Pay-for-delay

Listen up, direct purchasers of pharmaceuticals.

Since 2013, pay-for-delay antitrust cases against Big Pharma could succeed if they alleged that a brand-name drug company had made “large and unjustified” payments for a competitor to postpone bringing a generic substitute to market. FTC v. Actavis, Inc., 133 S. Ct. 2223, 2237 (2013). But how “large” and how “unjustified” does Actavis require the payments to be?

A new decision by the Third Circuit provides a plaintiff-friendly answer, one that allows claimants in many cases to move beyond the pleading stage into discovery and potentially trial on the merits.

Lipitor and Effexor

The appeal combined review of separate dismissals by one U.S. District Judge, Peter G. Sheridan in Trenton, of two different cases.

Both suits involved blockbuster drugs. One dealt with Lipitor, a lipid-lowering agent that helps treat cardiovascular disease ($5.27B in 2010 sales), and the second concerned Effexor, a treatment for depression, anxiety, and other mental ailments ($1.43B in 2010 sales).

The Lipitor case pitted Pfizer against Ranbaxy. Pfizer had claimed that two patents covered Lipitor. The pharmaceutical behemoth sued Ranbaxy for infringing the patent (in the District of Delaware) after Ranbaxy gave notice it would start selling a Lipitor generic.

Expanding the fight, Pfizer also accused Ranbaxy (in the District of New Jersey) of infringing patent rights in another Pfizer drug, Accupril, which reduces hypertension. In the Accupril case, Pfizer moved for and got a preliminary injunction against Ranbaxy, posting a $200M bond as security.

But in June 2008, Pfizer and Ranbaxy settled, with Pfizer releasing claims for damages from infringement of the Accupril patent and Ranbaxy agreeing not to start selling generic Lipitor until November 2011 — 20 months after Pfizer’s original Lipitor patent expired.

Under the Hatch-Waxman Act, because Ranbaxy had made the first certification to the Food and Drug Administration that it intended to sell a Lipitor generic, other generic makers had to wait 180 days after November 2011 to begin selling their generic Lipitor.

The Effexor litigation followed a similar path. Wyeth owned patent rights in Effexor’s active ingredient, and in 2002 it brought a patent-infringement suit against Teva over Teva’s plans to market a generic Effexor. The case settled after the court made rulings in a Markman hearing. Teva promised not to begin selling its generic until July 2010, and Wyeth agreed not to offer a generic version of Effexor until Teva’s exclusive period ran out 180 days later.

Antitrust cases

The pay-for-delay cases against Pfizer over Lipitor and against Wyeth for Effexor started in 2011. Neither proceeded beyond the pleading stage, ending in September and October 2014, respectively, with orders granting the defendants’ motions to dismiss. See In re Lipitor Antitrust Litig., 46 F. Supp. 3d 523 (D.N.J. 2014); In re Effexor XR Antitrust Litig., No. CIV.A. 11- 5479 PGS, 2014 WL 4988410 (D.N.J. Oct. 6, 2014).

Judge Sheridan dismissed both cases because he believed that Actavis required the plaintiffs to do more than generally allege “large and unjustified” payments for delay of generic entry. He ruled that plaintiffs must also anticipate and rebut possible arguments could call the largeness and unjustified nature of the payments into question.

Third Circuit

The court of appeals disagreed. Regarding the “large” part of the “large and unjustified” test, the 3-0 panel (consisting of Chief Judge Smith and Judges Ambro and Fisher) pointed out that the Lipitor complaint alleged that Pfizer released a claim against Ranbaxy for infringing its Accupril patent “worth ‘hundreds of millions of dollars.'”  In re Lipitor Antitrust Litig., No. 14-4202, slip op. at 59 (3d Cir. Aug. 21, 2017). “Those allegations sufficiently allege a large reverse payment; more detailed, advanced calculations related to those allegations may come later.” Id. (footnote omitted).

The panel rejected Pfizer’s demand for more. Chief Judge Smith wrote:

As explained infra, not only does Lipitor defendants’ request for detailed economic analyses go beyond what is required at this stage of the litigation, but that request also attempts to require Lipitor plaintiffs to disprove what Lipitor defendants must prove. Lipitor defendants suggest that the size of the reverse payment must be determined by the net reverse payment, which accounts for litigation costs and other discounting measures and justifications for the payment. In doing so, Lipitor defendants seem to conflate the Actavis requirement that the reverse payment be “large” with the requirement that the payment be “unjustified.” Their proposed economic valuation demands that Lipitor plaintiffs disprove proffered justifications for the reverse payment settlement agreement. Lipitor plaintiffs, though, need not do so at the pleading stage. Actavis, 133 S. Ct. at 2236.

Id. at 59 n.11.

The also denied Pfizer’s attempt to complicate the pleading of the second half of the “large and unjustified” test:

The alleged reverse payment here was also “unjustified.” As noted earlier, avoiding litigation costs, providing payment for services, or other consideration may justify a large reverse payment. See Actavis, 133 S. Ct. at 2236. To plausibly allege an unjustified reverse payment, an antitrust plaintiff need only allege the absence of a “convincing justification” for the payment. Id. at 2236–37.

Id. at 60. In addition:

While Lipitor defendants speculate as to the actual saved litigation costs, all that need be alleged, at this juncture, is that those costs fail to explain the hundreds of millions of dollars of liability released by Pfizer. Lipitor plaintiffs have alleged just that, and the finely calibrated litigation 61 cost estimates requested by Lipitor defendants and the District Court are unnecessary at this stage in the litigation.

Id. at 60-61. Further:

Actavis does not require antitrust plaintiffs to come up with possible explanations for the reverse payment and then rebut those explanations in response to a motion to dismiss. The Supreme Court clearly placed the onus of explaining or justifying a large reverse payment on antitrust defendants.

Id. at 62 (emphasis in original).

Wyeth fared no better in the Effexor part of the appeal. The court ruled:

First, the alleged reverse payment, here in the form of Wyeth’s no-AG agreement, is plausibly large. The no-AG agreement [i.e., the agreement not to sell an authorized Effexor generic] used by Wyeth to induce Teva to stay out of the Effexor XR market was alleged to have been worth more than $500 million.

* * * *

Second, the alleged reverse payment made through Wyeth’s no-AG agreement is plausibly unjustified. As alleged, the no-AG agreement “cannot be excused as a litigation cost avoidance effort by Wyeth.” Effexor JA212 (DPP Sec. Am. Compl. ¶ 285). Effexor plaintiffs’ complaint states that Wyeth’s litigation costs with Teva would have totaled only between $5 million to $10 million, and those costs “would have been the tiniest of a fraction the size of the payment likely over $500 million effectuated by Wyeth to Teva.” Id. They allege further that the no-AG agreement is not “justified on any procompetitive basis,” asserting that no exchange of goods or services or any explanation justifies the delay of Teva’s entry into the Effexor XR market other than the settlement agreement. Effexor JA212 (DPP Sec. Am. Compl. ¶¶ 286–87).

Id. at 69-70 & 72.

Implications

The Third Circuit’s decision in Lipitor emphasizes the simplicity of the “large and unjustified” test under Actavis at the pleading stage. Plaintiffs need not preemptively respond to defense arguments that could undermine the payments’ size or lack of justification. Pay-for-delay cases should thus ordinarily survive motions to dismiss in cases involving blockbuster drugs, which generate hundreds of millions if not billions of dollars in revenue.

Big Pharma will still have a chance to present their justifications at summary judgment, as they did successfully in another recent Third Circuit case. See In re Wellbutrin XL Antitrust Litig., No. 15-2875 (3d Cir. Aug. 9, 2017) (affirming summary judgment against plaintiffs on pay-for-delay claims).

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Photo of Barry Barnett Barry Barnett

Clients and colleagues call Barry Barnett an “incredibly gifted lawyer” (Chambers and Partners) who is “magic in the courtroom” (Who’s Who Legal), “the top antitrust lawyer in Texas” (Chambers and Partners), and “a person of unquestioned integrity” (David J. Beck, founder of Beck…

Clients and colleagues call Barry Barnett an “incredibly gifted lawyer” (Chambers and Partners) who is “magic in the courtroom” (Who’s Who Legal), “the top antitrust lawyer in Texas” (Chambers and Partners), and “a person of unquestioned integrity” (David J. Beck, founder of Beck Redden).

Barnett is a Fellow in the American College of Trial Lawyers, and Lawdragon has named him one of the top 500 lawyers in the United States three years in a row. Best Lawyers in America has honored him as “Lawyer of the Year” for Bet-the-Company Litigation (2019 and 2017) and Patent Litigation (2020) in Houston. Based in Texas and New York, Barnett has tried complex business disputes across the United States.

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Yale won, 14-0.