Antitrust Law Daily Wrap Up, ANTITRUST—N.D. Ill.: Challenge to size of Opana ER reverse settlement agreement dismissed for lack of foundation, (Feb 26, 2016)

By Edward L. Puzzo, J.D.

In its challenge to a settlement between pharmaceutical companies that delayed the release of a generic version of Opana ER as an illegal "reverse settlement payment," purchasers' claim that the payment was "large and unjustified" must be dismissed as lacking in foundation, the federal district court in Chicago has ruled (In Re Opana ER Antitrust Litigation, February 25, 2016, Leinenweber, H.).

Endo Pharmaceuticals manufactured and sold Opana ER, an extended release form of oxymorphone hydrochloride, an opioid used for the treatment of chronic pain. Endo had protection from generic competition for this product until June 22, 2009. Knowing it had a limited period of protection from generic competition, Endo purchased four patents from Penwest Pharmaceuticals that could be used to block generic entry beyond that date.

Competing pharmaceutical firm Impax Laboratories filed an Abbreviated New Drug Applications (ANDA) with the Food and Drug Administration (FDA) seeking to market generic extended release oxymorphone hydrochloride. Endo immediately filed a patent infringement lawsuit against Impax, alleging that the generic would infringe on its time-release patents. Endo's January 2008 filing of a patent infringement lawsuit against Impax triggered a Hatch-Waxman stay, which delayed Impax' entry into the market by 30 months, to June 2010. Shortly before the stay expiration date, the FDA tentatively approved Impax' ANDA for generic Opana ER. On June 8, 2010, less than a week before the stay on Impax' release of the product would have expired, Endo and Impax reached a settlement in Endo's patent infringement lawsuit.

Under the terms of the Settlement and License Agreement (SLA), Impax would delay the release of its generic Opana ER until the earlier of January 2013, or 30 days after a court ruling that Endo's patents were not infringed; and Endo would grant Impax a license for any of its patents related to Opana ER. Under other portions of the SLA, Endo agreed to pay Impax a credit to compensate for lost profits caused by the delay of Impax' generic into the market. This later resulted in the payment of over $102 million from Endo to Impax.

Actavis decision. In 2013, the U.S. Supreme Court issued its decision in FTC v. Actavis, Inc., 133 S.Ct. 2223, holding that a reverse settlement payment—a payment by a patentee to a claimed infringer—may be a restraint of trade under a "rule of reason" analysis when the payment is large and unjustified. The Court in Actavis explained that the “likelihood of a reverse payment bringing about anticompetitive effects depends upon its size, its scale in relation to the payor’s anticipated future litigation costs, its independence from other services for which it might represent payment and the lack of any other convincing justification.”

Based upon the Actavis decision, plaintiffs brought claims against Endo, Impax, and Penwest, alleging that the reverse payment agreement, entered into between Endo and Impax in settlement of Endo's patent-infringement claim against Impax, was large and unjustified, in violation of Sherman Act. Defendants moved to dismiss.

The putative nationwide class actions brought on behalf of either direct or indirect purchasers were centralized in the U.S. District Court for the Northern District of Illinois by the Judicial Panel on Multidistrict Litigation (JPML). Earlier this month, the court denied defendants' motion to dismiss the direct purchasers’ claims, concluding that the plaintiffs sufficiently alleged a large and unjustified reverse payment and antitrust injury. This portion of the litigation involved opt-out plaintiffs, including direct-purchaser plaintiffs (DPPs) and end-payor purchaser plaintiffs (EPPs) such as retailers Walgreen's and Rite-Aid.

Standing. Plaintiffs alleged that they were injured as a result of the agreement between Endo and Impax, by paying supracompetitive prices for Opana ER. While sufficient to confer Article III standing, the additional question was whether this was also enough to confer antitrust standing. The court explained that antitrust standing requires an injury to plaintiffs' business and property, of the type that antitrust laws were intended to prevent, and that the injury not be derivative of a more direct injury to another party.

Defendants here contended that the plaintiffs lacked antitrust standing because their injury was derivative of the wholesalers' direct injury, and that purported assignments by the wholesalers to plaintiffs were invalid. Defendants argued that a provision in the Endo-Impax settlement agreement barred the wholesalers from assigning the agreement of delegating responsibilities without Endo's consent.

On this issue, the court agreed with plaintiffs' position. The court interpreted the non-assignment language in the agreements as prohibiting the assignment of the parties' contractual duties, not prohibiting the assignment of rights. Plaintiffs' statutorily based antitrust claims were not based upon any substantive right or duty found in the agreements, so they were not barred from assignment, the court reasoned.

Pending certification. Defendants next argued that opt-out plaintiffs should be required to pursue their claims as part of the DPP class, and that these claims should be dismissed or stayed until the DPPs achieve class certification.

Distinguishing this case from the findings in Fine Paper, 632 F.2d 1089, in which partially assigned claims were assigned by members of the certified direct purchaser class, the court noted that the direct purchaser class has not been certified and its membership indeterminate. Therefore, a decision to dismiss or stay opt-out plaintiffs' partially assigned claims would be premature.

Timing of reverse payment. Defendants also contended that plaintiffs' claims should be dismissed because the Endo-Impax settlement agreement did not involve a reverse payment at the time the settlement was entered.

The court disagreed, stating when viewing the settlement agreement as a whole, it found plausible opt-out plaintiffs' allegation that the agreement guaranteed that Impax would receive a large reverse payment regardless of whether sales of Opana ER rose or fell. Despite the form and amount of the reverse payment being contingent on future occurrences, the court continued, it was certain at the time of the settlement that Impax would receive a reverse payment of significant value. Therefore, opt-out plaintiffs sufficiently alleged that the settlement contained a reverse payment, the court concluded.

Size and basis of reverse payment. Finally, defendants alleged that dismissal was justified because the alleged reverse payment was not "large and unjustified," as required by Actavis. Here, the court agreed with defendants. Plaintiffs did not attempt to value the reverse payment, other than to state that it was worth "many millions of dollars" to Impax. Simply making that allegation without a reliable foundation supporting that value does not establish the plausibility required by Fed. R. Civ. Proc. 12(b)(6), the court stated. In order to raise a right of relief above a speculative level, plaintiffs must provide an estimated value of the reverse payment and show how the estimate was calculated. Therefore, the court granted defendants' motion to dismiss opt-out plaintiffs' complaints for failure to state a claim under Actavis. However, the court granted plaintiffs 21 days to amend their compliant.

The case is No. 1:14-cv-10150 (MDL 2580).

Attorneys: Andrew C. Curley (Berger & Montague, PC) and Archana Tamoshunas (Garwin Gerstein & Fisher LLP) for Rochester Drug Co-Operative, Inc. Bruce E. Gerstein (Garwin, Bronzaft, Gerstein & Fisher) and David C. Raphael (Smith Segura & Raphael, LLP) for Value Drug Co. Jayne Goldstein (Pomerantz Grossman Hufford Dahlstrom & Gross LLP) and Michael Jerry Freed (Freed Kanner London & Millen, LLC) for Fraternal Order of Police. Danielle R. Foley (Venable LLP) and Joanna Rubin Travalini (Winston & Strawn LLP) for Impax Laboratories, Inc. Angela M. Liu (Dechert LLP) for Endo Health Solutions Inc., Endo Pharmaceuticals Inc. and Penwest Pharmaceuticals Co.

Companies: Rochester Drug Co-Operative, Inc.; Value Drug Co.; Fraternal Order of Police; Impax Laboratories, Inc.; Endo Health Solutions Inc.; Endo Pharmaceuticals Inc.; Penwest Pharmaceuticals Co.

Cases: Antitrust IllinoisNews