Elinor R. Hoffmann, Office of the NYS Attorney General1

State Antitrust Enforcement in the Pharmaceutical Industry

Pharmaceuticals Conference

National State Attorney General Program at Columbia Law School

New York, NY

May 10-11, 2007

Elinor R. Hoffmann, Office of the NYS Attorney General2

Why do States care?

In 2004, $188.5 Billion was spent on prescription pharmaceuticals. One estimate for 2006 is $213.7 billion.

Attorneys General represent state agencies and consumers who make significant purchases of pharmaceuticals.

Elinor R. Hoffmann, Office of the NYS Attorney General3

What are the relevant statutes?

The antitrust laws.– Sherman Act §§1,2; Clayton Act §§ 4, 16. (15

U.S.C. §§ 1,2,15,26.)– State antitrust laws.

The patent law.– 35 U.S.C. § 101 et seq.

The Hatch-Waxman Act.– Pub.L. No. 98-417, 98 Stat.1585 (codified in

relevant part as 21 U.S.C.§355).

Elinor R. Hoffmann, Office of the NYS Attorney General4

What are the goals of antitrust law?

To promote and protect the competitive process; to enable consumers to access the best possible product at the lowest possible price; to encourage innovation. Contracts, combinations and conspiracies that

unreasonably restrain trade are unlawful; Abuses of monopoly power are unlawful; Mergers that may substantially lessen competition are

unlawful.

Elinor R. Hoffmann, Office of the NYS Attorney General5

How does state antitrust law differ from federal law?

Not very much Most states have statutes that look very

much like the federal antitrust statutes. States enforce both federal and state

antitrust law.

Elinor R. Hoffmann, Office of the NYS Attorney General6

What are the differences?

In many states, “Illinois Brick repealers” or other indirect purchaser statutes enable recovery on behalf of indirect purchasers. Supreme Court precedent generally precludes such recovery under federal antitrust law.

Somewhat different exemptions.

Elinor R. Hoffmann, Office of the NYS Attorney General7

What are the goals of patent law?

To promote and protect innovation: By giving an inventor the right to exclude others

from making, using or selling the patented work for a limited number of years.

In exchange, an inventor must disclose the details of his/her invention in a publicly available patent.

Elinor R. Hoffmann, Office of the NYS Attorney General8

The Hatch-Waxman Act of 1984

Intended to facilitate generic competition. Generics are “me-too” drugs: they do not

have to go through the same lengthy, expensive clinical testing process as innovator drugs.

The trade-off was a longer period of patent protection for pioneer pharmaceuticals.

Elinor R. Hoffmann, Office of the NYS Attorney General9

What was the effect of Hatch-Waxman?

A resounding success in many ways.– Generics on the market more quickly.– Generics, on average, are sold at a 50% discount

from brand price, and take away 50% of the brand market within 12 months from launch. This may differ from product to product, but the inroads made by generics is substantial.

Elinor R. Hoffmann, Office of the NYS Attorney General10

What was the effect of Hatch-Waxman?

Pharmaceutical manufacturers developed ways to manipulate the Act. Used litigation as an offensive business strategy.– Manipulation of regulatory processes to extend

and enhance patent monopolies.– Exclusionary settlements that delay the entry of

competition in exchange for a share monopoly profits.

Elinor R. Hoffmann, Office of the NYS Attorney General11

Overview: Types of Cases Involving Unilateral Conduct

Fraud or inequitable conduct with PTO (can lead to monopolization claims if the other elements of unlawful monopolization are present).

– Walker Process v. Food Machinery & Chemical Corp., 382 U.S. 172 (1965).

Improper Orange Book patent listings (fraudulent certifications to the FDA; listings of patents known to be unenforceable). (E.g., Taxol, Buspar).

Product reformulations and product switching as a mechanism to protect monopoly. (e.g., Ovcon, Nexium)

Elinor R. Hoffmann, Office of the NYS Attorney General12

Types of Cases Involving Collusive Conduct

Patent infringement litigation settlements delaying entry of generic defendant in exchange for money. Agreements to delay entry outside of the patent infringement context.

Agreements to take advantage of provisions of the Hatch-Waxman Act to prevent other generics from entering the market.

Elinor R. Hoffmann, Office of the NYS Attorney General13

Examples of Cases Involving Collusion

In re Cardizem CD Antitrust Litig., 332 F.3d 896 (6th Cir. 2003), cert. denied, 544 U.S.1049 (2005). Exclusionary agreement between brand and generic that went beyond the scope of the patent. Affirmed grant of partial summary judgment based on a per se rule condemning allocation of markets among competitors.

Schering-Plough Corp. v. FTC, 402 F.3d 1056 (11th Cir. 2005), cert. denied, 126 S.Ct. 2929 (2006). Exclusionary agreement that did not extend beyond the scope of the patent. Tripartite test: What is the scope of the patent? Does the agreement go beyond the scope? What are the anticompetitive effects?

In re Tamoxifen Citrate Antitrust Litig, 429 F.3d 370 (2d Cir. 2005). Affirmed dismissal on the pleadings. Exclusionary settlements are ok so long as they are within the scope of the patent and the litigation is not a sham. Petition for certiorari has been filed.

State of Colorado v. Warner Chilcott, et al, Civ. Action No. 05-2182 (CKK) (D.D.C. 2005). Pending case brought by 34 states and the FTC alleging agreement between brand manufacturer and generic manufacturer to keep generic off of the market in exchange for $20 million and a supply agreement (at twice fully loaded cost). No patent involved.

Elinor R. Hoffmann, Office of the NYS Attorney General14

Back to Enforcement

Elinor R. Hoffmann, Office of the NYS Attorney General15

Potential State Claimants in Antitrust Cases.

– State agencies (proprietary) Medicaid State employee/retiree

benefit programs State hospitals Mental health facilities State correctional facilities

– Consumers Represented through parens patriae authority

Elinor R. Hoffmann, Office of the NYS Attorney General16

Remedies Available to State Attorneys General.

Civil and Criminal Authority Damages (many states have laws providing

recovery for indirect purchasers) Equitable Relief (restitution and/or

disgorgement) Civil Penalties (Fines) Injunctive Relief

Elinor R. Hoffmann, Office of the NYS Attorney General17

Enforcement Framework.

States enforce both state and federal antitrust laws in state and federal courts.

Multistate investigations and litigation coordinated through the NAAG Antitrust Task Force.

– Pharmaceutical Industry Working Group.

Cooperate with FTC, DOJ. Cooperate with class counsel in actions filed by

private bar.

Elinor R. Hoffmann, Office of the NYS Attorney General18

What’s News? Product Extensions.

Introduce next generation product with no meaningful improvements

Switch existing patient base to new product Take additional steps to delay generic entry

to buy time to implement this strategy. Ovcon,TriCor, Nexium are examples.

Elinor R. Hoffmann, Office of the NYS Attorney General19

What’s News? Authorized Generics.

An authorized generic is a brand drug produced under a generic label, either by the brand manufacturer or its licensee.

Manufactured under the original NDA, so no new FDA approval is necessary.

Do authorized generics undercut the incentives for generic entry by undercutting the 180 day exclusivity granted the first ANDA filer by the HWA?

Do authorized generics increase competition and lower prices?

Elinor R. Hoffmann, Office of the NYS Attorney General20

What’s News? Federal Legislation.

S. 316, voted out of the Senate Judiciary Committee, would prohibit all patent infringement litigation settlements that involve an exchange of “something of value” for a delay in generic entry.

Statute has bipartisan support, and there is a parallel bill in the House, HR 1902.

Elinor R. Hoffmann, Office of the NYS Attorney General21

What’s News? Biogenerics.

There is no expedited FDA approval process for biogenerics or biosimilars as there is for traditional pharmaceuticals under the Hatch-Waxman Act although legislation has been introduced. HR 1956.

Biologics now comprise approximately $32 billion or 15% of total U.S. pharmaceutical sales, and usage is growing at about twice the rate of other pharmaceuticals.

Elinor R. Hoffmann, Office of the NYS Attorney General22

What should the States be doing?

Investigations and litigation.

Tracking and commenting on legislation.

Working with our own agencies to develop comprehensive approaches to policy in this area.

Slides prepared by Elinor R. Hoffmann, NY OAG; with contributions by Beth Finnerty and Patrice Fatig, Ohio OAG.

Elinor R. Hoffmann, Office of the NYS Attorney General24

Appendix: Recent State Cases in Pharmaceutical Industry (1).

Relafen – SmithKline Beecham(Arthritis treatment)(fraud on patent office, sham litigation).

Paxil – GlaxoSmithKline (Antidepressant)(fraud on patent office, sham litigation).

Remeron – Organon Inc. and Akzo Nobel N.V. (Antidepressant)(fraud on patent office, improper Orange Book listings).

Cardizem CD – Hoechst Marion Roussel (now Aventis Pharmaceuticals) and Andrx Corp. (Heart medication)(agreement to delay generic entry).

Elinor R. Hoffmann, Office of the NYS Attorney General25

Appendix: Recent State Cases in Pharmaceutical Industry (2).

Hytrin – Abbott Labs, Zenith Goldline Phamaceuticals, Geneva Pharmaceuticals Inc. (Hypertension and Enlarged prostate)(agreement to delay generic entry)

Ovcon – Warner Chilcott, Barr Labs (oral contraceptive)(agreement to delay generic entry).

Children’s Ibuprofen—Alpharma, Perrigo (ibuprofen) (agreement to limit competition for OTC drug).

Elinor R. Hoffmann, Office of the NYS Attorney General26

Appendix: Recent State Cases in Pharmaceutical Industry (3).

BuSpar – Bristol-Myers Squibb (Anti-anxiety medication)(fraud on patent office, improper Orange Book listing, agreement to delay generic competition).

Taxol – Bristol-Myers Squibb (Cancer treatment)(fraud on patent office, improper Orange Book listings).

K-Dur 20 – Schering-Plough, ESI Lederle, Upsher-Smith, American Home Products Corp.(Cardiac medication)(agreement to delay competition).

Lorazepam and clorazepate) – Mylan Labs, Cambrex Corp., Profarmaco and Gyma (Anti-anxiety medications)(monopolization using exclusionary supply arrangements).