Life Science Compliance Update

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May 16, 2013

United Kingdom Office of Fair Trading: Accuses GlaxoSmithKline for Pay for Delay

Office of Fair Trading

In January of this year, we noted that the U.S. Supreme Court agreed to hear a case to decide whether agreements between brand-name pharmaceutical companies and generic makers to delay the entry of generic drugs to the market—so called “pay for delay” deals—violate antitrust laws.  “In a typical case, a generic rival challenges the patent of a brand-name competitor, which then pays the rival a sum of money to drop its challenge,” reported Reuters.  

A study by RBC Capital Markets Corp. of 371 cases during 2000-2009 found brand-name companies won 89 at trial compared to 82 won by generic drugmakers.  Another 175 ended in settlement deals, and 25 were dropped, reported TimesNews.net.

Oral arguments for the case—FTC v. Actavis—were heard in late March of this year, and there was significant coverage of the case by industry and various stakeholders.  A decision against the pharmaceutical industry would further shorten the patent protection period on many branded drugs.  Below is a summary of oral arguments and comments from various lawyers and stakeholders.

Forbes reported that while the Supreme Court case is considering the legality of such agreements, AstraZeneca entered into a new agreement with Actavis and its partner Egis Pharmaceuticals, to begin selling a generic copy of Crestor in May 2016, and Actavis will have to pay AstraZeneca a 39 percent royalty on net sales until the end of pediatric exclusivity in July 2016.

Pay-for-Delay Ban in the U.K.?

Interestingly, as pharmaceutical companies in the U.S. wait for the Supreme Court’s decision, regulators in the U.K. have now decided to stop pay-for-delay agreements as well—going after GlaxoSmithKline (GSK) of paying competitors to keep generics off the market, reported FiercePharma.

The drug is Seroxat--Paxil in the U.S.--and the agreement dates to 2001 through 2004, Reuters reports.  The accusation come from U.K.’s Office of Fair Trade (OFT) and accuses the U.K. drugmaker of making “substantial payments” to Alpharma Ltd., Generics and a unit of Teva Pharmaceutical Industries to keep their versions of the antidepressant off the market.

The OFT said it had a duty to investigate the case given the importance of generic medicines in keeping a lid on costs for the country's National Health Service (NHS).  “The introduction of generic medicines can lead to strong competition on price, which can drive savings for the NHS, to the benefit of patients and, ultimately, taxpayers,” said Ann Pope, senior director of services, infrastructure and public markets at the OFT.

GSK disputes the allegations, which relate to deals that were effective between 2001 and 2004.  GSK said it did nothing wrong and points out that European Commission regulators reviewed the old deal in 2005-2006 and decided not to act on it.  “GSK supports fair competition and we very strongly believe that we acted within the law,” David Daley, a spokesman for the London-based company, said by e-mail to Bloomberg, adding that the deals resulted in “generic versions of paroxetine entering the market before GSK's patents expired.”

The companies will have an opportunity to respond to the allegations before the OFT decides if competition law has been infringed.  If the U.K. does press on, GSK could be fined up to 10% of its £26.4 billion sales in 2012, reported Reuters.

AstraZeneca Plc, the U.K.’s second-biggest drugmaker, and Sanofi are also among companies the Brussels- based commission has queried as part of its probes into the companies’ tactics to keep copies of their medicines off the market, reported Bloomberg.  Johnson & Johnson and Novartis AG in January were also sent charge sheets by the EU over a pay-for-delay deal that may have hampered the sale of generic versions of pain killer fentanyl in the Netherlands. Drug developers use a variety of techniques to delay generics, the EU said in a 2009 report.

FTC v. Actavis

As noted by John Kamp, Executive Director of the Coalition for Healthcare Communication, “The biopharma industry seems to have the legal advantage.  The Federal Trade Commission (FTC) has struggled for over a decade just to get this case to the Supreme Court and has lost more challenges on the way than it has won.  The law supports settlements over litigation, even in antitrust cases.  Further, one Justice (Alito) recused himself, requiring the FTC to get five votes out of eight to prevail.” 

Kamp also pointed out that “The legal struggle is over three legal principles” and “Laws favor all three -- patent protection, settlements over litigation, and vigorous competition.”

FTC argued for the Court to start with a presumption that all pay-for-delay agreements are illegal, however, Justice Stephen G. Breyer called that test “rigid,” according to the Washington Post. 

MedPage Today noted that Deputy Solicitor General Malcolm Stewart explained that the Justice Department has since 2009 viewed such settlements as unlawful and that the drug companies should convince the court they're valid.  Justice Kennedy, however, said that the government’s test was the “same for a very strong patent as a very weak patent,” which the Justice said, “doesn’t make a lot of sense.”

MedPage noted that Justice Sonia Sotomayor questioned why it would be the responsibility of the drug companies to prove the settlement was lawful rather than the government to prove that to a court.  “It would seem to me that you have to bear the burden -- the burden of proving that the payment for services or the value given was too high,” Sotomayor told Stewart.  “I don’t know why it has to shift to the other side,” the article notes. 

Justice Antonin Scalia asserted that the Court shouldn’t “overturn understood antitrust laws just to patch up a mistake that Hatch-Waxman made.”  Similarly, Kamp pointed out that Justice Anthony Kennedy, often seen as the swing vote, “suggested that if Congress made a drafting mistake enabling these settlements in the Hatch-Waxman statute upon which the decision rests, it’s up to Congress, not the courts, to change the law.”  We previously noted that in March, Senators Charles Grassley (R-IA) and Amy Klobuchar (D-MN) introduced Senate bill 214 (S.214), A Bill to prohibit brand name drug companies from compensating generic drug companies to delay the entry of a generic drug into the market—also known as the Preserve Access to Affordable Generics Act.

In addition, Senators Al Franken (D-MN) David Vitter (R-LA), Dick Durbin (D-IL), Jeanne Shaheen (D-NH), and Bernie Sanders (I-VT) introduced S. 504, the “Fair and Immediate Release of Generic Drugs Act,” in mid-March, reported Patent Docs.  The bill is aimed at banning settlement agreements of ANDA litigation between innovator drug companies and generic drug manufacturers.  According to blog post author Kevin E. Noonan, “the bill contains provisions that preclude the 180-day exclusivity period granted to the first ANDA filer from any party that has entered into a ‘disqualifying agreement.’” 

“Another provision limits agreements on deferring commercial marketing, which are defined as being between a first ANDA filer and NDA holder (or owner of an Orange Book listed patent that was the subject of a Paragraph IV certification) and wherein the first filer agrees “not to seek an approval of its application that is made effective on the earliest possible date” or “not to begin the commercial marketing of its drug on the earliest possible date after receiving an approval of its application” or both” he writes.

The bill also contains a notice provision to the FDA that requires that the “text” of any agreement “that has been reduced to writing” (or a “written detailed description” of any agreement not reduced to writing) be submitted to the Secretary of HHS "not more than 10 business days after execution of the agreement.”

In response to industry’s arguments, Kamp noted that the FTC argued vigorously that the “pay for delay” drug patent settlements create extraordinary profits for the private companies, which harm consumers much more than in any other antitrust settlement situation.  While the decision may be too close to call, Kamp pointed out that “populist policy and politics favors drug cost savings, especially in the face of escalating healthcare costs and the need to control the growing deficit.  While the law seems to favor pharma, especially with the more conservative justices, the politics of less expensive drugs may be tougher, especially as the case moves to Congress.”  For example, the American Medical Association, AARP, and a group of states attorney general have come out in favor of banning these agreements.

However, Generic Pharmaceutical Association (GPhA) CEO Ralph Neas said that every patent settlement has brought a generic drug to market before the relevant patent ended, and that about two-thirds of the generic that were launched in 2010 and 2011 became available earlier than they would have otherwise due to a settlement, reported by Forbes.  Justice Kennedy suggested that brand-name drug companies should “not be allowed to pay generic-drug manufacturers more than those companies could expect to get by winning patent litigation,” notes the Washington Post.  In addition, Justice Elena Kagan sympathized with consumers, and noted that these agreements are merely “splitting monopoly profits, and the person who's going to be injured are all the consumers out there,” Justice Kagan said.

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