The Federal Trade Commission (FTC) and the Antitrust Division of the U.S. Department of Justice (DOJ) held a public workshop on February 24–25, 2015, to examine recent trends and developments in health care provider organization and payment models, and their potential effects on competition in the provision of health care services. A main message from FTC and DOJ leadership at the workshop is that the agencies evaluate new provider and payment models for their adherence to competition principles, effect on cost of care, access and quality, and avoidance of market power.
The Supreme Court of the United States’ recent ruling in North Carolina State Board of Dental Examiners v. Federal Trade Commission held that in order for a state agency controlled by active market participants to receive federal antitrust immunity under the state-action doctrine, that agency must be actively supervised by the state. State licensing boards and other agencies that include market participants should take careful note of the decision’s potentially wide-reaching effects.
The U.S. Court of Appeals for the Ninth Circuit affirmed an Idaho federal district court’s decision ordering the divestiture of a physician practice group that had been acquired by a competing health system. The case, which pitted the health system against private plaintiffs as well as the Federal Trade Commission and the state attorney general, illustrates some of the key issues hospitals and health systems must evaluate as they consider potential acquisitions.
On January 30, 2015, the Federal Trade Commission (FTC) announced a settlement of its investigation into Sun Pharmaceutical Industries Ltd.’s (Sun) acquisition of Ranbaxy Laboratories Ltd. (Ranbaxy) from Daiichi Sankyo Co., Ltd. Sun and Ranbaxy are both multinational pharmaceutical companies that produce a range of generic and branded drugs.
In its complaint, the FTC alleges the relevant product market to be “the development, license, manufacture, marketing, distribution, and sale of generic minocycline hydrochloride 50 mg, 75 mg, and 100 mg tablets (‘minocycline tablets’).” Ranbaxy is currently one of only three U.S. suppliers of the relevant doses of minocycline tablets, with Sun being one of a limited number of firms likely to enter the alleged market in the near future. The complaint further alleges that the acquisition would eliminate a potential future competitor and therefore tend to substantially lessen competition by foregoing or delaying Sun’s entry into the relevant market and increase the likelihood that the combined entity would reduce price competition.
To resolve the competitive concern, the FTC is requiring divestiture not only of the minocycline tablets but also a product outside of the alleged relevant market—minocycline capsules. In its aid to public comment, the FTC states that this out-of-market divestiture is necessary to ensure that the divestiture buyer “achieves regulatory approval to qualify a new [active pharmaceutical ingredient] supplier for its minocycline tablets as quickly as Ranbaxy would have.”
Once the FTC or U.S. Department of Justice determines that a competitive problem exists, the agency will seek potential remedies, including divestiture. A cornerstone principle the agencies apply in evaluating a proposed remedy is that the remedy must restore competition to the level that would have existed had the underlying merger or acquisition not proceeded. This case illustrates an application of that principle, where the FTC required the divestiture of the out-of-market assets because, in its view, if those assets were not included the remedy would have left the relevant product market less competitive than it would have been if Sun and Ranbaxy remained independent competitors.
Although not a common outcome, firms considering a transaction involving products subject to regulatory approval should take note of the potential for out-of-market divestitures when assessing a potential deal.
The FTC’s complaint and related documents can be found here.
On January 6, 2015, the Second Circuit granted defendants’ motion for an expedited appeal but denied their motion for a stay in New York v. Actavis PLC, 14-4624 (2d Cir. Jan. 6, 2015). Defendants are manufacturers of Namenda, a brand name pharmaceutical prescribed to patients with moderate to severe Alzheimer’s disease. New York Attorney General Eric Schneiderman filed suit against the defendants in September 2014, alleging that the defendants’ plan to cease production of Namenda IR, a twice-daily instant release formulary whose patent expires in April 2015, was motivated by anticompetitive concerns and violated federal and state antitrust laws. According to Schneiderman, defendants’ motive for ceasing sales of Namenda IR was to force patients to switch to Namenda XR, an extended release formulary of the drug with a longer patent life. Converting patients to Namenda XR before the expiration of the Namenda IR patent would negate generic manufacturers’ ability to win market share through the automatic substitution of generic drugs for brand name prescriptions required under many state laws because the generic instant release formulary is not “bioequivalent” to the extended release version.
The Southern District of New York found that the “hard switch” from Namenda IR to XR would injure competition and consumers and granted the state’s motion for a preliminary injunction on December 11, 2014. Defendants presented evidence that switching to the extended release formula would benefit patients by reducing the number of doses they would need to take each day, which can be particularly beneficial for patients with memory problems. However, the court concluded that the purpose of defendants’ plan was to nullify state generic substitution laws and that defendants failed to establish any cognizable harm that would result from an injunction requiring them to continue selling Namenda IR. The harm defendants sought to avoid, the court explained, was the intended effect of the federal and state regulatory regimes at play: increased competition.
The Second Circuit’s January 6 order was brief and not accompanied by an opinion. The court held that the defendants had not met the standard for a stay of the injunction, citing In re World Trade Center Disaster Site Litigation, 503 F.3d 167, 170 (2d Cir. 2007). The court granted their motion for an expedited appeal and ordered them to submit an expedited briefing schedule within seven days.
Addressing whether the “sham” exception to Noerr-Pennington immunity is limited to sham litigation in courts, the U.S. Court of Appeals for the Federal Circuit vacated a lower court’s summary judgment of no antitrust liability, finding that antitrust liability can attach to sham administrative petitions and that the sham litigation exception is not limited to court litigation. Tyco Healthcare Group LP v. Mutual Pharm. Co., Inc., Case No. 13-1386 (Fed. Cir., Aug. 6, 2014) (Bryson, J.) (Newman, J., dissenting).
Tyco Healthcare acquired patents relating to temazepam, an insomnia drug marketed as Restoril. Seeking Food and Drug Administration (FDA) approval to manufacture and sell generic temazepam, Mutual Pharmaceutical filed an Abbreviated New Drug Application (ANDA), certifying that its generic product would not infringe any patents. Tyco disagreed and sued Mutual for infringement under the Hatch-Waxman Act. The district court rejected this claim, reasoning that products manufactured to the ANDA’s specification could not infringe. Tyco then filed a citizen petition with the FDA, urging new guidelines to require generic temazepam manufacturers to more extensively demonstrate bioequivalence to Restoril. The FDA denied Tyco’s citizen’s petition “indicating that, in the FDA’s view, it was wholly without merit.”
In response to Tyco’s infringement suit, Mutual brought antitrust counterclaims, including allegations that Tyco’s suit and citizen petition were shams. In other words, Mutual argued that Tyco used illegitimate means to keep Mutual’s product off the market. On summary judgment, the district court rejected these counterclaims, holding that it was reasonable for Tyco to proceed with its infringement action and that antitrust liability for sham claims cannot apply to filing administrative petitions because the exception “is expressly limited to litigation.” Mutual appealed.
The Federal Circuit vacated the rulings on antitrust issues and remanded for further consideration. With regard to Tyco’s Hatch-Waxman claim, the Federal Circuit found that it was not unreasonable for a patent owner to allege infringement under Hatch-Waxman if the patent owner has evidence that the as-marketed commercial ANDA product will infringe, even though the hypothetical product specified in the ANDA could not infringe. The Court concluded that further inquiry was necessary to determine if Tyco’s factual theory of infringement was objectively baseless. With regard to the administrative proceeding, the Court found that the sham exception to Noerr-Pennington is not limited to court litigation, and that it has been applied to administrative petitions, including FDA citizen petitions. Accordingly, it remanded this counterclaim for resolution of fact issues regarding whether the citizen petition was objectively baseless and motivated by a subjective desire to directly interfere with Mutual, as well as whether Mutual suffered any anticompetitive injury.
Judge Newman dissented from the court’s conversion of routine patent litigation into antitrust violations, arguing that “[e]nforcement of a presumptively valid patent against a product that infringes by statute [Hatch-Waxman] cannot be deemed objectively baseless” and patent holders have “the right to communicate with the FDA concerning public information on matters within the agency’s authority and responsibility without incurring antitrust liability.”
Today, New York health regulators proposed revised rules that would allow health care providers to merge or cooperate with one another without being subject to federal or state antitrust scrutiny.
The state’s Department of Health proposed regulations establishing a process for entities to obtain a Certificate of Public Advantage (COPA) pursuant to Public Health Law Article 29-F. Article 29-F sets forth the State’s policy of encouraging appropriate collaborative arrangements among health care providers who might otherwise be competitors, if the benefits of such arrangements outweigh any disadvantages likely to result from a reduction of competition. The statute requires the Department to establish a regulatory structure allowing it to engage in active state supervision as necessary to promote state action immunity under state and federal antitrust laws.
The proposed regulations were initially published in the State Register on September 18, 2013, and have been revised in light of public comments received. The revised regulations will be open for public comment for 30 days and will take effect upon publication of a notice of adoption. A Notice of Revised Rulemaking appears in the today’s State Register, and a copy of the full text of the regulatory proposal is available on the Department’s website.
On Thursday, August 14, 2014, several physicians wrote a letter to Commissioner Hamburg of the U.S. Food and Drug Administration (FDA) expressing their concerns regarding the naming of biosimilar products in light of the implementation of the Biologics Price Competition and Innovation Act (BPCIA).
Unlike traditional small-molecule prescription drugs, most biologics are complex and are typically made from human or animal materials. The BPCIA provides an abbreviated licensure pathway for biologics that are demonstrated to be “biosimilar” to or “interchangeable” with an FDA-licensed biologic. A biologic may be demonstrated to be “biosimilar” if data show that, among other things, the product is “highly similar” to an already-approved biologic. Unlike “generic” versions of small-molecule prescription drugs, biosimilars are not bioequivalent to their reference biologics. To date, the FDA has not approved any biosimilar products.
The licensure pathway contemplated by the BPCIA is meant to reduce the time and cost of bringing competing biosimilar products to consumers. As the FDA begins evaluating the first U.S. applications for the licensing of biosimilars, concerns have arisen as to how approved biosimilars will be named. In their letter to Commissioner Hamburg, the physicians argued that biosimilars “must have distinguishable nonproprietary names” from their reference biologics. The physicians wrote that distinct names are needed to avoid confusion: if a biologic and its biosimilars share a common name, physicians may incorrectly assume that the products are approved for all of the same indications, even if the FDA disagrees. The physicians also argued that unique names for biosimilars will help doctors track adverse events by allowing them to correctly identify what product caused the event.
However, not everyone agrees with the physicians’ position. On July 1, 2014, a group of pharmacies, insurers and unions wrote a letter to Commission Hamburg asking the FDA to require that biologics and biosimilars share the same name. This group argued, among other things, that requiring distinct names for biosimilars may slow the uptake of biosimilar products as substitutes for brand-name biologics, thereby limiting significant potential cost savings.
On Friday, August 15, 2014, Judge Gerald McHugh of the Eastern District of Pennsylvania let stand several counterclaims that IMS Health Inc. (IMS) made against Symphony Health Solutions Corp. (Symphony) in connection with related to allegations that Symphony had poached IMS employees to steal trade secrets.
In July 2013, Symphony brought a complaint against IMS, the largest pharmaceutical data and analytics company in the world, alleging that IMS unlawfully abused its monopoly power in pharmaceutical data markets and violated the antitrust laws through various types of horizontal and vertical exclusionary conduct, including entering into exclusive long-term agreements with data suppliers, requiring data suppliers to sign most-favored-nation clauses, acquiring rivals to eliminate competition, and bundling its products. In response to the complaint, IMS filed multiple counterclaims alleging that Symphony poached IMS employees to steal IMS’s trade secrets. Symphony then filed a motion to dismiss IMS’s counterclaims.
After reviewing Symphony’s motion to dismiss, Judge McHugh dismissed IMS’s trade secret misappropriation claims as to two former IMS employees as barred by res judicata. Specifically, a prior consent order already addressed concerns that Symphony gained access to IMS’s trade secrets through the two former IMS employees. Judge McHugh also dismissed IMS’s claim of tortious interference regarding a vendor because IMS’s “prediction” of future harm could not sustain its claim.
However, Judge McHugh let IMS’s poaching claims go forward and refused to dismiss IMS’s claims of improper procurement of confidential information and unfair competition. As to improper procurement, Judge McHugh highlighted IMS’s allegation that its former employee hired by Symphony made a public presentation with IMS materials. With respect to unfair competition, Judge McHugh ruled that IMS had stated facts sufficient to support its claim when it alleged that “Symphony targeted for hire groups of employees who worked in parts of IMS’s business that Symphony wished to duplicate, with the purpose of appropriating IMS’s trade secrets.”
Addressing for the first time whether a patent holder under a contractual duty to deal is also subject to an antitrust duty to deal, the U. S. Court of Appeals for the Second Circuit upheld dismissal of a putative antitrust class action challenge to a drug manufacturer’s refusal to fully supply competitors’ requested quantities under patent settlement agreements. In re Adderall XR® Antitrust Litigation, Case No. 13-1232 (2d Cir., June 9, 2014) (Sack, J.).
The defendants, Shire, hold patents covering Adderall XR. Previously, Shire sued generic drug manufacturers Teva and Impax for patent infringement after those manufacturers—seeking U.S. Food and Drug Administration (FDA) approval to produce generic Adderall XR—argued that Shire’s patents were “invalid or will not be infringed.” Shire settled with Teva and Impax in 2006 with variants of the traditional reverse-payment agreement. In these settlement agreements, Teva and Impax agreed to stay out of the Adderall XR market for three years (even if FDA approval came earlier), but unlike a traditional reverse-payment agreement (where the patent holder pays money to the potential entrant), Shire agreed to grant licenses starting in 2009 for making and selling the drug and, if FDA approval had not yet occurred, to supply Teva and Impax’s requirements of unbranded Adderall XR for resale. The 2d Circuit summarized the arrangement as follows: “Shire undertook to give its competitors both the rights and the supplies necessary to participate in the market for [AdderallXR].” By the time Shire’s contractual exclusivity expired, the FDA had not approved either Teva or Impax’s applications, so Teva and Impax began purchasing from Shire. Shortly thereafter, both companies alleged that Shire breached the settlement agreement obligations by refusing to fully fulfil their requirement orders. However, both companies eventually settled with Shire.
In the present case, drug wholesaler and plaintiff Louisiana Wholesale Drug Company (LWD) brought a putative class action against Shire. It alleged antitrust violations stemming from the effect of the supply shortfall on the prices the proposed class of drug wholesalers paid. LWD argued that Shire’s “ordinary breach of contract” became “an unlawful act of monopolization” because, by entering into the agreements, Shire “relinquish[ed] its monopoly control over” Adderall XR vis-à-vis Teva and Impax and thereby created a “duty to deal” with its competitors under the Supreme Court’s 1985 Aspen Skiing decision. Specifically, LWD alleged that Shire artificially inflated prices by holding back some of its supply from generic manufacturers/patent licensees Teva and Impax, from whom LWD purchased Adderall XR. After the district court dismissed the complaint on a R. 12(b)(6) motion to dismiss, LWD appealed.
The 2d Circuit affirmed the district court’s dismissal for failure to state a claim, concluding that LWD’s “allegations amount to the self-defeating claim that Shire monopolized the market by ceding its monopoly” and that “the complaint does little more than attach antitrust ‘labels and conclusions’ to what is, at most, an ordinary contract dispute to which the plaintiffs are not even parties.” The court reasoned that “‘the sole exception to the broad right of [...]
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