Antitrust Law Daily Wrap Up, ANTITRUST—N.D. Cal.: HIV drug maker dodges monopolization, tying, conspiracy claims, (Jul 7, 2016)

By Greg Hammond, J.D.

Allegations that a pharmaceutical company improperly used the complex regulatory regime of the Food and Drug Administration (FDA) to protect its position in the market for an HIV-treating prodrug were insufficient. In granting dismissal of tying, monopolization, and conspiracy claims, the federal district court in San Francisco determined that the plaintiff failed to allege the existence of a market for a tying product, the complaint failed to allege facts supporting a market definition to demonstrate monopoly power, and the pharmaceutical company had no duty to release a standalone product (AIDS Healthcare Foundation, Inc. v. Gilead Sciences, Inc., July 6, 2016, Alsip, W.).

Gilead Sciences, Inc. holds patents on a prodrug of tenofovir—compounds that are converted into their active ingredient once metabolized in the human body. Tenofovir is used in treating the human immunodeficiency virus (HIV). Two years before the expiration of the patents covering prodrug tenofovir disoproxil fumarate (TDF), Gilead sought and was granted FDA approval of three new combination drugs, which resulted in a five-year "new chemical entity" exclusivity period over any product containing tenofovir alafenamide fumarate (TAF). AIDS Healthcare subsequently filed suit against Gilead, seeking declaratory judgment of patent invalidity; alleging monopolization, conspiracy, and tying claims, in violation of the Sherman Act; and asserting violations of California’s Cartwright Act and Unfair Competition Law, and the Nevada Unfair Trade Practices Law.

Tying. AIDS Healthcare claimed that Gilead entered into agreements with other companies to tie sales of TAF to sales of other companies’ respective drugs by combining them into fixed-dose combination drugs. The court noted, however, that the FDA has prohibited the sale of TAF as a standalone product. Consequently, AIDS Healthcare failed to plead the existence of a market for a tying product and Gilead’s market power therein. The tying claim was therefore dismissed.

Monopolization, conspiracy. In support of its monopolization claim, AIDS Healthcare alleged that Gilead improperly bundled TAF with other ingredients as a means of maintaining its dominance in the TAF market. The court dismissed this claim, finding a number of deficiencies, including: (1) the claim relied on the premise that Gilead possessed monopoly power over TAF-containing drugs, but the complaint did not allege facts supporting a market definition limited to TAF-containing drugs; (2) AIDS Healthcare failed to allege any anticompetitive conduct on the part of Gilead, because there was no legal basis for concluding that Gilead had a duty to release TAF as a standalone product; (3) Gilead had already sought FDA approval of standalone TAF, which was expected to be granted by November 2016, demonstrating that no anticompetitive effect could result because Gilead had already taken steps to expose the alleged vulnerabilities of the patents protecting TAF several years before its new chemical entity exclusivity would expire and the first possible generic TAF products could enter the market; and (4) any competitor seeking to market TAF in a new product after expiration of the new chemical entity exclusivity period could file a Section 505(b)(2) application for such a new product.

The conspiracy claim was also dismissed because it was premised on monopolization. Similarly, the Cartwright Act and Nevada Unfair Trade Practices Act claims were dismissed because they mirrored the dismissed claims under the Sherman Act.

UCL. The court dismissed the UCL claims, finding that AIDS Healthcare could not state a claim under the unlawful prong because it sought to borrow the violations asserted in its dismissed antirust claims. Allegations that the defendants conspired to game the FDA system to insulate TAF from patent challenges by combining it with additional patented ingredients was also already rejected as a basis for a Section 2 claim because Gilead had no duty to release a standalone TAF product. Finally, claims that Gilead knew of the efficacy and safety benefits of TAF in 2004 but shelved its clinical trials until 2011, leading to FDA approval in 2015, just before the patents on TDF were set to expire, failed to explain how this "delay" constituted unfair competition. Gilead’s patents gave it a monopoly over both TDF and TAF, and it had no obligation to introduce the improved product at an earlier date, the court stated.

The case is No. C 16-00443 WHA.

Attorneys: Dorian Seawind Berger (Berger & Hipskind LLP) for AIDS Healthcare Foundation, Inc. Gary N. Frischling (Irell & Manella LLP) for Gilead Sciences, Inc. Bruce C. Haas (Fitzpatrick, Cella, Harper & Scinto) and Charles Lagrange Coleman, III (Holland & Knight LLP) for Japan Tobacco Inc. William Francis Cavanaugh (Patterson Belknap Webb & Tyler LLP) and David Lloyd Anderson (Sidley Austin LLP) for Johnson & Johnson Inc.

Companies: AIDS Healthcare Foundation, Inc.; Gilead Sciences, Inc.; Johnson & Johnson, Inc.; Janssen Sciences Ireland UC; Japan Tobacco, Inc.

Cases: Antitrust StateUnfairTradePractices CaliforniaNews