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Federal Trade Commission v. Warner Chilcott Holdings Co. III

January 22, 2007

FEDERAL TRADE COMMISSION, PLAINTIFF,
v.
WARNER CHILCOTT HOLDINGS COMPANY III, LTD., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Colleen Kollar-kotelly United States District Judge

MEMORANDUM OPINION

Currently before the Court is Defendant Barr Pharmaceuticals, Inc.'s ("Barr") motion to dismiss as moot the First Amended Complaint in this action, brought by Plaintiff, the Federal Trade Commission ("FTC"). The FTC's First Amended Complaint alleges that Barr and Defendant Warner Chilcott*fn1 entered into an anticompetitive agreement (hereinafter the "Final Agreement") whereby Barr granted Warner Chilcott an exclusive license to Barr's Abbreviated New Drug Application for a generic version of Warner Chilcott's Ovcon 35 oral contraceptive product. The First Amended Complaint seeks to enjoin Barr and Warner Chilcott from operating under that exclusive license, and further seeks to enjoin Barr and Warner Chilcott from engaging in similar and related conduct in the future. Subsequent to the filing of the First Amended Complaint, a number of events occurred: (1) Warner Chilcott launched a chewable version of Ovcon 35 and irrevocably waived all exclusivity provisions in the Final Agreement with Barr; (2) Barr launched a generic version of Ovcon 35; and (3) Warner Chilcott entered into a Settlement Agreement with the FTC and the Court entered a Final Order and Stipulated Permanent Injunction in this action, which bars Warner Chilcott from entering into any agreements of the same type as the Final Agreement with Barr or any other company. Barr argues that these events render the FTC's case moot because there is no justiciable case or controversy for this Court to address and no relief that can be granted.

Upon a searching review of Barr's motion to dismiss, the FTC's opposition, Barr's reply, the relevant statutes and case law, and the entire record herein, the Court shall deny Barr's motion to dismiss, concluding that this action is not rendered moot by the events described above.

I. BACKGROUND

A. Allegations Contained in the FTC's First Amended Complaint

The FTC filed its First Amended Complaint against Defendants Barr and Warner Chilcott on December 2, 2005. According to the FTC, Defendant Barr's business, among other things, includes developing, manufacturing, marketing, and distributing generic oral contraceptive products. First Am. Compl. (hereinafter "Compl.") ¶ 18. Defendant Warner Chilcott Holdings Company III, Ltd., through its direct and indirect subsidiaries (including the three named as Defendants in this action), discovers, develops, manufactures, and distributes pharmaceutical products in the United States, including the oral contraceptive product Ovcon 35 (hereinafter "Ovcon"). Id. ¶¶ 11-16.

Pursuant to the Federal Food, Drug, and Cosmetic Act, 21 U.S.C. § 301 et seq., as amended by the Price Competition and Patent Term Restoration Act of 1984 (Hatch-Waxman Act) and the Medicare Prescription Drug, Improvement and Modernization Act of 2003, codified at 21 U.S.C. § 355(j) and 35 U.S.C. § 271(e) (2005), a company seeking to market a new branded drug must file a New Drug Application ("NDA") demonstrating the safety and efficacy of its product. Compl. ¶¶ 19-20 (citing 21 U.S.C. § 355(b) (2005)). An "AB-rated" generic drug is one that the Food and Drug Administration ("FDA") has determined to be bioequivalent to a branded drug, and a company seeking to market an AB-rated generic version of a branded drug may file an Abbreviated New Drug Application ("ANDA") with the FDA. Id. ¶¶ 21-22 (citing 21 U.S.C. §§ 355 (j) and 355 (j)(8)(B) (2005)). According to the FTC, almost all states and the District of Columbia encourage generic competition through laws and policies that facilitate pharmacies' substitution of lower-priced AB-rated generic drugs for higher-priced branded drugs. Id. ¶¶ 24-25. Furthermore, the FTC maintains, as a result of lower prices and the ease of substitution, many consumers switch from a branded drug to an AB-rated generic drug when a generic is introduced, such that AB-rated generic drugs typically promptly capture a significant share of their branded counterparts' sales, and competition from generic drugs results in large savings for consumers Id. ¶¶ 26-27.

Ovcon was originally approved by the FDA in 1976 and is not currently subject to patent protection. Id. ¶ 28. Warner Chilcott acquired Ovcon from Bristol-Myers Squibb Company on January 26, 2000, at which point Bristol-Myers Squibb Company agreed to supply Ovcon to Warner Chilcott. Id. According to the FTC, Ovcon is, and has been, one of Warner Chilcott's highest revenue-producing products, with net sales for the twelve months ending September 30, 2004 of approximately $71.5 million. Id. ¶ 32. The FTC further alleges that Warner Chilcott sells Ovcon at a price substantially above Warner Chilcott's cost of acquiring the product, and that Ovcon's net dollar sales have more than doubled since 2000, even as Warner Chilcott has raised Ovcon's price. Id. ¶¶ 29-31.

Barr filed an ANDA with the FDA for approval to manufacture and sell an AB-rated generic version of Ovcon in September 2001 and, in January 2003, publicly announced its intention to market a generic version of Ovcon by the end of 2003. Id. ¶¶ 33-34. According to the FTC, Barr planned to price generic Ovcon at approximately 30 percent less than the price that Warner Chilcott then charged for branded Ovcon, and Barr projected that generic Ovcon would capture approximately 50 percent of Warner Chilcott's branded Ovcon sales within the first year of introduction. Id. ¶¶ 35-36. The FTC alleges that Warner Chilcott calculated that, as a result of Barr's generic Ovcon, Warner Chilcott's net revenues from the sale of branded Ovcon would decline by at least $100 million over a three year period. Id. ¶ 37. The FTC claims that in response, Warner Chilcott planned to introduce a chewable form of Ovcon ("Ovcon Chewable") before Barr introduced its generic Ovcon, to convert Warner Chilcott's Ovcon customers to Ovcon Chewable, and to stop selling branded Ovcon. Id. ¶ 38. However, the FTC alleges, by mid-2003 Barr's generic Ovcon entry appeared imminent, Ovcon Chewable had not obtained FDA approval, and Warner Chilcott's chief financial officer warned the company's Board of Directors that generic Ovcon entry was "the biggest risk to the company." Id. ¶¶ 40-41.

The FTC further alleges that in "August 2003, Warner Chilcott and Barr discussed a possible business arrangement under which Barr would agree to refrain from competing in the United States with its generic Ovcon product." Id. ¶ 43. According to the FTC, on September 10, 2003, Warner Chilcott and Barr executed a letter of intent, which provided that Warner Chilcott would pay Barr $20 million and that Barr would agree not to compete in the United States with its generic Ovcon for five years after receiving final FDA approval of its ANDA, but instead would agree to be available as a second supplier of Ovcon to Warner Chilcott upon request. Id. ¶ 44. The FTC alleges that in February 2004, the FTC notified Defendants that it intended to investigate the agreement outlined in the letter of intent "because of its potential to significantly reduce competition by eliminating the only generic alternative to Ovcon." Id. ¶ 45. Thereafter, on March 24, 2004, Warner Chilcott and Barr signed a Final Agreement, which implemented the letter of intent. Id. ¶ 46. Warner Chilcott paid Barr $1 million upon the signing of the Final Agreement and, within 45 days of the FDA's approval of Barr's generic Ovcon ANDA, Warner Chilcott could elect to pay the remaining $19 million to secure the exclusive license to Barr's ANDA for generic Ovcon for five years. Id. ¶¶ 46-48. In addition, according to the FTC, the Final Agreement gave Warner Chilcott the ability to purchase Ovcon supply from Barr, pursuant to specified payment terms. Id. ¶ 48. The FTC alleges that both Defendants "understood that if, upon receiving FDA approval, Barr went ahead and entered the market with its generic Ovcon product, Warner Chilcott's Ovcon supply needs would immediately be drastically reduced." Id.

The FDA approved Barr's ANDA for generic Ovcon on April 22, 2004 and, as of the date of the FTC's First Amended Complaint, Barr remained the only company that had received approval from the FDA to make an AB-rated generic version of Ovcon. Id. ¶¶ 49, 57. The FTC alleges that, upon receiving FDA approval for its ANDA for generic Ovcon, "Barr had the desire, intent, and capability to market generic Ovcon in the United States." Indeed, the FTC asserts, Barr publicly announced on April 23, 2004 that it intended to market generic Ovcon if Warner Chilcott did not exercise its exclusive license option. Id. ¶¶ 50-51. On May 6, 2004, Warner Chilcott exercised the exclusive license option and paid Barr $19 million. Id. ¶ 52. Thereafter, according to the FTC, Warner Chilcott continued to purchase Ovcon solely from Bristol-Myers Squibb Co., until about May 2005. Id. ¶ 53.

The FTC alleges that, under the terms of the Final Agreement, Barr cannot sell generic Ovcon in the United States until approximately May 2009, but that, absent the Final Agreement, "Barr would have started selling generic Ovcon shortly after receiving final FDA approval in April 2004." Id. ¶ 54. The FTC asserts that the introduction of Barr's generic Ovcon into the United States "would have quickly and significantly reduced the sales of Warner Chilcott's branded Ovcon, and led to a significant reduction in the average price purchasers paid for Ovcon," and that Defendants' Final Agreement deprives consumers of the choice of purchasing lower-priced generic Ovcon instead of higher-priced branded Ovcon. Id. ¶¶ 55, 60. The FTC describes the Final Agreement as a "horizontal agreement not to compete," which "on its face eliminates competition and has no plausible procompetitive justification," and is therefore "a naked restraint of trade." Id. ¶ 62. The FTC asserts that the Final Agreement is not ancillary to any procompetitive undertaking and that any purported procompetitive benefits of the Final Agreement could have been achieved "through means appreciably less restrictive of competition than preventing competition from Barr's generic Ovcon for five years." Id. ¶ 65. The FTC further alleges that the Final Agreement is anticompetitive because its "purpose and effect" is to prevent Barr, the only maker of an FDA-approved generic Ovcon product, from offering its product to consumers, and that many purchasers are paying higher prices in the market for Ovcon than would otherwise prevail absent the Final Agreement. Id. ¶ 66.

The FTC thus claims that "by entering into this illegal horizontal agreement not to compete, defendants Warner Chilcott and Barr have engaged, and are engaging, in unfair methods of competition in or affecting commerce, in violation of Section 5 of the FTC Act." Id. ¶ 67 (citing 15 U.S.C. § 45 (2005)). As relief for this alleged violation, the FTC seeks (1) a declaration that the Final Agreement violates Section 5 of the FTC Act, 15 U.S.C. § 45(a); (2) a permanent injunction preventing Warner Chilcott and Barr "from maintaining or enforcing their agreement not to compete . . . and from engaging in similar and related conduct;" and (3) "such other ...


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