We almost have to admire the Federal Trade Commission’s (FTC) persistence. For more than a decade, the Commission has been toiling unsuccessfully in federal court, and in Congress, to prohibit so-called pay-for-delay or reverse payment drug patent settlements. It’s even hinted at using its limited rulemaking authority to do what the courts and Congress won’t do. Last week, the Commission utilized another, very troubling route to pursue its crusade: it injected its views on these patent litigation arrangements into a proposed settlement of a complaint it had filed to block a merger between two drug companies, Perrigo Company and Paddock Laboratories.
We’ve provided ongoing commentary here at The Legal Pulse over the past year on the legal and policy developments related to FTC’s actions on reverse payment drug patent settlements (click on the “FTC” tag from our tag cloud to read them).
The Commission concluded that Perrigo’s purchase of Paddock’s assets would result in harmful market concentration in the markets for a number of generic drugs. Through the settlement, the companies agreed to a number of conditions which FTC believes will ensure future competition. The Decision and Order also contains, in part, the following provision:
Respondents shall, after the Acquisition Date, not enter into any agreement with a Holder of the Reference Testosterone Gel Product Approval pursuant to which Respondents receive anything of value in exchange for their agreement to refrain from researching, developing, manufacturing, marketing or selling any Relevant Testosterone Gel Product, or taking any other action that otherwise deters, prevents, or inhibits Respondents’ ability to manufacture, market or sell any Relevant Testosterone Gel Product immediately on or after the date Respondents receive Product Approval for such Relevant Testosterone Gel Product from the FDA.”
Translation: the merged entity is prohibited from entering into any future “reverse payment” settlement with any branded producer of a Testosterone Gel Product (in this case, “AndroGel,” whose patent is owned by Abbott Labs and marketed through its Solvay subsidiary).
Some key background: In May 2003, Paddock filed an Abbreviated New Drug Application (ANDA) with FDA for approval of a generic version of AndroGel, as did another generic producer, Watson Pharmaceutical. In July 2003, Paddock entered into an agreement with Par Pharmaceuticals to share profits and litigation costs on the generic AndroGel.* Soon after, Solvay filed a patent infringement action against Watson, Par, and Paddock. As is customary, FDA stayed its approval of the ANDAs for 30 months once Solvay filed suit. After 30 months, it approved Watson’s ANDA but kept the stay on Paddock’s ANDA.
In September 2006, Solvay settled the patent litigation with the defendants, entering into business promotional agreements with both generics. In return for agreeing not to release a generic version of AndroGel until at the latest February 2016 (four years before Solvay’s patent expired in 2020), Paddock/Par (once it received FDA approval for its ANDA) would act as a backup supplier of AndroGel for Solvay and Solvay would pay Paddock/Par $2 million a year.
FTC investigated the settlement and in 2008, the Commission, along with direct and indirect purchasers of AndroGel, sued Paddock, Par, and Watson for antitrust violations. On February 22, 2010, a federal judge in Atlanta ruled against FTC and the private plaintiffs. The Commission’s appeal has been argued before the U.S. Court of Appeals for the Eleventh Circuit. Separately, Perrigo filed an ANDA for generic AndroGel in 2009, and Solvay announced that it wouldn’t be filing a patent challenge against Perrigo.
FTC’s anti-reverse settlement provision was aimed squarely at Perrigo even though Perrigo has not yet received ANDA approval from FDA, and even though Perrigo would be well within its legal rights to resolve any future patent litigation with Solvay with a “reverse payment.” FTC went even further, however, with another provision of the consent order, prohibiting Paddock/Par from receiving “any Service Fee . . . that may accrue after the initial term of the Androgel Backup Supply Agreement.”
These provisions are also arguably not properly tailored to prevent any harm that FTC was concerned could arise from the Paddock-Perrigo merger. Consider what two former FTC senior staffers said at a Washington Legal Foundation Web Seminar program on July 28, Someone to Watch Over Me: Legal & Compliance Challenges Posed by Antitrust Agencies’ Consent Decrees. Christine Wilson, responding to a question about the consent order, stated:
This is an example of how the agencies sometimes use consent decrees to advocate for various policy initiatives. They use these settlements to establish beachheads and to develop new policies, and then companies who are currently operating in the marketplace are deemed to have knowledge of the agencies’ desires in this area. It is an interesting question whether these type of remedies are overstepping the bounds of what would be required to narrowly tailor the relief to the harm that is alleged, and whether this is reflective of a regulatory FTC rather than FTC as an enforcement agency.”
The Seminar’s other speaker, Bilal Sayyed, added that the Perrigo-Paddock consent provision raised “the specter of a legislative FTC since the agency believes that these provisions should be reflected in federal law and they haven’t been able to convince enough people in Congress of this.”
Is FTC overstepping its bounds? We feel this is a fair question that should be looked into more vigorously by regulated entities, the press, and perhaps even those with legislative oversight over FTC’s actions.
*In 2006, Paddock sold its ANDA for generic AndroGel to Par, and in 2007, FDA approved the ANDA.