Tag: Pharma

Litigation Against Pharmacy Benefit Managers

Pharmacy Benefit Managers (PBMs) play a large role in the pharmaceutical medication distribution industry and have faced a great deal of litigation in recent years. This blog entry looks at cases against PBMs brought under the U.S. False Claims Act (FCA), as well as those brought as class actions on behalf of various kinds of groups.

FCA Actions

Cases brought against PBMs under the FCA typically involve allegations of fraudulent billing practices, false statements, and kickback schemes. These cases often address whether PBMs have caused false claims to be submitted to government healthcare programs, such as Medicaid, and whether they have engaged in practices that violate the FCA and other related statutes.

First, PBMs may violate the FCA by failing to pay reimbursements to individuals, other business entities, and/or state or federal agencies. In United States v. Caremark, Inc., the U.S. Court of Appeals for the Fifth Circuit held that the district court erred in finding that the Defendant PBM did not impair an obligation to the government within the meaning of the FCA by unlawfully denying reimbursement requests from state Medicaid agencies.

Second, PBMs may violate the FCA by billing individuals, other business entities, and/or state or federal agencies for services that were never rendered. In United States ex rel. Hunt v. Merck-Medco Managed Care, L.L.C., the U.S. District Court for the Eastern District of Pennsylvania addressed allegations that the PBM billed for services not rendered and fraudulently avoided contractual penalties it would otherwise have had to pay. The Court found that the Complaint sufficiently alleged that the PBM caused false claims to be presented to an agent of the United States, satisfying the statutory requirements of the FCA.

Third, PBMs may violate the FCA by overcharging individuals, other business entities, and/or state or federal agencies for services. For example, in two cases that were settled in 2019 in the Western District of Texas and the Northern District of Iowa, two subsidiaries of Fagron Holding USA LLC settled with the U.S. for over $22 million in connection with such a scheme. In the first, Fagron subsidiary Pharmacy Services Inc. (PSI) and its affiliates were accused of submitting fraudulent compound prescription claims to federal healthcare programs, manipulating pricing through sham insurance programs, paying kickbacks to physicians, and illegally waiving copays. In the second, Fagron subsidiary B&B Pharmaceuticals Inc. faced claims under the FCA for setting an inflated average wholesale price for Gabapentin.

Finally, PBMs may violate the FCA by engaging in kickback schemes with drug manufacturers or other entities. These schemes may also involve waiving copays and the provision of unnecessary services to patients. One notable case involves AstraZeneca LP, a pharmaceutical manufacturer, which agreed to pay $7.9 million to settle allegations that it engaged in a kickback scheme with Medco Health Solutions, a PBM. The allegations included providing remuneration to Medco in exchange for maintaining exclusive status of AstraZenica’s heartburn relief drug Nexium on certain formularies, which led to the submission of false claims to the Retiree Drug Subsidy Program. Similarly, Sanford Health and its associated entities agreed to pay $20.25 million to resolve FCA allegations related to false claims submitted to federal healthcare programs. The allegations included violations of the Anti-Kickback Statute and medically unnecessary spinal surgeries, with one of Sanford’s top neurosurgeons receiving kickbacks from his use of implantable devices distributed by his physician-owned distributorship.

Class Actions

Class action cases against pharmacy benefit managers (PBMs) often involve allegations of deceptive practices, breach of fiduciary duty, and violations of contractual obligations. These cases typically involve issues such as the improper handling of rebates, kickbacks, inflated drug costs, and the failure to act in the best interest of plan participants.

First, PBMs may subject themselves to liability by failing to pass on negotiated rebates or other types of savings to their members. In Corr. Officers’ Benevolent Ass’n of the City of N.Y. v. Express Scripts, Inc., a union alleged that PBM managers failed to pass on negotiated rebates to its members, instead keeping them for their own benefit. The court found sufficient allegations to support claims of deceptive practices and breach of fiduciary duty, allowing these claims to proceed.

Second, and far more commonly, PBMs face liability for engaging in antitrust violations. Such liability typically arises when PBMs collude with one another to fix drug processes or otherwise improperly influence the market for medications and/or other medical services. For example, in In re Brand Name Prescription Drugs Antitrust Litig., a class of retail pharmacies alleged that drug manufacturers and wholesalers conspired to deny them discounts. The court found sufficient evidence of violations to proceed to trial. Similarly, in Independent Pharmacies vs. OptumRx, more than 50 independent pharmacies filed a class action lawsuit against OptumRx, a division of UnitedHealth Group, alleging that OptumRx failed to comply with state pharmacy claims reimbursement laws, leading to illegal price discrimination and reimbursement violations. Lastly, in Elan and Adam Klein, Leah Weav, et. al v. Prime Therapeutics, Express Scripts, and CVS Health, the Plaintiffs brought a action lawsuit against three major PBMs – Prime Therapeutics, Express Scripts, and CVS Health – on behalf of EpiPen purchasers with ERISA health plans for contributing to EpiPen price inflation through rebates and breaching their fiduciary duty to plan members.

*****

In short, because PBMs play such a large role in the pharmaceutical medication distribution industry, there are many ways that they can subject themselves to liability under the FCA, pursuant to a class action, or otherwise. As the place of PBMs in this marketplace continues to grow, we can expect that litigation against them will do likewise. Potential plaintiffs seeking to bring claims against a PBM should consult with an experienced attorney in order to determine all of the causes of action that may be available to them.

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1United States v. Caremark, Inc., 634 F.3d 808 (5th Cir. 2011).
2United States ex rel. Hunt v. Merck-Medco Managed Care, L.L.C., 336 F. Supp. 2d 430 (E.D. Pa. 2004).
3 Corr. Officers’ Benevolent Ass’n of the City of N.Y. v. Express Scripts, Inc., 522 F. Supp. 2d 1132.
4In re Brand Name Prescription Drugs Antitrust Litig., 123 F.3d 599.

© 2023 Young Law Group. All rights reserved
For more news on Litigation against PBMs, visit the NLR Litigation Trial Practice section.

Year in Review: The Most Popular IP Posts of 2023

As 2024 begins and intellectual property (IP) strategies are being developed for the new year, it is a good time to reflect on what IP issues were prominent in 2023. According to many readers, hot IP topics included patent litigation strategies, artificial intelligence (AI), and pharmaceutical-related patent applications.

  1. An Overview of Shotgun Pleadings in the Federal Courts– This article explores types of shotgun pleadings identified by courts and outlines potential responses to a shotgun pleading.
  2. Lensa: Are AI Art Generators Copyright Infringers?– The ability of an AI tool, such as Lensa, to create near-replicas of other artists’ works leads to the question of whether AI-generated art can be considered derivative of other artworks. This article explores the answer to this question.
  3. Supreme Court Unanimously Affirms Amgen Repatha® Antibody Patents Invalid for Lack of Enablement– In their May 2023 decision in Amgen v. Sanofi, the U.S. Supreme Court held claims of patents, directed to a genus of potentially millions of antibodies, to be invalid because the patents failed to sufficiently enable one skilled in the art to make and use the full scope of the claimed inventions as required by 35 U.S.C. §112(a). This article explains the decision and its possible effect going forward.
  4. Why Pharma Companies Should File Patents Later In The R&D Process – This article discusses clinical trial related patent applications and best practices for maximizing patent term while minimizing risk of invalidation by public use.
  5. Federal Circuit Resolves District Court Split, Holds Foreign Defendant Cannot Defeat Rule 4(k)(2) Personal Jurisdiction by Unilateral Post-suit Consent to Jurisdiction in Alternative Forum – This article provides provide additional context regarding the Federal Circuit’s January 2023 decision in In re Stingray IP Solutions, LLC.
©1994-2023 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.
For more on Intellectual Property, visit the NLR Intellectual Property section.

Whistleblower Receives $11 Million for Reporting Pharmaceutical Fraud

September 16, 2022.  The United States Department of Justice settled a case against the pharmaceutical manufacturer Bayer Corporation.  Under the terms of the settlement, Bayer paid $40 million.  A former employee in the pharmaceutical company’s marketing department filed two qui tam lawsuits alleging violations of the False Claims Act.  For reporting fraud, the whistleblower received approximately $11 million, and they pursued both cases after the Department of Justice (DOJ) declined to intervene.

According to the allegations, the pharmaceutical company was paying kickbacks to healthcare providers to “induce them to utilize the drugs Trasylol and Avelox, and also marketed these drugs for off-label uses that were not reasonable and necessary.”  This lawsuit was filed in the District of New Jersey and alleged that the because of these kickbacks, the pharmaceutical company caused submission of false claims to Medicare and Medicaid.  The lawsuit that was transferred to the District of Minnesota entailed the pharmaceutical company knowingly misrepresenting the safety and efficacy of Baycol, a statin drug, and also renewing contracts with the Defense Logistics Agency based on these misrepresentations.  To settle these allegations, Bayer paid $38,860,555 to the United States and $1,139,445 to the Medicaid Participating States.  The Principal Deputy Assistant Attorney General remarked about this settlement, “Today’s recovery highlights the critical role that whistleblowers play in the effective use of the False Claims Act to combat fraud in federal healthcare programs.”

The False Claims Act incentivizes private citizens to report fraud against the government and holds accountable companies that financially benefit from participation in government contracts and government-sponsored programs.  The Department of Justice needs whistleblowers to the be the antidote to pharmaceutical fraud.

Article By Renée Brooker and Eva Gunasekera of Tycko & Zavareei LLP

For more whistleblower and white collar crime legal news, click here to visit the National Law Review.

© 2022 by Tycko & Zavareei LLP

Phantom Participants with Real-World Ramifications: Clinical Drug Trial Data Falsification

As if medical-related disinformation was not pernicious enough, unscrupulous actors seek to enrich themselves from falsifying clinical drug trial data. A Florida-based clinical research firm project manager was sentenced to 30 months in prison because of his involvement in a conspiracy to falsify clinical drug trial data. Previously, the primary investigator, clinic owner, and another senior employee at Miami-based Tellus Clinical Research were charged with various counts of mail and wire fraud, money laundering, as well as making false statements to Food and Drug Administration (FDA) inspectors. A researcher or other employee of the medical clinic could have reported this conspiracy to the government and shared in 15-25% of the government’s recovery.

Pharmaceutical companies sponsor clinical research trials to gather data on the safety and efficacy of the drugs they manufacture. Prior to commencing research trials, pharmaceutical companies or “sponsors” must submit to the FDA their “study protocol,” which identifies who can participate, drug dosages and timing, and how the study’s performance will be measured. Sponsors engage contract research organizations (CROs) to perform the clinical trials, and the CRO must ensure compliance with the study protocol and FDA regulations. In this case, a clinical research firm contracted with pharmaceutical manufacturers to conduct trials related to an opioid dependency treatment, an irritable bowel syndrome drug, and diabetic nephropathy or kidney disease medication. The sponsors would reimburse the CRO a set amount per study participant and for some fees and Tellus would pay participants in accordance with the study protocol.

How the research firm gamed the system involved the eligibility requirements for the studies: each of these clinical trials required patients to meet certain requirements for participation. Instead of honestly recruiting patients with the diagnoses needed to participate in the program, the defendants enrolled people without applicable diagnoses and falsely claimed that study participants completed all the requirements in the study protocol, to garner more payments from the clinical trial sponsors. Several of the defendants enrolled friends and family members to bump up the research firm’s participation numbers, and other research firm employees went so far as to misappropriate personal information from third parties without their knowledge or consent. The co-conspirators also falsified clinical notes and medical records of these unwitting participants, claiming to have performed medical exams, drawn blood for testing, and made payments to participants. This elaborate conspiracy served to wrongfully enrich the research firm owner and senior management at the expense of pharmaceutical companies and ultimately patients.

Clinical research fraud is harmful to consumers. As the Assistant Commissioner for the FDA Office of Criminal Investigations (OCI) stated, “Compromised clinical trial data could impact the agency’s decisions about the safety and effectiveness of the drug under review.” Consumers could end up with unsafe medications due to fraudsters’ schemes.

A whistleblower could have reported this fraud to the FDA and ensured only drugs which perform well in clinical trials on real human beings make it to market. The Department of Justice needs whistleblowers to report fraud involving clinical drug trials.

© 2022 by Tycko & Zavareei LLP
For more content about the FDA and drug trials, visit the NLR Biotech, Food & Drug section.

New Board of Pharmacy Regulations Significantly Narrow the Sole Proprietor Exemption and Impose New Compounding Standards

New regulations from the Ohio State Board of Pharmacy now require any prescriber who will possess, have custody or control of, or distribute dangerous drugs that are compounded or used for the purpose of compounding to be licensed as a Terminal Distributor of Dangerous Drugs (TDDD). This new requirement is particularly noteworthy for physicians, dentists, and others who have previously operated under the “sole proprietor” exemption from licensure as a TDDD. That exemption has been widely used in Ohio and has traditionally permitted practitioners who 1) operate as sole proprietor, sole shareholder of a corporation or professional association, or sole member of a limited liability company; and 2) are the sole authorized prescribers in the practice to be exempt from the TDDD licensure requirements. These new regulations narrow this exemption by now requiring that all prescribers who “compound” or use “compounded” drugs become licensed as a TDDD, even if those prescribers had previously qualified under the “sole proprietor” exemption.

The scope of what constitutes “compounding” is broad – likely broader than what is commonly believed. Ohio law defines “compounding” as the preparation, mixing, assembling, packaging, and labeling of one or more drugs and also includes the reconstitution of drugs in accordance with the manufacturer’s instructions.1 Under the new regulations, any “compounding” activity, possession, or administration of a compounded drug requires TDDD licensure, even by a previously exempt “sole proprietor.”

Additionally, these same new regulations impose new standards for compounding sterile products, non-sterile products, and hazardous drugs and more stringent rules governing purchase of compounded drugs from in-state pharmacies, out-of-state pharmacies, and outsourcing facilities.2 These regulations were imposed in order to bring Ohio into compliance with the 2013 Drug Quality and Security Act, a federal law passed in response to the deadly outbreak of fungal meningitis in 2012 that was linked to the New England Compounding Center.

Article By Eric J. Plinke, Sarah C. Persinger, PharmD, RPh & Daniel S. Zinsmaster

© 2016 Dinsmore & Shohl LLP. All rights reserved.

1 Hazardous Drug Compounding by Prescribers
2 http://codes.ohio.gov/oac/4729-16

In Affirming a Preliminary Injunction Against Drug Companies, Second Circuit Finds Coercion in Product Hopping Scheme

In an earlier posting, I wrote about the lawsuit filed on December 10, 2014 by the Attorney General for the State of New York, People of the State of New York v. Actavis, PLC and Forest Laboratories, LLC .1  In that action, New York challenges on antitrust grounds plans by the defendant pharmaceutical companies to cease marketing the drug Namenda IR and substitute in the market-place a newer drug, Namenda XR.  Both drugs are used for the treatment of moderate to advanced Alzheimer’s disease.  Namenda IR and Namenda XR are the brand names for the drug memantine, and defendants have a monopoly for memantine in the United States. On May 22, 2015, the Second Circuit issued an Order affirming a preliminary injunction granted by the United States District Court for the Southern District of New York, enjoining Actavis and Forest Laboratories (“Forest”) from discontinuing the marketing of Namenda IR, and substituting its newer drug Namenda XR.2  The Second Circuit filed an opinion under seal concurrently with the issuance of its Order, allowing the parties to submit proposed redactions by May 26, 2015.  The court of appeals on May 28, 2015 issued a redacted version of its opinion.  At the time of my previous posting on the antitrust suit brought by New York against Actavis and Forest, the Second Circuit had not released it redacted version of its opinion.

In its opinion, the Second Circuit ruled that the district court did not abuse its discretion in granting a preliminary injunction, as sought by New York, precluding the defendants from implementing a marketing scheme known as “product hopping.”  This tactic was a means of maintaining the defendants’ monopoly in the memantine market and precluding competition by generic brands of that drug.  Of critical import to the court of appeals was that defendants relied upon consumer coercion, rather than persuasion on the merits of competing generics.  The coercive aspect of defendants’ marketing scheme violated section 2 of the Sherman Act.3  

The Second Circuit’s ruling in People of the State of New York v. Actavis, PLC and Forest Laboratories, LLC affirming the district court’s preliminary injunction is the first appellate decision to specifically opine on the antitrust implications of product hopping in the pharmaceutical industry.

Background

Forest holds a patent for its brand-name drug Namenda IR, with market exclusivity to expire on July 11, 2015.  On that date, Forest will no longer have market exclusivity for memantine.  Actavis and Forest issued several public statements regarding plans to withdraw Namenda IR from the market, ultimately announcing in June 2014 that Namenda IR would be available for sale until the fall of 2014.  Defendants indicated that upon withdraw Namenda IR from the market in the fall of 2014, its newer drug Namenda XR would be available as a substitute for the treatment of moderate to advanced Alzheimer’s disease.  Defendants took steps to notify physicians and caregivers of the discontinuance of Namenda IR and to contemplate switching from Namenda IR to Namenda RX.

Namenda XR has the same therapeutic effect as Namenda IR.  There is a difference between the two drugs regarding time-release.  Namenda IR is the immediate-release version of that drug, whereas Namenda XR is an extended-release version. Thus, consumers would take Namenda IR twice daily; in contrast, Namenda XR would be taken once daily.  Additionally, Namenda IR is in tablet form, and Namenda XR is in capsule form.

There are implications for generic drug competition in the market for memantine that arise from the marketing plans announced by Actavis and Forest.  In 1984, Congress enacted the Drug Price Competition and Patent Term Restoration Act of 1984, also known as the “Hatch-Waxman Act.”4    That statute provides for dual purposes. On the one hand, Congress allowed a manufacture of a generic drug to use an abbreviated process to obtain approval to market the drug from the Food and Drug Administration (“FDA”).  Provision for an abbreviated process was to encourage price competition from  generic drugs.  The generic drug manufacturer can file an Abbreviated New Drug Application (“ANDA”) provided that the generic drug is “bioequivalent” to a previously approved brand-name drug.  This regulatory approach allows the generic manufacturer to rely on scientific data previously submitted for the brand-name drug to seek approval to market the generic drug.  The ANDA process affords generic manufacturers considerable cost savings, and a shorted period of FDA review.  The other purpose under the Hatch-Waxman Act was to incentivize drug innovation.  To do this, Congress provided that the manufacturer of a brand-name drug can obtain an additional extension of up to five years to the patent term of the drug to compensate for regulatory delay when seeking approval from the FDA for the new brand-name drug.5  Additionally, under amendments to the Hatch-Waxman Act by the Food and Drug Administration Modernization Act of 1997,6 provision was made for six months of non-patent “pediatric exclusivity” for qualifying pediatric research conducted by the drug manufacturer.7

States have drug substitution laws that either mandate or allow the substitution of a generic drug for a prescribed brand-name drug, except where the prescribing physician, or consumer, indicates otherwise. A generic drug that receives approval from the FDA under the ANDA process may be “AB- rated” by the FDA when the generic drug is “therapeutically equivalent” to its brand-name drug counterpart.  A generic drug deemed AB-rated allows a pharmacy, under a state’s substitution laws, to substitute the generic drug for the more expensive brand-name drug.  State substitution laws complement the provisions under the Hatch-Waxman Act which liberalize the drug approval process for generic drugs, to lower drug costs by encouraging greater competition from generic drugs in the market-place.

In the antitrust lawsuit filed by New York against Actavis and Forest, the State Attorney General alleges violations of the Sherman Act8 and state antitrust laws.9  In the action, New York contends that the marketing practice of product hopping that the defendants intend to pursue will have dire consequences for competition from generic drugs for Forest’s Namenda IR that would have occurred upon the expiration of market exclusivity for Namenda IR on July 11, 2015.  This anticompetitive impact will arise, according to New York, as a direct result of defendants’ plans to stop marketing Namenda IR and “force switch” physicians and payors to use Forest’s newer drug Namenda XR prior to loss of market exclusivity for Namenda IR on July 11, 2015.10  New York argues that removal from the market of Namenda IR prior to the loss of market exclusivity for Namenda IR will thwart state substitution laws since generics for the drug Namenda IR will not have been AB- rated for the newer Namenda XR, critical to enable pharmacists to substitute a generic version for the newer drug Namenda XR.  New York contends that defendants’ scheme will thus extend the national monopoly that Forest has for memantine for the term of the patent it has for Namenda XR, to expire in 2029.

In its lawsuit, New York argues that there is no legitimate business justification for the product hopping scheme defendants intend to pursue.  In its amended complaint, the State insists that Manenda XR lacks any meaningful benefits compared with Namenda IR.11  New York accuses the defendants of erecting barriers to entry to thwart competition from makers of the generic form of the drug Namenda IR.  The State contends that steps to force switch the prescribing of Namenda XR would impact negatively on thealready “financially strapped”12 health care system, and on Alzheimer’s patients who “must bear…unwanted costs” and “unnecessary changes to their medical routine.”13

The Second Circuit’s Analysis            

On appeal, the Second Circuit ruled that the district court did not abuse its discretion in granting a preliminary injunction, enjoining Actavis and Forest from discontinuing the marketing of Namenda IR.  Applying a heightened standard under the law in the Second Circuit for review of a preliminary injunction, the court of appeals concluded that New York demonstrated a “substantial likelihood of success on the merits” of its monopolization and attempted monopolization claims under section 2 of the Sherman Act, and has made “a strong showing” that defendants’ conduct “would cause irreparable harm to competition” in the memantine drug market and to consumers.14

The Second Circuit wrote that monopoly power does not, in and of itself, raise an antitrust concern.  To establish a violation of section 2 of the Sherman Act, it must be proved that the defendant not only possessed monopoly power in the relevant market, but that it “willfully acquired or maintained that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.”15  The court of appeals recognized that defendants’ patent on Namenda IR grant them a legal monopoly in the national memantine drug market until July 11, 2015.  Thus, the Second Circuit explained that the issue is whether defendants “willfully sought to maintain or attempted to maintain” that monopoly in violation of section 2.  Citing United States v. Microsoft Corp.16 the court of appeals embraced a rule-of-reason test to determine when a product change violates section 2.  It wrote that generally, courts question assertions that competition is harmed by a dominant firm’s product design changes.  Such design changes can benefit consumers and represent innovation and efficiency. Thus, the court explained that, to be anticompetitive, a dominant firm’s design changes are those that impede competition through means “other than competition on the merits.”17  Relying  on its analysis in Berkey Photo, Inc. v. Eastman Kodak Co.,18 the Second Circuit reasoned that product withdrawal or product improvement, standing alone, is not anticompetitive.  The court wrote that under Berkey Photo, when a monopolist “combines product withdrawal with some other conduct,” such that consumers are “coerced” rather than persuaded based on the merits, and to “impede competition,” such actions are anticompetitive.19  The court of appeals concluded that defendants’ plan to force switch Alzheimer’s patients from taking Namenda IR to the newer drug Namenda XR (for which generic Namenda is not therapeutically equivalent) would impede generic competition by thwarting state substitution laws for generics.  Defendants’ force switch scheme “crosses the line from persuasion to coercion and is anticompetitive.”20  

The Second Circuit agreed with the district court’s view that the pharmaceutical market is unique, and the critical role that state substitution laws play in facilitating price competition between brand-name drugs and generics.  Competition through state substitution laws “is the only cost-efficient means” for generic drugs to compete.21  The court of appeals explained that defendant’s plan to force patients to switch to Namenda XR would preclude generic substitution because generic Namenda IR is not AB-rated to Namenda XR.  The Second Circuit viewed defendants’ plan to force switch consumers to Namenda XR as a practice not based on competition on the merits.  As such, defendants’ scheme was exclusionary, with the anticompetitive “effect of significantly reducing usage of rivals’ products and hence protecting its own monopoly,”22 in violation of section 2 of the Sherman Act.  The court of appeals took note of the record before the lower court indicating the defendants’ own predictions on the effect of its plan to force switch consumers.  Such a scheme would convert, in defendants’ judgment, 80-100 of Namenda IR patients to Namenda XR prior to entry into the market by generic Namenda IR.  Thus, there would be virtually no meaningful market in which generics could compete based on price for Namenda IR.23  The court of appeals also took note of defendants’ own views regarding the very low prospects that consumers would revert back to the generic version of Namenda IR once they were forced to switch to Namenda XR and manufacturers were free to sell the generic version of Namenda IR.24

The Second Circuit rejected the defendants’ procompetitive justifications for its marketing scheme as pretextual.  Relying on the record before the lower court, the court of appeals wrote that there is ample evidence indicating that defendants’ stated intent was to erect barriers to thwart generic competition, and maintain a monopoly in the memantine market.  Defendants argued that their conduct is procompetitive since introducing a new product, like Namenda XR, enhances competition and encouraging product innovation.  The Second Circuit disagreed.  It wrote that while introducing Namenda XR may, standing alone, be procompetitive, there is no competitive justification for withdrawing Namenda IR.25

The Second Circuit also concluded that New York made a strong showing “that competition and consumers will suffer irreparable harm” in the absence of the preliminary injunction awarded by the district court.26

The views and opinions expressed in this article are those of the author, and cannot be attributed to the Office of the Inspector General for the District of Columbia Government.

ARTICLE BY Stuart Silverman of American University Washington College of Law
Copyright American University Washington College of Law

1  Amended Complaint, Case No. 14-CV-7473 (RWS) (S.D.N.Y. filed Dec. 10, 2014).

2 Case No. 14-4624 (2nd Cir. May 22, 2015)

3 15 U.S.C. § 2.  

4 Pub. L. No. 98-417, codified at: 21 U.S.C. § 355, 21 U.S.C. § 2201, and 35 U.S.C. §§ 156, 271, 282.

5 35 U.S.C. § 156.  

6 Pub. L. No. 105-115.

7 35 U.S.C. § 156; 21 U.S.C. § 355a.   

8 15 U.S.C. §§ 1 and 2.  

9   New York State General Business Law §§ 340-47; New York State Executive Law § 63(12).      

10 The district court’s preliminary injunction bars defendants from withdrawing Namenda IR until 30 days after July 11, 2015, the date when generic memantine will first be available in the market.    

11 Amended complaint, par. 78.  

12 Id. at par. 6.  

13 Id. at par. 100.  

14 Slip op. at 28.  

15 Id. at 29, quoting Verizon Commc’ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 407 (2004) (internal quotation marks and citation omitted).    

16 253 F.3d 34, 58-60 (D.C. Cir. 2001) (en banc).  

17 Slip op. at 32.  

18 603 F.2d 263 (2nd Cir. 1979).  

19 Slip op. at 35-36.  

20 Id. at 37.  

21 Id. at 40-41. 

22 Id. at 40.                  

23 Id. at 39-40.  

24 Id. at 41-42.   

25 Slip op. at 47-49.  

26 Id. at 54.

Pay for Delay – Big Pharma’s Dirty Secret

Mahany Law Firm

For most Americans, generic drugs are a godsend. Prescription drug prices have become so high that many folks simply can’t afford to purchase needed medications.  It’s not uncommon for some cancer and hepatitis medications to cost $1000 or more per dose. Generics, however, can cut prescription bills by 90% or more.

As much as consumers love generic drugs, big pharma hates them. Once a branded drug goes “off patent,” sales usually plummet. Most health plans, insurance companies and Medicare require physicians to dispense less costly generics.

The loss of profits can be so great when a drug goes generic that many pharmaceutical companies are now engaging in “pay for delay” tactics.

What is “pay for delay”? It is the payment by a pharmaceutical company to would be competitors to not copy a certain medication.  The results are more profits for big pharma and therefore an extension of their monopoly on pricing. The Federal Trade Commission says pay for delay costs taxpayers, insurance companies and consumers almost $4 billion per year.

Is this legal? Probably not.

Congress wanted to encourage generic manufacturers to quickly enter the marketplace and lower drug costs. In 1984, Congress passed the Hatch Waxman Act. That law encourages generic manufacturers to challenge pharmaceutical companies.  The first company that seeks to make a generic of a branded drug is given an expedited review by the FDA.

Unfortunately, what started out as a law with good intentions soon turned horribly bad. Big pharma began suing the generic manufacturers for patent infringement. The pharmaceutical companies would then settle the suits and pay the generic company not to compete for a period of time, often 5 years.

A few court victories later, the pay for delay industry was in full swing.

Thankfully the Federal Trade Commission has stepped in and appears to be gaining traction. The government says that many of these pay for delay schemes violate federal anti-trust laws. In 2013, the United States Supreme Court ruled that pay for delay does automatically violate antitrust laws but still must be carefully scrutinized. (FTC v. Actavis). Georgetown University Professor Lawrence Gostin, writing for the Journal of the American Medical Association, hailed the decision and says it will save consumers and taxpayers billions of dollars.

Some may be wondering why the generic manufacturers go along with these payments.  Obviously big pharma likes these settlements because they can extend their monopolies for years. Generic manufacturers find these settlements economically worthwhile too. Because the profits made on branded drugs are so large, big pharma can pay millions to the generic manufacturers and still make a profit.  The smaller generic companies make just as much profit from the settlements and don’t have to produce a single pill.

The Motley Fool investigated one branded drug, Provigil, manufactured by Cephalon. The drug was due to come off patent in 2005 but Cephalon paid four generic companies $200 million to delay manufacturer of generic equivalents until 2012. The cost of a three-month supply of Provigil? $3600. The cost after generics were finally introduced? About $5 per month according to fool.com.

With the courts and regulators finally looking hard at these arrangements, we hope more whistleblowers come forward. Under the federal False Claims Act, whistleblowers with inside information about fraud involving a government program can receive up to 30% of whatever is recovered from drug companies. To qualify for an award, whistleblowers need inside, “original source” information about the fraud.

The FTC’s Bureau of Competition concluded that of the 145 final patent dispute settlements in 2013, 29 represent potential pay for delay schemes.  Recently the agency launched a hotline to help people report illegal pay for delay schemes.

Whistleblowers using the hotline should know, however, that calling the hotline does not make them eligible for a whistleblower award. To claim an award, one must first file a lawsuit in federal court.

As a law firm that has helped clients receive over $100,000,000.00 in whistleblower award payments, we want to see whistleblowers properly awarded for coming forward and reporting illegal behavior.

ARTICLE BY

Brian Mahany
Mahany Law

Life Sciences: Protecting the Crown Jewels

Sills Cummis & Gross P.C

An innovator or owner of patent rights or other technology in the life sciences arena is often unable, because of lack of financial or other resources, to develop or commercialize a pharmaceutical product covered by such intellectual property rights. In these cases, the innovator/owner (the licensor) will frequently out-license the invention to a third party (the licensee) for development and commercialization by such licensee. The resulting license agreement can be a complicated document. In this article, I will address some of the important licensing considerations that a licensor should take into account before executing a license agreement.

Consider the Exclusivity v. Non-exclusivity of the License Grant

An initial consideration in a license agreement is whether the license grant will be exclusive or non-exclusive to the licensee. If the license grant is exclusive, then the licensor typically agrees not to grant a license to any third party. If the license grant is non-exclusive, then the licensor typically is permitted to grant further licenses to third parties. Even in an exclusive license, however, the licensor may want to retain certain rights for itself. For instance, the licensor may want to preserve for itself the right to enter into certain geographical markets or fields of use. The parties should be very clear in the license agreement as to whether or not the licensor is permitted to exercise any R&D, commercialization or other rights during the term of the license agreement.

Whether a license is exclusive or nonexclusive will set the tone for the associated rights and obligations of the parties set forth in the remainder of the license agreement. For example, an exclusive licensee is usually subject to “diligence” obligations, requiring it to exploit the licensed technology in order to maintain the license grant; a non-exclusive licensee is usually subject to limited or no such obligations. Also, an exclusive licensee usually has more rights than a non-exclusive licensee with respect to the prosecution, maintenance, defense and enforcement of patent rights.

Also Consider the Scope of the “Field of Use” and “Territory”

Other important initial considerations in the license agreement are the scope of the licensed field of use and the scope of the licensed territory. A “field of use” defines the field in which the licensee may exercise the licensed rights and may take one of many forms. For example, the field of use may be all encompassing (“any and all fields and applications”), may be limited to only therapeutic or only diagnostic products, may be limited to only biologics or only small molecule products, or may be limited to a specific medical indication (e.g., cardiac indications). Especially in the case of an exclusive license (and based on the nature of the licensee), it is sometimes better for the licensor to limit the field of use. Then the licensor would be permitted to grant subsequent rights to other parties in the non-licensed fields. Alternatively, if the field of use is broad, the licensor should require that the licensee actually exercise its rights in certain specified fields in order to maintain such rights. If the licensee fails to exercise its rights in a specified field of use within a certain period of time, the licensor’s remedies could include the right to terminate the license agreement in its entirety, the right to terminate the license agreement with respect to one or more specific fields and/or the right to convert an exclusive license grant in such field to a non-exclusive grant.

Considerations regarding the “territory” are very similar to the considerations regarding the field of use. Often, in order to maintain an exclusive worldwide territory grant, the licensee is required to exploit the licensed technology in specified countries. For example, the licensee may be required to develop and commercialize a product covered by the licensed technology (licensed products) in the United States and at least one other “major market country” (e.g., Japan, France, Germany, Italy, Spain and the United Kingdom). Again, the licensor’s remedies for the licensee’s failure to satisfy this obligation could be similar to the remedies set forth above for field of use.

Maximize the Royalty Payments

Pursuant to the terms of the license agreement, the licensee will most likely be required to pay to the licensor a royalty based on sales of licensed products. Although the determination of the amount of royalty is in large part a business decision and takes into consideration, among other things, the scope and strength of the licensed patent and other intellectual property rights, the breadth of the field of use and territory, whether the licensed product is a therapeutic product (typically a higher royalty rate) or a diagnostic product, and whether the license grant is exclusive or non-exclusive, there are many important legal nuances that the licensee could and should consider. One such nuance is the calculation of “net sales.”

The amount of royalty owed by the licensee is normally calculated by multiplying the royalty rate by the amount of sales of the licensed products. The royalty rate does not need to be a flat rate and could be graduated, for example, with a rate change as sales increase. In determining the “sales” portion of the royalty calculation, it is more advantageous to the licensor that sales be based on amounts invoiced (as opposed to amounts received) by the licensee, thus keeping the risk of bad debt (i.e., a sales amount is invoiced but not actually received by the licensee) with the licensee. Also, although “net sales” (as opposed to “gross sales”) is the usual royalty base, the licensor should restrict the deductions taken into account to determine such net sales. For example, although the “net sales” calculation frequently includes deductions from gross sales for governmental taxes and charges, customer credits and rebates, and transportation, storage and insurance expenses, the licensor should avoid less typical deductions such as sales commissions owed by the licensee or a catch-all deduction for “other reasonable deductions.”

Ensure That the Inventions Are Fully Exploited

Once a licensor licenses its invention to a third party in an exclusive license arrangement, the licensor will lose much control over the day-to-day use of the technology. It is imperative that the licensor requires the licensee to actually exploit the technology in a timely manner and devote sufficient time, money and resource to such exploitation. Almost all exclusive patent or technology license agreements contain a “diligence” provision requiring the licensee to employ certain efforts with respect to the research, development and commercialization of licensed products. Generally, the diligence requirement provides that the licensee must use “commercially reasonable efforts” to advance the product through the pipeline and sale process. However, the meaning of “commercially reasonable efforts” is not precise and the two parties to the contract could interpret the phrase, and the corresponding diligence requirement, quite differently.

A prudent licensor defines the diligence requirement more exactly. Ideally, the diligence requirement would be accompanied by diligence milestones, contractually obligating the licensee to reach certain developmental, regulatory or sales milestones by certain target dates or to spend a certain dollar amount on the licensed product in a given time period. Additionally, different diligence standards could apply with respect to different jurisdictions. If the licensee fails to meet its target, the licensor would be entitled to one or more remedies such as a financial payment from the licensee or a right of termination.

Maintain Control over Patent Prosecution

In an exclusive patent license arrangement, the licensee usually pays for the costs associated with patent prosecution and maintenance. Even in a non-exclusive arrangement, the licensee could be required to pay for a portion of such amounts. Though the licensor bears some or all of the patent prosecution and maintenance expenses, the licensor should ensure that it ultimately has control. Ideally, the license agreement should provide that the licensor controls the prosecution and maintenance, perhaps with counsel reasonably acceptable to the licensee. The licensor could allow the licensee to provide input into where (which jurisdictions) the licensor will prosecute and maintain the patents. However, the licensor should have the final say as to the scope and jurisdiction of the patent filings. In order to address a licensee’s concern that it would be required to pay for expenses in jurisdictions where the licensee does not deem patent coverage to be necessary or desirable, the license agreement could provide that the licensee may notify the licensor that the licensee will not pay the patent costs in a particular jurisdiction – in which case the licensee would probably lose its license rights (or at least its exclusivity, in the case of an exclusive license grant) with respect to such jurisdiction.

Carefully Consider Termination Provisions

A license agreement includes customary termination provisions. For example, each party usually has the right to terminate the agreement in the case of an uncured material breach by the other party. Additionally, the licensee typically has the right to terminate the license agreement for convenience (without cause) following some notice period (e.g., 90 days). Following termination of the license agreement, the licensor may want to either resume R&D or commercialization efforts on its own or re-license the technology to another suitable third party. In order to avoid the need to duplicate efforts (and expenditures) of the first licensee, the licensor should give careful consideration to the termination provisions in the license agreement. Ideally, if the licensee terminates the license agreement for convenience (i.e., the licensee walks away from the technology) or the licensor terminates the license agreement because of an uncured material breach by the licensee, the licensee would be required to automatically assign to the licensor, for no additional consideration or for some agreed upon payment, all of the results, know-how and intellectual property generated by or on behalf of the licensee under the license agreement and all regulatory files, regulatory approvals and other rights related to the licensed product. Thus, the licensor or its new licensee would be able to capitalize on the past work performed by the licensee, expedite timelines and reduce expense.

All or some of the points described above could be very important to a licensor. Although the interrelation of these and various other provisions in a license agreement are complex, by understanding the unique issues and concerns that arise when analyzing and negotiating a license agreement, the licensor is better able to protect its invention and ultimately increase its profit.

ARTICLE BY

Lori M. Waldron
OF
Sills Cummis & Gross P.C.

This article appeared in the February 2015 issue of The Metropolitan Corporate Counsel.  The views and opinions expressed in this article are those of the author(s) and do not necessarily reflect those of Sills Cummis & Gross P.C.   Copyright © 2015 Sills Cummis & Gross P.C.  All rights reserved.”

Filthy Pharma – Whistleblowers and Current Good Manufacturing Practices

Mahany Law Firm

Last year a federal appeals court in Richmond, Virginia upheld the dismissal of a whistleblower suit alleging violations of current good manufacturing practices, known in the industry as “cGMP.” Filed under the federal False Claims Act, the whistleblower claimed that his former employer, Omnicare, violated a series of cGMP safety regulations requiring that penicillin and non-penicillin drugs be manufactured in complete isolation from one another. The regulations are designed to prevent cross contamination.

Because Omnicare’s drugs were not manufactured in isolation, the whistleblower claimed that they were not eligible for reimbursement under Medicare and Medicaid programs. A judge in Baltimore dismissed the suit saying that this particular alleged cGMP was not one that could be prosecuted privately by a whistleblower.

The case was appealed and ultimately upheld by a three judge appeals panel last year. (United States ex. rel Barry Rostholder vs. Omnicare) Is this the end for “filthy pharma” cases under cGMP and the False Claims Act? No!

The Justice Department and Food and Drug Administration (FDA) support whistleblower filings for cGMP violations. In the aftermath of the Omnicare decision, however, it is prudent to have more than a mere allegation that products were not manufactured in properly segregated facilities.

In April 2013, the Justice Department announced that it would be taking “an especially hard look” at cGMP violations. Jeffrey Steger, deputy director of the Justice Department’s consumer protection unit, said the agency’s priority was to “identify and prosecute the most serious instances of food, drug and medical device violations… and in general [protect] consumers from adulterated or misbranded products…”

Notwithstanding the big loss for whistleblowers in Omnicare, the court did not slam shut the door on all cGMP violations. The court appears to have left the door open for cGMP violations that are significant and substantial and give rise to actual discrepancies in the functioning of the product.

What does this mean in practical terms? Merely claiming that a drug wasn’t manufactured properly may no longer be enough. To qualify for a whistleblower award, one should show both bad practices and that the product is tainted, adulterated, mislabeled, diluted or contaminated.

People with inside knowledge of adulterated drugs and cGMP violations may qualify for cash awards under state and federal False Claims Acts. Last year the federal government alone paid out $635 million to whistleblowers. Under the federal law, companies can be assessed triple damages and fined up to $11,000 per violation. Whistleblowers can receive up to 30% of whatever the government collects. (The average award is closer to 20%.)

ARTICLE BY

Brian Mahany
OF
Mahany Law

Practice Considerations Post Teva v. Sandoz

Sterne, Kessler, Goldstein & Fox P.L.L.C. - Attorneys at Law

In Teva Pharmaceuticals USA, Inc. v. Sandoz, Inc., No. 13-854, slip op. 574 U.S. __ (2015), the U.S. Supreme Court ruled that underlying factual issues resolved while formally construing a disputed patent claim term at the district court level are subject to a clear error standard of review as opposed to a de novo standard.

The Patent at Issue

The litigated patent claimed a method for manufacturing Copaxone, Teva’s multi-billion dollar a year drug used in the treatment of multiple sclerosis. Sandoz, as a generic pharmaceutical challenger under the Hatch-Waxman Act, attacked the patent as indefinite because it contained claim language describing an active pharmaceutical ingredient having a “molecular weight of 5 to 9 kilodaltons.” Although three accepted definitions1 exist in the relevant art to calculate “molecular weight,” the method of calculation to be used was not described in the claim, the patent specification, or the prosecution history. The district court took evidence on this issue, namely through extrinsic expert testimony, and ruled that “molecular weight” would have been calculated by determining the “peak average molecular weight.” Accordingly, the district court held the phrase to be definite and accepted the understanding advanced by Teva’s expert. The Federal Circuit, however, reversed and held that the claim was indefinite after reviewing the district court claim construction de novo.

The Supreme Court’s Decision

In the majority opinion, authored by Justice Breyer, the Court explained that claim construction may involve both legal and factual elements that could necessitate differing levels of appellate scrutiny. Specifically, if a patent claim term is construed based upon the intrinsic evidence alone (i.e., patent claims, specification, and prosecution history), the determination is exclusively one of law, subject to de novo review. However, if the intrinsic evidence is not dispositive of the meaning of a claim term, then extrinsic evidence can be consulted (e.g., expert testimony, technical dictionary definitions, etc.) to better understand the meaning of the term. It is these underlying “facts” relating to extrinsic evidence that are reviewed according to the clear error standard. The Court reasoned that the District Judge, having presided over the entire proceeding, has a comparatively greater familiarity with the “specific scientific problems and principles” than the appellate court and should be afforded deference on factual findings. While the new scheme announced by the Court changes the standard of review for subsidiary factual matters, the ultimate issue of claim interpretation will still be reviewed de novo.

What is the Significance of Teva v. Sandoz?

The holding in Teva could have broad-ranging implications for clients in the procurement and enforcement of their patent rights. Below are a few examples of how the decision could impact current patent practice.

As an initial matter, patent owners should pay particular attention to the sufficiency of the disclosure with regard to key elements of the claims and consider specifically defining these elements in the specification through, for example, the use of a glossary. Such a strategy could help avoid protracted battles of the experts that could result in claim terms being redefined in ways never intended by the patent owner. While this approach has the potential to narrow claim scope, and may require additional time and expense during patent prosecution, it could result in a stronger, more effective patent less susceptible to post-Teva based challenges.

In the context of litigation, the Teva decision could provide motivation for litigants to create “factual issues” that are determinative of claim construction. Patentees, for example, may be tempted to try and broaden the scope of their claims by creating ambiguities in claim language in order to advance constructions that were never originally intended but may now be supported by extrinsic evidence. Alternatively, accused infringers may attempt to create as many factual disputes as possible with regard to the meaning of a claim in an effort to lock the patent owner into an unfavorable finding. Regardless of the motivations of the parties, district courts will likely become more attentive to these issues knowing their claim construction determinations could be afforded a higher standard of review. It is possible that the Teva decision could even result in broader acceptance among district court judges of “trial-like” Markman hearings with submission of expert testimony and extrinsic evidence at the claim construction stage.

Finally, in light of the changing claim construction standard of review in federal courts, parties (petitioners) should consider how this will impact the use and significance of inter partes review (IPR) proceedings. For example, IPR proceedings provide petitioners with a “broadest reasonable interpretation” standard for claim construction, while also allowing petitioners to submit an expert declaration in support. Since patent owners are typically not given an opportunity to submit a rebuttal expert declaration before the Board institutes trial, this can provide a preliminary advantage for petitioners attempting to secure a favorable construction, as an initial finding on claim construction is usually made as part of the institution process. Moreover, the patent owner may find it difficult to overturn the initial claim construction inertia, whether during the postinstitution phase or on appeal after a final decision on the merits has been made by the Board.

Many questions remain in the wake of Teva, as patent owners and challengers alike will be faced with new claim construction strategy scenarios relying on extrinsic evidence.

ARTICLE BY

Daniel E. Yonan
Jon E. Boljesic
OF
Sterne, Kessler, Goldstein & Fox P.L.L.C.

 1 The three accepted definitions to determine “molecular weight” included a (1) peak average molecular weight; (2) number average molecular weight; or (3) weight average molecular weight.