antitrust thing

8/18/2019 Antitrust Thing

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A Theory in Search of a Case: The Nexium “Reverse Payment” Trial

By

Matthew AccorneroJones Day

555 South Flower StreetLos Angeles, CA 90071


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Overview

Judge Young began his February 12, 2014 Order on various motions for summary judgment by

rephrasing the judicial adage of having “a case in search of a theory.” He said that Nexium, the

first “reverse payment” trial since the U.S. Supreme Court’s Actavis decision, was a theory

“searching for a case, or at least sufficient evidence to support each necessary element of thetheory.”

i The theory, referred to during trial as the “ Actavis inference,” posits that a “large and

otherwise unexplained payment, combined with delayed entry, supports a reasonable inference

of harm to consumers from lessoned competition.”ii Judge Young’s comment seemed to express

skepticism about the plaintiffs’ ability to show delayed generic entry, or, more specifically, that

the settlement agreement between AstraZeneca and Ranbaxy was the cause of such delay.iii

Eleven months later, after a “rip roaring”iv six-week trial, a jury confirmed Judge Young’s

skepticism by finding that the settlement, while unreasonably anticompetitive, did not materially

cause the overcharges the plaintiffs allegedly had suffered.v

Background and Pre-Trial Motions

AstraZeneca received FDA approval for its brand-name heartburn drug, Nexium, in February

2001.vi

Four years later, the generic drug manufacturer Ranbaxy filed its ANDA with the FDA,

and included a “Paragraph IV” certification. As such, Ranbaxy received “first-filer” status and,

with it, a 180-day generic marketing exclusivity period. This exclusivity period confers a

tremendous competitive advantage over other ANDA filers; namely, Teva Pharmaceuticals and

Dr. Reddy’s Laboratories.vii Predictably, AstraZeneca brought a patent infringement suit against

Ranbaxy in November 2005.viii

In addition to litigating the validity of the patents at issue, such a

suit triggers an automatic stay of FDA approval of the ANDA for 30 months. Thus, the earliest

the FDA could have approved generic Nexium was April 2008.

On the same day as the thirty-month stay on FDA approval was set to expire, AstraZeneca and

Ranbaxy settled their patent infringement suit. The alleged “reverse payment” settlement

provided that Ranbaxy would delay the launch of its generic Nexium until May 2014. In

exchange, AstraZeneca would waive its right to manufacture an “authorized generic” during

Ranbaxy’s 180-day exclusivity period.ix

Plaintiffs claimed that Ranbaxy’s CEO estimated this

settlement would be worth $1.5 billion in prospective revenue to the company.x

Plaintiffs argued that Ranbaxy's settlement, in conjunction with its first-filer status, created a

bottleneck for entry into in the generic Nexium market.

xi

Teva and Dr. Reddy’s attempted to break that bottleneck by seeking declaratory judgments to invalidate Nexium patents,xii but

ultimately settled their lawsuits with AstraZeneca – first Teva in 2010 and then Dr. Reddy’s in

2011 – and agreed to postpone entry until May 2014. Plaintiffs alleged that the settlements with

Teva and Dr. Reddy’s contained reverse payments in the form of “liability forgiveness.”

AstraZeneca agreed to limit Teva’s liability for infringing upon AstraZeneca’s Prilosec patent,


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and, similarly, agreed to forgive Dr. Reddy’s liability for infringing upon another AstraZeneca

drug, Accolate.xiii

On summary judgment, Judge Young ruled that plaintiffs had failed to demonstrate the existence

of a “large, unjustified reverse payment” with regard to either the Teva or Dr. Reddy’s settlement

agreement. Because these settlements did not satisfy the first prong of the Actavis test, JudgeYoung also granted AstraZeneca’s motion for summary judgment on all claims arising from

those settlements. In short, if these settlements did not contain a large, unjustified payment, then

they could not have anticompetitively delayed the entry of generic Nexium.

Judge Young also granted Ranbaxy’s motion seeking summary judgment due to a purported lack

of causation. Defendants argued that the settlement agreement could not have caused the delay

in generic entry, because, in the “but-for” world, Ranbaxy would not have obtained the FDA

approval necessary to enter the market.xiv The court agreed, and reasoned that because there was

no possibility for Ranbaxy to get to market with a generic version of Nexium prior to May 2014,

“the AstraZeneca-Ranbaxy settlement agreement could not be the source of antitrust damages.”xv

This, as Judge Young wrote in the order denying a new trial, was the Court’s “mistaken

assumption.”xvi

In reality, the AstraZeneca-Ranbaxy settlement could potentially be

anticompetitive if it delayed the entry of any generic Nexium manufacturer. The court

“corrected course” on this issue during trial.xvii

On the eve of trial, Dr. Reddy’s resolved the surviving antitrust claims with a settlement that did

not require any payment to the plaintiff classes. Teva settled during trial, after conspiracy claims

linking the Teva and Ranbaxy settlements were dismissed on a directed verdict.

Trial

At trial, the plaintiffs argued that the AstraZeneca-Ranbaxy settlement agreement contained an

“unexplained large reverse payment” designed to delay generic entry. They asserted that, but for

the settlement, a cheaper, generic Nexium would have entered the market before May 2014.

However, plaintiffs’ theory had challenges. First, Ranbaxy never received final FDA approval to

market its generic Nexium product. In fact, during trial in November, the FDA rescinded its

previously granted tentative approval of Ranbaxy’s ANDA for generic Nexium.xviii And, since

the Court had previously ruled against “Ranbaxy causation,” plaintiffs’ causation argument was

attenuated.

Plaintiffs alleged that, absent the AstraZeneca-Ranbaxy settlement, Teva would have teamed

with Ranbaxy to launch a generic form of Nexium. For this to take place, plaintiffs needed to

prove that: 1) AstraZeneca would have licensed Ranbaxy (and Teva) to enter at an earlier date; 2)

Teva would have to paid Ranbaxy to forfeit its 180-day first-filler exclusivity; and 3) Teva

would have accelerated its efforts to obtain FDA approval.


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Defendants pointed out that the plaintiffs’ case rested entirely on speculation. Again, plaintiffs

were in the unenviable position of trying to show that, in the but-for world, the generic

manufacturers could have – and would have – received FDA approval prior to May 2014, when

in reality no company had tentative approval at the conclusion of trial November. According to

the defendants, the settlement did not cause any delay in the launch of generic Nexium products.

Verdict

On December 5, 2014, the jury returned a verdict that AstraZeneca exercised market power in

the market for Nexium, and that the AstraZeneca-Ranbaxy settlement contained a “large and

unjustified payment” as required by the Supreme Court in Actavis. The jury also found that the

settlement was “unreasonably anticompetitive” and that its anticompetitive nature was not

outweighed by any pro-competitive justifications. Judge Young wrote that “[b]y checking ‘yes’

to Questions 1, 2, and 3, the jury indicated that they were convinced that the AstraZeneca-

Ranbaxy Settlement Agreement was unreasonably anticompetitive under a rule of reason

standard.”xix

But, by checking “no” to Question 4, the jury ultimately concluded that, regardlessof the anticompetitive settlement, AstraZeneca would not have agreed to an earlier launch date.

Accordingly, the settlement did not cause the overcharges the plaintiffs allegedly had suffered as

consumers of Nexium.

Post-Trial

After the jury’s verdict, plaintiffs filed a motion for a new trial under Rule 59 of the Federal

Rules of Civil Procedure. Plaintiffs claimed that because of the pre-trial motions, they could not

put forth evidence to show that Ranbaxy would have involuntarily lost its first-filer exclusivity,

relieving the bottleneck for other generics. Judge Young, in denying the motion, rejected thisargument and explained that not only were plaintiffs free to pursue an involuntary forfeiture

theory, they did in fact present evidence that Teva pressed forward relentlessly to develop its

generic version of Nexium.xx

This issue is currently up on appeal at the First Circuit.

The Federal Trade Commission has filed an amicus brief at the First Circuit, attempting to clarify

the distinction between an antitrust violation, and antitrust damages or injury. The amicus points

out that the jury found that the challenged agreement was “unreasonably anticompetitive” under

the “rule of reason.” This, the FTC argues, constitutes a violation of the Sherman Act. The fact

that plaintiffs couldn’t prove a “but-for” entry date is a failure to show injury-in-fact. In short,

there was an antitrust violation, but no damages.

xxi

i In re Nexium (Esomeprazole) Antitrust Litig., 2014 U.S. Dist. LEXIS 17718, *14 (D. Mass. Feb. 12, 2014).


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ii Aaron Edlin, Scott Hemphill, Herbert Hovenkamp & Carl Shapiro, The Actavis Inference: Theory and Practice, 67Rutgers U. L. Rev. 585, 585 (2015).iii In his July 30, 2015 Order denying a new trial, Judge Young wrote that the Court believed the plaintiffs’ case was“hanging by a thread.” In re Nexium (Esomeprazole) Antitrust Litig., 309 F.R.D. 107, 117 (D. Mass. 2015).iv Id. at 118.v

Id . at 125.vi In re Nexium (Esomeprazole) Antitrust Litig., 968 F. Supp. 2d 367, 380 (D. Mass. 2013).vii A first filer has the right, once final FDA approval is secured, to enter the generic market first and exclusivelymarket its product for 180 days, during which time the FDA will not grant final approval to any other genericmanufacturer's version of the drug.viii AstraZeneca alleged that Ranbaxy’s generic version of Nexium would infringe six patents. Plaintiffs in the casehad contended that the purported invention of esomeprazole, Nezium’s active ingredient, is prima facie obvious inlight of the prior art.ix The presence of an authorized generic significantly lowers the revenue of a first-filer generic during the 180-dayexclusivity period by taking about half of the generic market share.x In re Nexium, 968 F. Supp. 2d at 381.xi In re Nexium (Esomeprazole) Antitrust Litig., 42 F. Supp. 3d 231, 246 (D. Mass. 2014). Because no othermanufacturer may launch a product until 180 days after the first filer has done so, a first filer's delay effectivelydelays all of its competitors' entries, creating a bottleneck in the market that postpones the date on which any generic product will become available.xii To prevent bottleneck, the Hatch-Waxman Act contains provisions to trigger the 180-day exclusivity period“either on the date that the first . . . filer begins marketing its generic drug, or on the date of a final court decisionfinding the relevant . . . patents invalid or not infringed, whichever comes first.” In re Nexium 42 F. Supp. 3d at 246.Thus, if Teva was able get a declaratory judgment in 2008, it could have brought its generic Nexium to market by2009.xiii In re Nexium, 968 F. Supp. 2d at 384.xiv In re Nexium, 2014 U.S. Dist. LEXIS 17718 at *19.xv In re Nexium, 309 F.R.D. at 116.xvi Id . at 116 n. 16.xvii This fact came to light during the testimony of Thomas McGuire, an economist specializing in the pharmaceutical industry, and the “Court promptly corrected course,” charging the jury that antitrust liability couldexist if, absent the AstraZeneca-Ranbaxy Settlement Agreement, Teva would have teamed with Ranbaxy to launch a

generic form of Nexium prior to May 2014. In re Nexium, 309 F.R.D. at 120.xviii In re Nexium, 309 F.R.D. at 119.xix Id . at 125.xx Id . at 128.xxi Further, the FTC argues that a “delay” isn’t the enunciated harm from a reverse payment settlement, but adisruption to the competitive process that can include the generic abandoning its patent challenge and staying out ofthe market regardless of whether the generic would actually have otherwise entered the market sooner than permitted by the agreement.

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