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In re Effexor XR Antitrust Litigation

United States District Court, D. New Jersey

October 6, 2014

In re EFFEXOR XR ANTITRUST LITIGATION This Document Relates To Direct Purchaser Class Actions

MEMORANDUM

PETER G. SHERIDAN, District Judge.

This matter comes before the Court on Defendants Wyeth LLC, Wyeth Pharmaceuticals, Inc., Wyeth-Whitehall Pharmaceuticals LLC, and Wyeth Pharmaceuticals Company's (collectively, "Wyeth Defendants" or "Wyeth") and Teva Pharmaceuticals USA, Inc., and Teva Pharmaceuticals Industries Ltd.'s (collectively, "Teva Defendants" or "Teva") Motion to Dismiss Plaintiffs Professional Drug Company, Inc., Rochester Drug Co-Operative, Inc., Stephen L. LaFrance Holdings, Inc., Stephen L. LaFrance Pharmacy, Inc. d/b/a SAJ Distributors, and Uniondale Chemists, Inc.'s (collectively, "Direct Purchaser Class Plaintiffs") Second Amended Consolidated Class Action Complaint for failure to state a claim pursuant to FED. R. CIV. P. 12(b)(6) (ECF Nos. 136, 138, 305). Direct Purchaser Class Plaintiffs allege that Defendant Wyeth engaged in an anticompetitive scheme to prevent and delay the approval and marketing of generic versions of its antidepressant drug Effexor XR, an extended release version of the compound venlafaxine hydrochloride, in violation of the Sherman Antitrust Act, 15 U.S.C. §§ 1-2. Specifically, Plaintiffs allege that Wyeth: (1) fraudulently procured three patents for extended release formulations of venlafaxine hydrochloride; (2) wrongfully listed those patents in the FDA Orange Book as covering Effexor XR; (3) engaged in sham litigation to block and delay multiple generic companies from entering the generic Effexor XR market; (4) entered into an illegal horizontal market-allocation and price-fixing reverse settlement agreement with Defendant Teva through which Wyeth paid Teva value worth over $500 million in exchange for Teva's agreement not to market its own generic version of Effexor XR until an agreed-upon entry date; and (5) negotiated settlements with subsequent generic applicants for the sole purpose of preserving and protecting its alleged monopoly and market-division agreement with Teva. The Court held oral argument in this matter on September 10, 2013, April 3, 2014 and June 5, 2014. For the reasons set forth herein, Defendants' Motion to Dismiss is granted in part and denied in part.

I. BACKGROUND

A. Parties

1. Plaintiffs

Plaintiff Professional Drug Company, Inc. ("Professional Drug") is a corporation organized under the laws of the State of Mississippi with its principal place of business in Biloxi, Mississippi. (Direct Purchaser Class Pls.' Second Am. Consolidated Class Action Complaint ("Second Am. Compl.") at ¶ 17). It purchased Effexor XR directly from Wyeth during the class period. ( Id. ).

Plaintiff Rochester Drug Co-Operative, Inc. ("RDC") is a stock corporation organized under the laws of the State of New York with its principal place of business in Rochester, New York. ( Id. at ¶ 18). It purchased Effexor XR directly from Wyeth, and generic Effexor XR directly from Teva, during the class period. ( Id. ).

Plaintiff Stephen L. LaFrance Holdings, Inc. is a holding company with interests in retail and wholesale distribution whose corporate office is located in Pine Bluff, Arkansas. ( Id. at ¶ 19.). Plaintiff Stephen L. LaFrance Pharmacy, Inc. d/b/a SAJ Distributors (collectively with Stephen L. LaFrance Holdings, Inc., "LaFrance") is a wholly owned subsidiary of Stephen L. LaFrance Holdings, Inc. which operates as its distribution company. ( Id. ). Its corporate office is similarly located in Pine Bluff, Arkansas. ( Id. ). LaFrance is the assignee of McKesson Corporation which purchased Effexor XR directly from Wyeth during the class period. ( Id. ).

Plaintiff Uniondale Chemists, Inc. is a retail pharmacy located in Uniondale, New York. ( Id. at ¶ 20). Uniondale Chemists is the assignee of QK Healthcare, Inc. which purchased Effexor XR directly from Wyeth during the class period. ( Id. ).

2. Defendants

Defendant Wyeth - a/k/a Wyeth LLC, f/k/a Wyeth, Inc., f/k/a American Home Products - is a corporation organized under the laws of the State of Delaware with its principal place of business in Madison, New Jersey. ( Id. at ¶ 21). It operates as a wholly owned subsidiary of Pfizer. ( Id. ).

Defendant Wyeth Pharmaceuticals, Inc. is a corporation organized under the laws of the State of Delaware with its principal place of business in Collegeville, Pennsylvania. ( Id. at ¶ 22.). Wyeth Pharmaceuticals, Inc. is a member of Wyeth Pharmaceuticals Division and is a wholly owned subsidiary of Wyeth. ( Id. ).

Defendant Wyeth-Whitehall Pharmaceuticals ("Wyeth-Whitehall") is a corporation organized under the laws of the Commonwealth of Puerto Rico with its principal place of business in Guayama, Puerto Rico. ( Id. at ¶ 23.). Wyeth-Whitehall is in the business of pharmaceutical preparation and is a subsidiary of Wyeth. ( Id. ).

Defendant Wyeth Pharmaceuticals Company ("WPC") is a corporation organized under the laws of the Commonwealth of Puerto Rico with its principal place of business in Guayama, Puerto Rico. ( Id. at ¶ 24.). WPC is in the business of pharmaceutical wholesale products and is a subsidiary of Wyeth. ( Id. ).

Defendant Teva Pharmaceuticals USA, Inc. ("Teva USA") is a corporation organized under the laws of the State of Delaware with its principal place of business in North Wales, Pennsylvania. ( Id. at ¶ 27). Teva USA, which is a wholly owned subsidiary of Teva Pharmaceutical Industries Ltd., is in the business of developing, manufacturing and marketing pharmaceutical products in the United States. ( Id. ).

Defendant Teva Pharmaceutical Industries Ltd. is an international corporation headquartered in Petach Tivka, Israel which is in the business of developing, manufacturing and marketing pharmaceutical products. ( Id. at ¶ 28). It has major manufacturing operations in the United States and conducts a large portion of its sales in the United States through its subsidiaries. ( Id. ).

B. Regulatory Framework

Under the Federal Food, Drug, and Cosmetic Act ("FDCA"), manufacturers who create a new drug product must obtain the approval of the United States Food and Drug Administration ("FDA") to sell the new drug by filing a New Drug Application ("NDA"). 21 U.S.C. §§ 301-392. An NDA must include submission of specific data concerning the safety and effectiveness of the drug, as well as any information on applicable patents. 21 U.S.C. §§ 355(a)-(b). When the FDA approves a brand name manufacturer's NDA, the brand manufacturer may list any patents that the brand manufacturer believes could reasonably be asserted against a generic manufacturer who makes, uses, or sells a generic version of the brand name drug prior to the expiration of the listed patents in the FDA's book of Approved Products with Therapeutic Equivalence Evaluations (the "Orange Book").

The Hatch-Waxman Amendments to the FDCA simplified the regulatory hurdles for prospective generic manufacturers by eliminating the need for them to file lengthy and costly NDAs. See Drug Price Competition and Patent Term Restoration Act, Pub. L. No. 98-417, 98 Stat. 1585 (1984) (the "Hatch-Waxman Act"). Pursuant to Hatch-Waxman, a generic manufacturer seeking approval to sell a generic version of a brand name drug may file an Abbreviated New Drug Application ("ANDA") with the FDA. An ANDA relies on the scientific findings of safety and effectiveness included in the brand name drug manufacturer's original NDA, but must show that the generic drug is bioequivalent to the brand name drug. The FDA assigns generic drugs that are bioequivalent to branded drugs an "AB" rating.

To obtain FDA approval of an ANDA, a generic manufacturer must certify that the generic drug addressed in its ANDA will not infringe any patents listed in the Orange Book. Under Hatch-Waxman, a generic manufacturer's ANDA must contain one of four certifications. Most relevant for purposes of this action is a Paragraph IV certification in which the generic manufacturer certifies that the patent for the brand name drug "is invalid or will not be infringed by the manufacture, use, or sale of the new drug for which the application is submitted[.]" 21 U.S.C. § 355(j)(2)(A)(vii)(IV).

If a generic manufacturer files a Paragraph IV certification, a brand name manufacturer has the ability to delay FDA approval of an ANDA by suing the ANDA applicant for patent infringement. If the brand name manufacturer brings a patent infringement action against the generic filer within forty-five (45) days of receiving notification of the Paragraph IV certification, the FDA may not grant final approval to the ANDA until the earlier of (1) the passage of thirty (30) months, or (2) the issuance of a decision by a court that the patent is invalid or not infringed by the generic manufacturer's ANDA. See 21 U.S.C. § 355(j)(5)(B)(iii). As an incentive to encourage generic companies to seek approval of generic alternatives to branded drugs, the first generic manufacturer to file an ANDA containing a Paragraph IV certification is entitled to a 180-day exclusivity period to market its generic version of the drug. See 21 U.S.C. § 355(j)(5)(B)(iv).

Since passage of the Hatch-Waxman Amendments, every state has adopted substitution laws that either require or permit pharmacies to substitute less-costly AB-rated generic equivalents for branded prescriptions. (Second Am. Compl. at ¶ 44). As a result, the launch of AB-rated generics usually results in a rapid decline in price and a large-scale shift in sales from the branded to the generic manufacturer. ( Id. ). According to Plaintiffs, once a generic equivalent hits the market, the generic quickly captures sales of the branded drug, often in excess of 80 percent of the market within the first six months. ( Id. ). In a recent study, the Federal Trade Commission ("FTC") found that, within a year of generic entry, generics had, on average, captured 90 percent of branded sales and that prices had dropped 85 percent with multiple generics on the market.[1] ( Id. ). In the end, total payments to brand manufacturers for the drug decline to a small fraction of the amounts paid prior to generic entry.

While later ANDA-approved generic manufacturers must wait six months after the first filer's market entry to seek FDA approval, a branded manufacturer's "authorized generic" may enter the market at any time. Authorized generics are essentially prescription drugs manufactured by brand pharmaceutical companies that are marketed under a private label and sold at generic prices. Authorized generics compete with generics on price and are usually marketed to consumers during the first filer's 180-day exclusivity period. A 2006 study sponsored by the Pharmaceutical Research and Manufacturers of America found that generic prices were 16 percent lower when an authorized generic was marketed. ( Id. at 58).So, while the first ANDA filer enjoys the exclusive right to sell the only ANDA-approved generic product during its 180-day exclusivity period, the prices at which it may do so are often lowered by price competition from authorized generics. ( Id. at ¶ 61). Without the entry of an authorized generic, the first filer is essentially left with all generic sales during that time period.

C. Factual Background

1. Prosecution History of the Effexor XR Patents

On August 13, 1985, the United States Patent and Trademark Office ("PTO") issued a patent for the compound venlafaxine hydrochloride ("venlafaxine"), U.S. Patent No. 4, 535, 186 (the "Husbands patent" or the "'186 patent"). ( Id. at ¶ 62) The inventor of the patent, G.E. Morris Husbands, subsequently assigned the Husbands patent to Wyeth's predecessor American Home Products. ( Id. ). Eight years later, in December 1993, the FDA approved Wyeth's New Drug Application ("NDA") for Effexor, an antidepressant whose active pharmaceutical ingredient is venlafaxine.[2] ( Id. at ¶ 63). According to Plaintiffs, "[t]he Husbands patent protected venlafaxine generally, and thus it protected any kind of Wyeth venlafaxine products from generic competition before June 13, 2008."[3] ( Id. at ¶ 64). As a result, Wyeth had market exclusivity for venlafaxine products - whether instant release or extended release - for fourteen and a half years. ( Id. at ¶ 65).

In 1991, spurred by drawbacks associated with the immediate release form of the drug, Wyeth's marketing department requested development of an extended release version of venlafaxine hydrochloride. ( Id. at ¶ 67). According to Plaintiffs, Wyeth sought development of an extended release version because early clinical trials showed that some patients who took the instant release form of Effexor reported experiencing negative side effects such as nausea and vomiting. ( Id. ). A group of Wyeth chemists from upstate New York initially attempted to create an extended release venlafaxine formulation using hydrogel tablet technology through which the active ingredient is combined with cellulose ethers and then compressed into a tablet. ( Id. at ¶ 70). According to

Plaintiffs, Inventor Deborah M. Sherman "had previous experience with this approach, and in the second half of 1991 set out to make an extended release hydrogel tablet containing venlafaxine." ( Id. ). By December 1991, however, Wyeth abandoned its hydrogel approach "because the tablets were dissolving too rapidly." ( Id. ).

Following its failed attempt at using hydrogel tablet technology, Wyeth: (1) began in-house development of a conventional coated spheroid approach based on its prior experience with extending the release of a similar chemical, propanolol, which it marketed as Inderal[4] and (2) entered into a business venture with Alza, a pharmaceutical company specializing in extended release technology that possessed an available "OROS" technology that could potentially be used to extend the release of venlafaxine. ( Id. at ¶¶ 71-72). Plaintiffs contend that the Effexor XR inventors implemented the coated spherical approach by simply substituting venlafaxine for the propanolol in Wyeth's Inderal LA formulation. ( Id. at ¶ 75). In 1992, within six months of implementing the spheroid approach, Wyeth deemed the approach successful. ( Id. at ¶ 77).

At the same time Wyeth pursued the spheroid approach, it also sought to develop an osmotic shell extended release venlafaxine through the use of Alza's OROS technology. ( Id. at ¶ 78). In 1992, Wyeth entered into a cooperation agreement with Alza to develop an extended release formulation of venlafaxine hydrochloride using Alza's proprietary drug delivery system. ( Id. ). The collaboration agreement granted Alza ownership rights in any information generated or acquired during the collaboration and the patents resulting from the collaboration. Alza also retained the right to use, disclose, and license information obtained through the collaboration to third parties. ( Id. ). By the end of 1992, Alza was also successful in developing an extended release formulation of venlafaxine. ( Id. at ¶ 80). Wyeth, however, "chose to pursue its own, encapsulated spheroid approach." ( Id. at ¶ 81).

Following development of the encapsulated spheroid extended release venlafaxine, Wyeth conducted clinical studies to establish the efficacy and safety of its new formulation. ( Id. at ¶ 82). In some studies, Wyeth compared the extended release formulation to the instant release formulation; in others, it compared the extended release to a placebo. ( Id. ). According to Plaintiffs, "[w]hile the studies established the FDA minima of efficacy as compared to a placebo, the studies failed to establish any statistically significant improvement of the extended release over the instant release with respect to side effects such as nausea." ( Id. at ¶ 82). As a result, Plaintiffs contend that "Wyeth could not truthfully claim [that] there was any valid scientific basis for claiming that the extended release version reduced side effects when compared to the instant release." ( Id. ).

In addition to clinical testing of its extended release form of venlafaxine, Wyeth "began some early efforts to secure further patent protection for venlafaxine."[5] ( Id. at ¶ 83). In June 1993, a group of Wyeth employees based in eastern Pennsylvania filed a patent application seeking a method-ofuse patent for using venlafaxine for a number of medical conditions. ( Id. ). The application claimed as the "invention... a method of treating obesity, generalized anxiety disorder, post-traumatic stress disorder, late luteal phase disphoric disorder (premenstrual syndrome), attention deficit disorder, with and without hyperactivity, Gilles de la Tourette syndrome, bulimia nervosa or Shy Dragger Syndrome... by administering... an effective amount of [venlafaxine]." ( Id. at ¶ 83). In 1995, after abandoning the original application, Wyeth filed a series of applications which reiterated that "sustained release compositions" of venlafaxine were the likely favored form of administering venlafaxine. ( Id. at ¶ 85). These applications eventually led to several method-of-use patents for specific medical conditions. ( Id. ).

In January 1995, several of the Wyeth employees based in eastern Pennsylvania filed Patent Application No. 08/380, 093 (the "Upton application") which sought a method-of-use patent for using venlafaxine to treat hypothalamic menopause in non-depressed woman. ( Id. at ¶ 86). According to Plaintiffs, the Upton application "did not seek approval of any formulations of venlafaxine[, ]" but disclosed a "sustained oral administration form or time-release form [of venlafaxine], which may be used to spread the dosage over time, such as for one-a-day applications." ( Id. ).

In late 1995 or early 1996, the PTO allegedly notified Wyeth that the Upton application would soon issue as a patent. According to Plaintiffs, "Wyeth knew that particular disclosures that would appear in this patent - those describing extended release venlafaxine as a method to smooth the dosage over time - would be prior art relevant to later patent applications seeking to claim as a new invention the use of extending the release of venlafaxine as a method to control dose rates." ( Id. at ¶ 109). On March 25, 1996, therefore, the Wyeth applicants filed a provisional utility patent application, No. 60/014, 006 (the "006 application"), with the PTO that included method-of-use claims for decreasing incidences of nausea and vomiting and for minimizing the troughs and peaks in drug concentration in a patient's blood plasma. ( Id. at ¶ 110). According to Plaintiffs, the Wyeth applicants did so "to avoid the Upton [p]atent standing as prior art to future extended release venlafaxine claims." ( Id. ). On April 9, 1996, following the filing of the 006 application, the Upton application issued as U.S. Patent No. 5, 506, 270 (the "Upton patent" or the "'270 patent"). ( Id. at ¶ 87). According to Plaintiffs, "[t]he Upton patent contained the same reference to sustained and time release forms of venlafaxine to spread the dosage over time[.]" ( Id. ). One month later, on May 16, 1996, Wyeth sought FDA approval to sell an encapsulated extended release formulation of venlafaxine hydrochloride called Effexor XR. ( Id. at ¶ 97).

On March 20, 1997, within a year of filing the provisional 006 application, the Wyeth applicants filed a non-provisional application, No. 08/821, 137 (the "137 application") which claimed priority to the 006 application. ( Id. at ¶ 100). The 137 application was assigned to Examiner Amy Hulina. ( Id. at ¶ 119). According to Plaintiffs, the 137 application was "virtually identical to the 006 [provisional application] in all respects, setting forth the Wyeth-developed, encapsulated film-coated spheroid formulation to extend the release of venlafaxine." ( Id. at ¶ 120). The 137 application also set forth the same eight formulation claims as the 006 application as well as two method-of-use claims. ( Id. ). Claim 1 recited an extended release formulation of venlafaxine hydrochloride with spheroids. ( Id. at ¶ 121). Claim 9 recited a method-of-use claim for reducing incidences of nausea and vomiting associated with venlafaxine. ( Id. at ¶ 122). Claim 10 recited a method-of-use claim for reducing the disparities in concentration of venlafaxine in a patient's blood serum. ( Id. at ¶ 123).

On July 10, 1997, the Wyeth applicants submitted an information disclosure statement ("IDS") to the PTO which listed five U.S. patents. ( Id. at ¶ 125). According to Plaintiffs, Wyeth did not list the original Husbands patent on the IDS, but rather, referenced it in the specification. ( Id. ). Furthermore, Plaintiffs contend that Wyeth neglected to list or otherwise disclose both the Upton patent and Alza's 589 PCT application to Examiner Hulina. ( Id. at ¶ 126). Despite the Wyeth applicants' alleged failure to disclose the existence of the Upton patent, Examiner Hulina discovered the patent when conducting her own prior art search.[6] ( Id. at ¶ 127). During a telephone interview on July 30, 1997, Examiner Hulina informed Wyeth that its two method-of-use claims were not patentable as independent claims in light of the disclosure of extended release formulations of venlafaxine in the Upton patent. ( Id. at ¶ 128). She further informed Wyeth that these method-of-use claims would be patentable if Wyeth amended them to depend on the specific encapsulated spheroid formulation of extended release venlafaxine recited in Claim 1 of the 137 application. ( Id. ). Based on Examiner Hulina's conclusion, Wyeth authorized the examiner to amend the method-of-use claims to depend on Wyeth's encapsulated spheroid formulation. ( Id. at ¶ 130). On August 5, 1997, Examiner Hulina issued a notice of allowance for the two amended method-of-use claims. ( Id. at ¶ 131). The examiner also allowed the seven remaining formulation claims that described the encapsulated film-coated spheroid extended release venlafaxine invention. ( Id. ). According to Plaintiffs, despite having received the notice of allowance, the Wyeth applicants allegedly "decided to abandon the 137 application... in the hopes that a new application might draw a different examiner... unfamiliar with the Upton patent's disclosure of extended release venlafaxine [who].. would [potentially]... allow independent nausea/vomiting and troughs and peaks' method-of-use claims." ( Id. at ¶ 133). In the meantime, the FDA approved Wyeth's NDA for Effexor XR on October 20, 1997. ( Id. at ¶ 97).

On November 5, 1997, prior to abandoning their 137 application, the Wyeth applicants filed a continuation-in part application, No. 08/964, 328 (the "328 application), which claimed priority to the 137 and 006 applications. ( Id. at ¶¶ 101-02). The application was assigned to Examiner James Spear and proposed sixteen formulation claims. ( Id. at ¶¶ 137-38). The 328 application also contained two independent method-of-use claims which, according to Plaintiffs, were nearly identical to the two method-of-use claims of the 137 application rejected by Examiner Hulina.

On February 9, 1998, the Wyeth applicants submitted an IDS identifying the same five U.S. patents identified in the IDS for the 137 application. ( Id. at ¶ 140). On August 13, 1998, they submitted a supplemental IDS, listing three foreign patent documents. ( Id. ). According to Plaintiffs, while the Wyeth applicants listed the Upton patent and 589 PCT application in these IDSs, they failed to identify Examiner Hulina's prior rejection of the broad method-of-use claims recited in the 137 patent application despite their knowledge that such a rejection constituted material information required to be disclosed to the PTO.[7] ( Id. at ¶ 141).

After reviewing the application, Examiner Spear issued a first office action on October 14, 1998. ( Id. at ¶ 143). Examiner Spear (1) found that the formulation claims that quantified the amount and ratio of materials to be used for film-coating of the venlafaxine spheroids would be patentable; (2) allowed Claim 11 because, as an independent claim that quantified those amounts, it was a patentable formulation; and (3) rejected Claim 1 because its general formulation claim of using any amounts of materials to extend the release of venlafaxine was obvious. ( Id. ). According to Plaintiffs, "[i]n allowing the encapsulated extended release formulation of venlafaxine in Claim 11, [Examiner Spear] also allowed Claims 13 and 14, the two claims for methods of diminishing nausea/vomiting or eliminating troughs/peaks by adminstering... an encapsulated extended release formulation... [of] venlafaxine.'" ( Id. ). In doing so, Examiner Spear essentially "allowed the method-of-use claims (claims 13 and 14) to issue as independent claims" despite Wyeth's previous agreement to amend those very same claims to be dependent. ( Id. at ¶ 144). While Wyeth obtained allowance of the method-of-use claims as a result of the first office action, as previously mentioned, the examiner rejected the general formulation in Claim 1 of the 328 application. The Wyeth applicants allegedly responded to that rejection by "canceling, amending, and adding new claims." ( Id. at 146). After Examiner Spear again rejected Claim 1 as obvious on July 21, 1999, the Wyeth applicants ultimately abandoned the 328 application. ( Id. ).

On January 20, 2000, several weeks prior to abandoning the 328 application, the Wyeth applicants filed a continuation-in-part application, No. 09/488, 629 (the "629 application), that claimed priority to the 328 application, the 137 application, and the 006 application. ( Id. at ¶¶ 103, 147). The 629 application was again assigned to Examiner Spear. According to Plaintiffs, the 629 application "contained a nearly identical specification to the 328 application." ( Id. at ¶ 148). Specifically, "Claim 1, again, recited an extended release version of venlafaxine hydrochloride in spheroids that was substantially similar to the claim rejected by Examiner Spear during the prosecution of the 328 application in light of the prior art." ( Id. ). Moreover, "Claims 21 and 22, again recited the same independent method-of-use claims originally presented in (rejected) claims 9 and 10 of the 137 application and (allowed but abandoned) ...


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