U.S. Competition Policy and Pharmaceutical Patents

ESSENTIAL ACTION BRIEFING NOTE FOR WHO IGWG
U.S. COMPETITION POLICY FREQUENTLY DEPLOYED TO REMEDY ANTI-COMPETITIVE PRACTICES RELATED TO PHARMACEUTICAL PATENTS

Following is an Excerpt of this briefing note. The entire document is available at html on the continuation of this note, or an rtf document here: USCompetitionPolicyBriefingMay18.rtf

During the 2008 World Health Assembly, the World Health Organization’s Intergovernmental Working Group on Public Health, Innovation and Intellectual Property (IGWG) is considering various proposals for WHO to assist developing countries in adopting and implementing competition policies to prevent or remedy anti-competitive practices related to the use of medicinal patents.

Reportedly, some rich country delegations are objecting to these proposals, which is why the relevant text remains bracketed (reflecting a lack of consensus) in the most recent version of the IGWG Draft Global Strategy[1]. This is surprising, because rich countries themselves commonly make aggressive use of competition policy to remedy abuses related to medicinal patents.

For a short overview of U.S. practice in this area, refer to the attached briefing note, or go to www.essentialaction.org/access/

Reference:
[1] See Elements 5.3 (c), 5.3(e) and 6.3(f) of World Health Organization (WHO), “The White Paper (Advance copy in English only) of the IGWG “Outcome Document at 14.00 hours, Saturday 3 May 2008, Draft global strategy on public health, innovation and intellectual property,” available at, http://www.who.int/phi/documents/IGWG_Outcome_document03Maypm.pdf
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For More Information, Contact:

Sarah Rimmington, (Geneva, week of May 29, 2008) +41 (0)78 847 0562, [email protected]

Robert Weissman, (Washington, DC) (+1) 202-387-8030, [email protected]

Essential Action
PO Box 19405, Washington, DC USA 20036
www.essentialaction.org/access
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Here is the full text of the briefing note:

Essential Action
P.O. Box 19405, Washington, DC 20036, USA
Tel: 1-202-387-8030 • Fax: 1-202-234-5176 www.essentialaction.org/access

BRIEFING NOTE FOR WHO IGWG

U.S. COMPETITION POLICY
FREQUENTLY DEPLOYED TO REMEDY
ANTI-COMPETITIVE PRACTICES RELATED TO PHARMACEUTICAL PATENTS

During the during the 2008 World Health Assembly, the World Health Organization’s Intergovernmental Working Group on Public Health, Innovation and Intellectual Property (IGWG) is considering various proposals for WHO to assist developing countries in adopting and implementing competition policies to prevent or remedy anti-competitive practices related to the use of medicinal patents.

Reportedly, some rich country delegations are objecting to these proposals, which is why the relevant text remains bracketed (reflecting a lack of consensus) in the most recent version of the IGWG Draft Global Strategy . This is surprising, because rich countries themselves commonly make aggressive use of competition policy to remedy abuses related to medicinal patents.

This briefing note provides a short overview of U.S. practice in this area.

U.S. competition authorities often issue compulsory licenses in conjunction with merger approval decisions, as a means to ensure competition in particular markets is maintained post-merger. Competition authorities have repeatedly prosecuted cases to prohibit collusive arrangements between patent holders and generic firms that are designed to delay generic competition. Private parties have repeatedly filed successful lawsuits under competition law principles to win redress for excessive pricing and patent-related abuses. Additionally, the government and private parties have invoked a statute aimed at curtailing fraud against the government to remedy anti-competitive practices.

Merger Approval

In the United States, merging firms of substantial size must file papers with the antitrust authorities and give them an opportunity to review the merger for potential anticompetitive impact. The antitrust authorities may raise concerns about the potential impact on competition. These concerns typically focus on precise geographical markets and/or product markets. If the authorities raise concerns, negotiations follow, with the government and merging firms discussing whether modifications can be made to the merger to alleviate the government’s concerns. They may discuss the merging firms selling certain operations (for example, if two merging oil companies own the only gas stations in a particular neighborhood, they may sell one to a competitor). They may also negotiate compulsory licenses, so that other firms are empowered to compete with the merged firms. In these cases, compulsory licenses are typically a less harsh remedy than the alternative of forcing the merged enterprise to divest its patent claims in a technology altogether.

Sometimes compulsory licenses are ordered to be issued to a specific firm. Sometimes they are ordered to be made available on a non-exclusive basis, so that they can be used by any potential competitor.

Recent cases illustrate how common these licenses are:

Johnson & Johnson (2005): Johnson & Johnson sought to acquire Guidant, a medical device maker. Johnson & Johnson was required to grant to a third party a fully paid-up, non-exclusive, irrevocable license, enabling that third party to make and sell drug-eluting stents used in treating coronary artery disease. Only two companies sold these devices (Johnson & Johnson and Boston Scientific) and only three companies — one of them being Guidant — were positioned to enter the market. Of those three, only Guidant had the rights to use a patented delivery system employed by Johnson & Johnson and Boston Scientific. The merger fell apart for unrelated reasons. (By way of example, the agreement with the Federal Trade Commission also required J&J to sell off one product line (endoscopic vessel harvesting products) and end its agreement to distribute Novare Surgical System, Inc.’s proximal anastomotic assist device.

Novartis AG (2005): To resolve overlaps for three generic pharmaceuticals that arose from Novartis AG’s acquisition of Eon Labs, Inc., Novartis was required to divest all the assets necessary to manufacture and market generic versions of the three drugs (desipramine hydrochloride tablets, orphenadrine citrate extended release (ER) tablets, and rifampin oral capsules) in the United States to a competitor, Amide. Novartis was required to provide supplies of two of the three drugs to Amide, until Amide obtained Food and Drug Administration (FDA) approval to manufacture the products itself.

Cephalon, Inc. (2004): Cephalon’s proposed to acquire Cima Labs, Inc, a company that like Cephalon held patents on drugs that eliminate or reduce severe pain for chronic cancer patients. To gain approval for the merger, Cephalon was required to grant Barr Laboratories, Inc. a fully paid, irrevocable license to make and sell a generic version of Cephalon’s breakthrough cancer pain drug, Actiq, in the United States.

Pfizer (2000): Pfizer sought to acquire Warner-Lambert, another major drug firm. The merger was approved conditioned on several actions by the merging parties. Both firms were developing EGFr-tk inhibitors, drugs designed to treat solid cancerous tumors such as head and neck, non-small-cell lung, breast, ovarian, pancreas and colorectal cancers. Pfizer was required to turn over its technology and know-how to a development partner, OSI, so OSI would become a competitor. OSI gained worldwide rights to use Pfizer’s technology. Pfizer was even required to pay the costs of OSI finishing clinical trials of an EGFr-tk inhibitor.

Novartis (1996): Ciba-Geigy and Santos — two companies based outside of the United States — sought approval to merge into the company now known as Novartis. Both of the merging companies held important patents on emerging gene therapies. As a condition of merger approval, the merged enterprise was required to license gene technologies to Rhone Poulenc, on a worldwide basis. It was also required to issue a non-exclusive worldwide license to an exceedingly broad-based patented invention, the Anderson patent, which covers the entire category of gene therapy treatment involving cell modification that takes place outside the body. Royalty rates ranged from 1 to 3 percent.

Wesley-Jessen Corporation (1996): Wesley-Jessen Corporation, the leading maker of opaque contact lenses — corrective or solely-cosmetic lenses that change the apparent eye color of the wearer — sought to acquire its main rival, Pilkington Barnes Hind International. Wesley-Jessen was required to divest Pilkington Barnes Hind International’s opaque lens business. It was required to license certain intellectual property rights to the acquirer of Pilkington Barnes Hind International’s opaque lens business.

The Wesley-Jessen case is interesting for the useful language it contains in ordering the compulsory license. Wesley-Jessen was required to issue to the company acquiring Pilkington Barnes Hind International’s opaque lens business “a non-transferable, irrevocable, non-exclusive, royalty-free license under the patents listed in Appendix B of this Order to manufacture, import, offer for sale, use and sell Opaque Contact Lenses in the Licensed Territory.”

Remedying Collusion to Block Generic Competition

One prominent area of competition policy litigation involves non-compete agreements between brand-name and generic firms, in which the brand-name firm pays the generic company not to enter the market.

In a recently filed case, the Federal Trade Commission has filed suit against Cephalon, the manufacturer of Provigil (generic name: modafinil), a drug approved to treat excessive sleepiness in patients with sleep apnea, narcolepsy, and shift-work sleep disorder. Provigil sales in the United States exceeded $800 million in 2007. The lawsuit alleges that Cephalon entered into agreements with four generic drug manufacturers that each planned to sell a generic version of Provigil. Each of these companies had challenged the only remaining patent covering Provigil, one relating to the size of particles used in the product. The complaint charges that Cephalon was able to induce each of the generic companies to abandon its patent challenge and agree to refrain from selling a generic version of Provigil until 2012 by agreeing to pay the companies a total amount in excess of $200 million. Absent the agreement, the suit contends, generic competition would have commenced in 2005 or 2006. Under U.S. regulatory rules, no other generic firm can enter the market, so long as the four generic companies alleged to have taken illegitimate payments decline to do so.

A similar fact pattern was alleged in a case involving Galen Chemicals Ltd. (now known as Warner Chilcott) and Barr Laboratories (2005). The Federal Trade Commission alleged a payment to Barr to prevent generic competition for the ethinyl estradiol and norethindrone (Ovcon) oral contraceptive. Under the terms of a settlement, Warner Chilcott was required to waive the exclusive terms in its agreement with Barr — enabling immediate generic competition.

Another case alleging similar facts involved Abbott and Geneva Pharmaceuticals, and a drug, Terazosin Hydrochloride (Hytrin), used to treat hypertension and enlarged prostates (2000). Under U.S. law related to generic entry, Geneva had a right to 180 days to be the first and only generic competitor on the market. To resolve the case, the Federal Trade Commission ordered that all generic firms be permitted to enter the market immediately — this was effectively a compulsory license of Geneva’s 6-month exclusivity period.

These cases are part of a broader problem of evergreening — the abuse of patents, regulatory rules and competition law principles to maintain exclusivity beyond the period legitimately awarded by patents and related regulatory rules. Addressing evergreening has been a high policy priority on a bipartisan basis. In 2003, the Bush administration ushered through regulatory changes designed to restrain evergreening. These should properly be understood as deployments of competition law.

Private Competition Law Litigation to Remedy Patent and Drug Pricing Abuses

U.S. competition policy enables private parties to file lawsuits against other parties alleged to violate competition rules. U.S. law provides a strong incentive for such suits, by providing for treble damages for many violations of competition rules.

Private insurers, consumers and consumer organizations, as well as many state governments, have in recent years filed a wide range of lawsuits against pharmaceutical companies for alleged competition policy abuses.

One area of private litigation involves cases that shadow (or, often, foreshadow) lawsuits filed by federal authorities. Consumers, state agencies and consumer organizations filed a lawsuit against Cephalon and the four generic firms with which it allegedly engaged in collusive deals in 2006 — a year and a half before the federal government brought suit alleging similar facts.

Other cases allege quite varied abuses of patents and competition law. For example:

* A lawsuit against Abbott alleges it has illegally bundled together HIV/AIDS drugs. Abbott raised the price of a booster drug (Norvir/ritonavir) by 400 percent for competitors, but did not raise the price for the drug when used in conjunction with another Abbott product. The effect was to make competitor’s combination products uncompetitive.

* A lawsuit alleges that there is a pharmaceutical industry-wide scheme to defraud U.S. consumers by charging inflated prices for medicines. The suit alleges that the industry price manipulation enables pharmaceutical companies to bill federal government programs at inflated rates. Consumers, private insurers and state governments pay a portion of these allegedly inflated rates. Settling companies have agreed to pay more than $200 million in connection with this litigation, which is ongoing against most defendants.

The False Claims Act

The False Claims Act is a specialized statute that permits the government or private parties to bring suit against persons or companies alleged to have defrauded the government. In recent years, there have been a considerable number of False Claims Act cases involving the pharmaceutical industry, many involving competition policy principles.

Companies are required to sell drugs under certain U.S. government prescription drug coverage programs at the lowest price offered to any other party. Many cases under the False Claims Act allege that drug companies illegally offer lower prices to other parties, thereby denying the federal government its legally mandated best price. Commonly, these cases allege that drug companies offer disguised discounts or kickbacks to purchasers. From 2001 to 2006, the federal government had recovered $3.5 billion in False Claims Act settlements and judgments (some involving improper marketing rather than competition policy allegations).

A few of many recent examples involving competition policy include:

* Bristol Myers Squibb agreed to pay $515 million to resolve claims that its subsidiary “knowingly and willfully paid illegal remuneration such as stocking allowances, price protection payments, prebates, market share payments, and free goods in order to induce its retail pharmacy and wholesaler customers to purchase its products,” as well as other claims involving improper marketing.

* Aventis (now sanofi-aventis) agreed to pay $190 million to resolve allegations concerning its pricing and marketing of Anzemet, an antiemetic drug used primarily in conjunction with oncology and radiation treatment to prevent nausea and vomiting.

* The federal government has joined a lawsuit alleging a Boehringer Ingelheim subsidiary reported prices to the government that, in some instances, were more than 1,000 percent the actual sales prices on certain of the drugs it manufactures. It is seeking $500 million in compensation.

May 2008

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For More Information, Contact:

Sarah Rimmington, (Geneva, week of May 29, 2008) +41 (0) 78 847 0562, [email protected]

Robert Weissman, (Washington, DC) +1 (202) 387-8030, [email protected]

Essential Action
PO Box 19405, Washington, DC USA 20036
www.essentialaction.org/access