On April 13, 2021, the United States Court of Appeals for the Fifth Circuit denied a Petition for Review filed by Impax Laboratories, Inc., in response to a Federal Trade Commission (FTC) Order finding that Impax should be charged with antitrust violations for accepting payments of about $100 million to delay the entry of a generic opioid for more than two years.
Background
Readers likely remember the 2013 Supreme Court decision in FTC v. Actavis, which found that reverse payment settlements are not automatically considered invalid, though they can extend the branded drug’s monopoly and have anticompetitive effects that violate antitrust laws, but they are subject to the rule of reason.
In the first post-Actavis reverse payment settlement case, the FTC charged Impax with antitrust violations for accepting reverse payments worth more than $100 million to delay the entry of its generic opioid drug, oxymorphone, for more than two years. The FTC held an administrative hearing that included testimony from 37 witnesses and more than 1,200 exhibits before it conducted a rule-of-reason analysis and unanimously found that Impax violated antitrust law.
In 2006, Endo (the branded drug manufacturer) started selling an extended-release formulation of oxymorphone, Opana ER. At that time, Opana ER was the only ER version of oxymorphone. Then, in late 2007, Impax filed the first application to market generic ER oxymorphone. However, the application did not result in immediate approval of the generic because Endo held patents for Opana ER that did not expire until 2013. In January 2008, Endo sued Impax for patent infringement. The patent infringement lawsuit delayed any potential FDA approval of the generic for 30 months (until June 2010) – or until the litigation concluded.
Endo and Impax then entered settlement talks, which ultimately failed. However, delaying Impax’ entry beyond the June 2010 stay period would save Endo millions, as the company projected that generic entry would reduce Opana ER sales by 85% within three months and cost it $100 million in revenue within six months.
When an agreement wasn’t reached, Endo seemingly moved to Plan B: remove Opana ER from the market and move consumers to a new brand-name drug that would benefit from an exclusivity period, a crush-resistant version. While Impax’ generic drug would still reach the market under Plan B, it would not be therapeutically equivalent to Endo’s new branded drug, and therefore, pharmacies would not be able to automatically substitute the generic when filling prescriptions. However, this transition would take time, and Endo was facing the imminent expiration of the 30-month delay period.
Therefore, Endo restarted settlement negotiations with Impax three days after the FDA tentatively approved the generic drug and the parties settled the patent litigation in June 2010.
The Settlement
Under the terms of the settlement, Impax would delay launching its generic drug until January 1, 2013 and Endo agreed to not market its own generic version of ER oxymorphone until Impax’ 180-day Hatch-Waxman exclusivity period ended in July 2013. Endo also agreed to pay a credit to Impax if sales revenues for the original formulation of Opana ER fell by more than 50% between the dates of settlement and Impax’ entry.
Endo also provided Impax with a broad license to Endo’s existing and future patents covering extended-release oxymorphone. Finally, Endo and Impax agreed to collaboratively develop a new Parkinson’s disease treatment, with Endo paying Impax $10 million immediately and up to $30 million in additional payments contingent on achieving sufficient development and marketing progress.
The settlement effectively allowed Endo to execute the product hop – in March 2012, Endo introduced the new reformulated drug and withdrew the original drug, publicly stating the original drug was unsafe (which the FDA later disagreed with). As predicted, the market for original Opana ER shrank and Endo had to pay Impax $102 million in credits.
The FTC brought separate actions against Endo and Impax alleging that the settlement was an unfair method of competition under the FTC Act and an unreasonable restraint on trade under the Sherman Act. While Endo settled, Impax fought the charge and successfully argued that the case should proceed in an administrative proceeding rather than in federal district court where the Commission had first filed.
The administrative law judge in the administrative proceeding found while that the agreement restricted competition, it was legal because the “procompetitive benefits outweighed the anticompetitive effects.”
However, when the FTC reviewed the facts and the law, the Commission reached a different conclusion, finding that Impax failed to show that the settlement had any procompetitive benefits and that the purported benefits identified by Impax could have been achieved through a less restrictive agreement. The Commission did not impose any monetary sanctions, nor did it invalidate Impax’ agreements with Endo or other drug makers. All it did was issue a cease-and-desist order enjoining Impax from entering similar reverse payment settlements going forward. Impax then petitioned the Fifth Circuit for review of the FTC’s order.
Fifth Circuit Order
The Fifth Circuit’s Order upholds the anticompetitive findings from the FTC surrounding a deal between Impax and Endo Pharmaceuticals, in which Endo eventually agreed to not market the FDA-authorized generic oxymorphone ER drug. By not marketing the generic drug, Impax’ projected profits increased by $24.5 million. Endo also agreed to pay Impax for the shrunken market it would experience if Endo made a successful
The Fifth Circuit found that the “$102 million Endo ultimately paid is likely a good approximation of the parties’ expected value for these credits” and noted that “a large reverse payment might be justified if it represents ‘avoided litigation costs or fair value for services.’ That is not the case here.” Neither the saved costs of forgoing a trial nor any services Endo received justified these payments to Impax, the court said. “Substantial evidence supports the Commissions’ finding that the reverse payment settlement threatened competition.”
This ruling may mean less branded drug manufacturers will pay generic firms to keep the branded products on the market longer. Michael Carrier, professor at Rutgers Law School, noted that “The number of pay-for-delay settlements has been falling since Actavis, and this ruling from one of the most conservative courts in the country will only accelerate that trend.”