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Legal experts question how reverse payment deal went so awry.
The unraveling of the reverse payment deal for blood thinner Plavix (clopidogrel) shows that relying on these settlements to stave off patent challengers is a potential minefield for innovator companies.
The deals, between the Canadian generics giant Apotex on the one hand and Plavix co-marketers Sanofi-Aventis and Bristol-Myers Squibb on the other, were designed to prevent Apotex from launching generic clopidogrel, which as approved by FDA in January. Under the agreement, Apotex would receive a set payment from the innovator companies in return for not challenging Plavix's patent.
But the deal contained detailed concessions to Apotex--including a provision that waived the right of BMS and Sanofi to seek treble damages for patent infringement. These concessions remained in force even after state attorneys general failed to approve the deal, and Apotex went ahead and launched the product "at risk."
The future of BMS, which depends heavily on Plavix revenue, is now at stake, prompting questions about why it and Sanofi would sign such a lenient deal in the first place.
None of the three companies returned calls seeking comment. But Apotex CEO Barry Sherman has said publicly that he entered into the deal precisely because he didn't believe regulators would approve it. BMS and Sanofi, however, likely had a different take on the odds of approval.
The Federal Trade Commission (FTC) maintains that reverse settlement agreements are anti-competitive, but in a closely watched case last year involving Schering-Plough drug K-Dur, a federal appeals court disagreed.
The number of these deals has since been growing, and a recent FTC report found that a majority of the patent settlements reached since October included pay-for-delay provisions.
The Plavix situation, however, "may indeed have a chilling effect" on future reverse payment agreements, said Gregory Glass, principal of consulting firm Gregory Glass Associates.
"The general feeling is that the reverse payment deals look less attractive," said Jerry Cohen, a partner at law firm Burns & Levinson, which is not involved in the case. "You might say the bubble burst."
The deal has also put the Plavix patent itself under the microscope.
"The strength of the deal [for Apotex could be] an indication of what the parties thought about the strength of the patent," said Veronica Mullally, a partner at law firm Orrick, Herrington & Sutcliffe, which is not involved in the case.
But Glass disagreed, arguing that entering into a settlement is often less costly and less risky than litigation.
"Each party in a Paragraph IV [patent challenge] case--both on the part of brand and on the part of the generic--takes on a great deal of risk," he said. "It's advantageous for them to settle on some types of terms."
Sanofi and BMS on Monday filed an injunction to stop the distribution of generic clopidogrel. Their reverse settlement agreement had given Apotex a five-day start on distribution before the companies could take legal action.
The two agreements--signed on March 17 and May 26--also cap the damages that Apotex would pay even if Plavix's patent were ultimately upheld.
Damages are limited to "50 percent of Apotex's net sales of clopidogrel products if Sanofi has not launched an authorized generic and 40 percent of Apotex's net sales if Sanofi has launched an authorized generic," according to the settlement.
Mullally called that part of the deal "strange" and "unusual." The agreement not only capped damages, but also did so based on Apotex's sales, rather than profits lost to Sanofi and BMS.
"I think Apotex got a fantastic deal," she said. "There was very little disincentive for Apotex to launch [its generic product]."