The OxyContin® Settlement: A Signpost on the Road to a Consumer-Friendly Policy for Generic Competition
by Robert T. Rhoad , Porter Wright Morris & Arthur, LLP, Washington, DC
On August 28, 2006, the manufacturers of OxyContin® and its bioequivalent generic competitor, Purdue Pharma L.P. and Endo Pharmaceuticals, respectively, entered into a unique settlement agreement, which provides a sound model for pro-consumer resolution of similar disputes and should be expected to meet with acceptance by regulatory authorities as well as the brand and generic pharmaceutical industries. In addition, this outcome presages a pragmatic resolution of the existing split among the U.S. Courts of Appeals over the legality of other settlements in similar cases and should spur Congress to amend the Hatch-Waxman Act's provisions regarding the 180-day period of exclusivity for generic competitors.
The Purdue-Endo settlement agreement marks the end of a protracted legal battle between the two drug makers that began years ago when Purdue filed suit, alleging that Endo's oxycodone extended-release tablets, 10mg, 20mg, 40mg, and 80 mg, a bioequivalent version of OxyContin®, infringed Purdue's OxyContin® patents, U.S. Patent Nos. 5,549,912, 5,508,042, and 5,656,295. Endo, in turn, countersued claiming that Purdue's OxyContin® patents were invalid and unenforceable. The case was tried in June 2003 by United States District Court for the Southern District of New York. The District Court found in Endo's favor in its Opinion issued in January 2004, concluding that Purdue had committed inequitable conduct in securing its patents before the Patent and Trademark Office.
The United States Court of Appeals for the Federal Circuit affirmed the opinion in June 2005. Subsequently, however, in February 2006, the Court of Appeals, on reconsideration, vacated its June 2005 decision and that of the District Court, and remanded the case to the District Court for further consideration and proceedings as to the enforceability of Purdue's patents. It was against this backdrop that Endo and Purdue reached a settlement of their dispute in August 2006.
By way of further background, Endo began selling its four formulations of oxycodone on June 7, 2005, immediately following the affirmance by the Federal Circuit of the District Court's decision. Endo then enjoyed 180 days of marketing exclusivity with respect to the 10mg, 20mg, and 40mg doses of its product, the U.S. Food and Drug Administration ("FDA") having determined that Endo was the first applicant to file an Abbreviated New Drug Application ("ANDA") containing a Paragraph IV certification of invalidity and non-infringement as to those strengths. In June 2005, its first month on the market, Endo reported net sales of $29.2 million attributable to oxycodone. See Endo news release dated July 20, 2006. Endo continued its sales, though not its market exclusivity, even after the Federal Circuit vacated its June 2005 affirmance in February 2006. In announcing its decision to continue marketing its drug at risk, Endo acknowledged that it could face substantial liability to Purdue for patent infringement and lost sales if the patents were ultimately upheld.
Under the settlement agreement, Endo is relieved of the risk of liability for infringement and will be free to continue its sales until the end of 2006, at which point it will discontinue the manufacture and sale of its product, giving the generic version of OxyContin a marketing lifespan of just under 19 months. In exchange, Endo agreed to drop its challenge to the enforceability of Purdue's OxyContin® patents. No money will be paid pursuant to the terms of the settlement.
Endo estimates 2006 net sales of oxycodone in the amount of $50 million to $60 million. See Endo news release dated July 20, 2006. Thus, in addition to the $114 million in sales recorded in 2005, the total net sales attributable to Endo's generic versions of OxyContin® will be between $164 million and $174 million over the 19 months the Endo generic was on the market. Analysts had anticipated 2007 sales of only $20 million and an additional $15 million in sales through 2010 had Endo continued to market its versions, due to other generics flooding the market and leading to price competition.
1. Toward a Sensible Resolution of the Split Among Circuit Courts of Appeals as to the Legality of Brand-Generic Settlements of Patent Litigation.
To date, the federal courts that have considered the legality of patent litigation settlements between brand and generic drug manufacturers have been split in their respective conclusions. On one hand, in In re: Cardizem CD Antitrust Litig., 332 F.3d 896 (6 th Cir. 2003), the Sixth Circuit invalidated a brand-generic settlement agreement as a per se illegal restraint of trade in violation of the Sherman Act. The manufacturer of Cardizem CD®, Hoechst Marion Roussel, Inc. ("HMR"), had agreed to make quarterly $10 million payments to Andrx Pharmaceuticals, Inc., the manufacturer of the generic version of Cardizem CD®, in exchange for Andrx agreeing to delay the market entry of its product, even after having received FDA approval to go to market. Numerous direct and indirect purchasers of Cardizem CD® challenged the HMR-Andrx agreement as violative of federal and state antitrust laws. In rejecting this agreement, the Court noted that the agreement's plain effect was to keep not only Andrx's generic version off the market, but also all other generic competitors, who could not enter the market until expiration of Andrx's 180-day period of marketing exclusivity under the Hatch-Waxman Act, which Andrx had agreed not to relinquish or transfer. Id. at 907-908. As such, the agreement could not avoid per se treatment.
On the other hand, the Court of Appeals for the Eleventh Circuit held that a patent litigation settlement agreement involving the drug K-Dur® did not unreasonably restrain trade in violation of the Sherman Antitrust Act and the Federal Trade Commission Act. Schering-Plough Corp. v. FTC, 402 F.3d 1056 (11th Cir. 2005). In that case, the FTC argued unsuccessfully that patent litigation settlement agreements between a generic pharmaceutical company and an innovator brand-name pharmaceutical company were anti-competitive and violated antitrust law because they allow the brand-name pharmaceutical company to pay the generic company in exchange for delayed entry of the generic product. Rejecting the position taken by the Sixth Circuit in Cardizem, the Schering-Plough court found the settlement agreement valid, noting that such agreements "provide a number of private and social benefits as opposed to the inveterate and costly effects of litigation." 402 F.3d at 1075.
For its part, the Second Circuit upheld a brand-generic settlement in In re: Tamoxifen Citrate Antitrust Litig., No. 03-7641, 2006 WL 2401244 (2d Cir. Aug. 10, 2006), in which the Court extensively cited with approval the Eleventh Circuit's decision in Schering-Plough. At issue was a settlement agreement between AstraZeneca Pharmaceuticals, LP and Barr Laboratories, Inc., pursuant to which AstraZeneca and Barr settled allegations that Barr infringed AstraZeneca's patent on Tamoxifen®. The Tamoxifen case, however, is distinguishable from Cardizem because of key terms in the AstraZeneca-Barr settlement agreement. Significantly, the terms of that agreement provided that Barr would amend its ANDA to withdraw its paragraph IV certification of patent invalidity, thereby eliminating Barr's eligibility for the 180-day exclusivity period provided for under the Hatch-Waxman Act and opening the way to other generic competitors wishing to challenge the AstraZeneca patent. In this way, then, any potential "bottleneck" against other generic entrants was eliminated. See id. at *22.
2. Amendment of Right to 180-day Exclusivity Period As of Right?
Several United States Senators have weighed in on the issue, finding patent settlement agreements anti-competitive, violative of antitrust law, and counter to the goal of encouraging generic competition to reduce costs to payors and consumers of prescription drugs in accord with the Sixth Circuit rationale in the Cardizem case. Following the Supreme Court's recent refusal to review FTC v. Schering-Plough Corp., 126 S.Ct. 2929 (2006), and to resolve the Circuit split regarding patent litigation settlement agreements, Senators Herb Kohl (D-WI), Patrick Leahy (D-VT), Chuck Grassley (R-IA) and Charles Schumer (D-NY) have introduced legislation (S3582) prohibiting settlement agreements that result in payoffs that delay generic drugs.
While Congress is weighing modification of this area of the law, it would do well to consider a possibility suggested by the Purdue-Endo settlement. Specifically, in the interest of preserving competition while maintaining incentives for innovations by generic competitors, Congress should assess the viability of modifying the law so as to require generic manufacturers who are successful in challenging a patent's validity to make an election: either the generic drug maker must utilize its 180-day exclusivity period provided for under the Hatch-Waxman Act to actively market and sell its version of the drug, or, if the generic manufacturer does not actively market and sell its product during its exclusivity period, it forfeits the right to exclude others from doing so during that period.
Such an approach could preserve the incentives inherent in the 180-day period, while permitting the prospect of competition during that period even when the generic maker has reached a settlement agreement with the brand manufacturer to stay off the market. In short, first to file generic manufacturers would no longer be permitted to have their cake and eat it too. Either they must use the 180 days in a pro-competitive manner as contemplated when the provision was enacted, or other generics will be permitted to come to market immediately. The end result, once a brand drug's patent has been held invalid, will be one of two outcomes, either of which allows for the prospect of generic competition: (a) at least one generic alternative available in the marketplace (that of the first to file generic manufacturer), or (b) the legal possibility for more than one generic on the market (if the first to file generic maker elects to stay off the market pursuant to a settlement agreement or for any other reason). Once a brand drug's patent has been invalidated, there is little, if any, sound public policy basis to argue against competition from other versions of the drug. Accordingly, the law should be amended to allow for such competition, even in the face of an otherwise anti-competitive agreement between brand and generic drug makers.