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Apotex, Inc. v. Cephalon, Inc.

United States District Court, E.D. Pennsylvania

May 18, 2017

APOTEX, INC., Plaintiff,
v.
CEPHALON, INC., Defendants.

          MEMORANDUM OPINION

          GOLDBERG, J.

         This antitrust case involves allegations that four reverse-payment settlement agreements entered into by a brand-name drug manufacturer and four generic drug companies constitute antitrust violations under the Sherman Act.[1] Apotex, Inc., a generic competitor, and other Plaintiffs claim that these settlement agreements were created and signed with the purpose of delaying the market entry of generic versions of the brand-name pharmaceutical, Provigil. Defendants maintain that the agreements were legitimate settlements of Hatch-Waxman patent litigation and contained procompetitive terms.

         A liability trial is currently scheduled for June 5, 2017. As a result of various settlements and the procedural postures of the other related cases, the only plaintiffs in that trial are Apotex and a group of owners and operators of retail pharmacies who filed their own separate actions. Over the course of this litigation, these plaintiffs have been referred to as “Individual Plaintiffs, ” “Retailer Plaintiffs, ” “Opt-Out Plaintiffs” and “Merchant Plaintiffs.” The only defendants in the June trial are Mylan and Ranbaxy.

         This Opinion addresses Mylan and Ranbaxy's motion challenging the damages analysis set forth by Apotex's expert, Dr. Hal Singer, under Federal Rule of Evidence 702 and Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993).[2] For the reasons that follow, Defendants' motion will be granted in part and denied in part.

         I. FACTUAL AND PROCEDURAL BACKGROUND

         A. Hatch-Waxman Administrative Framework

         The Drug Price Competition and Patent Term Restoration Act of 1984, Pub. L. No. 98-417, commonly known as the Hatch-Waxman Act, is designed to encourage the development and marketing of generic versions of approved drugs. It allows generic manufacturers to file an Abbreviated New Drug Application (“ANDA”) when seeking approval from the Food and Drug Administration (“FDA”) to market a generic version of an approved drug. See Caraco Pharm. Labs., Ltd. v. Forest Labs., Inc., 527 F.3d 1278, 1282 (Fed. Cir. 2008).

         ANDA filers must submit one of four certifications addressing any and all patents covering the brand-name drug, certifying either: (1) that the relevant patent information has not been filed with the FDA; (2) that such patent has expired; (3) the date that such patent will expire; or (4) “that such patent is invalid or will not be infringed by the manufacture, use, or sale of the new drug for which the application is submitted.” Id. at 1282-83 (quoting 21 U.S.C. § 355(j)(2)(A)(vii)). “If a generic drug company seeks to market a generic version of a listed drug before the expiration of the Orange-Book-listed patents[3] covering that drug, it must file a certification under 21 U.S.C. § 355(j)(2)(A)(vii)(IV), i.e. a ‘Paragraph IV certification.'” Id. at 1283 (citing Eli Lilly & Co. v. Medtronic, Inc., 496 U.S. 661, 676 (1990)).

         Filing a Paragraph IV ANDA constitutes an act of patent infringement, often prompting the patent holder to file a lawsuit. However, as an incentive to generic companies to challenge weak patents, the first applicant to file an ANDA with a Paragraph IV certification is entitled to a 180-day period of exclusivity for its generic drug beginning on the first day it markets its drug commercially. Federal Trade Commission v. Actavis, Inc., 133 S.Ct. 2223, 2228-29 (2013).

         When a patent holder files an infringement lawsuit within forty-five days of a Paragraph IV ANDA filing, the FDA is barred from approving the generic company's ANDA for a period of 30 months. 21 U.S.C. § 355(j)(5)(B)(iii). If the case is resolved during the 30-month stay, the FDA will take action on the ANDA consistent with the court's judgment. Actavis, 133 S.Ct. at 2228. If the case is still ongoing at the end of the 30-month period, the FDA may grant final approval on the ANDA, at which point the generic company will have to decide whether to sell its drug “at risk” of incurring damages should the Paragraph IV litigation result in a judgment favorable to the patent holder. Id.

         B. Factual History

         In 1997, Cephalon was issued U.S. Patent No. 5, 618, 845, covering specific formulations of modafinil, the active pharmaceutical ingredient (“API”) in Provigil. Cephalon was granted a reissue patent on modafinil, U.S. Patent No. RE 37, 516 (“the RE ‘516 patent”), in 2002, which was scheduled to expire October 6, 2014.[4]

         Modafinil is a wakefulness-promoting agent used to treat narcolepsy and other sleep disorders. On December 24, 2002, the Generic Defendants each filed an ANDA seeking to market generic versions of Provigil, and each filed a Paragraph IV certification with the FDA indicating that Cephalon's RE ‘516 patent was either invalid or the generic products did not infringe the patent. Because each of the Generic Defendants filed ANDAs on the first possible day, all were eligible to share the 180-day first filer exclusivity. On March 28, 2003, Cephalon sued the Generic Defendants for patent infringement, (the “Paragraph IV litigation”), triggering an automatic thirty-month stay on the approval of their ANDAs.

         The Paragraph IV litigation between Cephalon and the Generic Defendants settled between December 2005 and February 2006, while the Generic Defendants' motions for summary judgment were pending. All of the settlement agreements included a provision by which Cephalon granted the Generic Defendants a license to market their generic modafinil products on a “date certain”-April 6, 2012. Also, all of the settlement agreements provided that the Generic Defendants could enter the market earlier than the date certain if: (1) Cephalon licensed any other generic manufacturer to market generic modafinil prior to the date certain; (2) another generic decided to launch “at risk”; or (3) if a judgment declared that generic modafinil may be sold without infringing the RE ‘516 patent (“the Contingent Launch Provisions”). Through a series of contemporaneous agreements reached at or around the time of settlement, Cephalon paid the Generic Defendants a total of approximately $300 million.

         Apotex alleges that had the Paragraph IV litigation continued, the RE ‘516 patent would have been declared invalid, not infringed by the Generic Defendants' products, and unenforceable due to Cephalon's fraud in the procurement of the patent. Apotex explains that due to the Generic Defendants maintaining the 180-day first filer exclusivity while agreeing to stay off of the market through 2012, a “bottleneck” was created, preventing Apotex and other generic drug companies from entering the market. Apotex has challenged the settlements and Cephalon's enforcement of the RE ‘516 patent as violations of Sections 1 and 2 of the Sherman Act.

         C. Procedural History

         In addition to the antitrust challenges to the enforcement of Cephalon's patent and the settlements, Apotex also sought declaratory judgments that the RE ‘516 patent was invalid, that Cephalon had procured the patent by fraud, and that the patent was not infringed by Apotex's generic Provigil product. After holding two bench trials, I entered judgment in favor of Apotex on the patent claims, finding: (1) that the RE ‘516 patent was invalid pursuant to the on-sale bar, and also for derivation, obviousness and lack of written description; (2) that the RE ‘516 patent was unenforceable due to Cephalon's fraud on the PTO; and (3) that Apotex's generic product did not infringe Cephalon's patent. See Apotex, Inc. v. Cephalon, Inc., 2011 WL 6090696 (E.D. Pa. Nov. 7, 2011) affirmed Apotex Inc. v. Cephalon, Inc., 500 Fed.Appx. 959 (Fed. Cir. 2013) (unpublished); Apotex, Inc. v. Cephalon, Inc., 2012 WL 1080148 (E.D. Pa. Mar. 28, 2012).

         After several rulings on the parties' motions for summary judgment and various settlements, Apotex's remaining antitrust claims relating to the reverse-payment settlement agreements are as follows: (1) illegal agreements in restraint of trade against all Defendants in violation of Section 1 of the Sherman Act, and (2) conspiracy to monopolize against all Defendants in violation of Section 2 of the Sherman Act.[5]

         D. The Damages Opinions of Apotex's Expert, Dr. Hal Singer

         Dr. Singer has provided three alternate damages calculations in support of Apotex's damages claims.

         1. Calculation 1

         Damages Calculation 1 measures the lost profits Apotex allegedly suffered as a result of being unlawfully barred from the market by Defendants' conduct. (Singer Rep., Apr. 26, 2011, ¶¶ 87-88.) It assumes that in the but-for world, absent any settlement agreement with Cephalon, the Generic Defendants would have launched their generic Provigil products in either June or December 2006. Due to the 180-day exclusivity granted to the Generic Defendants as first filers, Dr. Singer then assumes that Apotex would have entered the market with its generic product 180 days later-on either December 21, 2006 or June 22, 2007. (Singer Rep. ¶¶ 70, 73; Singer Supp. Rep., Dec. 20, 2013, ¶ 35.) Dr. Singer opines that Apotex would have entered the market as the fifth generic entrant. (Singer Rep. ¶ 79.) He further relies upon contemporaneous projections maintained by Apotex in the normal course of business, to determine that Apotex would have captured 20 percent of the market for generic Provigil during this initial damages period. (Id. at ¶¶ 85-86, 88.)

         Dr. Singer's opinion also factors in the September 2009 FDA Import Alert against two of Apotex's manufacturing sites, which prohibited Apotex from selling pharmaceuticals manufactured at those facilities. The Import Alert ban was lifted on July 1, 2011, at which time Apotex was permitted to resume producing pharmaceuticals for sale from those manufacturing locations. Acknowledging that Apotex could not have marketed generic Provigil during this time in the but-for world, Dr. Singer excludes any lost profits that may have otherwise occurred during the period in which the Import Alert was in effect. (Singer Supp. Rep. ¶ 22; Fahner Rep., Exs. A, B.)

         Relying upon the testimony of an Apotex executive, Mr. Gordon Fahner, Dr. Singer assumes that sales of generic Provigil would have resumed in September 2011, two months after the Import Alert was lifted. Further acknowledging that the Import Alert would have affected Apotex's relationships with its customer base, Dr. Singer opines that Apotex would have maintained a 7.5 percent market share upon re-launch. (Singer Supp. Rep. ¶ 33.)

         Calculating the estimated sales and profits that Apotex would have earned in the but-for world during the initial damages period (December 2006 through September 2009) and the reentry damages period (September 2011 through November 2013), Dr. Singer determines that Apotex suffered a total of $113.2 million in lost profits.[6] (Id. at ¶¶ 38-39.)

         2. Calculation 2

         In addition to the lost profits assessment set forth above, Dr. Singer provides a second damages calculation that was created at the request of counsel for Apotex. This second calculation modifies Calculation 1 to “assume[ ] that (a) first filers will be held to their contractual agreement with Cephalon not to enter until April 2012, and (b) Apotex would have entered the market and captured its anticipated profits as the fifth entrant plus the but-for profits of the first four generic entrants.” (Singer Exp. Rep. ¶ 89 (emphasis in original).) According to Dr. Singer, “[s]uch a theory of damages prevents defendants from keeping the overwhelming majority of their illegally obtained profits.” (Id.) Notably, Dr. Singer provides very little explanation regarding how Apotex would be entitled to the profits of the Generic Defendants. Using these parameters, Dr. Singer opines that Apotex suffered lost profits in the amount of $455.8 million in Calculation 2. (Singer Supp. Rep. ¶¶ 38-39.)

         3. Calculation 3

         Finally, Dr. Singer presents a third damages model, which was also prepared at the request of counsel, “under a legal theory in which Apotex would have been the first firm to enter at-risk.” (Id. at ¶ 35.) This damages model is described as including, in addition to the lost profits described in Calculation 1, the lost profits that Apotex would have experienced if Apotex was not “subject to the 180-day exclusivity ‘bottleneck, ' but instead . . . entered as the sole generic competitor in December 2006.” (Id. at ¶ 36.) Using data from Teva's real-world launch as the sole first filer in 2012, Dr. Singer projects lost profits in the amount of $155.9 million in Calculation 3. (Id.)

         E. Defendants' Motion to Exclude Damages Testimony of Dr. Singer

         Defendants raise a number of challenges to Dr. Singer's damages opinions under Federal Rule of Evidence 702 and Daubert. Defendants challenge Dr. Singer's first damages calculation, arguing that: (1) Dr. Singer's assumption about Apotex's initial market entry date is speculative and contrary to the evidence; (2) his assumption about Apotex's re-launch date is unreasonable; (3) his market share assumption for the initial damages period is unreasonable; and (4) his market share assumption for the re-entry period is unreasonable. Defendants further challenge Dr. Singer's Calculations 2 and 3, arguing that they lack factual support and that they measure damages in excess of lost profits, and thus, are contrary to the law.

         For the reasons that follow, I find that Dr. Singer's Damages Calculation 1 meets the requirements of Daubert and Rule 702, and therefore will be permitted at trial. However, I agree with Defendants that Calculations 2 and 3 do not fit the facts of the case ...


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