade Commission announced yesterday that it has filed an Amicus Brief with the federal district court in Trenton, New Jersey in the Effexor XR Antitrust Litigation to challenge an agreement between Wyeth and Teva Pharmaceuticals as an illegal restraint of trade. The FTC hoped to assist the court in its analysis of the economic realities of the challenged agreement, it said.

The plaintiffs in the Effexor action allege that in 2005, Wyeth and Teva entered into a so-called “No-AG” agreement, whereby Wyeth agreed to refrain from marketing an authorized generic (“AG”) version of Effexor XR during Teva’s 180 exclusivity period under the Hatch-Waxman Act, in exchange for Teva’s agreement to delay introduction of its generic version (venlafaxine) until July 1, 2010.

In a “no-AG” agreement or commitment, the branded firm, as part of a patent settlement, agrees that it will not launch its own generic alternative when the first generic begins to compete.

The issue addressed by the FTC in Effexor is whether a branded drug company’s commitment not to launch an authorized generic drug in competition with a generic qualifies as a “reverse payment” under last month’s Third Circuit’s ruling in In Re: K-Dur Antitrust Litigation.

In K-Dur, the Third Circuit held that a court considering an antitrust challenge to a Hatch-Waxman patent settlement “must treat any payment from a patent holder to a generic patent challenger who agrees to delay entry into the market as prima facie evidence of an unreasonable restraint of trade,” rebuttable by proof that the payment (1) was for a purpose other than delayed entry or (2) offered some pro-competitive benefit.

A court’s analysis of reverse payment antitrust cases should be based on “the economic realities of the reverse payment settlement,” not on the “labels applied by the settling parties,” the Third Circuit added. The FTC also filed an amicus brief in K-Dur, arguing that “pay-for-delay settlements” were presumptively anti-competitive.

In its Effexor brief, the FTC noted that a no-AG commitment can take a variety of forms—the brand company may explicitly agree not to compete during the first-filer generic manufacturer’s exclusivity period, or the brand company may grant the generic company the exclusive rights either to market a generic product or distribute the brand’s AG.

“Regardless of its form, however, the practical effect of the no-AG commitment is always to eliminate competition between the brand’s AG product and the first-filer generic’s product during the marketing exclusivity period and results in higher drug prices for consumers,” according to the FTC.

The FTC also argued that the economic realities of no-AG commitments mandate that such promises be analyzed under K-Dur like other forms of compensation paid to generics. At the request of Congress, the FTC conducted an empirical study on the effects of AGs on branded drug firms, on generic drug firms, and on consumers. The FTC’s 2011 report, titled Authorized Generic Drugs: Short-Term Effects and Long-Term Impact, examined more than 100 companies and found that “the presence of authorized generic competition reduces the first-filer generic’s revenues by 40 to 52 percent, on average” during the l80-day exclusivity period. A no-AG commitment financially induces the generic company to delay its entry, according to the FTC.

“This empirical evidence confirms what the pharmaceutical industry has long understood: that a no-AG commitment provides a convenient method for brand drug firms to pay generic patent challengers for agreeing to delay entry,” the FTC said.

Text of the Amicus Brief and a news release on the development appear on the FTC website.

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