Getting in on the Action: FTC Files Its First Pay-for-Delay Lawsuit

In the increasingly crowded field of pay-for-delay litigation, the FTC blazed a new trail last week when – for the first time – it sued a branded drug maker for agreeing not to launch its own “authorized generic” in competition with a generic competitor. The so-called “no-AG commitment” was part of a deal struck by Endo Pharmaceuticals Inc. in exchange for a promise by Impax Laboratories to postpone by 2½ years its release of a lower-cost generic version of Endo’s lucrative Opana ER painkiller. That deal, according to the Complaint filed on March 30 in federal court in the Eastern District of Pennsylvania, let Endo prolong its alleged monopoly and, with it, the supracompetitive profits it earned from Opana. Meanwhile, the lower prices that come with the entry of a generic were delayed.

As gleaned from the FTC’s Complaint, the appeal of no-AG commitments to drug makers – branded and generic alike – is a product of the regulatory framework. Both receive valuable protections under the law in the form of marketplace exclusivity: branded drug makers by virtue of their patents, and first-to-file generics by virtue of an initial 180-day marketing window during which no other generic filer can launch, as the FTC’s Complaint alleges. The one exception to first-filer exclusivity is that the branded drug maker can launch its own generic version of the drug in competition with the first-filer’s generic during the 180-day period. This “authorized generic” decreases the generic’s profitability, according to the FTC. A no-AG commitment, therefore, apparently helps both parties – the generic who rests assured that it won’t face competition from the “authorized generic” in the 180-day window, and the brand-name who has bought its blockbuster drug an extension of time before generics enter. The FTC objects to such no-AG deals because, according to the FTC, the benefits to the branded and generic products come at the expense of consumers.

In its Complaint against Endo, the FTC alleges that Endo has paid Impax more than $112 million as part of the no-AG commitment and a related side deal it made with Impax. That payment pales in comparison to the monopoly profits that Endo was able to continue earning during the period that Impax otherwise would have entered the market, according to the FTC, which is why Endo agreed to the deal. As alleged in the Complaint, this no-AG commitment, as well as one that Endo made with another generic drug maker in connection with a different drug, constitute unfair methods of competition under section 5(a) of the FTC Act and should be permanently enjoined.

We’ve seen (and blogged about) pay-for-delay suits brought by drug purchasers seeking to pave the way for entry by generics. See our previous blog posts from November 12, 2014 and February 6, 2014. Indeed, the Supreme Court’s Actavis decision is the subject of much litigation in the lower courts as to what constitutes an anti-competitive reverse payment subject to antitrust review. Now that the FTC has entered the fray, it will be interesting to see whether this is a one-off suit or the beginning of a more sustained effort by the agency against these types of pay-for-delay arrangements.

As an interesting footnote, the FTC was not unanimous in its decision to file this action, as one commissioner would have rather pursued an administrative proceeding under the FTC’s practice rules than go to court. Administrative proceedings give the FTC more leeway to make factual findings and interpret the law, which is appealing in cases where novel facts or legal questions are at issue. Enforcement actions filed in court, on the other hand, provide more flexibility in the type of relief that can be awarded and tend to garner more publicity – something the FTC may have sought here.

Kevin R. Reich is a Director in the Gibbons Business & Commercial Litigation Department.
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