Health and Pharmaceuticals Committee: Recent Developments Series

September - October 2015

November 24, 2015 12:00pm EST

Porter Wright Morris & Arthur LLP 1900 K Street, N.W., Suite 1110

Washington, DC 20006

Agenda

• Mergers and Related Litigation • Pay for Delay Developments • Recent Litigation Activity • Agency Actions

Mergers and Related Litigation

FTC requires divestiture of Tornier orthopedic products as condition of merging with Wright Medical Group

• Wright, based in Memphis, TN, produces foot and ankle hardware, upper extremity reconstruction devices, and biologics products.

• Tornier’s U.S. subsidiary produces upper and lower extremity joints, sports medicine, and biologics.

• Wright and Tornier are two of the three producers in the U.S. of hardware for total ankle replacement and the only two major producers of total silastic toe joint replacement hardware in the U.S.

• FTC required Tornier to divest all U.S. assets and rights to total ankle replacements and total silastic toe joint replacements to Integra, a global medical device company, as a condition of the merger.

Mylan, N.V. Agrees to Sell Rights to 7 Products as a Condition of Acquiring

Perrigo Company plc.

• Mylan, a U.K.-based company, and Perrigo, based in Ireland, are both global producers of generic drugs.

• Mylan initiated a hostile takeover of Perrigo. • FTC charged companies are current competitors for 4 drugs (or have FDA approval

to sell such drugs) and future competitors for 3 other drugs. • The FTC proposed order requires Mylan to divest four currently available generic

drugs: o Bromocriptine Mesylate (Type 2 diabetes and Parkinson’s) o Clindamycin Phosphate/Benzoyl Peroxide (Acne) o Liothyronine Sodium (Hypothyroidism and enlarged glands) o Polyethylene (Laxative for occasional constipation)

• The proposed order includes three additional generic drugs that must also be divested to preserve future competition: o Acyclovir (Herpes) o Hydromorphone hydrochloride (Pain in narcotic tolerant patients) o Scopolamine (Motion sickness and recovery from anesthesia and surgery)

• Divestiture is proposed to go to Alvogen Group Inc. of New Jersey. • Om Nov. 13, Perrigo shareholders spurned a $26 billion offer from Mylan, with only

about 40% tendering their shares by the deadline

Prime Files Suit Against California Attorney General

• Prime Healthcare Services, Inc. was chosen by the Daughters of Charity Health System (DCHS) to purchase its 6 financially distressed hospitals, out of nearly 200 bids, for a total of $843 million.

• California law requires purchases of nonprofit hospitals be approved by its attorney general.

• Prime backed out of deal because of the conditions imposed by AG

• Prime alleges that AG colluded with powerful hospital workers union Service Employees International Union – United Healthcare Workers West

• Suit alleges conditions imposed because union wanted prime to unionize all of its locations

• Complaint says AG acted on union behalf to ensure continued political support

• Complaint alleges that conditions added by AG included: • Continuing operating 5 money-losing hospitals for 10 years • Maintain majority of current services at each hospital for 10 years • Provide increasing levels of uninsured care for next 10 years • Maintain grant supported community services even though Prime is for-profit and eligible for such

grants • Continue existing health plan contracts • Allow LA County Board to unilaterally pick a member of Prime’s Board

Walgreens Boots Alliance Purchase of Rite Aid Pharmacy May Prompt Antitrust Investigation

• October 27, 2015 – Walgreens announced it would buy Rite Aid Pharmacy for $17.2 billion.

• Walgreens currently operates over 8,200 stores in the U.S. Rite Aid has 4,570 stores in 31 states.

• The acquisition would give Walgreens control of 46% of the $216 billion retail pharmacy industry.

• Walgreens has said it is prepared to divest up to 1,000 stores (8% of total) although it expects to have to divest less than half of that.

• Walgreens termination fee: $650 million; Rite-Aid: $325 million

Pfizer, Inc. Acquires Hospira, Inc. Subject to Divestiture

• Hospira, based in Lake Forest, IL, is the world’s largest producer of generic injectable pharmaceuticals. Pfizer, based in New York City, is one of the largest pharmaceutical companies in the world.

• In the sterile injectibles market, Pfizer principally competed with Hospira. The FTC charged the merger would be anticompetitive.

• The FTC required the companies to divest four generic injectable products to Alvogen Group Inc., a New Jersey-based generic pharmaceutical manufacturer, in order to preserve competition in this market.

– Pfizer’s rights and assets related to generic acetylcysteine inhalation solution (respiratory disorders)

– Hospira’s rights and assets related to clindamycin phosphate injection (antibiotic), voriconazole injection (antifungal), and melphalan hydrochloride injection (chemotherapy agent used to treat multiple myeloma and ovarian cancer)

Ascension to Acquire Wheaton Franciscan Healthcare

• Ascension, based in St. Louis, MO, is a Catholic health system that is also the largest nonprofit health system in the U.S. Wheaton Franciscan Healthcare, Glendale, WI, is a nonprofit run by the Wheaton Franciscan Sisters and operating facilities in four states.

• Ascension will acquire all of Wheaton Franciscan’s Southeastern Wisconsin facilities.

• The Franciscan Sisters said they were selling their ministries while still fiscally sound because they are aging and their numbers have dropped. Their choice of Ascension was due to the shared Catholic, nonprofit missions.

• Creates system is @30% SE Wisconsin market

Keystone Orthopaedic Specialists, LLC and Orthopaedic Associates of Reading

Settles with FTC

• Keystone was formed in 2011 by the merger of six independent physicians groups in Berks County, PA.

– Combined 19 of the 25 available orthopedists – Allowed keystone to negotiate on behalf of formerly independent practices – After merger, Keystone allegedly raised prices

• In 2014, one of those six practices, Orthopaedic Associates, separated from Keystone.

• The FTC filed a complaint against Keystone and Orthopaedic Associates for violation of antitrust laws.

• Under consent, both Keystone and Orthopaedic Associates must: – obtain permission before acquiring interest in each other – acquiring another orthopedic practice in the county – before hiring an orthopedist who has provided orthopedic services in county in

past year

• Both are also prohibited from anticompetitive, illegal activity such as coordinating prices with other orthopedists.

FTC Withdraws Complaint Against STERIS Corporation’s Acquisition of Synergy Health plc

• September 24, 2015 – FTC motion for a preliminary injunction to halt the merger of STERIS and Synergy is denied.

• FTC arguments for injunction: – The FTC alleged that Synergy was planning to enter the U.S. market

with x-ray sterilization technology that would disrupt the duopoly of STERIS and Sterigenics, which are the only major providers of gamma radiation and e-beam radiation sterilization in the U.S..

– The FTC alleged that by merging with Synergy STERIS was looking to eliminate this potential future source of competition.

• Why the FTC lost: – Synergy showed through the evidence that bringing emerging x-ray

sterilization into the U.S. market was a huge risk that required a tremendous capital investment.

FTC Withdraws Complaint Against STERIS Corporation’s Acquisition of

Synergy Health plc, Cont’d

• Why the FTC lost, cont’d: • Synergy also showed that they could get no customers to sign up to use

this technology if they invested in building the facilities. • The evidence Synergy presented further showed no formal business

plan to build x-ray sterilization facilities in the U.S. was ever presented to the PLC Board of Directors that needed to approve any such capital investments.

• Finally, the plan to build a U.S. x-ray sterilization facility was not abandoned until well after the merger with STERIS was announced.

• October 1, 2015 – STERIS and Synergy moved to have the FTC complaint against their merger withdrawn from adjudication.

• October 6, 2015 – The FTC chose not to file an objection to the STERIS/Synergy motion. The order withdrawing the matter from adjudication was issued on October 7, 2015.

PAY FOR DELAY DEVELOPMENTS

Pay-For-Delay

• In re: Solodyn (Minocycline Hydrochloride) Antitrust Litig., No. 14-10474

– Motion to Dismiss context

– “large and unjustified”

Pay-For-Delay

• In re: Solodyn (Minocycline Hydrochloride) Antitrust Litig., No. 14-10474 (D.Mass)

– August 14, 2015 opinion from District of Massachusetts, found in a motion to dismiss context, plaintiffs’ claims survived by pleading “large and unjustified” payments.

– Medicis Pharmaceuticals engaged in patent litigation over its popular dermatology drug Solodyn. I was awarded its patent in 1999, and it expires in 2015.

– Plaintiffs alleged that in settling two different patent infringement suits, Medicis made large and unjustified payments to keep generics out of the market. Defendants claimed that the payments were not “large and unjustified on their face

– The court ruled that plaintiffs WERE required to plead large and unjustified payments to survive a motion to dismiss, but found that they had done so.

– The court, applying the rule of reason test, ruled that large and unjustified payments created a high risk of anticompetetive harm, and once pled, the burden shifts to the defendants to justify the payments

Pay-For-Delay

• In re: Solodyn (Minocycline Hydrochloride) Antitrust Litig., No. 14-10474 – Specifically, the settlements were:

• Impax sued in 2008 to invalidate the patent, and was granted license to enter the market with a generic in 2011, and was paid 40 million up front, and $15 million milestone payments to date, to void about $6 million in legal fees

• In 2009, Medicis brought patent infringement suits against Sandoz and Lupin. In settling, Sandox received license to enter the market in 2011 with a generic, and was paid $14 million for an allegedly “worthless product”. Lupin received $20 million up front and $35.5 million in milestone payments for development work

Pay-For-Delay

• In re: Nexium (Esomeprazole Magnesium) Antitrust Litig., No. 12-2409 (D.Mass 2015) – Jury finding of liability, but no damages

– Agreement not to market generic a

“large and unjustified” payment

– The Judge refused to grant injunction

Pay-For-Delay

• In re: Nexium (Esomeprazole Magnesium) Antitrust Litig., No. 12-2409 (D.Mass 2015) – In other Massachusetts District Court news, direct purchaser plaintiffs

appealed the first class action pay-for-delay trial resulting in zero damages. – The jury found that AstraZeneca was liable for not launching an authorized

generic – There were no damages, however, because the jury also found that the

generic could not have been brought to market any sooner because the generic manufacturer Ranbaxy had major problems with its production facility. Plaintiffs claimed this acted as a bottleneck, since Ranbaxy had a first-filer exclusivity period, and Astrazeneca agreed to compete with Ranbaxy during this period. The jury found Astrazeneca’s agreement to be a ”large and unjustified payments”

– Direct, indirect, and end payor plaintiffs also appealed the district court’s refusal to grant a permanent injunction to bar AstraZeneca and co-defendants Ranbaxy from adhering to a no-authorized generic commitment

Pay-For-Delay

• Concordia/Par settlement with FTC – FTC alleged unlawful agreement not to compete over

a generic of Kapvay, an attention deficit hyperactivity disorder medication

– Only two firms approved to sell the generic, Concordia agreed not to for a share of Par’s revenues

Pay-For-Delay

• Concordia/Par settlement with FTC: Settlement Terms

• no profit sharing

• no entering agreements with others who may market

• FTC notification of patent settlements

Pay-For-Delay

• Barba v. Shire US Inc., No. 1:13-cv-21158 (S.D. Fla.) – plaintiffs allege that Shire paid generic rivals

for days of Adderal generic – renewed motion for class certification – court heard oral argument and requested

proposed reports and recommendations from parties

Pay-For-Delay

• King Drug Co. of Florence Inc. v. Cephalon Inc., et al., No. 2:06-cv-01797 (E.D. Pa.) – Provigil, narcolepsy drug – $512 million settlement with direct purchasers

approved ten days after court ruled that Cephalon could rely on expert testimony about motivation for entering into settlement agreements.

– One of several actions brought by direct purchasers, end payors and FTC

Pay-For-Delay

• In re: Modafinil Antitrust Litig., No. 15-8084 (3d Cir.) – narcolepsy drug Provigil – Third Circuit accepted interlocutory appeals of

class certification of direct purchasers – Numerosity (22 members) and Comcast

arguments

Pay-For-Delay

• In re: Lamictal Direct Purchaser and Antitrust Consumer Litigation, No. 2:12-cv-05120 (D.N.J.) – epilepsy drug Lamictal – non-monetary pay-for-delay – Third Circuit

Pay-For-Delay

• In re: Lamictal Direct Purchaser and Antitrust Consumer Litigation, No. 2:12-cv-05120 (D.N.J.) – GSK and Teva notify D.Ct. that they would seek US

SCt review of whether a non-monetary settlement of patent litigation could sustain a pay-for-delay case. GSK agreed to stay out of the market by not launching its own generic during Teva’s 180 day exclusivity window

– District Court dismissed the action, but the Third Circuit reversed

Pay-For-Delay

• In re: Prograf Antitrust Litig., No. 15-1290 (1st Cir.) – immunosuppressant drug Prograf – lower court certified an “issue class” – argument to the First Circuit argued that

without addressing class injury, individual issues would overwhelm the litigation

Pay-For-Delay

• FTC v. AbbVie Inc., et al., No. 2:14-cv-05151 (E.D. Pa.) – FTC claims that documents were improperly

withheld as privileged in Androgel probe – Defendants previously ordered to submit

documents for in camera review – FTC claims AbbVie and Besins Healthcare

continue to improperly claw back and redact.

CIVIL LITIGATION ACTIVITY

Civil Litigation

• URL Pharma, Inc. v. Reckitt Benckiser, Inc., No. 15-505 (E.D. Pa.) – In 2007, Reckitt and Mutual Pharmaceutical Co., Inc.

settled a patent infringement case involving Reckitt’s patent for extended-release guaifenesin (ERG), which it sells as Mucinex.

– Mutual filed an antitrust suit against Reckitt, arguing that Reckitt monopolized the market in violation of Section 2 of the Sherman Act and Section 4 of the Clayton Act.

– Mutual is also asserting state law breach of contract claims, alleging Reckitt violated their 2007 settlement agreement.

Civil Litigation

• URL Pharma, Inc. v. Reckitt Benckiser, Inc., No. 15-505 (E.D. Pa.) – On Aug. 25, 2015, Reckitt filed a motion to dismiss

the action, which the Court rejected. – On Sept. 30, 2015, Judge Tucker denied Reckitt’s

motion to reconsider the Court’s order denying its motion to dismiss.

– On Sept. 9, 2015, Reckitt filed counterclaims asserting the their contract is unenforceable under New York law and that Mutual failed to satisfy certain conditions of their settlement agreement.

Civil Litigation

• Cason-Merenda v. VHS of Mich. Inc., No, 06-15601 (E.D. Mich.) – Detroit hospital agreed to pay $42 million to

resolve all claims in class action lawsuit brought by nurses alleging area hospitals conspired to depress wages in the Detroit area in violation of Section 1 of the Sherman Act.

– Settlement is waiting Court approval. – If approved, total recovery from the

8 defendant hospitals will exceed $90 million.

Civil Litigation

• The Hosp. Auth. of Metro. Gov’t Nashville and Davidson Cnty, Tenn. v. Momenta Pharm. Inc., No. 3:15-cv-01100 (M.D. Tenn.) – On Oct. 14, 2015, Nashville General Hospital filed suit against

Momenta and Sandoz Inc. alleging the two conspired to monopolize the market for generic Lovenox.

– The generic for the drug became possible after the patent was invalidated in 2008.

– But before any generic can be approved, it must pass a quality control test that is covered by a patent held by Momenta, a process, plaintiffs allege, that will enable Momenta to monopolize and control the market for Lovenox.

– Plaintiffs also allege that Momenta and Sandoz have agreed to split up the resulting monopoly profits.

Civil Litigation

• BRFHH Shreveport LLC v. Willis-Knighton Med. Ctr., No. 5:15-cv-02057 (W.D. La.) – University Health Shreveport seeks to enjoin Willis-

Knighton (W-K) from using university faculty doctors to staff its new clinic.

– Plaintiffs argue that allowing LSU doctors to work at W-K’s clinic will extend W-K’s monopoly over the Shreveport-Bossier City area.

– Dispute is over commercially-insured patients. – W-K claims it is immune from suit under the “state

action” doctrine.

Civil Litigation

• Colleen Eastman et al v. Quest Diagnostics Inc., No. 3:15-cv-00415 (N.D. Cal.) – Class action litigation alleging Quest monopolized

diagnostic services in California. – Plaintiffs also alleged that Quest conspired with Aetna

Inc. and Blue Shield of California in violation of Section 1 of the Sherman Act.

– Judge dismissed first complaint with leave to amend. – On September 9, 2015, Judge Orrick indicated during

oral that he will likely dismiss the amended complaint as well.

Civil Litigation

• Schuylkill Health Sys. v. Cardinal Health 200 LLC, No. 12-cv-07065 (E.D. Pa.) – Plaintiffs on behalf of a putative class of hospitals filed

an antitrust lawsuit against Cardinal alleging unlawful bundling and tying.

– Complaint alleged Cardinal and fellow supplier Owens & Minor Distribution Inc. (O&M) enforced restrictive requirements contracts with hospitals to prevent competition from other suppliers.

– Cardinal agreed to pay plaintiffs $1.15 million and cooperate with plaintiffs in the litigation to settle the class claims.

AGENCY ACTIONS

Staff Guidance on State Regulatory Boards (Oct. 15)

N.C. State Bd. of Dental Exam’rs v. FTC 135 S. Ct. 1101 (2015)

•6 of the 8 members of the dental board must be licensed, practicing dentists •Board issued cease and desist letters to non-dentists who were performing teeth-whitening procedures at lower costs than dentists in the community •U.S. Supreme Court held there was no state-action anti-trust immunity under Parker because the Board was not actively supervised by the State

Staff Guidance on State Regulatory Boards (Oct. 15)

• When is a board member an active market participant?

• When do active market participants control a State agency/board?

• What is active State supervision of an agency/board?

Staff Guidance on State Regulatory Boards (Oct. 15)

• When is a board member an active market participant? – Person engaged in any profession regulated by the

board – Even if the person is not directly affected by the

proposed action/policy – Even if the person temporarily leaves practice while

serving on the board – Irrelevant whether the person was

appointed or elected to the board

Staff Guidance on State Regulatory Boards (Oct. 15)

• When do active market participants control a State agency/board? – Majority number of board seats is not needed – Control can be established by tradition or practice, not

just formal rules – Case by case determination – If the active market participant has veto power – If the active market participant’s vote in favor is

required for an action or the active market participant has veto power

Staff Guidance on State Regulatory Boards (Oct. 15)

• What factors are considered in determining active State supervision of an agency/board? – Supervisor has authority to disapprove board’s

actions/policies – Supervisor has information necessary to evaluate the

board’s actions/policies – Supervisor evaluates merits of action/policies in

relation to standards set by state legislature – Supervisor issues an written decision on the

action/policy, including reasons and rationale

Congressional Committee Hearings (Sept. 10, 22, and 29)

House Judiciary Subcommittee on

Regulatory Reform, Commercial and Antitrust Law

Senate Judiciary Subcommittee on Antitrust,

Competitive Policy and Consumer Rights

House Judiciary Committee Hearings (Sept. 10)

Witnesses: • Prof. Thomas Greaney, St. Louis Univ.

School of Law • Rick Pollack, AHA (Pres. and CEO) • Dr. Barbara McAneny, AMA (Trustee) • Dan Durham, AHIP (Exec. V.P. Strategic

Initiatives) • Dr. Scott Gottlieb, Am. Enterprise Inst.

(Resident Fellow)

Senate Judiciary Committee Hearings (Sept. 22)

Witnesses: • Mark Bertolini, Aetna (Chairman and CEO) • Joseph Swedish, Anthem (Pres. and CEO) • Dr. Paul Ginsburg, Univ. of S. Cal • Dr. Leemore Dafny, Northwestern Univ. Kellogg

School of Mgmt. • Rick Pollack, AHA (Pres. and CEO) • George Slover, Consumer Union (Senior Policy

Counsel)

House Judiciary Committee Hearings (Sept. 29)

Witnesses: • Mark Bertolini, Aetna (Chairman and CEO) • Joseph Swedish, Anthem (Pres. and CEO) • Tom Nickels, AHA (Exec. V.P.) • Andrew Gurman, AMA (Pres. Elect) • Prof. Jaime King, Univ. Cal. Hastings Law School • Edmund Haislmaier, Heritage Foundation (Senior

Research Fellow of Health Policy Studies)

Congressional Committee Hearings (Sept. 10, 22, and 29)

• Prof. Greaney: Consolidation is an attempt to frustrate the pro-competitive effects of the ACA

• Dr. Gottlieb: Difficult to use competition as a tool to improve quality and lower cost once an institution has monopolized most providers in the market

• Pollack, Dr. McAneny, Gurman, Nickels: Anthem/Cigna and Aetna/Humana mergers would result in dramatic decrease in competition and reimbursement and consumers are unlikely to see any benefit

• Slover: Dominant insurer could cause providers to cut costs so much that patient care could be adversely effected

• Prof. Danfy: Past consolidation resulted in decreased payments to providers with no savings realized by consumers; larger insurers are not shown to be more likely to innovate

Congressional Committee Hearings (Sept. 10, 22, and 29)

• Bertolini: – Competition in Medicare Advantage sector will not be adversely

effected, as Aetna currently has very few MA plans – Only 8% of Medicare beneficiaries would be covered under

Aetna/Humana; two-thirds would still receive benefits under traditional fee-for-service Medicare

• Swedish: – Anthem/Cigna deal would benefit consumers by expanding access,

improving care, and generating local cost savings – New insurers are entering markets, and a combined Anthem/Cigna

would still face competition in many geographic markets and product lines

• Durham: Consolidation can be pro-competitive, and DOJ and FTC can play an important role in ensuring only pro-competitive consolidation occurs

Comment on Draft FDA Guidance on Biosimilar Naming (Oct. 28)

FDA proposed guidance would require a random suffix for the nonproprietary name of each biologic: • Avoid inadvertent substitution of

non-interchangeable biologics • Improve pharmacovigilance

Comment on Draft FDA Guidance on Biosimilar Naming (Oct. 28)

FTC asked FDA to reconsider: • May decrease price competition because doctors could

interpret the different suffixes to mean biosimilars have clinically meaningful differences than the reference drugs

• May create unnecessary costs to update systems, educate physicians, etc.

• Conflicts with World Health Organization’s proposal to harmonize naming on a global scale, which would include a code that is not part of the non-proprietary name

Comment on Draft FDA Guidance on Biosimilar Naming (Oct. 28)

FTC suggested alternatives: • Focus on use of distinct trade names • Substituting biologics only with use of the FDA’s

Purple Book and physician consent (similar to substitution of non-biologic generics)

Comments on Virginia Certificate of Need Rules (Oct. 26)

Joint statement by DOJ Antitrust Division and FTC Urge repeal of CON rules as barriers to competition

Comments on Virginia Certificate of Need Rules (Oct. 26)

Rationale contra CON rules: • Create barriers to expansion • Limit consumer choice • Stifle innovation and availability of alternative treatment

settings • Abuse by existing providers to delay or discourage entry

of competitors • Prevent un-winding mergers later deemed to be anti-

competitive (FTC v. Phoebe Putney Health Sys., Inc., 133 S.Ct. 1003 (2013))

• CON rules do not improve care, affordability, or access

New York AG Investigates AIDS Drug Pricing (Oct. 12)

New York AG Investigates AIDS Drug Pricing (Oct. 12)

Turing Pharmaceuticals, Inc. manufactures Daraprim, used to treat AIDS complications •Prevents retail sales and distributes only through limited number of specialty pharmacies •Increased price from $13.50 to $750 per tablet (5000% price increase) AG investigating whether the limitations are designed to prevent competition by inhibiting generic drug companies from obtaining Daraprim for bioequivalency studies

Russian Antitrust Review

Russian Antitrust Review (Nov. 2)

Russian Federal Anti-Monopoly Service targets efficacy claims in advertisements by drug and device companies Drugs and devices that do not comply with laws regarding claims of positive outcomes or disclosure of side effects Potential fines: approx. $3,000-$7,500 (200,000-500,000₽)

Questions?

Presenters:

Jay Levine 202-778-3021

jlevine@porterwright.com Twitter: @JayLLevine

Partner, Litigation, Washington, DC

Jetta Sandin 202-778-3020

jsandin@porterwright.com Associate, Litigation, Washington,

D.C.

Presenters:

Emily Root 614-227-1912

eroot@portewright.com Counsel, Health Care, Columbus, OH

Molly Crabtree 614-227-2015

mcrabtree@porterwright.com Partner, Litigation, Columbus, OH