The Third Circuit Weighs FTC Enforcement Power Against Abusive Pharmaceutical Brands

Under FDA regulations, any interested person may petition the FDA to issue, amend, or revoke a regulation or order, or to take or refrain from taking any other form of administrative action.  Called Citizens Petitions, these submissions are an important avenue for communication with the FDA and, at base, an exercise of First Amendment rights.  In practice, however, Petitions have become a vehicle by which brand drug manufacturers can forestall generic competition; throwing up specious but time-wasting roadblocks in the FDA’s process to approve generic drugs.  Lately, however, the Federal Trade Commission has been pushing back through the Courts, and a case winding through the Third Circuit now illustrates how difficult that can be.

Reviewing and responding to Citizen Petitions is a resource-intensive and time-consuming task because, no matter how baseless a petition may be, FDA must research the petition’s subject, examine scientific, medical, legal, and sometimes economic issues, and coordinate internal agency review and clearance of the petition response.  These activities strain FDA’s limited resources, and Citizen Petition reviews can delay FDA approval of generic products even if those petitions ultimately are found to lack any reasonable evidentiary, regulatory, statutory, or scientific basis.  FDA officials have repeatedly criticized the abuse of the CP process.

In early 2017, the FTC filed an antitrust complaint against ViroPharma Inc. for yet another such case, this time in defense of its brand drug Vancocin.  But this particular case was exceptional.  As the FTC alleged, “between March 2006 and April 2012, ViroPharma made at least forty-three submissions to the FDA and initiated three more proceedings in federal court to obstruct and delay the FDA’s approval of generic Vancocin Capsules.”  “That number is, by far, the most filings that any firm has ever made to the FDA concerning a single drug product.”  Ultimately, each petition was rejected by FDA for lacking substantive merit, but by then the damage – generic delay and higher prices paid by consumers – had been done.  FDA rebuked ViroPharma in an 87-page opinion, and referred the matter to the FTC for investigation.  The suit followed, seeking declaratory and injunctive relief, including “a court order permanently prohibiting ViroPharma from submitting repetitive and baseless filings with FDA and the courts, and from similar and related conduct as well as any other necessary equitable relief, including restitution and disgorgement.”

On March 18, 2018, however, the Delaware District Court dismissed the FTC’s complaint, holding that while the FTC had adequately alleged “sham” petitioning (and thereby deprived ViroPharma of any First Amendment safe harbor), the FTC nonetheless had failed to plead the facts necessary to seek a permanent injunction because it did not allege an ongoing or imminent violation of the FTC Act.  Surprisingly, the Delaware court held that, despite ViroPharma’s remarkable pattern of sham petitioning, FTC had not shown that  ViroPharma “is violating, or is about to violate” a law enforced by the FTC, which the court held was a prerequisite under the applicable FTC regulations.  This novel interpretation of the FTC statute could severely limit the FTC’s ability to seek injunctive relief, an important tool in the FTC’s arsenal.  As the FTC itself explains, preliminary and permanent injunctions are commonly sought, and granted by the courts, to deter campaigns of anticompetitive or deceptive conduct.

Notably, the Delaware court granted the FTC the right to amend its complaint to add further allegations of the likelihood that ViroPharma would continue its campaign of sham petitioning in support of other of its branded drugs.  (As the court notes, the Vancocin-related petitions had ceased five years previous).  However, on April 18, 2018, the FTC declined to amend its complaint, instead choosing to appeal the district court’s statutory interpretation of FTC’s power to seek injunctive relief in these circumstances directly to the Third Circuit.  David Balto, a former policy director at the FTC told Bloomberg News that the Circuit Court, which has significant experience with pharmaceutical antitrust cases, is likely to find “significant mistakes” in the district court’s opinion, but at the same time notes that “This an area of the law that really needs to clarified.”  Whether the Third Circuit decides to validate the FTC’s long-standing interpretation of its own authority to seek injunctive relief in these types of cases, or defer to a potential legislative fix may have far-reaching consequences for government enforcement power in this area.

About Faruqi & Faruqi, LLP

Faruqi & Faruqi focuses on complex civil litigation, including securities, antitrust, consumer and wage and hour class actions, as well as shareholder derivative suits.  The firm is headquartered in New York, and maintains offices in California, Delaware, Pennsylvania and Georgia.  Since its founding in 1995, Faruqi & Faruqi has served as lead or co-lead counsel in numerous high-profile cases which ultimately provided significant recoveries to investors, consumers, and employees.

To contact the author of this blog or the offices of Faruqi & Faruqi, please call us at (877) 476-7797.

About Adam Steinfeld

Adam Steinfeld is a Partner in Faruqi & Faruqi, LLP’s New York office.  He practices in the area of antitrust litigation with a focus on competition in the pharmaceutical industry.

Posted by Adam Steinfeld

Partner at Faruqi & Faruqi, LLP
New York Office
Tel: (212) 983-9330
Fax: (212) 983-9331
Email: asteinfeld@faruqilaw.com
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