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In re Asacol Antitrust Litigation

United States District Court, D. Massachusetts

July 20, 2016



          Denise J. Casper, United States District Judge

         I. Introduction

         Teamsters Union 25 Health Services & Insurance Plan, NECA-IBEW Welfare Trust Fund, United Food and Commercial Workers Unions and Employers Midwest Health Benefits Fund, Wisconsin Masons’ Health Care Fund, Minnesota Laborers Health and Welfare Fund (collectively, “Health Fund Plaintiffs”), and Mark Adorney (collectively, “Plaintiffs”) bring this antitrust class action on behalf of themselves and all others similarly situated against Zydus Pharmaceuticals USA Inc. and Cadila Healthcare Limited (collectively, “Zydus”), Allergan plc, Allergan, Inc., Allergan USA, Inc., Allergan Sales, LLC, and Warner Chilcott Limited (collectively, “Warner Chilcott”) (collectively, “Defendants”). Plaintiffs allege that Warner Chilcott’s product hopping scheme and a reverse payment settlement agreement between Warner Chilcott and Zydus constitute monopolization (Count I) and combination and conspiracy in restraint of trade (Count II), respectively, under various state laws. D. 26.

         Zydus has moved to dismiss Count II, D. 46, and the Warner Chilcott has moved to dismiss the entire complaint, D. 47. Plaintiffs have moved to strike materials attached in support of the Warner Chilcott’s motion to dismiss. D. 56. The Court ALLOWS Zydus’s motion to dismiss, ALLOWS IN PART and DENIES IN PART Warner Chilcott’s motion to dismiss and DENIES Plaintiffs’ motion to strike.

         II. Standard of Review

         On a motion to dismiss under Rule 12(b)(6), the Court must conduct a two-step, context-specific inquiry. García-Catalán v. United States, 734 F.3d 100, 103 (1st Cir. 2013). First, the Court must distinguish the factual allegations from the conclusory legal allegations. Id. Factual allegations are accepted as true, while conclusory legal allegations are not. Id. Second, the Court must determine whether the factual allegations “plausibly narrate a claim for relief.” Schatz v. Republican State Leadership Comm., 669 F.3d 50, 55 (1st Cir. 2012). “Plausible, of course, means something more than merely possible, and gauging a pleaded situation’s plausibility is a ‘context-specific’ job that compels [the Court] ‘to draw on’ [its] ‘judicial experience and common sense.’” Id. (quoting Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009)).

         III. Factual Allegations

         Unless otherwise noted, the following factual summary is based upon the factual allegations in the amended complaint, D. 26, and are accepted as true for the consideration of the Defendants’ motions to dismiss.

         A. Asacol, Asacol HD and Delzicol

         Ulcerative colitis is a chronic inflammatory bowel disorder. D. 26 ¶ 60. The most common treatment for ulcerative colitis is a class of drugs that contain the active ingredient mesalamine. Id. ¶ 62. Asacol, Asacol HD and Delzicol are all ulcerative colitis treatments that contain mesalamine. Id. ¶¶ 66, 72, 108.

         Under the Federal Food, Drug and Cosmetic Act (“FDCA”), a manufacturer must obtain approval from the Food and Drug Administration (“FDA”) to sell any drug in the United States. Id. ¶ 26. The manufacturer must submit a new drug application so the FDA can determine whether the drug is both safe and effective for its proposed uses. Id. Once the FDA approves the drug, manufacturers may protect the product by listing applicable patents in the FDA’s “Orange Book, ” which includes all FDA-approved prescription drugs, their approved generic equivalents and any patents that purportedly protect each drug. Id. ¶ 27.

         In January 1992, the FDA approved Asacol, a delayed-release oral tablet containing 400 mg of mesalamine to treat mild to moderately active ulcerative colitis. Id. ¶ 65. Five years later, the FDA approved Asacol for the maintenance of the remission of ulcerative colitis. Id. The Orange Book lists two patents for Asacol, U.S. Patent Nos. 5, 541, 170 (“the ’170 patent”) and 5, 541, 171 (“the ’171 patent”). Id. ¶ 67. Both patents expired July 30, 2013. Id.

         In May 2008, the FDA approved Asacol HD, a delayed-release oral tablet containing 800 mg of mesalamine to treat moderately active ulcerative colitis. Id. ¶¶ 72-73. Unlike Asacol, Asacol HD was not approved for mildly active ulcerative colitis or the maintenance of remission of ulcerative colitis. Id. ¶ 73. The Orange Book lists two patents for Asacol HD, U.S. Patent Nos. 6, 893, 662 and 8, 580, 302. Id. ¶ 74. Both expire on November 15, 2021. Id.

         In February 2013, the FDA approved Delzicol, a delayed-release oral tablet containing 400 mg of mesalamine. Id. ¶¶ 108-11. The Orange Book lists U.S. Patent No. 6, 649, 180 (“the ’180 patent”) for Delzicol, which expires on April 13, 2020. Id. ¶ 114.

         B. Hatch-Waxman Regulatory Framework

         In 1984, Congress enacted the Hatch-Waxman Act to facilitate competition from low-price generic drugs. Id. ¶ 31. Once the FDA has approved a brand-name drug, the Hatch-Waxman Act allows a generic manufacturer to obtain similar approval by filing an Abbreviated New Drug Application (“ANDA”) specifying that the generic has the same active ingredient and is bioequivalent to the brand-name drug. Id. ¶ 32.

         The generic manufacturer must certify that it will not infringe any of the patents listed in the Orange Book for the brand-name drug. Id. ¶ 34. One possible basis for non-infringement is known as Paragraph IV certification, in which the generic manufacturer asserts that all applicable patents are invalid or will not be infringed by the proposed generic drug. Id. If the patent owner brings an infringement suit within 45 days of receiving the Paragraph IV notice, the FDA cannot approve the generic manufacturer’s ANDA for 30 months, a time when parties are supposed to litigate the infringement or validity of the patent. 21 U.S.C. § 355(j)(5)(B)(iii). The Hatch-Waxman Act bestows upon the first generic company that files an ANDA with a Paragraph IV certification a 180-day period of marketing exclusivity, during which no other generic can compete. Id. § 355(j)(5)(B)(iv); see D. 26 ¶ 52. The brand-name manufacturer, however, may release an authorized generic version of its drug during the exclusivity period. D. 26 ¶ 49. An authorized generic is chemically identical to the brand-name drug but sold as a generic product. Id.

         C. Anti-Competitive Allegations

         Plaintiffs allege that this case involves product hopping and a reverse payment settlement agreement. Product hopping is the practice of tweaking a brand-name drug to prevent pharmacists from substituting a generic equivalent when presented with a prescription for the newly modified brand-name drug. Id. ¶ 45; see New York ex rel. Schneiderman v. Actavis PLC (“Namenda”), 787 F.3d 638, 643 & n.2 (2d Cir. 2015) (stating that “conduct by a monopolist to perpetuate patent exclusivity through successive products” is “commonly known as ‘product hopping’”). To further product hopping, a brand-name manufacturer often removes the original drug from the market entirely, known as a “hard switch, ” right before patent expiration to deprive potential generic manufacturers a prescription base for their generic drugs. D. 26 ¶ 45; Namenda, 787 F.3d at 648. In a reverse payment settlement agreement, a brand-name manufacturer who holds a patent compensates a potential generic rival to delay or abandon market entry and to abandon the challenge to the brand manufacturer’s patent. D. 26 ¶ 51; F.T.C. v. Actavis, Inc., __U.S.__, 133 S.Ct. 2223, 2227 (2013) (noting that such an agreement is known as reverse payment settlement agreement because the settlement “requires the patentee to pay the alleged infringer, rather than the other way around”). Reverse payment settlement agreement raise concerns because they “insulat[e] the brand’s market from competition and prevent[] consumers from accessing a more affordable generic version of the brand-name drug.” In re Loestrin 24 Fe Antitrust Litig., 814 F.3d 538, 544 (1st Cir. 2016).

         1. Promotion of Asacol HD

         Plaintiffs allege that Warner Chilcott[1] acquired Asacol and Asacol HD in 2009. D. 26 ¶ 77. That year, Asacol was the 75th top-selling prescription in the United States, with sales of approximately $490 million. Id. ¶ 78. Shortly after the 2009 acquisition, Warner Chilcott sought to switch patients from Asacol to Asacol HD before the ’170 and ’171 patents for Asacol expired, even though the drugs did not treat the exact same issues. Id. ¶¶ 81-87. The biggest difference is that Asacol was approved for low-dose, long-term maintenance of remission therapy, which accounts for the bulk of its prescriptions, while Asacol HD was approved only for the high-dose, short-term treatment of the most severe flares. Id. ¶ 83. Warner Chilcott’s efforts to switch patients to Asacol HD was remarkably successful. Id. ¶ 97. In 2010, Asacol HD made up 9% of Warner Chilcott’s total Asacol franchise sales. Id. By 2012, Asacol HD sales constituted 28% of the company’s Asacol franchise sales. Id.

         2. Citizen Petitions to Drive Up the Cost of Generic Entry

         Warner Chilcott also allegedly submitted multiple FDA citizen petitions to make it harder for other companies to sell generic Asacol. Id. ¶ 98. A citizen petition allows a person or organization to express concerns to the FDA about the safety, efficacy or legality of a proposed or existing drug. Id. ¶ 99.

         In February 2010, Warner Chilcott submitted a citizen petition that requested the FDA to require generic Asacol applicants to submit comparative clinical endpoint studies, comparative in vitro dissolution test, and comparative pharmacokinetic safety testing as a condition to FDA approval. Id. ¶ 101. In August 2010, the FDA denied Warner Chilcott’s request for clinical endpoint studies. Id. ¶ 103. Two months later, Warner Chilcott submitted another citizen’s petition. Id. ¶ 104. This petition requested that the FDA establish heightened bioequivalency requirements for generic competitors to Asacol and Asacol HD. Id. The FDA denied this request as well; Warner Chilcott’s citizen petitions were thus “largely unsuccessful.” Id. ¶¶ 105-06.

         3. Promotion of Delzicol and the Hard Switch

         Despite a concerted three-year effort to switch Asacol patients to Asacol HD, Warner Chilcott realized that patients and prescribers still preferred the original product because Asacol still constituted nearly 72% of the sales of the overall franchise in 2012. Id. ¶ 107.

         In 2013, Warner Chilcott began selling Delzicol. Id. ¶ 108. That same year, a few months before the expiration of Asacol’s patents in July 2013, Warner Chilcott discontinued Asacol. Id. ¶ 144. Warner Chilcott did so because it knew discontinuing Asacol would weaken a generic drug’s ability to convert Asacol’s market share. Id. ¶¶ 144-49. Manufacturers of generics rely on state laws that often require pharmacists to substitute an AB-rated generic drug to the brand-name drug to gain market share. Id. ¶ 147. An AB-rated generic drug is a generic drug determined by the FDA to meet strict bioequivalence testing standards that show it has the same efficacy and safety profile as the brand drug. Id. ¶ 35.

         During the FDA approval process, Warner Chilcott identified only two differences between the drugs: (1) Delzicol consists of a cellulose capsule around an Asacol tablet and (2) Delzicol contains dibutyl sebacate (“DBS”) as an inactive coating ingredient, while Asacol contains dibutyl phthalate (“DBP”) instead. Id. ¶ 112. The cellulose capsule is covered by the ’180 patent, which does not expire until 2020. Id. ¶ 114.

         Plaintiffs allege that Warner Chilcott created Delzicol to further its monopolization scheme.[2] Id. ¶ 116. First, the FDA approved Delzicol based on its bioequivalence to Asacol. Id. ¶ 117. This eliminates the possibility that the Delzicol capsule, which is triggering its patent protection, makes Delzicol a medically superior product to Asacol. Id. Second, the cellulose capsule dissolves quickly in stomach acid. Id. ¶ 118. The capsule thus provides no additional protection to the active drug ingredients in Asacol, which is already covered in a coating designed to protect the active drug ingredients from stomach acid. Id. Third, Warner Chilcott did not need to include the capsule in Delzicol to replace the DBP in Asacol with DBS. Id. ¶ 119. Warner Chilcott currently sells a DBP-free 400 mg Asacol tablet in the United Kingdom, which shows how the capsule is an unnecessary modification. Id. In fact, for many patients, the capsule has made Delzicol more difficult to swallow than Asacol. Id. ¶ 120.

         Plaintiffs also allege that Warner Chilcott’s purported concerns about DBP in Asacol was simply a pretext to create Delzicol. Id. ¶ 127.[3] First, Warner Chilcott was not required to remove Asacol from the market to remove DBP from the product. Id. ¶ 134. Consistent with the FDA’s recommendations, the company could have simply removed the DBP from Asacol, replaced it with DBS, and then submitted the necessary regulatory submissions to establish that DBS was safe. Id. Instead, Warner Chilcott chose to introduce a new patent-protected product while simultaneously destroying the market for Asacol, which faced imminent generic competition. Id.

         Second, the DBP concerns primarily applied to pregnant and nursing women and young children. Id. ¶ 135. As of May 2010, Asacol’s label already recommended limited use by pregnant and nursing women and warned that the safety and effectiveness of Asacol for young children had not been established. Id. Third, Warner Chilcott’s subsidiary in Canada continued to sell Asacol and Asacol HD, both of which contained DBP, to Canadians as of December 29, 2014. Id. ¶ 136. Had the company believed that removing DBP resulted in a better product, it would have introduced DBP-free versions of both drugs. Id.

         Fourth, concerns over DBP had been known since the 1990s. Id. ¶ 137. Yet Warner Chilcott and its predecessor released Asacol HD in 2008, which contains more DBP than Asacol, despite these concerns. Id. ¶¶ 128, 137. Fifth, because of Asacol HD’s higher DBP content, had Warner Chilcott truly been concerned about DBP, it would have developed a replacement for Asacol HD first. Id. ¶ 138. Sixth, Warner Chilcott continued to give Asacol to children in pediatric trials as last as March 2011. Id. ¶ 139. Seventh, had Warner Chilcott been legitimately concerned about DBP, it would not have aggressively sought to switch Asacol patients to Asacol HD. Id. ¶ 140. Finally, Warner Chilcott sought, and the FDA approved, Asacol for children on October 18, 2013, after the company had removed Asacol purportedly over its concerns about DBP. Id. ¶ 141.

         Shortly after Delzicol’s release, doctors and patients have quickly realized that Delzicol is essentially Asacol surrounded by an unnecessary capsule. Id. ¶ 122. Members of the public have made videos, posted pictures, or written online about their frustration over the lack of differences between the two. Id. ¶¶ 122-26.

         When Allergan plc acquired Warner Chilcott, Warner Chilcott’s efforts to throttle generic competition received praise during the merger. Id. ¶ 163-64. Asacol HD and Delzicol had approximately $550 million in sales in 2014. Id. ¶ 166.

         4. The Settlement Agreement with Zydus and Allegations of a Large and Unjustified Reverse Payment

         In September 2011, Zydus filed an ANDA seeking permission from the FDA to sell a generic version of Asacol HD. Id. ¶ 170. Zydus filed a Paragraph IV certification, which meant it intended to challenge the Asacol HD patents. Id. After two years of litigation, Warner Chilcott and Zydus announced a settlement agreement (“Settlement Agreement”) in December 2013. Id. Zydus was the first Paragraph IV filer, which meant it qualified for the 180-day marketing exclusivity period under Hatch-Waxman.

         Under the Settlement Agreement, Zydus has two options to sell a generic Asacol HD.[4] D. 53-1. Under the first option, Zydus can enter the market with its own generic starting November 15, 2015 (or earlier under certain conditions) if Zydus receives FDA approval of its ANDA.[5] Id. at 10-11. In exchange, Zydus would pay Warner Chilcott a 25% royalty of Zydus’s net sales. Id. at 11. Warner Chilcott, however, would maintain the option to supply an authorized Asacol HD generic to its affiliates (but not third-parties) during Zydus’s marketing exclusivity period. Id. at 18; D. 26 ¶ 49.

         Under the second option, if the FDA does not approve Zydus’s ANDA, Zydus has the option to sell an authorized generic version of Asacol HD from Warner Chilcott beginning July 2, 2016. D. 53-1 at 17. Warner Chilcott would be barred from supplying an authorized generic to its affiliates or any third party for two years. Id. at 18. In exchange, Zydus would pay 75% of its profits to Warner Chilcott. ...

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