The 2016 Presidential Election Signals Possible Transformation of Laws Regulating Pharmaceuticals and Antitrust Law

One issue that presidential candidates from both political parties actually agree on is that the rising costs of pharmaceutical drugs is out of control.  Democratic nominee Hillary Clinton expressed outrage over pharmaceutical companies dramatically increasing the price of drugs overnight which had been on the market for decades — “gouging patients on drugs that should be getting cheaper over time, not more expensive.”  She protests that “it’s wrong when drug companies put profits ahead of patients, raising prices without justifying the value behind them.”  Donald Trump, the Republican nominee, has similarly levied complaints about the astronomical cost of prescription drugs in the United States.  Given this consensus, dramatic changes to the laws regulating pharmaceutical approval and competition in the pharmaceutical markets are likely to follow, regardless of the outcome of the election.

Each candidate has presented proposals to address the ever increasing costs of pharmaceuticals.  Both candidates’ positions are sweeping in nature and short on specifics.  For example, Mr. Trump’s platform explains that “[t]hough the pharmaceutical industry is in the private sector, drug companies provide a public service.”  He calls upon Congress “to step away from the special interests and do what is right for America” by “[r]emov[ing] barriers to entry into free markets for drug providers that offer safe, reliable and cheaper products.”  He supports granting “consumers access to imported, safe and dependable drugs from overseas.”  Mr. Trump’s proposals seemingly require an overhaul of the FDA regulations related to pharmaceutical approval, as well as the Hatch-Waxman Act, which sets forth the steps a manufacturer is required to take to bring a generic version of a drug onto the market.

The Democratic platform contains similar positions.  Secretary Clinton believes that the government should “encourage competition to get more generics on the market” and that American consumers should be permitted to import cheaper foreign pharmaceuticals.  She has, however, provided slightly more detail about how she would regulate competition in pharmaceutical markets.  Her platform targets “pay for delay” agreements, which she seeks to prohibit.  These agreements occur in patent infringement actions where a plaintiff, brand company — which holds a patent allegedly protecting the drug — pays the defendant, generic manufacturer to settle, presumably to delay the generic from entering the market.  She has unartfully explained that “right now, it’s perfectly legal for a pharmaceutical company to pay a competitor to keep a generic drug off the market.”

Secretary Clinton misconstrues the current state of the law.  In FTC v. Actavis, 133 S. Ct. 2223 (2013), the Supreme Court ruled that pay-for-delay agreements are scrutinized under the venerable “rule of reason.”  The rule of reason is a balancing test used by juries to determine whether an agreement violates the antitrust laws.  Under this test, the plaintiff must first present evidence of anticompetitive effects.  This may include delaying market entry of generic drugs in order to continue reaping unwarranted profits from higher-priced brand drugs.  Then, under the rule of reason, the defendants are given an opportunity to offer procompetitive justifications for their conduct.  Finally, the plaintiff gets a chance to show that the agreement was unnecessary to achieve the defendants’ purported justification.  Balancing these factors, the jury ultimately decides whether the pay-for-delay agreement is an unreasonable restraint of trade.

In fact, Faruqi & Faruqi is successfully prosecuting a number of lawsuits under the antitrust rule of reason, which seek damages for drug companies’ pay-for-delay agreements.  They are summarized here (In re Aggrenox Antitrust Litig.), here (In re Effexor XR Antitrust Litig.), here (In re Lamictal Direct Purchaser Antitrust Litig.), here (In re Lidoderm Antitrust Litig.), here (In re Lipitor Antitrust Litig.), here (In re Loestrin 24 Fe Antitrust Litig.), here (In re Niaspan Antitrust Litig.), here (In re Opana Antitrust Litig.), here (In re Solodyn Antitrust Litig.), here (In re Wellbutrin XL Antitrust Litig.), and here (King Drug Co. v. Cephalon, Inc.).  In each, a brand drug company facing imminent generic competition has paid its would-be generic competitor large sums to delay coming to market.  Each case has proceeded past the motion to dismiss stage and several are far further along than that.

Clearly, contrary to Secretary Clinton’s prior statements, it is not “perfectly legal” for a brand company to pay for delay, as it may be unlawful under the rule of reason.  Her legislative proposal to combat pay-for-delay agreements, moreover, is imprecise.  Although she seeks to “prohibit” them, her platform provides no detail about whether a pay-for-delay agreement should trigger a per se violation of the antitrust laws (as seen in price fixing cases), the rule of reason, or some other standard.

Former presidential candidate, Vermont Senator Bernie Sanders, has offered a more nuanced proposal to address pay-for-delay agreements.  In September 2015, Senator Sanders introduced the “Prescription Drug Affordability Act of 2015.”  Under this bill, a settlement is presumed to violate the antitrust laws if a generic manufacturer receives anything of value in exchange for agreeing to delay bringing a generic drug to market.  The bill permits only limited exceptions to this presumption, including a brand company paying no more than $7,500,000 to a generic manufacturer for reasonable expenses related to litigation.

Neither Secretary Clinton nor Mr. Trump have endorsed Senator Sanders’ bill.  But both have expressed alarm over the rising cost of pharmaceuticals.  And both have suggested changes, with varying degrees of specificity.  Given this bipartisan sentiment, modifications to FDA regulations and antitrust laws governing the pharmaceutical industry appear to be inevitable.

About Faruqi & Faruqi, LLP

Faruqi & Faruqi, LLP focuses on complex civil litigation, including securities, antitrust, wage and hour, and consumer class actions as well as shareholder derivative and merger and transactional litigation.  The firm is headquartered in New York, and maintains offices in California, Delaware and Pennsylvania.

Since its founding in 1995, Faruqi & Faruqi, LLP has served as lead or co-lead counsel in numerous high-profile cases which ultimately provided significant recoveries to investors, direct purchasers, consumers and employees.

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About Andrew Coyle

Andrew is an associate in the firm’s New York office and his practice is focused on antitrust litigation.  Prior to joining the firm, Andrew worked as a clerk in New York County Supreme Court and the Southern District of New York.  Please feel free to contact Andrew regarding any questions concerning this blog post or any questions related to F&F’s practice areas.

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