No Second Look for Pay-for-Delay Drug Patent Settlements

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By Tony Dutra

Nov. 7 — The U.S. Supreme Court refused Nov. 7 GlaxoSmithKline's request to take another look at when patent case settlement agreements between brand name and generic drug makers run afoul of antitrust laws ( SmithKline Beecham Corp. v. King Drug Co. of Florence Inc., U.S., No. 15-1055, review denied 11/7/16 ).

The court held in 2013 in FTC v. Actavis Inc. that a “pay-for-delay” cash payment to the generic maker was anti-competitive. But the current case featured a more subtle pact: GSK agreed to withhold competitive “authorized generics” of anti-epileptic medicine Lamictal (lamotrigine) while Teva Pharmaceutical Industries Ltd. enjoyed 180 days of no competition for its generic.

GSK's petition argued that it did nothing more than grant an exclusive license to Teva, which any patentee can do, under Section 261 of the Patent Act, 35 U.S.C. §261.

But the high court took the advice of the U.S. government to deny the petition. The Office of the Solicitor General said that what GSK agreed to forgo during the six-month period was worth “tens or even hundreds of millions of dollars” to Teva (198 PTD, 10/13/16). That action is subject to antitrust scrutiny under the same “rule of reason” applied in Actavis, the government said.

The case now returns to district court.

Drug Buyers Cry Foul

King Drug Co. of Florence Inc. and Louisiana Wholesale Drug Co. Inc., direct purchasers of Lamictal, filed an antitrust class action suit challenging the GSK-Teva agreement for violating Sections 1 and 2 of the Sherman Act. The complaint did not specify a desired award but said GSK received $2 billion in annual revenues near the end of the patent term.

Under the agreement, GSK may have enjoyed monopoly pricing as the exclusive Lamictal provider for three years between the date of the agreement and the date Teva first introduced its generic. And Teva would then have enjoyed for six months of anti-competitive value based on the difference between the price a sole generic on the market can ask versus the price when multiple generics compete.

A 2005 Food and Drug Administration study estimated that, when only one generic competes, it is priced at 94 percent of the brand-name drug price. The price when there is competition among “a large number of generic manufacturers” averages 20 percent of the branded price, the study found.

Source Material:

Briefs (No. 15-1055): Petition 2/19/16 Response 5/2/16 Reply 5/16/16 SG brief 10/3/16

Opinion Below: 791 F.3d 388 (3d Cir. 2015)

District court case: No. 2:12-cv-00995 (D.N.J.)

U.S. Patent:No. 4,602,017

Actavis Spurs Class Action Lamictal Suit

The issue arises because of the Hatch-Waxman Act procedure for introducing generic versions of patented brand-name drugs. The first-filing generic maker can challenge the validity of the patent in court and, if it wins, gets six-months of exclusivity against other generics.

But the generic maker can also settle with the brand drug maker without the court reaching a validity decision. That leaves other generic makers without a remedy. And it leaves drug buyers without a generic alternative longer than might be possible without the delayed-marketing terms of a settlement.

Here, Teva agreed in 2005 to drop its invalidity lawsuit, and GSK said Teva could enter the market with a generic in 2008, one day before U.S. Patent No. 4,602,017 on lamotrigine expired. GSK promised not to introduce an authorized generic for six months.

The U.S. Court of Appeals for the Third Circuit reversed a district court's decision granting GSK and Teva's motion to dismiss. King Drug Co. of Florence Inc. v. SmithKline Beecham Corp., 791 F.3d 388, 2015 BL 204709 (3d Cir. 2015)(117 PTD, 6/18/13).

Under the current district court schedule, the parties will be conducting discovery through at least February 2018.

Jay P. Lefkowitz of Kirkland & Ellis LLP, New York, filed GSK's petition. Bruce E. Gerstein of Garwin Gerstein & Fisher LLP, New York, filed the buyers' response.

To contact the reporter on this story: Tony Dutra in Washington at adutra@bna.com

To contact the editor responsible for this story: Mike Wilczek at mwilczek@bna.com

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