Illinois District Court Opinion Shows Uncertainty of the Economics of ANDA litigation

Antitrust
By Yaping Zhang – Edited by Mengyi Wang Medicine Co. v. Mylan, No. 1:11-cv-01285 (N.D. Ill. Oct. 27, 2014) Prescription Medication Spilling From an Open Medicine BottleOn October 27, the U.S. District Court for Northern Illinois ruled that Mylan Pharmaceuticals Inc. (“Mylan”), one of the biggest generic firm, infringed Medicine Co.’s No. 7,582,727 Patent (“the ‘727 Patent”).. In so holding, the court rejected Mylan’s invalidity and inequitable conduct contentions concerning the ‘727 Patent. The court held that Mylan infringed the ‘727 Patent under the “hypothetical” inquiry of infringement since Mylan’s ANDA application has not yet approved, and the infringement act has not yet occurred. An overview of the case can be found here. This decision provides an interesting perspective with regard to a study published just one day later. The study explained the economics of reverse payments in ANDA litigation based on a sample of 93 cases litigated during 1988-2012 and found that brand and generic firms have settled Paragraph (iv) litigations out of court with increasing frequency and that such settlement often involves some form of payment from the brand firm to the generic. The study examined the economic effects of ANDA cases by identifying the Cumulative Abnormal Returns (CARs) from these decisions under the Efficient Market Hypothesis and found that ANDA settlements produce sizable surpluses for firms, particularly after Schering-Plough Corp. v. F.T.C., 402 F. 3d 1056 (11th Cir. 2005). The Efficient Market Hypothesis in the study seems to be supported by Medicine Co.’s stock price rise after the district court’s decision. According to Wall Street Pit, its shares are up nearly 14% in early market trading on Tuesday after the company announced the favorable ruling, suggesting that the investors price the effect of the decision into their stock valuation as Medicine Co. has successfully guarded its patent right. In addition, Business Wire noted the difficulty for Mylan to win on appeal, since it must overturn the court’s ruling on each of the asserted claims. Factoring in the probability of appellate reversals, Medicine Co.’s stock price may well have reflected a confident investor group. Examining the decision in conjunction with the study, there was probably an incentive for Medicine Co. to make reverse payment to Mylan by employing strategies like “pay-for-delay” settlement. In this way, both companies can achieve additional firm surpluses rather than risking the uncertainty of trial. This risk is supported by the fact that the court’s opinion, particularly in the parts of addressing invalidity contentions, may well have gone to a direction in favor of Mylan. For example, under the non-obviousness analysis, the court recognized that the difference between the prior art and the claims of the ‘727 Patent are narrow. Medicine Co., No. 1:11-cv-01285, 2014 BL 302820, at *21 (N.D. Ill. Oct. 27, 2014). A more salient risk, as stated in the opinion, is whether by making ANDA application but not manufacturing or selling the drug, Mylan is infringing Medicine’s patent. Ruling in favor of Medicine Co. requires the district court to hold Sunovion, a recent federal circuit case, dispositive. Id. at *43-47. Sunovion held that “the act of filing an ANDA, in and of itself, constitutes a technical infringement for jurisdictional purposes under 35 U.S.C. 274(e)(2)(A).” Sunovion Pharms. v. Teva Pharms., F. 3d 1271, 1278 (Fed. Cir. 2013). The opinion suggests that even Medicine Co. was aware of the possibility that Sunovion is not dispositive in this particular case. Medicine Co., 2014 BL 302820, at *43 (“To the extent Sunovion is not dispositive – [Medicine Co.] argues that Mylan’s representations in its ANDA and its ANDA exhibit batch demonstrate that its proposed drug product will infringe the asserted claims.”) It is unclear why Medicine Co. and Mylan chose to go to trial rather than settle, but it is worth noting that the ‘727 Patent, filed on July 27, 2008, still has around 14 years of protection. This long period might contribute to Medicine’s decision to vigorously defend the ‘727 Patent. In addition, the drug product Angiomax® covered by the ‘727 Patent) means too much to Medicine Co. Barron’s report shows that nearly all of Medicine Co.’s sales stem from Angiomax. Thus Medicine Co. might well have a strong incentive to keep its ‘727 Patent under its expiration. These factors seem to indicate that ANDA litigations involve more complicated calculus in parties’ decision making process.   Yaping Zhang is a 2L at Harvard Law School.