Recent Antitrust Developments in Healthcare & Pharmaceuticals:

Q4 2019January 23, 2020

Dee Bansal, PartnerJulia Brinton, AssociateMegan Browdie, PartnerJacqueline Grise, Partner

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Agenda

• What’s New?• Legislation• Mergers• Government Action/Investigations• Litigation

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What’s New?

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Recent Staff Changes at FTC

• Bureau of Competition:– Ian Conner appointed Bureau Director as of Dec. 2019

– Marian Bruno, Deputy Director of Bureau of Competition, retired 12/31/2019; position remains vacant

– Daniel Francis appointed Deputy Director

– Daniel Zach named Acting Assistant Director of Mergers I following retirement of Michael Moiseyev

– Lynda Lao named Acting Deputy Assistant Director of Mergers I

• Bureau of Economics:– Andrew Sweeting appointed director of Bureau of Economics as of Jan. 2020

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Drug Pricing Remains High on Politicians’ Agenda

• Letter to FTC to FTC in late 2019 from Senators (led by Sen. Klobuchar) urged FTC to take a close look at pharma mergers, citing potential harm from deals like BMS/Celgene and AbbVie/Allergan

– “The past several years have seen a steady increase in mergers and acquisitions across our economy, and the pharmaceutical sector is no exception.”

– “This industry consolidation is occurring against a backdrop of ever rising prescription drug spending... It is more important than ever that the FTC take appropriate action to protect consumers.”

– “The FTC must carefully consider whether the proposed transactions may lessen competition, stifle innovation, or harm consumers.”

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“We know there are a whole lot of drugs, about 90% of drugs, that are not under patent. They’re generic drugs, but the drug industry has figured out how to

manipulate this industry, keep jerking prices up and up and up. So my view is, let’s give them a little competition.” – Elizabeth Warren, during Democratic debate

Agencies Release Draft Vertical Merger Guidelines for Public Comment

• Released Jan. 10; comment period open to public for 30 days

• Draft guidelines outline principal analytical techniques, theories of harm, and enforcement policy for vertical mergers

– Describe potential anticompetitive effects resulting form vertical mergers (unilateral and coordinated)

– Identify foreclosure and raising rivals’ costs and access to competitively sensitive information as potential elements o harm

– Highlight efficiencies, including double marginalization that may mitigate harm

• FTC vote to issue guidelines was 3-0-2, with Chopra and Slaughter dissenting; Wilson issued a concurring statement encouraging comments

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Safe harbor? Agencies are “unlikely to challenge a vertical merger where the parties to the merger have a share in the relevant market of less than 20%, and the related product is used in less than 20% of the relevant market.”

Legislation

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Federal Prescription Drug Legislation

• Prescription Drug Affordability & Access Act– Introduced by Senators Booker (NJ), Harris (CA), and Sanders (VT) to reduce

drug prices and increase access– Bill proposes creating Bureau of Prescription Drug Affordability and Access to set

list prices by working with drug companies– Bureau would be able to void patents, clinical data, or grants for exclusivity for

failure to comply with mandated list price

• H.R. 965 – Creating and Restoring Equal Access to Equivalent Samples Act – “CREATES” Bill

– Aimed at promoting competition by facilitating entry of generics– Targets alleged tactics used by branded drug companies to slow entry of

generics, e.g., refusing to supply samples to generic companies– Passed in December

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CA Assembly Bill 824: “Preserving Access to Affordable Drugs”

• Effective Jan. 1, 2020

• Makes CA first state to explicitly prohibit certain pay for delay arrangements– Most patent settlements between branded and generic drug companies

presumptively illegal; exception if procompetitive benefits > anticompetitive effects

– Allows treble damages against individuals with maximum fine of $20 million

• Generic drug industry trade group sought P.I. in district court in November, which was denied, and appealed to Ninth Circuit in January– Temporary injunction pending appeal also requested; decision pending– District Court opinion noted potential violation of Dormant Commerce Clause

of Constitution if CA seeks to enforce law outside CA against parties entering into reverse-payment agreement outside CA and “ha[s] nothing to do with CA”

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Mergers

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Ottobock Ordered to Unwind Consummated Merger

• Ottobock acquired Freedom Innovations in Sept. 2017; transaction not HSR-reportable

• FTC challenged deal in administrative court in Dec. 2017, arguing deal gave companies combined 80% share in microprocessor-equipped prosthetic knees (MPK) market

– FTC characterized deal as market leader seeking to eliminate its primary and innovative competitor

• In Nov. 2019, Commission voted unanimously to uphold ALJ decision ordering divestiture of Freedom assets to FTC-approved buyer

– Rejected several arguments• Other types of prosthetic knees should be included in market• Freedom Innovations would have failed but for the transaction (the “failing firm

defense”)• Offer to divest Freedom’s MPK assets was sufficient remedy and that mandating

divestiture of additional assets, including foot products, was "punitive"

• Ottobock has not yet appealed11

$74B BMS/Celgene Deal Approved with Conditions

• BMS to divest Celgene’s marketed psoriasis drug Otezla for $13.4B to Amgen to preserve BMS’s incentive to continue developing its own oral psoriasis product

– Largest divestiture ever required in merger enforcement matter– Reflects recent policy statements from FTC saying that they will insist on

divestiture of the marketed product, rather than the pipeline product

• Commissioners Chopra and Slaughter dissented, encouraging more aggressive scrutiny of pharma mergers

– Chopra: advocated adding alternative theories to “routine” analysis, e.g.:• Will the merger facilitate a capital structure that magnifies incentives to engage in

anticompetitive conduct or abuse of intellectual property?• Will the merger deter formation of biotech firms that fuel innovation?

– Slaughter: FTC’s analytical approach on the Otezla divestiture was “too narrow”; FTC should consider “more broadly whether any pharmaceutical merger is likely to exacerbate anticompetitive conduct or hinder innovation”

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“Killer Acquisitions”

• Increased focus on “killer acquisitions” of nascent competitors / technologies

• In pharma and medical device context, generally refers to an incumbent purchasing a drug candidate or innovative rival with the intent to eliminate a potential competitive product

• Agency statements indicate emphasis likely to continue in 2020

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“[W]hile the sale to an incumbent represents a valuable exit strategy for startups that encourages investment and innovation, established firms may seek to acquire nascent or potential competitors poised to challenge their market position.” -Bruce Hoffman, Dir. of Bureau of Competition

“[M]ergers of … nascent competitors are particularly difficult … because the acquired firm is by definition not a full-fledged competitor, and the likely level of future competition with the acquiring firm often is not apparent. But the harm to competition can nonetheless be significant.” - FTC Chairman Joe Simons

“Killer Acquisitions”: Roche / Spark

• Roche acquired gene therapy start-up Spark Therapeutics for ~ $4.8B in December 2019 after “exhaustive” 10-month FTC investigation

• FTC closing statement described potential concern re: overlap in existing and pipeline products for treating hemophilia A, a genetic blood clotting disorder

– Roche’s Hemlibra is one of several existing treatments; no gene therapy currently exists but Spark has one in development

– FTC concluded Roche would not have incentive to delay or terminate Spark’s development efforts for its gene therapy to treat hemophilia

– Instead, FTC found Roche would have incentive to accelerate – not decelerate –Spark’s development efforts to compete for gene therapy products

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“Killer Acquisitions”: Illumina / PacBio

• Illumina abandoned $1.2B Pacific Biosciences acquisition (both gene sequencing companies) after US & UK scrutiny

• UK regulators (CMA) opened Phase II investigation in June

• FTC filed administrative complaint in December, alleging:– Illumina is a “monopolist” with 90%+ share in market for next-

generation sequencing – Illumina predominant provider of “short-read” sequencing systems– PacBio currently provides “long-read” sequencing for more complex tasks, but

recent advances in short-read sequencing made it a “nascent competitive threat” and Illumina’s purchase motive was to “extinguish” that threat

– Thus, transaction threatened to eliminate head-to-head competition in sequencing systems and remove a nascent competitor in short-read sequencing

• Parties abandoned deal in January, citing “uncertainty” and “lengthy approval process”

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FTC Administrative Review Authority Under Attack?

• FTC issued administrative complaint challenging Axon’s acquisition of body-worn camera systems competitor VieVu in January 2020

• Axon sued the FTC in federal court, alleging FTC’s administrative proceedings are unconstitutional as violations of Due Process and Equal Protection

– Takes issue with FTC’s and DOJ’s shared jurisdiction and differences in process (DOJ’s only option is to sue in federal court; FTC has administrative authority)

• The “opaque, black-box process” of “clearance” dictates which agency will review and investigate a merger• “Which agency reviews a consummated transaction is critical.”

– While FTC decisions may be appealed to federal court, Axon alleges the standard to overturn is higher because no new facts or evidence can be introduced

• Follows concerns from some politicians regarding FTC’s and DOJ’s shared authority over mergers

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“[I]n an administrative proceeding, the FTC will not only charge and prosecute the case, but also appoint the ALJ that presides over it. And if the FTC disagrees with the ALJ’s ultimate

decision on either the facts or the law, the same Commissioners who voted to file the enforcement action against Axon have the right to review these findings de novo and change

them. If that procedure sounds unfair, that’s because it is.” Complaint Para. 7

Government Action/Investigations

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DOJ Approves Expansion of GPO Activities in Jan. 15, 2020 Business Letter

• DOJ will not challenge Am. Optometric Assn’s proposal to expand group purchasing organization’s (GPO) activities to include purchase of optometric products – glasses, frames, contact lenses – for resale to consumers

– DOJ found proposed expansion unlikely to have anticompetitive effects and could instead lead to discounts for Ass’n members, resulting in lower prices for consumers

• Joint purchasing arrangements among healthcare providers do not raise concerns when produce efficiencies, e.g., reduced transaction costs, but can raise concerns if prices are driven below competitive levels or aid in price fixing

• Appropriate safeguards can reduce concern as outlined in Statement 7 of the Statements of Antitrust Enforcement Policy in Health Care:

– (1) GPO participants not required to make any of their optometric-product purchases through the GPO, (2) third party negotiates prices with GPO’s suppliers, and (3) communications between GPO and each participant on prices kept confidential from other GPO participants

• Association found to fall within “antitrust safety zone” of Statement 7; agencies unlikely to challenge joint purchasing arrangement among healthcare providers

– Purchases account for < 35% of total sales of the purchased product or service in the relevant market

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Dental Supply Companies Do Not Appeal ALJ Decision, Making Decision Final

• In Feb. 2018, FTC alleged three of the nation’s largest dental supply companies – Benco Dental, Henry Schein, and Patterson – conspired to refuse to provide discounts to buying groups representing independent dentists

– FTC claimed companies controlled > 85% of all distributor sales of dental products & services in the U.S., which includes gloves, cements, sterilization products, a range of consumable supplies, and equipment (dental chairs, hand-pieces, lights)

– U.S. market for dental products valued at $10B• In Oct. 2019 decision, ALJ found Benco and Patterson were part of conspiracy

but Schein was not– Complaint details communications between executives of two companies as well as

attempts to monitor and ensure compliance with the agreement• Decision order prohibits companies from engaging in further conspiracy

agreements and requires antitrust compliance monitoring; no financial penalties imposed

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FTC Files Amicus Brief in Case Alleging Anticompetitive Conduct by Manufacturers of

Branded HIV Medications

• Oct. 2019 brief re: issue of whether there can only be one relevant market for a set of products, regardless of the alleged competitive harm

• Gilead’s motion to dismiss appears to assert one relevant market; FTC disagrees, arguing multiple markets can be affected when multiple types of anticompetitive harm are alleged– “it is simply not the case that only one relevant antitrust market is

cognizable for any given product or set of products” – “the relevant product market may vary considerably, depending on the

alleged anticompetitive effects at issue.”• No position taken on merits of the case

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Impax Appeals FTC’s Ruling on Reverse Payment Agreement to 5th Cir.

• FTC filed administrative complaint in 2017 alleging Endo and Impax entered into an illegal pay-for-delay agreement in 2010 involving Opana ER, a generic opioid pain reliever

– In 2018, ALJ found FTC failed to prove violation and dismissed complaint– FTC appealed to the Commission and, in March 2019, Commission reversed ALJ

by 5-0 vote, holding Impax violated Section 5 of the FTC Act

• First fully-litigated Commission challenge since Actavis in 2013

• On appeal, Impax asserts FTC improperly argued reverse-payment settlements are presumptively anticompetitive – inconsistent with Actavis -- and FTC should have given more consideration to details of the Endo agreement, which permitted Impax to launch its generic prior to expiration of the Opana ER patents

• A case to watch in 2020 -- number of active pay-for-delay cases and continuing uncertainty on how to interpret Actavis

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DOJ Using Deferred Prosecution Agreements to Settle Price-Fixing Allegations with Generics

• Rising Pharma entered into DPA in December 2019 and agreed to pay $3M in criminal penalties, restitution, and civil damages to settle charges it conspired to fix prices and allocate customers for generic hypertension drug Benazepril HCTZ

• Heritage Pharma entered into DPA in March 2019 and agreed to pay $7M in criminal penalties and civil damages relating to charges it conspired to fix prices, rig bids, and allocate customers for glyburide, used to treat diabetes

– Two Heritage executives (former CEO and President) charged back in 2016 on similar claims; both individuals agreed to cooperate and are awaiting sentencing

• Charges result of 5-year investigation into potential generic-drug price fixing• Remains to be seen how cooperation by Heritage & Rising will advance broader

multidistrict litigation

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New DPA Policy Having an Impact? Under new policy, announced in July 2019, prosecutors required to consider whether DPA should be used to resolve case instead of mandating guilty plea. Policy change brings Antitrust Division in line with rest of DOJ.

Update on Generic Price-Fixing Litigation

• Amended complaint from more than 50 states and territories filed Nov. 1 against over a dozen generic pharmaceutical companies and executives alleging conspiracy not to compete and to settle for a “fair share” of each generic drug market

– Collusive activity allegedly resulted in “many billions of harm to the national economy” in the form of artificially higher prices

– Named drugs include treatments for basic infections, diabetes, cancer, epilepsy, multiple sclerosis, HIV and ADHD, plus antidepressants, contraceptives and anti-inflammatory drugs

• In Jan., Heritage lost bid to exclude email on attorney-client privilege grounds – Email included in complaint and amended complaint between Heritage’s outside counsel and then-

CEO regarding how Heritage, Teva, and Mylan should respond to Congressional inquiry re: investigation into price increases in generic industry – “polite f-u letters”

• Pfizer filed motion to dismiss in December, arguing it had no role in alleged conspiracy– Branded drug manufacturer; not generic– Not aware of any alleged conspiratorial conversations involving its generic-drug manufacturer

subsidiary, Greenstone LLC– Complaint alleges Pfizer and its subsidiary are “essentially indistinguishable” while Pfizer asserts

none of the allegations “pierce the corporate veil”• Delrahim told WSJ DOJ is preparing to file new criminal cases against the generic drug

industry for allegedly fixing prices – no details given but look for more activity to come23

Litigation

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Update: Pay For Delay

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3rd Circuit Hears Oral Argument Regarding Scope of Section 13(b)

• On Jan. 15, 2020, the Third Circuit Court of Appeals heard oral arguments in FTC v. AbbVie Inc, et al. – one key issue is the validity of $448 million disgorgement award issued by the district court against AbbVie Inc. for monopolizing the Androgel market by filing “sham” lawsuits against competitors

• AbbVie contends that Section 13(b) does not permit any form of monetary relief; relies on 3d Cir.’s holding in Shire that 13(b) is restricted to an entity that is “violating, or is about to violate” federal law

• FTC argued the authority to issue a permanent injunction encompasses ability to award equitable monetary relief, and that Shire only requires the FTC to plead that a defendant “is violating, or is about to violate” the law at the time of the suit, not at the relief stage.

• FTC further urged 3d Cir. to revive reverse payment claims, calling their dismissal by the district court “legal error”

• Case to Watch in 2020: If AbbVie prevails, could strip FTC of one of its most powerful remedial weapons

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New Pay for Delay Lawsuit Filed Over Glumetza

• In September 2019, Walgreens, Kroger, Albertsons and HEB filed a complaint in N.D. Cal., alleging Bausch, Salix Pharma, Santarus, Assertio, and Lupin participated in a pay for delay scheme to block generic entry for anti-diabetic medication Glumetza

• Arrangement allegedly delayed generic competition from February 2012 to August 2016 and caused direct purchasers to overpay by more than $2.8 billion

• Three other potential class actions re Glumetza have been filed in the same court since late August

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Update on Zetia, Intuniv, and Loestrin Litigation

• In Re: Zetia (Ezetimibe) – In December 2019, the district court ruled that certain direct purchaser claims against Merck

and Glenmark should be dismissed– Found that Illinois Brick’s direct purchaser rule barred drug wholesalers’ and retailers’ claims;

class may pursue claims against Merck and Glenmark where based on purchases of branded Zetia

• In re Intuniv– In November 2019, district court refused to reconsider denial of class certification to a group

of proposed class members accusing Actavis and Shire of illegally delaying the sale of a generic version of Shire’s ADHD medication, Intuniv

– Found that more than 25,000 (about 8%) of proposed class members suffered no injury from the generic delay because either (1) they were loyal to the branded drug; (2) had co-payment coupons to buy the branded drug at a discount; or (3) purchased the drug through insurance after reaching out-of-pocket maximums

• Loestrin 24 FE Antitrust Litigation– In January 2020, Allergan announced that it had agreed to pay buyers of Loestrin $300

million to settle claims that its former subsidiaries, Warner Chilcott and Watson, entered into reverse payment settlements with generic manufacturers of Loestrin to prevent generic competition

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Allergan Agrees to Pay $750 Million to Settle Class Action Lawsuit Over Namenda

• In 2014, direct purchasers sued Allergan in S.D.N.Y, alleging Allergan engaged in anticompetitive conduct to delay entry of generic versions of its Alzheimer’s Drug Namenda– Pay for Delay Claims: Alleged that Allergan’s subsidiary Forest

Labs and partner Merz entered into reverse payment deals with four generic manufacturers to delay generic entry

• Generic manufacturers faced related lawsuit -- settled for $1.54 million in August 2019

– Product Hopping Claims: Alleged that Forest Labs and Merzengaged in a ‘hard switch’ by pulling the immediate-release Namenda and replacing it with an extended release formula

• Allergan’s MSJ was denied in August 2019 and trial was scheduled for October 2019; Allergan announced settlement in October 2019

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Update: Other Litigation

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Patent Thickets Facing Increased Scrutiny

• Increasing scrutiny over the past year re the use of “patent thickets” to deter biosimilar entry

– FDA has criticized patent thickets as a “scheme[]” to “hamstring biosimilar competition . . . “deter[ring] market entry for years” - Scott Gottlieb, Former FDA Commissioner

– Senate bill (Biologic Patent Transparency Act, S.659) introduced in March 2018 aimed at curbing patent thickets

• In March 2019, New York grocery union brought suit against AbbVie alleging that AbbVie violated Section 2 by acquiring a patent thicket in order to prevent biosimilar competition for its branded immunosuppressant, Humira

– Complaint alleges that although Humira’s main patent expired in 2016, Abbvie’s portfolio of over 100 patents has prevented biosimilar entry in the U.S.

– AbbVie filed motion to dismiss in October 2019, arguing there is no limit on the number of patents a company can legally hold and any attempt at creating a limit would result in arbitrary line-drawing

• Case of First Impression: Open question as to whether a company’s acquisition of a certain number of patents may violate the antitrust laws

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District Court Dismisses Apotex’s Monopolization Claims Against Pfizer

• In June 2018, Apotex sued Pfizer in S.D.N.Y, alleging that Pfizer and its subsidiary Hospira attempted to monopolize the markets for several drugs by breaching an exclusive supply agreement between Apotex and Hospira’s predecessor Orchid– Alleged that post-acquisition of Orchid, Hospira (1) cut off Apotex’s supply of

drugs; (2) sold its own versions of the drugs in violation of a non-compete; and (3) used Apotex confidential sales information to sell its drugs at the same or better prices offered by Apotex

• In January 2020, Court dismissed Apotex’s antitrust claims without leave to amend, finding no duty to deal under Aspen Skiing: – Hospira’s decision to breach exclusive supply contract and compete directly

was undertaken for “legitimate, pro-competitive purposes”– Companies do not have a “duty to deal with a competitor when [] greater

profits are available through direct competition”

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2nd Circuit Dismisses Biocad’s Monopolization Claims Against Roche

• In June 2016, Russian firm Biocad filed suit in S.D.N.Y., alleging Roche, Genentech, and R-Pharm had inflated the prices of branded drugs that treat cancer in the U.S. and engaged in predatory pricing in Russia to prevent Biocad from entering U.S. market

• District court dismissed the case in October 2017, finding that Biocad lacked standing and FTAIA barred Biocad’s claims

• On appeal, Biocad argued that it fell under FTAIA’s “import exception”; Second Circuit disagreed – dismissed case in November 2019, finding that “intent” to enter the U.S. market is “too remote and speculative” to invoke exception

• Defendants filed motion for sanctions in February 2017 against Biocad and its counsel, arguing that claims amounted to an abuse of process (“clear” that U.S. antitrust law did not apply to actions of foreign companies in a foreign jurisdiction)– Last month, defendants submitted reply in support of their motion, stating

that Second Circuit's opinion validates request for sanctions

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Opioid Litigation Continues to Heat Up

• Over 2,500 lawsuits have been brought by municipalities and other plaintiffs alleging companies in the pharmaceutical supply chain fueled the opioid epidemic

• Last April, Rochester Drug Company agreed to pay the federal government $20 million to settle civil and criminal claims it helped fuel the U.S. opioid epidemic (marked the first-ever federal criminal charges against company executives for conspiring to illegally distribute opioids)

• In October 2019, Teva, Cardinal Health, McKesson, and AmerisourceBergen reached settlement with two Ohio counties for $260 million; retail drug dispensers CVS, Walgreen, and Walmart will stand trial in October 2020

• New York state and two Long Island counties will go to trial in March against J&J and McKesson– NY AG characterized defendants as “unrepentant culprits" that

"deliberately betrayed [their] duties [to prevent opioid abuse] through a persistent course of fraudulent and illegal misconduct"

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Thank You!

Dee BansalPartnerWashington, D.C.t: +1 202 728 7027dbansal@cooley.com

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Jackie GrisePartnerWashington, D.C.t: +1 202 728 7001jgrise@cooley.com

Megan BrowdiePartnerWashington, D.C.t: +1 202 728 7104mbrowdie@cooley.com

Julia BrintonAssociateWashington, D.C.t: +1 202 962 8364jbrinton@cooley.com