Antitrust Law Daily Wrap Up, ANTITRUST—D.N.J.: Court unable to determine lost profits for generic drug company after bench trial, (Sep 17, 2024)

By Martin A. Steinberg, J.D.

United Therapeutics held liable for breaching its 2015 agreement with Sandoz that resolved a patent dispute between the parties.

Following a bench trial, the court ruled in favor of Plaintiff Sandoz Inc., a generic drug manufacturer of treprostinil, for damages for breach of contract against Defendant United Therapeutics Corporation (UTC), a brand name manufacturer and seller of the drug. Treprostinil is an injectable medication administered either intravenously or subcutaneously through an external infusion pump, called CADD-MS 3, to treat pulmonary arterial hypertension (PAH). Though the court dismissed all of the antitrust and tort claims, it found UTC liable for breach of its settlement agreement with Sandoz in a prior patent dispute over the drug. Following the trial, Sandoz’s lost profits damages were reduced from $168,449,601.00 to $137,226,191.00, with the court noting that a further reduction from $137,226,191.00 was warranted. Because the court was unclear on the exact amount of damages, it ordered the parties to confer on a proposed judgment (Sandoz Inc. v. United Therapeutics Corp., No. 2:19-cv-10170-BRM-JSA (D.N.J. Sept. 6, 2024)).

Background. UTC is a pharmaceutical company that was founded over thirty years ago with the sole purpose to develop medicines for treating PAH after its founder’s daughter was diagnosed with it. This disease causes high blood pressure in the arteries that run from the heart to the lungs. PAH is a rare and serious disease affecting a very fragile patient population.

UTC developed and launched Remodulin in 2002. Since its launch, UTC’s Remodulin has treated over 15,000 patients in the U.S. Remodulin costs approximately $150,000 per patient for an annual course of therapy. The drug is distributed by Specialty Pharmacies.

In 2011, Sandoz submitted an abbreviated new drug application (ANDA) with the FDA, seeking approval to market its generic treprostinil. Shortly thereafter, UTC sued Sandoz, contending the generic version infringed on its patent. On September 29, 2015, Sandoz and UTC entered into the 2015 Settlement Agreement to resolve the litigation. This agreement granted Sandoz the right to make and market its generic version beginning on June 26, 2018.

Smiths pumps. Smiths Medical ASD, Inc. (Smiths) started developing the CADD-MS 3 pumps in January 2005 and received FDA clearance in November 2005. However, in 2015, Smiths decided to discontinue making the CADD-MS 3 pump primarily due to the lack of ongoing availability of critical components from third party suppliers. In March 2016, UTC and Smiths executed a supply agreement for the CADD-MS 3 pumps (2016 Supply Agreement). Under the 2016 Supply Agreement, Smiths committed to producing 7,000 CADD-MS 3 pumps and 1.6 million cartridges to be used in the pumps.

In July 2017, UTC and Smiths entered into a second amended agreement to the 2016 Supply Agreement (2017 Amended Supply Agreement) wherein Smiths agreed to use commercially reasonable efforts to amend its existing agreements with Specialty Pharmacies to include a requirement that cartridges sold by Smiths can only be used with Remodulin. Smiths agreed that UTC could approve every cartridge sale by Smiths to the Specialty Pharmacies until they agreed to limit cartridge sale to Remodulin patients only. In April 2019, Smiths entered into a third amended supply agreement with UTC (2019 Supply Agreement) which gave UTC title to all Smiths’s cartridges and became the sole distributor of cartridges compatible with the CADD-MS 3 pump.

Sandoz launch. In August 2018, Sandoz entered into a promotion agreement with RareGen for the marketing of generic treprostinil (the court referred to Sandoz and RareGen as “the Sandoz Parties”). In October 2018, RareGen learned from Smiths that UTC had all of Smiths’s stock of CADD-MS 3 pumps and UTC had to give permission for any of it to be sold. While the availability of CADD-MS 3 pumps was not a limiting factor to its launch, Sandoz was unable to secure the cartridges required for subcutaneous use of its generic treprostinil. One Specialty Pharmacy, Accredo Health Group, owned more than 3,000 CADD-MS 3 pumps that were available for generic treprostinil, however, Accredo informed Sandoz that the cartridges could only be used with Remodulin.

In May 2019, RareGen entered into a Joint Development Agreement with Carelife, a device manufacturer, to produce alternative cartridges for use with the Smiths pump. However, the FDA rejected the Sandoz Parties’ application for an alternative cartridge because Smiths’s user manual for its CADD-MS 3 pump stated that the CADD-MS 3 pump is only compatible for use with Smiths’s medical cartridges.

Smiths thereafter worked with the Sandoz Parties to facilitate FDA clearance of Sandoz’s alternative cartridges for use with the CADD-MS 3 pump. The FDA then cleared the alternative cartridges in March 2021, and Sandoz launched its generic treprostinil in the U.S. for subcutaneous administration in May 2021. The Sandoz Parties’ efforts to develop an alternative cartridge cost approximately $500,000. Based on the relevant dates, the court noted that the damages period was from April 2019, after Sandoz’s intravenous-only launch, to March 2021, the month that the FDA approved an alternative cartridge.

Complaint. On April 16, 2019, the Sandoz Parties filed a complaint, asserting six claims against UTC and Smiths: (1) restraint of trade under 15 U.S.C. § 1 of the Sherman Antitrust Act; (2) monopolization under § 2 of the Sherman Antitrust Act; (3) restraint of trade under N.J. Stat. Ann § 56:9-3; (4) restraint of trade under N.C. Gen. Stat. § 75-1; (5) unfair trade practices under N.C. Gen. Stat § 75-1.1; and (6) tortious interference with prospective economic advantage. The Sandoz Parties filed their Amended Complaint in which Sandoz asserted a seventh claim for breach of contract claim against UTC arising from its alleged failure to carry out its obligations under the 2015 Settlement Agreement.

Smiths Settlement. On November 13, 2020, the Sandoz Parties settled with Smiths and all claims against Smiths were dismissed with prejudice. Smiths paid $4.25 million to the Sandoz Parties. It is undisputed that Sandoz received $2.125 million from this settlement.

On December 16, 2020, UTC answered Sandoz’s Amended Complaint and asserted a counterclaim for “fraudulent concealment—spoliation” against Sandoz. However, on August 31, 2021, the court granted Sandoz’s Motion to Dismiss UTC’s Counterclaim.

Most claims dismissed. On March 30, 2022, the court granted Sandoz’s Motion for Partial Summary Judgment, granting in part and denying in part UTC’s Motion for Summary Judgment, and denying UTC’s Motion to Exclude the damages report of Sandoz’s expert. Sandoz’s antitrust claims (Counts One and Two), restraint of trade claims (Counts Three and Four), unfair trade practices claim (Count Five), and tortious interference claim (Count Six) were dismissed with prejudice.

UTC liable. On March 30, 2022, the court found UTC liable on Sandoz’s breach of contract claim arising under Count Seven. The court held that, “[b]y taking efforts to become the ‘sole distributor’ of cartridges and entering into agreements with the Specialty Pharmacies to restrict cartridge distribution for Remodulin use only, UTC took actions that [breached] the 2015 Settlement Agreement” with Sandoz. The court held a three-day bench trial to determine Sandoz’s damages on its breach of contract claim.

Damages. The court found that Sandoz’s lost profits following the launch of generic treprostinil were a natural and probable consequence of UTC’s breach of its promise under the 2015 Settlement Agreement not to take any action directly or indirectly to prevent, delay or restrict Sandoz’s launch, manufacture, use, sale, or distribution of its product. Claims for lost profits are governed by the standard of reasonable certainty. Schwartz v. Menas, 279 A.3d 436, 438 (N.J. 2022). Under this standard, proof of damages need not be done with precision. Instead, it is sufficient for the plaintiff to prove damages with such certainty as the nature of the case allows by laying a foundation which will enable the trier of the facts to make a fair and reasonable estimate. A significant dispute the court needed to resolve at trial was the propriety of the generic penetration rates offered by the parties’ damages experts.

Plaintiffs’ expert relied upon RareGen’s April 2019 forecast in determining the generic penetration rate, whereas Defendant’s expert utilized the real-world generic penetration rate that Sandoz achieved in its intravenous-only launch. The court found that Plaintiffs’ expert’s conclusion were reasonable and his testimony was credible. The expert had appropriately considered the range of forecasts prepared by RareGen and Sandoz and ultimately relied on the forecast prepared closest in time to Sandoz’s launch, which incorporated the most up-to-date information available from when Sandoz entered the market.

The Third Circuit had stated a general principle that an expert’s testimony on lost profits must be grounded in some semblance of reality. Plaintiffs’ expert’s primary damages model calculated $168,449,601 in damages on the assumption that Sandoz would have achieved 100% of the generic market share in the subcutaneous segment. Yet, he acknowledged at trial that at the time he made his damages model, other generic manufacturers entered into settlement agreements with UTC permitting them to market generic treprostinil.

The court noted that because Sandoz’s actual profits during the damages period were unclear, it would not further search the record for this figure. A corollary to New Jersey’s rule on damages for breach of contract claims is that an injured party should not recover expenditures which will be saved because it has been excused from further performance by the other party’s breach. Under the promotion agreement between the Sandoz Parties, RareGen was an independent contractor for Sandoz, and the contractual relationship did not constitute a partnership. Sandoz had final decision-making authority with respect to all RareGen’s activities related to treprostinil. Sandoz agreed to pay RareGen a percentage of future sales profits dependent on the amount of profits. The court recognized that Sandoz did not pay RareGen a sales commission. However, payments to a contractor that increase with a higher sales volume are saved variable costs that Defendant need not reimburse Plaintiffs because Plaintiffs avoided these costs as a result of the breach.

Thus, the court found that reduction of the share of profits that would have been owed to RareGen—80% of net profits up to $50 million and 50% of net profits thereafter up to $500 million—from the total lost profits was warranted. However, the court could not properly calculate the total amount of the reduction without a clear calculation of the profits Sandoz actually made from generic treprostinil during the damages period. Accordingly, the parties were directed to meet and confer then submit a proposed form of judgment in accordance with the parties’ calculations.

Effect of Smith settlement. New Jersey’s “one-satisfaction rule” provides that when a plaintiff receives satisfaction or “full compensation” of a claim from one wrongdoer, the plaintiff cannot pursue further compensation from a different wrongdoer. The one satisfaction rule applies to settlements as well as to satisfactions of judgments. The Sandoz Parties settled with Smiths on November 13, 2020. Smiths paid $4.25 million to the Sandoz Parties. It is undisputed that Sandoz received $2.125 million from this settlement. Whereas the Amended Complaint raised a claim for breach of contract against UTC for its failure to comply with its obligations of the 2015 Settlement Agreement, Smiths was sued under antitrust theories of recovery, not breach of contract.

Though separate legal theories for recovery may be immaterial as to whether the one-satisfaction rule applies, equity demanded that Sandoz’s lost profits damages not be reduced by the Smiths settlement. Because Sandoz’s settlement with Smiths rectified separate claims and injuries, the court found that the one-satisfaction rule did not apply. Accordingly, Sandoz’s lost profits damages under its breach of contract claim against UTC were not reduced by the settlement.

Conclusion. Sandoz’s lost profits damages were reduced by the court from $168,449,601.00 to $137,226,191.00. The court further concluded that a reduction from $137,226,191.00 was warranted, as the share of profits owed to RareGen pursuant to the promotion agreement for 80% of net profits up to $50 million and 50% of net profits thereafter up to $500 million was a saved cost. Counsel for the parties were ordered to confer and then submit a proposed form of judgment denoting a lost profits damages amount consistent with the court’s findings plus prejudgment interest. To calculate this reduction, the parties will consider the actual profits that were realized in Sandoz’s intravenous-only launch of generic treprostinil.

The Case is No. 2:19-cv-10170-BRM-JSA.

Judge: Martinotti, B.

Attorneys: Steven L. Penaro (Alston & Bird LLP) for Sandoz Inc. Stephen M. Orlofsky (Blank, Rome LLP) for United Therapeutics Corp.

Companies: Sandoz Inc.; United Therapeutics Corp.

Cases: Antitrust NewJerseyNews