Merck and Glenmark Settle on the Eve of a Rare Pay-For-Delay Trial

On the eve of trial, Merck and Glenmark reached settlements with direct purchasers, end payors, and retailers worth over a combined $600 million. The plaintiffs claimed to have overpaid as result of an alleged conspiracy to delay the launch of generic versions of Zetia, a blockbuster cholesterol drug. The trial would have been notable, as it would have been only the second jury verdict in a “pay-for-delay” case since the Supreme Court’s 2013 landmark Actavis ruling that allowed the FTC to bring antitrust claims against these types of patent dispute settlements. In Actavis, the Court ruled that although not inherently illegal, patent settlements between branded and generic manufacturers are not immune from antitrust scrutiny. Such settlements have been labeled “pay-for-delay” (or reverse payment) settlements since the patent holder pays the generic manufacturer to delay generic entry to an agreed-upon date.

Zetia was approved by the FDA in 2002 and only four years later Glenmark sought approval for its generic ezetimibe, the active ingredient in Zetia. Merck sued Glenmark for patent infringement, as the patent was not set to expire until April 2017. The two parties reached a settlement in 2010, under which Glenmark would be permitted to launch its generic in December 2016, four months before Zetia’s patent expiry, and Merck would reimburse Glenmark for attorneys’ fees already incurred. It was alleged that Merck also agreed not to launch its own authorized generic (“AG”) during the 180 days of generic exclusivity that Glenmark would have enjoyed under the Hatch-Waxman Act as the first generic filer ("no-AG" agreements). This was valuable—allegedly worth $800 million—because that exclusivity does not apply to branded companies that launch an AG, which would compete directly with the first generic and reduce the profitability of generic entry.

Plaintiffs claimed this agreement was a conspiracy to delay the entrance of the generic alternative into the market and violated Sections 1 and 2 of the Sherman Act. Suits were brought against Merck and Glenmark by distributors, retailers, and end payors alleging that they overpaid for Zetia due to a lack of generic entry until December 2016.

Merck and Glenmark reached their first settlement on April 18 with direct purchasers, which included large wholesalers such as AmerisourceBergen and McKesson. The second group of plaintiffs to settle, the end payors—including union pension funds and the City of Providence, Rhode Island—reached an agreement shortly after during jury selection. The final group to settle, retailers, included CVS and Walgreens. As a result of these settlements, Merck and Glenmark will pay a total of $573 million and $87.5 million, respectively, to the three groups.

With these settlements, the only pay-for-delay trial since the Actavis ruling remains the Nexium matter in which the jury ruled in favor of the defendants, AstraZeneca and Ranbaxy. Nexium was AstraZeneca’s blockbuster branded heartburn medication. Plaintiffs argued that in 2008, AstraZeneca entered into an agreement with Ranbaxy to delay Ranbaxy’s generic entry until May 2014, the end of AstraZeneca’s patent protection, in return for a cash payment. Though the court held as a matter of law that Ranbaxy could never have entered the market before May 2014 due to production issues, plaintiffs argued that the settlement still could have delayed the entry of other generics into the market due to the 180-day exclusivity provision. The jury concluded that although AstraZeneca had market power and made a “large and unjustified payment,” it would not have allowed a generic to launch before its patents expired, even without the alleged reverse payment settlement. Therefore, the Plaintiffs failed to demonstrate “they had suffered an antitrust injury that entitled them to damages.”