Antitrust Law Daily Wrap Up, ANTITRUST—D. Mass.: Resolution of issues explained in Nexium antitrust litigation, (Sep 8, 2014)

By Linda O’Brien, J.D., LL.M.

In a class action by purchasers of the brand drug Nexium against its manufacturer, AstraZeneca, and three generic drug manufacturers for allegedly entering into reverse payment agreements to block generic competition for Nexium, the federal district court in Boston has set forth its reasoning for its rulings on the defendants’ motions for summary judgment (In re Nexium (Esomeprazole) Antitrust Litigation, September 4, 2014, Young, W.).

AstraZeneca manufactures the brand drug Nexium, a proton pump inhibitor containing esomeprazole magnesium prescribed to treat heartburn. The company holds several patents relating to the drug. In 2005, generic drug maker, Ranbaxy Pharmaceuticals filed an Abbreviated New Drug Application (ANDA) with the Food and Drug Administration (FDA), seeking to market a generic version of Nexium. Teva Pharmaceutical Industries, and Dr. Reddy’s Laboratories (DRL) also filed ANDAs, seeking to market generic Nexium. AstraZeneca responded by filing patent infringement suits against the three generic manufacturers. Subsequently, AstraZeneca entered into settlement agreement with the generic manufacturers which ended the three suits and suspended the entry of generic Nexium into the market.

Wholesale drug distributors (Direct Purchasers), health and welfare funds (End Payors), and several retailers filed a series of class action suits against AstraZeneca and the three generic drug manufacturers—Ranbaxy, Teva, and DRL—for alleged entering into reverse payment agreements to delay generic competition for Nexium. In December 2012, six actions pending in Massachusetts, New Jersey and Pennsylvania were consolidated and assigned to the district court in Boston. In February 2014, the court ruled on a number of motions for summary judgment filed by the defendants. The case was administratively closed until publication of a written opinion explaining the court’s reasoning for its rulings.

Overarching conspiracy. The court determined that the plaintiffs, based on circumstantial evidence, established a reasonable inference that the defendants’ three bilateral settlement agreements formed a single overarching conspiracy to illegally restrain trade in the market for generic Nexium. To prevail on a conspiracy claim under Section 1 of the Sherman Act, the plaintiffs must prove the existence of a single agreement, tacit or express, in restraint of trade.

According to the court, separate bilateral agreements could be treated as evidence of a single conspiracy when they were sufficiently interdependent and made within the context of factors suggesting coordination. A core component of each settlement agreement was that the generic manufacturers would delay launching a generic Nexium until May 27, 2014 and it was "not difficult to under their agreement to delay entry as being driven by separate business decisions that happened to coincide because of independent responses to common stimuli." These contingent launch clauses alone were as consistent with conspiracy as they were with independent action. The defendants had strong motives to coordinate their actions and evidence suggested that each generic defendant would be reluctant to agree to delay its entry into the market unless AstraZeneca could secure the same guarantee from all its generic competitors.

Ranbaxy settlement. The plaintiffs sufficiently demonstrated that AstraZeneca’s settlement agreement with Ranbaxy constituted a large, unjustified reverse payment. The court noted that four side agreements made between AstraZeneca and Ranbaxy in addition to the settlement agreement were potentially highly lucrative to Ranbaxy. In the side agreements, Ranbaxy was provided esomeprazole magnesium and branded Nexium, and was authorized to distribute two other AstraZeneca brand drugs. Moreover, the side agreements were negotiated in conjunction with the settlement agreement, and Ranbaxy received a steady flow of revenue from AstraZeneca’s intellectual property during the same time period during which it agreed to refrain from marketing its generic Nexium.

However, Ranbaxy’s motion for summary judgment due to lack of causation was granted because there was insufficient evidence that the FDA would have approved Ranbaxy’s generic Nexium earlier than May 2014 in the absence of the settlement agreement. Ranbaxy was experiencing regulatory approval issues with its production facility which created barriers to its entry into the market before May 2014. Since Ranbaxy would not have been able to launch its generic version before May 2014 under any circumstances, its settlement agreement with AstraZeneca could not have been the proximate cause of the plaintiffs’ injuries, the court determined.

Teva settlement. The plaintiffs also sufficiently demonstrated that AstraZeneca’s settlement agreement with Teva, made in conjunction with the settlement of a second unrelated patent infringement suit, constituted a large, unjustified reverse payment. According to the court, the plaintiffs produced expert testimony that the damages Teva paid for its infringement in the second patent suit were significantly discounted and the "savings" Teva received in the second suit supported a reasonable inference that Teva received a reverse payment to delay its launch of generic Nexium.

DRL settlement. DRL’s motion for summary judgment—based on the lack of a large, unjustified reverse payment and causation—was granted except where based on its participation in an overarching conspiracy. The court noted that DRL was the third and last generic manufacturer to file an ANDA for generic Nexium. Its initial ANDA application was rejected as deficient and DRL experienced formulation issues. Since DRL could not produce a generic Nexium product to effectively litigate the Nexium patent infringement claim, DRL contended that it initiated settlement negotiations to resolve the AstraZeneca suit. Moreover, the plaintiffs provided no concrete estimates of the litigation cost savings by DRL’s settlement of a second unrelated patent suit to make a showing that DRL received a reverse payment to delay its launch of generic Nexium.

The case is No. 12-md-02409-WGY.

Attorneys: Bradley J. Demuth (Grant & Eisenhofer PA), David P. Germaine (Vanek Vickers & Masini PC) and Lindsey H. Taylor (Carella, Byrne, Cecchi, Olstein, Brody & Agnello) for Meijer, Inc. and Meijer Distribution, Inc. Anne K. Fornecker (Hilliard & Shadowen LLC) for Fraternal Order of Police Miami Lodge 20 Insurance Trust Fund. Christopher Lometti (Cohen Milstein Sellers & Toll PLLC) for New York Hotel Trades Council and Hotel Assoc. of New York City, Inc. Health Benefits Fund. Bethany R. Turke (Wexler Wallace LLP) for United Food Workers and Commercial Workers Unions and Employers Midwest Health Benefits Fund. Christopher M. Burke (Scott & Scott LLP) for Michigan Regional Council of Carpenters Employee Benefits Fund. Ajay Kayal (Budd Larner PC) and Alan H. Pollack (Hopgood, Calimafde, Kalil, Blaustein & Judlowe) for Dr. Reddy's Laboratories Ltd. and Dr. Reddy's Laboratories, Inc. Ashley E. Bass (Covington & Burling LLP) and Benjamin M. Greenblum (Williams & Connolly LLP) for AstraZeneca LP. Lisa Jose Fales (Venable LLP) for Ranbaxy Laboratories, Ltd. and Ranbaxy Inc.

Companies: Meijer, Inc.; Meijer Distribution, Inc.; Fraternal Order of Police Miami Lodge 20 Insurance Trust Fund; New York Hotel Trades Council and Hotel Assoc. of New York City, Inc. Health Benefits Fund; United Food Workers and Commercial Workers Unions and Employers Midwest Health Benefits Fund; Michigan Regional Council of Carpenters Employee Benefits Fund; Dr. Reddy's Laboratories Ltd.; Dr. Reddy's Laboratories, Inc.; AstraZeneca LP; Ranbaxy Laboratories, Ltd.; Ranbaxy Inc.

Cases: Antitrust MassachusettsNews