Background

Kos obtained FDA approval to market Niaspan® in 1997.  Niaspan® (extended-release niacin), is a once-a-day prescription therapy used to treat mixed lipid disorders. It is also referred to as vitamin B3, as it was the third distinct “B vitamin” to be discovered. The drug is prescribed to patients at risk of, or suffering from, cardiovascular disease and arthrosclerosis progression.  By the time it launched Niaspan®, Kos had applied for and obtained nine formulation and method-of-use patents relating to the drug.  Given Niaspan®’s unique ability to raise HDL and its effectiveness as a treatment for lipid disorders and arthrosclerosis, it was not surprising when first-filer Barr filed its Abbreviated New Drug Application (“ANDA”) and Paragraph IV certification challenging the validity of Kos’ patents in 2001.  In response, Kos filed four patent infringement suits against Barr under Hatch-Waxman — staying final FDA approval of Barr’s ANDA until March, 2005.  However, because trial on the consolidated suits was not scheduled until early 2006, and because Barr was prepared for an at-risk launch of generic Niaspan® following FDA final approval but before for trial, Kos made preparations to launch its own generic version of Niaspan® in early 2005, which would have deprived Barr of its 180 day period of generic exclusivity, while simultaneously seeking a preliminary injunction prohibiting Barr’s at-risk launch.  Given the high stakes for both companies, Kos and Barr entered into a settlement agreement on the eve of FDA’s scheduled approval of Barr’s ANDA in March, 2005.

Under the terms of the settlement, the two companies entered into licensing, co-promotion and supply agreements, Kos provided Barr with a one time $5 million payment plus quarterly payments until  September, 2013 (three months before expiration of the last Niaspan® patents) and Kos agreed not to license an authorized generic of Niaspan®.  In return, Barr agreed not to enter the market with its generic version of Niaspan® until September, 2013.  Based on the Kos-Barr reverse payment settlement agreement, Kos was able to continue selling branded Niaspan®, earning approximately $435 million in annual sales in 2005.  The settlement, which guaranteed Kos patent exclusivity for Niaspan® for the next eight years, was significant to Kos’ fortunes.  In 2006, Abbott Laboratories sought to (and eventually did) acquire Kos in order to capitalize on Niaspan®’s potential.  It was a smart move.  Although Abbott paid over $2 billion for Kos, it used its big pharma market muscle to turn Niaspan® into a $1 billion-plus per year drug.  Since the Kos acquistion, Abbott — and since, January, 2013, AbbVie (Abbott’s pharmaceuticals operations subsidiary) – has continued to pay Barr  its quarterly payments and Barr (which was acquired by Teva in 2008) has stayed off the Niaspan® market.

Current Antitrust Class Action Suit

The plaintiff, a New York hotel workers union, filed an antitrust class action suit earlier this month decrying the Kos-Barr licensing, co-promotion and supply agreements as a sham settlement agreement and labeling the settlement as an anticompetitive and illegal market allocation agreement that enabled Kos, Barr and its corporate successors to divide unlawful monopoly profits by delaying the entry of cheaper, generic versions of Niaspan® going back to March, 2005.  See New York Hotel Trades Council & Hotel Assoc. of New York City, Inc. Health Benefits Fund v. AbbVie, Abott, et.al., Case No. 2:13-cv-02523. Accordingly, the union, on behalf of a class consisting all “end-payors,” is seeking treble damages from AbbVie and Teva on their alleged unlawful profits earned since March, 2005, and a declaratory judgment and injunction against the settlement agreement, which is still in effect for most of the remaining year.

Observations

It is not surprising that the class action plaintiff’s attorneys in this case filed the present suit in the Eastern District of Pennsylvania, which lies within Third Circuit.  As we noted in an earlier post discussing the Actavis pay-for-delay case before the Supreme Court, the Third Circuit in In re K-Dur Antitrust Litigation rejected the broad “scope of the patent” test followed by the Eleventh, Second and Federal Circuits (in which patents are presumed valid) in favor of the quick look “rule of reason” test (in which patents are effectively presumed invalid, at least where a reverse payment is involved). (See “Pay for Delay and Drug Design Defect Cases Take Center Stage at Supreme Court”).  If the Supreme Court were to reverse the Eleventh Circuit’s scope of the patent test, as most observers are predicting, every reverse payment settlement over the past 10 years could very well be subject to the same kind of lawsuit filed against AbbVie and Teva, even if the Court doesn’t go as far as adopting the Third Circuit’s rule of reason test.  Moreover, as we discussed in our last post regarding the Amphastar v. Aventis lawsuit (see “Amphastar’s Qui Tam Suit Against Aventis Shows Importance of Patents”), once you begin presuming that patents are invalid, why stop calculating damages at some arbitrary point like a settlement date?  If the generic drug company that files a Paragraph IV certification is always going to be presumed to be correct when it certifies that the branded drug manufacturer’s patent is invalid, not infringed or otherwise unenforceable, then it won’t be long before the plaintiffs’ lawyers argue that damages should be calculated not from the point of the reverse payment settlement, but from the point of the branded drug’s launch.  Litigation along these lines could be devastating for branded companies (and would hurt generics that have entered reverse payment settlements too).

On a final note, I feel compelled to make this disclaimer: as the former Chief Compliance Officer for Kos, I (as well as all other Kos employees) was a beneficiary of the Kos-Barr settlement agreement, which ended the threat of Barr’s at-risk launch and settled the question of the validity of Niaspan®’s patents.  Moreover, I have had low “good” HDL cholesterol for many years and have taken Niaspan® to boost my HDL numbers.  So, although I am a little biased about Kos and the merits of Niaspan®, I would like a cheaper version of Niaspan® same as the next guy.  However, if the generic-branded pendulum keeps tilting against branded manufacturers, it will be less likely that innovative products like Niaspan® will be developed in the future.   Such may be the unintended consequences of a Supreme Court decision that bolsters the myopic view shared by many that branded drug profits are always a bad thing.

The Complaint

As most in this business know, it is a common and perfectly acceptable business practice for a pharmaceutical company to engage physicians as consultants to conduct speaker programs, where the physician-speaker presents per-approved corporate slides to other doctors and healthcare providers about the one or more of the company’s drugs.  The attendees learn about the company’s drug, ask questions of the speaker and all in attendance get the opportunity to engage in a genuine scientific exchange.  Speaker programs are typically held in restaurants, perhaps in a private room or secluded area that is conducive to a genuine scientific discussion, and those in attendance are served a fairly modest, but nice dinner, for their time and trouble away from their homes and practices.  For his or her trouble in acting as a spokesperson for the company, the speaker-consultant is paid an “honorarium” ranging on average from $1000-$3000.  At the end of the program, the attendees should know more about the sponsoring company’s drug product than before the evening started and, if convinced of the drug’s merit, should write more prescriptions for the drug going forward.  When done properly, company-sponsored speaker programs are a legitimate and effective sales and marketing technique for the promotion of a company’s drug.  So, what did Novartis do regarding its speaker programs that upset the Government?

According to the Government’s Complaint, Novartis’ speaker programs amounted to a massive kickback scheme in which the company paid doctors millions of dollars to speak at thousands of programs the overwhelming majority of which suffered from one or more of the following defects:  1) cancelled programs in which the speaker was nonetheless paid an honorarium; (2) programs that were held in lavish or inappropriate venues (on fishing trips, at Hooters restaurants, etc.) in which little scientific discussion took place; 3) programs that were poorly attend (i.e., had fewer than three attendees, despite a three-person minimum attendance rule); and/or 4) programs involving the same topic, the same speaker and the same attendees (most of whom were often friends with the speaker) on multiple occasions often within days or weeks of each other.   The problem, the Government contends, was that “[e]ven after Novartis entered into a CIA with the [OIG] in September 2010, its compliance program included insufficient controls to prevent speaker programs from being used as a vehicle for kickbacks to doctors through the payment of honoraria or lavish dinners and entertainment.  Novartis had no controls to prevent sales representatives from hosting programs in which the same doctors spoke repeatedly to the same attendees on exactly the same topic.”

The Government notes in its Complaint that Novartis kept track of its “return on investment,” finding that the more it spent on speaker program honoraria, the more prescriptions its speaker-consultants would write and that when payments dropped, so did prescriptions.  Finally, the Government strongly criticizes Novartis’ compliance program, noting that in 2011 the Company ”monitored only 107 out of thousands of speaker programs” and that “[e]ven with a monitor present” there were numerous, often serious speaker program policy violations resulting in “sanctions that were mere slaps on the wrist.”

For its part, Novartis issued a statement responding to the Complaint, disputing the Government’s characterization of its speaker programs and defending its compliance program.

Observations

The first noteworthy aspect of this case is that it is one of the few instances in which charges have been brought without a pre-existing settlement.  There had to have been discussions between the Government and Novartis beforehand . . . does Novartis think it can beat back the Government on these facts?  The second point to note is that both Complaints lodged against Novartis in April are not the first time the Company has come under fire for violations of the FCA or the Anti-kickback Statute.  In September, 2010, Novartis had paid the Government approximately $422 million in criminal and civil fines and entered into a CIA in order to settle allegations of kickbacks relating to Trileptal®, Diovan®, Zelnorm®, Sandostatin®, Tekturna®, and Exforge®.  In fact, most of the egregious and sensational allegations in the most recent Complaint concern conduct that pre-dated the 2010 settlement and one has to wonder how the Government’s last whistleblower missed the speaker programs at Hooters.

On a serious note, there are several important lessons that can be drawn from the recent kickback allegations against Novartis, regardless how the charges are ultimately resolved .  First, any program involving the payment of money to doctors, no matter how well conceived or intentioned, can “go off-track” quickly and become difficult to control.  Second, while a company is expected to have a good monitoring program to ensure compliance with its policies, it is even more important to have meaningful discipline for those who violate those policies.  If the allegations in the Government’s Complaint are true, Novartis will have a hard time defending its disciplinary scheme and, therefore, the effectiveness of its compliance program under the current CIA.  Finally, and even more importantly than monitoring and discipline — at least in this former compliance officer’s opinion – is the need for good internal controls.  Why?  Because internal controls work to prevent things from going wrong in the first place.  In short, if a company’s internal controls are good, the number of compliance issues identified through monitoring and the corresponding need for discipline will drop like a rock.  (A company still has to have a strong monitoring program, however, in order to ensure that its speakers “stay on label”).

In the case of speaker programs and the issue of kickbacks, a company needs both strong “front-end” and “back-end” controls.  Front-end controls are achieved by a system in which no speaker program is scheduled without 6-10 “RSVPs” from invited doctors.  You need this many RSVPs because half the doctors never show up and 3-5 attendees are needed to pass the laugh test.  If a company doesn’t have the requisite number of RSVPs, the program should either not be scheduled, or if it has been scheduled, it should be cancelled before the company is contractually obligated to pay the speaker his or her honorarium.  An example of a good back end control is reconciling the RSVP list with an actual program attendance sheet in order to both  accurately capture the number of attendees — an important exercise under the Sunshine provisions of the Affordable Care Act, which will require allocation of dinner costs to physicians — and to ensure that the speaker’s friends aren’t the same attendees showing up time after time.

Obviously, the nature of the controls will be determined by the nature of the company’s policies, though in this day and age the policies (and therefore the controls) should mostly look the same (e.g., meal “caps,” minimum attendee to speaker ratio, no guests, etc.).  As any compliance officer knows well, “an ounce of internal control prevention is worth a pound of discipline.”

Case Reference Details

The case alleging kickbacks to doctors is United States ex rel. Bilotta v. Novartis Pharmaceuticals Corporation et al., No. 11-cv-0071 (S.D.N.Y.). It was originally filed as a qui tam action under the False Claims Act by relator Oswald Bilotta, a former Novartis sales representative who witnessed many of the alleged transgressions.

Click on the link to view the Novartis False Claims Act Second Amended Complaint.

The case alleging kickbacks to 20 or more pharmacies is U.S. v. Novartis Pharmaceuticals Corporation, No. 11 Civ 8196 (S.D.N.Y.). The Government alleges that Novartis offered ickbacks to pharmacies that encouraged kidney transplant patients to switch from competitive products to the Novartis drug Myfortic®.

Click on the link to view the U.S. v. Novartis Pharmaceuticals Corporation Complaint in Intervention.

Patent and Antitrust Litigation Background

Sales of branded drug Lovenox®, an anti-coagulant used to prevent potentially fatal blood clot formation, are at the center of the running feud between the two companies.  The story begins when Amphastar filed an Abbreviated New Drug Application (“ANDA”) with the FDA in 2003 for the right to manufacture generic Lovenox® and, through a Par IV letter, asserted that Aventis’s “618″ patent for Lovenox® was invalid, unenforceable or not infringed.  Aventis responded with a patent infringement suit, triggering a 30 month stay in FDA approval of Amphastar’s ANDA under the Hatch-Waxman statutory framework.   Amphastar countered by asserting a defense of “inequitable conduct” and tacking on an antitrust counterclaim against Aventis.  Based on discovery in the patent suit, the district court granted summary judgment on the inequitable conduct defense, essentially finding that Aventis had concealed material information from the U.S.P.T.O. patent examiner in obtaining the patent.  On appeal, the Federal Circuit reversed and remanded, directing the district court to find whether Amphastar could prove by clear and convincing evidence that Aventis intended to deceive the examiner.  Following a bench trial, the district court determined that Amphastar had proven intent to deceive by clear and convincing evidence and invalidated Aventis’s Lovenox® patent on inequitable conduct grounds.  The Federal Circuit affirmed the decision in May, 2008.  See Aventis Pharma S.A. v. Amphastar Pharm., Inc., 525 F.3d 1334 (Fed. Cir. 2008).

In most cases, the story and battle between the companies would have ended there with Amphastar happily marketing generic Lovenox®.  But not this time.  During the course of the litigation over Aventis’s conduct before the U.S.P.T.O., Amphastar’s antitrust counterclaim was stayed.  Once the Federal Circuit affirmed the district court’s bench trial ruling and denied Aventis’s petition for rehearing en banc, the stay was lifted and Amphastar pursued its antitrust claim with renewed vigor.  Aventis then filed a motion to dismiss the claim, which the district court granted in February, 2009, on the grounds that Aventis’s patent filing activities before the U.S.P.T.O. were immunized from antitrust liability under the Noerr-Pennington doctrine and/or because Amphastar had failed to allege an “antitrust injury.”

The Qui Tam Complaint

Unbeknownst to Aventis, once it filed its motion to dismiss the antitrust counterclaim, Amphastar filed its FCA qui tam action under seal in January, 2009.  That complaint was unsealed in October, 2011, when the Government declined to intervene in the suit.  In essence, Amphastar alleged that Aventis had 1) made false statements to the U.S.P.T.O. in prosecuting two Lovenox® patents; 2) improperly listed the patents in the Orange Book; and 3) engaged in baseless patent litigation with Amphastar, thereby extending its wrongful monopoly by another 30 months.  Following arguments on Aventis’s motion to dismiss the suit, the district court held that, although Amphastar’s complaint was based on patent litigation that had been publicly disclosed, Amphastar was the “original source” of the FCA allegations; Amphastar’s FCA allegations were not the same, recylced antitrust allegations that had been previously dismissed; in any case, Noerr-Pennington did not immunize knowing false statements to the U.S.P.T.O.; and, under the 2009 Fraud Enforcement and Recovery Act (“FERA”), ”intent to defraud” was no longer an essential element of a FCA claim.   Nonetheless, the court granted Aventis’s motion to dismiss because Amphastar’s claims lacked particularity that Aventis’s false claims were paid or approved by the Government, but gave Amphastar leave to amend its complaint.

On November 30, 2012, Amphastar filed an amended qui tam complaint.   In its new complaint, Amphastar once again alleged that Aventis “was able to illegally obtain monopoly power over enoxaparin in the United States market through its false representations and omissions to the Patent Office …”  However, it further alleged that, according to “IMS reports . . . from 1993 until 2002, the United States purchased 6,298,000 units of Lovenox® from Aventis . . . totaling $102,655,000.00 [and] that from 2003 until the third quarter of 2012, the government purchased 22,497,000 units of Lovenox® from Aventis . . . totaling $470,559,000.00 . . . [all resulting in] the United States federal government pa[ying] false claims totaling at least $573,214,000.00.”  Although Aventis filed a motion to dismiss the amended complaint, arguing that the new allegations were still inadequately pleaded, last month the district court denied the motion, allowing Amphastar’s qui tam FCA suit to proceed.

Observations

Although the real FCA litigation between the companies has only just begun, the case raises several important issues that warrant discussion now and close observation as the litigation unfolds. First, there is the startling precedent of one pharmaceutical company, albeit a generic manufacturer, filing a FCA qui tam suit on behalf of the Federal and State Governments against a branded competitor, regardless of the basis for the suit.  While it is unusual enough for FCA whistleblowers not to come from the ranks of the defendant company, it is truly rare for the ”relator” to be a rival drug company.  In this case Amphastar is looking to garner up to 30% of any recovery from Aventis – about $170 million even without trebling.  Second, although the Government declined to intervene in Amphastar’s suit in 2011, it filed an amicus brief opposing Aventis’s motion to dismiss, specifically arguing that any false statement Aventis made to the U.S.P.T.O., which resulted in the granting of patent protection for Lovenox®, could provide a basis for FCA liability.

What is particularly significant is that the Government’s amicus arguments were not limited to the facts of this case.  In essence, the Government’s position is that it reserves the right to argue that an issued drug patent that is later invalidated on inequitable conduct grounds means that federal healthcare programs like Medicare and Medicaid paid fraudulent and artificially inflated prices for the previoulsy patent-protected drug and that those inflated payments are subject to recovery under the FCA.  Although inequitable conduct is harder to prove after the Federal Circuit’s ruling in Therasense Inc. v. Becton, Dickinson & Co., 649 F.3d 1276 (Fed Cir. 2011) (en banc), than when Amphastar got its patent win over Aventis in 2008, what is troubling about this case and the Government’s broad amicus statements is that  FCA liability can be predicated on a drug patent that is invalidated on any grounds, including for example, “obviousness” or “inherent anticipation.”  Moreover, it is clear from the district court’s opinions on both motions to dismiss that Aventis’s FCA liability is not limited to the 30 month period following its patent infringement suit against Amphastar, but from the moment it launched Lovenox® under the old, invalidated patent.

While all this might sound crazy, regardless of what happens in Amphastar’s suit against Aventis, don’t be surprised to see the relator’s bar boning up on patent law.

Background

The depression drug Seroxat, one of GSK’s best selling medications during the 2001-2004 time period in question (and which is more commonly known in the U.S. as Paxil), is at the heart of the recent OFT regulatory action.  Three generic manufacturers had entered into settlement agreements with GSK following their efforts to produce and sell generic equivalents of the paroxetine-based drug in the U.K. market and GSK’s response to file patent infringement suits.  In addition to GSK, the three generic manufacturers named in the OFT regulatory action are:

• Alpharma: Actavis UK Limited, Xellia Pharmaceuticals ApS and Alpharma LLC
• GUK: Generics (UK) Limited and Merck KGaA
• IVAX: IVAX LLC and Norton Healthcare Limited

“The OFT’s provisional view is that these agreements included substantial payments from GSK to the generic companies in return for their commitment to delay their plans to supply paroxetine independently,” according to the OFT press release.

The U.K. Competition Act 1998 prohibits certain anti-competitive practices that may have a negative impact on trade in the U.K.   There are prohbitions against companies using their “dominant” market position to stifle competition and monetary fines for “infringement” of the Act, which can add up to 10 percent of a company’s worldwide revenue.  GSK and the three generic manufacturers now have an opportunity to provide the OFT with written and oral representations defending their respective position.  Although the OFT’s Statement of Objections itself is
confidential, interested parties may request a public version from the OFT.

Observations

I recently wrote on the oral arguments before the Supreme Court last month in the “pay for delay” case from the Eleventh Circuit, Federal Trade Comm’n v. Actavis Inc., et al.  See “Pay for Delay and Drug Design Defect Cases Take Center Stage at Supreme Court.”  In a nutshell, the FTC has been arguing for more than a decade that Hatch-Waxman patent litigation settlements in which the branded-innovator manufacturer (and patent holder) makes payment to a generic manufacturer (and alleged infringer) in exchange for delayed generic market entry are inherently anticompetitive and illegal.  Although the Supreme Court’s decision and reasoning in Actavis might influence future OFT actions, GSK & Co. will have no choice but to contend with OFT’s Statement of Objections to the paroxetine settlements in the present.  Click on the link to the GSK Statement in Response to OFT Statement of Objections to read the company’s initial response to the OFT regulatory action.

Historical Background on Off-Label Charges Regarding Neurontin

By way of background, the FDA approved  Neurontin® in December 1993 exclusively for adjunctive or supplemental anti-seizure use by epilepsy patients.  The Government charged that the drug’s manufacturer, Warner-Lambert, had illegally marketed Neurontin® for multiple off-label uses, including the treatment of bipolar mental disorder, pain, Amyotrophic Lateral Sclerosis (ALS, or Lou Gehrig’sDisease), attention deficit disorder, migraine, drug and alcohol withdrawal seizures, restless leg syndrome, and as a first-line monotherapy treatment for epilepsy.

The 2004 Plea Agreement between the Government and Warner-Lambert specifically stated that Warner-Lambert’s criminal conduct caused $150 million in losses and that, as a result of a prior Food, Drug & Cosmetic (FDCA) conviction, Warner-Lambert’s off-label violations constituted felonies.  Warner-Lambert (which had been acquired by Pfizer) ultimately paid the Government $430 million in civil and criminal penalties related to its off-label marketing of Neurontin®.  (In a separate but related matter, Dr. David Franklin, a former medical liaison at Warner-Lambert’s Parke-Davis Division, filed a False Claims Act qui tam action in 2001 in which he claimed that Parke-Davis had engaged in a fraudulent scheme to promote the off-label use of Neurontin® . . . although Parke-Davis and the Government entered into a stipulation of dismissal, Franklin collected a $24.6 relator’s award). 

The First Circuit’s Ruling

Almost immediately following the Warner-Lambert settlement, Kaiser and other health insurance plans got the idea that if government health care programs could cry “fraud” from being “tricked” into reimbursing for Neurontin®’s off-label uses, so could they.  However, instead of filing a garden-variety health care fraud suit, Kaiser and Co. filed a Racketeering Influence and Corrupt Organizations (RICO) lawsuit against Pfizer, accusing the pharmaceutical giant (by virtue of having acquired Warner-Lambert) of engaging in a pattern of racketeering activity consisting of multiple acts of fraud based on the company’s marketing of Neurontin® for multiple off-label uses.  In 2010, the case went to trial and the jury sided with Kaiser, awarding the health insurer $47.3 million in damages.  However, under RICO, those damages were trebled for total jury verdict of $142 million.

In affirming the verdict, the First Circuit quoted the jury’s conclusion that ”Kaiser prove[d] that Pfizer violated RICO with respect to its promotion of Neurontin® for” bipolar disorder, migraine, neuropathic pain, and dosages exceeding 1800 mg per day, and that these “violation[s] of RICO cause[d] Kaiser injury.”  The court’s three latest rulings against Pfizer has significant financial and legal implications:  similar claims will now be pursued by Aetna, Inc., and a class action filed by Harden Manufacturing Corp. will also move forward.

Observations

Although Kaiser was able to capitalize on the Warner-Lambert settlement and the admissions Pfizer made as a result of the settlement, Warner-Lambert’s off-label promotion of Neurontin® was egregious even by the standards of the day.  For example, the trial record showed that Warner-Lambert promoted Neurontin® for bi-polar disorder based solely on anectodal evidence, and despite knowledge of several clinical trials that established that Neurontin® was more effective — and in one clinical trial even less effective — than placebo.  Accordingly, Kaiser’s decision to jump on the Government bandwagon and exact its own pound of flesh from Pfizer makes economic  sense.  However, its decision to capitalize on Warner-Lambert’s behavior and seek “treble” damages from Pfizer under the RICO statute was a bit aggressive to say the least.  Given the egregiousness of Warner-Lambert’s conduct, it is unclear whether these cases represent an outlier, or whether Pfizer and other companies should brace for similar RICO litigation wherever really “bad” conduct can be established.

Case References

The case is In Re: Neurontin Marketing and Sales Practices Litigation, Nos. 11-1904, 11-2096 (1st Cir. 2013)

Click on the link to read the 2004 Department of Justice/Warner-Lambert settlement announcement.

Background

In Actelion Pharmaceuticals and Actelion Clinical Research v. Apotex Inc., Apotex Corp., and Roxane Laboratories, Case No. 1:12-CV-05743 (D.N.J.), Actelion filed a pre-emptive suit for declaratory judgment, claiming that Apotex’s and Roxane’s attempts to force a sale of Tracleer® – Actelion’s flagship product for the treatment of pulmonary arterial hypertension (“PAH”) – so that the generics can perform bioequivalence testing, violate the core free market principle that a person or company is free to do (or refuse to do)  business with whomever he or it wishes.  In addition to free market principles, Actelion further charges that because Tracleer® is subject to a FDA-imposed Risk Evaluation and Mitigation Strategy (REMS), restricting the drug’s distribution to certain patients for safety reasons, Actelion is barred from providing the generic companies with Tracleer® samples, even for the limited purpose of bioequivalency testing.

In their Answers to to the suit, Apotex and Roxane have filed counterclaims, charging that Actelion’s refusal to sell them Tracleer® samples – despite assurances that the generics will abide by all REMS restrictions – undermine the Hatch-Waxman balance of rights between branded and generic companies and violate the antitrust laws by essentially extending Actelion’s sole “monopoly” in the PAH oral treatment market.

A number of Amicus Curiae briefs have been filed in the Actelion case, including one from the Federal Trade Commission (FTC) in support of the generics’ position.  As an FTC Memo accompanying the FTC’s Amicus brief explains:

… Actelion’s legal position, if adopted by the court, could pose a significant threat to competition in the pharmaceutical industry.  In the Hatch-Waxman Act, Congress designed a regulatory framework to encourage the introduction of low-cost generic drugs while preserving incentives for innovation.  The Act created a mechanism for accelerated approval of generic drugs based on a showing that the generic formulation is bioequivalent to the brand drug, which has been very successful in facilitating generic competition and generating large savings for consumers. 

The FTC’s brief goes on to argue that Hatch-Waxman cannot function as Congress intended if generic firms are unable to access samples of brand products.  Without taking a position on the factual merits of the case, the FTC explains that the generic firms’ antitrust claims are not barred as a matter of law.

In Accord Healthcare and Intas Pharmaceuticals v. Acorda Therapeutics and H.D. Smith Wholesale Drug Co., Case No. 0:13-CV-60742 (S.D. Fla.), generic producer Accord Healthcare and India-based Intas Pharmaceuticals filed suit earlier this month, claiming that Acorda Therapeutics, which manufactures multiple sclerosis drug Ampyra®, must sell Accord Healthcare samples of Ampyra® immediately, in order to begin bioequivalence testing needed for a planned ANDA submission date of January 22, 2014.  The Accord Healthcare suit alleges that brand name manufacturers like Acorda Therapeutics are prohibited from using FDA-required REMS to “block or delay approval of” an ANDA.  Unlike Apotex and Roxane, Accord Healthcare sued its branded rival first in this case, copying the exact language of the Apotex and Roxane counterclaims.  Given that Ampyra® is also subject to a REMS, it safe to assume that Acorda Therapeutics will file an Answer making the same REMS-based and free market principle arguments as Actelion.

Observations

Ordinarily, generic manufacturers don’t need the cooperation of their branded rivals in order to acquire brand drug samples for bioequivalency testing: they merely purchase the drugs from wholesalers on the open market.  However, because both Tracleer® and Ampyra® are subject to REMS, wholesalers acquiring these drugs are prohibited in their agreements with the branded companies from selling the drugs except to healthcare providers under restricted circumstances.  For Actelion, the loss of patent protection for its flagship (and only real money-making) product – and the fight to keep Tracleer® samples out of the hands of its generic rivals for as long as possible – makes economic sense.   Moreover, since there is no requirement in Hatch-Waxman that branded manufacturers provide their generic rivals with drug samples for ANDA filing purposes, Actelion’s free market principles arguments may take them a very long way and force the courts to make a decision they probably never thought they would have to make.

Vertex’s Complaint

The two pharmaceutical companies are locked in a battle over drugs for the treatment of hepatitis C. Vertex, a global biotechnology company based in Boston, manufactures Incivek®. Gilead, a California-based biopharmaceutical company, is focused on treatments for a variety of conditions, including HIV/AIDS, hepatitis, serious respiratory and cardiovascular conditions, cancer, and inflammation.  Industry watchers expect Gilead to file for FDA approval on a hepatitis C drug that will compete with Incivek® by the end of the year.

Vertex had employed Betty Kritikos, who holds a PharmD in Pharmacy, from late 2007 through March 29, 2013.  Kritkos resigned her position at Vertex and planned to begin working for Gilead in a directly competitive position starting today (April 1, 2013).  Several days after receiving Kritikos’ resignation, Vertex sent a courier to her home to reclaim her laptop and a wide assortment of other electronic devices, according to Vertex’s complaint. Upon retrieving her computer, Vertex conducted a computer forensics analysis, which the company claims shows that Kritikos downloaded multiple highly confidential Vertex documents while waiting for the courier to pick up the laptop.  The complaint further alleges that Kritkos began emailing Vertex documents containing trade secrets to her personal email account around the time she started talking to Gilead about employment opportunities.

Vertex charges that Kritikos is subject to an Employee Non-Disclosure, Non-Competition & Inventions Agreement, which the company says she signed upon accepting employment with Vertex and which, according to the complaint, she reaffirmed in 2011 and 2012.  Now, Vertex is seeking damages and injunctive relief against both Kritikos and Gilead for breach of contract, breach of fiduciary duty, unfair and deceptive trade practices, violations of the Massachusetts Trade Secrets Act, and violations of the Computer Fraud and Abuse  Act.

The case is captioned Vertex Pharmaceuticals, Inc. v. Betty Kritikos and Gilead Sciences, Inc. It is filed in U.S. District Court for  the District of Massachusetts. Click on the link to read the complaint.

Observations

The Vertex / Gilead litigation shows how important it is for pharmaceutical and other life science companies to protect their trade secrets and other highly valuable intellectual property. As I have recently written, companies that are not careful about their trade secrets and other proprietary information can find themselves on the wrong side of a lawsuit or even a criminal referral to the Federal Government.  Recent case law confirms not only that pharmaceutical companies are prime targets for trade secret theft (both foreign and domestic), but underscores the need to regularly reassess the adequacy of a company’s firewalls for safeguarding intellectual property, such as trade secrets, and other proprietary information.  The risks of not doing so can be severe and can include millions of lost dollars in research and development and an even greater loss in competitive advantage.

Click on the link to read my recent article on the topic, “How New Trade Secret Legislation Impacts Pharma Compliance Programs,” published by Pharma Compliance Monitor on March 29, 2013.

Reverse Payment Settlements (a.k.a. “pay-for-delay” deals) 

Yesterday, the Supreme Court heard oral arguments in the widely watched ”pay for delay” case from the Eleventh Circuit, Federal Trade Comm’n v. Actavis Inc., et al,  (formerly captioned  Federal Trade Comm’n v. Watson Pharmaceuticals, Inc., et al, prior to Watson’s acquisition of Actavis), with a decision expected by the end of June.  So much has been written and debated about this case, that one blog post can’t do the subject justice.  Nonetheless, in a nutshell, the FTC has been arguing for more than a decade that Hatch-Waxman patent litigation settlements in which the branded-innovator manufacturer (and patent holder) makes payment to a generic manufacturer (and alleged infringer) in exchange for delayed generic market entry are inherently anticompetitive and illegal.  According to the FTC, these reverse payments keep low cost generic versions of branded drugs off the market longer than should be the case, drive up consumer costs and, therefore, should be presumptively illegal.

After losing several battles in the courts of appeal, including Actavis, the FTC’s view finally prevailed last Summer when the Third Circuit, in In re K-Dur Antitrust Litigation, concluded that reverse payment settlements are subject to antitrust challenge and are presumptively illegal.  Prior to K-Dur, the Eleventh Circuit and other courts had ruled that, absent a finding that the branded manufacturer had procured the patent fraudulently or engaged in sham litigation, any settlement that didn’t block generic market entry beyond expiration of the patent’s term was within the “scope of the patent” and reasonable.  The K-Dur court reversed the presumption of patent validity implicit in Actavis and instructed courts in the Third Circuit to apply a “quick look rule of reason analysis” in which a reverse payment will be viewed as ”prima facie evidence of an unreasonable restraint of trade.”  Although such a presumption can be rebutted on a showing that the reverse payment “was for a purpose other than delayed entry” or offered “some pro-competitive benefit,” in the absence of proof of the underlying patent’s validity – something that the settlement was designed to avoid – it would be difficult for defendants to overcome the K-Dur presumption.

During oral arguments yesterday, the Supreme Court Justices, while appearing somewhat sympathetic to the FTC’s arguments, appeared divided on devising a new antitrust rule just for Hatch-Waxman settlements.  What the Court will ultimately do is anybody’s guess.  However, if the Court somehow ends up affirming Actavis and adopting some version of the scope of the patent test, it won’t be  because of any pro-patent or pro-pharmaceutical bent, but most likely because of the strong judicial preference of encouraging settlements — the same overriding rationale underlying Actavis and the other courts following the scope of the patent test.  It is also possible for the Court to reverse Actavis, but not adopt the Third Circuit’s rule of reason test with its accompanying view that all reverse payments are presumptively anticompetitive and illegal (and the implicit assumption that a reverse payment = an invalid/unenforceable patent).  Stay tuned for more posts on this subject in the coming months.

The Design Defect End-Around 

Ever since the Supreme Court held in Pliva v Mensing that generic manufacturers were effectively immune from products liaibility lawsuits, plaintiffs’ lawyers, their clients and even politicians have been pulling out their hair over what to do.  In Pliva, the Court found that because FDA regulations require that the labeling on a generic drug be identical to its brand drug counterpart, federal law preempts state court failure to warn claims.  Since the Supreme Court’s decision, the federal courts have rejected all attempts by plaintiffs to distinguish their suits from Pliva or to otherwise circumvent Pliva’s hard and fast preemption ruling — that is, until Bartlett v. Mutual Pharmaceutical Co.  In Bartlett, the plaintiff had taken Mutual’s generic sulindac for shoulder pain and later developed Steven-Johnson syndrome and toxic epidermal necrolysis, leaving her nearly permanently blind and disabled.  Rather than sue Mutual on a typical failure to warn theory, Bartlett’s husband filed suit in New Hampshire on a design defect theory, claiming that the FDA never should have approved the drug and that the medication was unreasonably dangerous and defective.   The First Circuit affirmed the jury’s $21 million verdict and last week the Supreme Court heard Mutual’s arguments that the First Circuit’s ruling distinguishing Bartlett from Pliva was nothing more than an “end-around” circumvention of Pliva’s import: specifically, that a drug’s design, much like its labeling, is within the exclusive purview of the FDA and that the FDA’s regulations (no matter how illogical or unfair it might be to plaintiffs like Mrs. Bartlett) preempt any state-based claim.  Unfortunately for Mr. and Mrs. Bartlett, I’m not at all confident that five or more Justices can be convinced to distinguish her design defect case from the lessons of Pliva.

And the bad news may not be limited to injured plaintiffs.  Although branded manufacturers might have breathed a sigh of relief that for once its interests weren’t at stake in the outcome of Bartlett, a recent Alabama Supreme Court opinion should give the industry something to worry about.  On January 11th, in response to a question certified to it by a federal court presiding over a misrepresentation and failure to warn personal injury suit, the Alabama high court opined in Wyeth v. Weeks that, while prohibited under Pliva from suing the manufacturer of a generic version of  heartburn medication, Reglan, the plaintiff could nevertheless file suit against Wyeth and Pfizer (which acquired Wyeth), since the branded manufacturer controls the adequacy of the labeling for both its product and any generic drug equivalent.  While most courts addressing the same question had previously rejected such an interpretation of Pliva, unless the Alabama Supreme Court reverses course, branded manufacturers might find themselves fending off suits for years to come in Alabama state courts no matter what happens in Bartlett.

Type 2 diabetes, formerly known as adult-onset diabetes, is the most common form of the disease. Millions of Americans have been diagnosed with type 2 diabetes, which is frequently associated with obesity.  Many more people are at high risk of type 2 diabetes, but have not been officially diagnosed with the condition.  Most type 2 diabetes patients have been treated with one or more incretin mimetic drugs.

Incretin Mimetic Drugs

Drugs in the incretin mimetic class (and their manufacturers) include:

• Exenatide (Byetta, Bydureon/injection) (Amylin, which was acquired by BMS, which co-markets with Astra-Zeneca)
• Liraglutide (Victoza/ injection) (Novo Nordisc)
• Sitagliptin (Januvia, Janumet, Janumet XR, Juvisync/tablets) (Merck)
• Saxagliptin (Onglyza, Kombiglyze XR/tablets) (BMS/AZ)
• Alogliptin (Nesina, Kazano, Oseni/tablets) (Takeda)
• Linagliptin (Tradjenta, Jentadueto/tablets) (Boehringer Ingelheim)

The incretin mimetic drugs exenatide and sitagliptin prompted an earlier FDA public warning about the risk of acute pancreatitis, including fatal and serious nonfatal cases.  However, as Merck pointed out in a 2009 statement responding to the FDA’s requirement that the Januvia label disclose 88 reported cases of acute pancreatitis, “[p]atients with type 2 diabetes are more likely to develop pancreatitis than other people, and as the FDA noted in a publication earlier this year, ‘diagnosis [of drug-induced pancreatitis] poses a challenge since it can be difficult to rule out other causes’.”  Fair enough.  But while actual causation maybe difficult to prove, the temporal association between the use of incretin mimetic drugs and pancreatitis and even pancreatic cancer (which often follows pancreatitis) is troubling.  In fact, according to the FDA, a recently published study that examined insurance records also found that the use of exenatide or sitagliptin could double the risk of developing acute pancreatitis.  In that administrative database study, academic researchers had a stated goal “to test whether GLP-1–based therapies such as exenatide and sitagliptin are associated with an increased risk of acute pancreatitis.” Those findings were published in a JAMA Internal Medicine article on February 25, 2013.

The potential for pre-cancerous pancreatic conditions is a new risk factor not previously mentioned by the FDA. The agency cautions, however, that their evaluation of incretin mimetics in regard to pancreatic side effects is in the early stages. The FDA has not yet concluded that these drugs may cause or contribute to the development of pancreatic cancer, but for drug manufacturers, the danger signs are there.  While it is still too early to tell where the FDA will go with all of this, if the agency ultimately concludes that the risks of some or all incretin mimetic drugs outweighs the benefits to diabetic patients, a company like Merck (which earned more than $5 billion in revenues from Januvia and Janumet in 2011) could end up facing a Vioxx-like avalanche of lawsuits, which would make the lawyers on both sides of the mass tort litigation the only winners.

Drug and Device Company Use of Social Media

Of course, many pharmaceutical and device companies maintain an active presence on Facebook, LinkedIn, Twitter, and other forms of social media. The FDA appears not so much as objecting to the use of the medium as much as it is reminding these companies that their social media policies must conform to established FDA guidelines.  Restrictions on patient and doctor communications in regard to off-label marketing, warnings, appropriate usage, and other health considerations must be adhered to whatever the form of delivery.

Reading closely, the FDA reprimand relates to how AMARC used its Facebook page to “like” a favorable consumer testimonial. It does not restrict consumers from “liking” a drug company’s Facebook page or posts.  For example, the Pfizer Facebook page has 65,000 “likes” as of this writing, while the Merck Facebook page has over 7,700 “likes.”

The pharmaceutical and medical device industries are anxious to receive further social media guidance from the FDA, which has been viewed as slow in responding to technological advances on social media platforms.  Although the Guidance for Industry Responding to Unsolicited Requests for Off-Label Information About Prescription Drugs and Medical Devices issued in December, 2011, addressed, in part, FDA’s thoughts on unsolicited requests for off-label information received (via electronic media as well as more traditional forms of communication), much more guidance is necessary. Drug marketers may need to wait as late as a July 9, 2014 deadline, however, for more detailed FDA guidance on allowable medical product promotions via the Internet and social media.

Leading Industry Practices in Social Media Management – What Others Are Doing 

A visit to the Facebook pages of pharmaceutical leaders like Pfizer, Merck, and Sanofi reveal highly visible communications policies that deal with the social media question head-on. For example, Pfizer maintains a detailed editorial policy page, notifying visitors that it can and will remove consumer comments or posts that are determined to be inappropriate due to content, including but not limited to a brand name, medical advice, side effects, or vulgarity. The Sanofi Facebook page includes an 11-point notice labeled “Rules of Engagement,” including disclaimers and a broadly defined licensing provision.

The bottom line lesson for drug and device companies is to review their social media policies carefully. Continuous oversight and monitoring of Facebook and LinkedIn is essential, while microblogging services like Twitter should be avoided due to the 140-character limitation, which limits a company’s ability to post or reply in accordance with FDA guidance and its own policies. The FDA’s warning to AMARC and the policies and actions taken by leading pharmaceutical companies provide valuable guidance to companies still struggling on how to navigate the social media minefield that the internet age has wrought.