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In re Loestrin 24 FE Antitrust Litigation

United States District Court, District of Rhode Island

September 4, 2014




This multidistrict litigation was consolidated and transferred to this Court by the United States Judicial Panel on Multidistrict Litigation. It arises in the wake of the Supreme Court’s seminal holding in F.T.C. v. Actavis, Inc., 133 S.Ct. 2223 (2013), which held that “reverse payments” – settlement payments in patent infringement suits made by a patent holder to an alleged infringer in exchange for the alleged infringer’s promise not to produce the patented product until a later date – may violate federal antitrust law.[1]

The plaintiffs allege that pharmaceutical firms involved in the sale of Loestrin 24 FE (“Loestrin 24”), a widely-used oral contraceptive, violated state and federal antitrust and consumer protection law by exchanging reverse payments in connection with a scheme to delay generic competition. There are two separate consolidated complaints – the first by so-called direct purchasers (the “Direct Purchasers”) and the second by so-called end payors (the “End Payors” and, together with the Direct Purchasers, the “Plaintiffs”). The defendants have filed two corresponding Motions to Dismiss (ECF Nos. 74 and 76), seeking to test the parameters of Actavis. For the reasons that follow, these Motions to Dismiss will be GRANTED.

I. Factual and Regulatory Background

A. The Parties

The Direct Purchasers are corporate entities that purchased Loestrin 24 directly from Warner Chilcott, one of the defendants.[2]The End Payors, generally, are employee welfare benefit programs that reimbursed subscribers who purchased Loestrin 24.[3] The End Payors also include three individuals who purchased Loestrin 24 for their own use.[4]

The defendants are pharmaceutical companies. Warner Chilcott Company, LLC (“Warner Chilcott”) is the holder of an approved New Drug Application from the Food and Drug Administration (the “FDA”) for Loestrin 24 and has marketed and sold Loestrin 24 since 2006.[5]The remaining defendants are Actavis, Inc. (formerly known as Watson Pharmaceuticals, Inc., and referred to herein as “Watson”)[6]and Lupin Pharmaceuticals, Inc. (“Lupin” and, together with Warner Chilcott and Watson, the “Defendants”).

In brief, the Plaintiffs allege that Warner Chilcott made what amount to reverse payments to Watson and Lupin in exchange for Watson and Lupin’s agreement not to launch generic versions of Loestrin 24. This, the Plaintiffs contend, illegally extended Warner Chilcott’s monopoly and resulted in higher prices for consumers.

B. Generics and the Hatch-Waxman Regulatory Framework[7]

We rely on pharmaceutical companies to develop and bring to market the medical advances that keep us healthy. For this reason, our patent laws afford substantial protection to firms whose innovation leads to the development of new and beneficial medications. Typically, a company that has developed such a medication will enjoy a period of time during which it can sell it exclusively and at a supracompetitive price, thereby recovering its development costs and turning a profit. This period of exclusivity is considered to be an essential incentive for further healthcare and biopharmaceutical research and innovation. See Wendy H. Schacht and John R. Thomas, Cong. Research Serv., RL30756, Patent Law and Its Application to the Pharmaceutical Industry: An Examination of the Drug Price Competition and Patent Term Restoration Act of 1984 (“The Hatch-Waxman Act”) 2-5 (2000).

Once the period of exclusivity expires, however, the entry by generic competitors severely undercuts the manufacturer’s pricing scheme and eliminates most of the innovator’s profits. (EP Compl. ¶ 65, ECF No. 40.) For instance, data suggests that where there is a single generic competitor, the generic tends to be priced approximately 25% lower than the brand name counterpart. (DP Compl. ¶ 62, ECF No. 39.) And, where there are multiple generic alternatives, the price of the generics typically falls to 50% to 80% below the brand name product. (Id.)

Because every state permits pharmacies to substitute generics for brand name drugs (unless the prescribing doctor orders otherwise), generally within a year of generic market entry, generics will capture 90% of sales and prices will fall by as much as 85%. (Id. at ¶ 63.) Not surprisingly, then, brand manufacturers view generic competition as a grave threat to profits. (Id.)

The Drug Price Competition and Patent Term Restoration Act of 1984 (more commonly known as the “Hatch-Waxman Act”), Pub. L. No. 98-417, 98 Stat. 1585 (1984), as amended, prescribes the process by which pharmaceutical firms may gain approval from the FDA to bring medications to market. There are four key features to the Hatch-Waxman Act’s architecture.

First, a drug manufacturer that wishes to market a new product must submit a New Drug Application (“NDA”) to the FDA and undergo a rigorous approval process. See Hatch-Waxman Act, 21 U.S.C. § 355(b)(1)(A) (requiring, inter alia, that the manufacturer provide “full reports of investigations which have been made to show whether or not such drug is safe for use and whether such drug is effective in use”). By all accounts, this approval process is arduous and hugely expensive. But, once the FDA has approved an NDA, the manufacturer is entitled to list the drug in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations (also known as the “Orange Book”). (DP Compl. ¶ 47.) The Orange Book entry provides a measure of protection for the manufacturer by allowing it to list any patents that the manufacturer believes could be asserted against generic competitors. (Id.)

Second, the Hatch-Waxman Act recognized that if manufacturers who have gained FDA approval were allowed to charge supracompetitive prices indefinitely, this would harm consumers. Therefore, the Act creates a mechanism to promote the availability of cheaper generic alternatives by allowing generic manufacturers to bypass many of the onerous aspects of the NDA process. Instead of filing an NDA, a generic manufacturer may instead file an Abbreviated NDA (“ANDA”). 21 U.S.C. § 355(j). An ANDA incorporates the findings of safety and effectiveness of the previously-approved NDA, and generally assures that the proposed generic contains the same active ingredients and is otherwise equally safe and effective as the brand name counterpart. Id. at § 355(j)(2). Thus, the ANDA process allows a generic manufacturer to obtain approval while avoiding the “costly and time-consuming studies” needed to obtain approval for a “pioneer drug.” Eli Lilly & Co. v. Medtronic, Inc., 496 U.S. 661, 676 (1990).

Third, the Hatch-Waxman Act sets forth procedures for resolving patent disputes between brand and generic manufacturers. A generic manufacturer filing an ANDA must certify to the FDA that the proposed generic does not infringe any patents listed in the Orange Book. 21 U.S.C. § 355(j)(2)(A)(vii). This certification can be made in one of several ways. The generic manufacturer may represent that: (1) the brand manufacturer has not filed any relevant patents; (2) any relevant patents have expired; or (3) a relevant patent is soon to expire and the generic will not be marketed until after the expiration. Id. at §§ 355(j)(2)(A)(vii)(I)-(III). Or, alternatively, the generic manufacturer could represent that the patent covering the brand drug is invalid or will not be infringed by the proposed generic (a so-called “Paragraph IV certification”). Id. at § 355(j)(2)(A)(vii)(IV).

An ANDA filer that relies on a Paragraph IV certification will almost certainly be sued by the brand manufacturer. Caraco Pharm. Labs., Ltd. v. Novo Nordisk A/S, 132 S.Ct. 1670, 1677 (2012) (“Filing a paragraph IV certification means provoking litigation.”). Indeed, if the brand manufacturer brings an infringement suit within 45 days of the generic manufacturer’s filing of the ANDA, under the Hatch-Waxman Act, the FDA must withhold approval of the generic for a 30-month period during which the parties may litigate the validity of the underlying patent. 21 U.S.C. § 355(j)(5)(B)(iii).

Finally, the Hatch-Waxman Act serves to incentivize generic manufacturers that incur the cost and risk stemming from Paragraph IV certification litigation. In order to encourage generic competition, the Hatch-Waxman Act affords the first successful Paragraph IV ANDA filer a 180-day post-approval exclusivity period during which that manufacturer is the only authorized generic seller.[8] Id. at § 355(j)(5)(B)(iv). Because the price of a drug drops precipitously as more and more generics become available, this initial period of exclusivity can generate substantial profits for the first generic manufacturer. C. Scott Hemphill, Paying for Delay: Pharmaceutical Patent Settlement as a Regulatory Design Problem, 81 N.Y.U. L. Rev. 1553, 1579 (2006) (describing first-filed ANDA status as “worth several hundred million dollars to a generic firm that successfully challenges the patents on a major drug”).

C. Loestrin 24 and the ‘394 Patent

The active ingredients in Loestrin 24, norethindrone acetate and ethinyl estradiol, have been approved by the FDA as a means of oral contraception since 1973. (DP Compl. ¶¶ 89-90.) Prior oral contraceptives containing these compounds were generally marketed for use over a 21-day period; women would take the contraceptive for 21 consecutive days, then take a placebo for the following seven days, before starting the cycle anew. (Id. at ¶ 90.)

Occasional inter-menstrual bleeding, or “spotting, ” is a common occurrence among women taking birth control. (Id. at ¶ 100.) In the early 1990s, scientists at the Eastern Virginia Medical School (“EVMS”) conducted a series of studies to assess whether administering the active ingredients for longer than 21 days might decrease incidences of spotting. Though these studies produced mixed results, the EVMS scientists applied for, and were granted, a patent for use of the norethindrone acetate and ethinyl estradiol compounds for 23 to 25 consecutive days as a means of oral contraception. (Id. at ¶¶ 113-16.)

The resulting patent, U.S. Patent No. 5, 552, 394 (the “’394 Patent”), is titled “Low Dose Oral Contraceptives with Less Breakthrough Bleeding and Sustained Efficacy.” (Id. at ¶ 114.) Before the ‘394 Patent expired in July 2014, Warner Chilcott was its fifth ...

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