A Theory in Search of a Case: The Nexium Reverse Payment Trial

By
Matthew Accornero
Jones Day
555 South Flower Street
Los Angeles, CA 90071

Overview
Judge Young began his February 12, 2014 Order on various motions for summary judgment by
rephrasing the judicial adage of having a case in search of a theory. He said that Nexium, the
first reverse payment trial since the U.S. Supreme Courts Actavis decision, was a theory
searching for a case, or at least sufficient evidence to support each necessary element of the
theory.i The theory, referred to during trial as the Actavis inference, posits that a large and
otherwise unexplained payment, combined with delayed entry, supports a reasonable inference
of harm to consumers from lessoned competition.ii Judge Youngs comment seemed to express
skepticism about the plaintiffs ability to show delayed generic entry, or, more specifically, that
the settlement agreement between AstraZeneca and Ranbaxy was the cause of such delay.iii
Eleven months later, after a rip roaringiv six-week trial, a jury confirmed Judge Youngs
skepticism by finding that the settlement, while unreasonably anticompetitive, did not materially
cause the overcharges the plaintiffs allegedly had suffered.v
Background and Pre-Trial Motions
AstraZeneca received FDA approval for its brand-name heartburn drug, Nexium, in February
2001.vi Four years later, the generic drug manufacturer Ranbaxy filed its ANDA with the FDA,
and included a Paragraph IV certification. As such, Ranbaxy received first-filer status and,
with it, a 180-day generic marketing exclusivity period. This exclusivity period confers a
tremendous competitive advantage over other ANDA filers; namely, Teva Pharmaceuticals and
Dr. Reddys Laboratories.vii Predictably, AstraZeneca brought a patent infringement suit against
Ranbaxy in November 2005.viii In addition to litigating the validity of the patents at issue, such a
suit triggers an automatic stay of FDA approval of the ANDA for 30 months. Thus, the earliest
the FDA could have approved generic Nexium was April 2008.
On the same day as the thirty-month stay on FDA approval was set to expire, AstraZeneca and
Ranbaxy settled their patent infringement suit. The alleged reverse payment settlement
provided that Ranbaxy would delay the launch of its generic Nexium until May 2014. In
exchange, AstraZeneca would waive its right to manufacture an authorized generic during
Ranbaxys 180-day exclusivity period.ix Plaintiffs claimed that Ranbaxys CEO estimated this
settlement would be worth $1.5 billion in prospective revenue to the company.x
Plaintiffs argued that Ranbaxy's settlement, in conjunction with its first-filer status, created a
bottleneck for entry into in the generic Nexium market.xi Teva and Dr. Reddys attempted to
break that bottleneck by seeking declaratory judgments to invalidate Nexium patents,xii but
ultimately settled their lawsuits with AstraZeneca first Teva in 2010 and then Dr. Reddys in
2011 and agreed to postpone entry until May 2014. Plaintiffs alleged that the settlements with
Teva and Dr. Reddys contained reverse payments in the form of liability forgiveness.
AstraZeneca agreed to limit Tevas liability for infringing upon AstraZenecas Prilosec patent,

and, similarly, agreed to forgive Dr. Reddys liability for infringing upon another AstraZeneca
drug, Accolate.xiii
On summary judgment, Judge Young ruled that plaintiffs had failed to demonstrate the existence
of a large, unjustified reverse payment with regard to either the Teva or Dr. Reddys settlement
agreement. Because these settlements did not satisfy the first prong of the Actavis test, Judge
Young also granted AstraZenecas motion for summary judgment on all claims arising from
those settlements. In short, if these settlements did not contain a large, unjustified payment, then
they could not have anticompetitively delayed the entry of generic Nexium.
Judge Young also granted Ranbaxys motion seeking summary judgment due to a purported lack
of causation. Defendants argued that the settlement agreement could not have caused the delay
in generic entry, because, in the but-for world, Ranbaxy would not have obtained the FDA
approval necessary to enter the market.xiv The court agreed, and reasoned that because there was
no possibility for Ranbaxy to get to market with a generic version of Nexium prior to May 2014,
the AstraZeneca-Ranbaxy settlement agreement could not be the source of antitrust damages.xv
This, as Judge Young wrote in the order denying a new trial, was the Courts mistaken
assumption.xvi In reality, the AstraZeneca-Ranbaxy settlement could potentially be
anticompetitive if it delayed the entry of any generic Nexium manufacturer. The court
corrected course on this issue during trial.xvii
On the eve of trial, Dr. Reddys resolved the surviving antitrust claims with a settlement that did
not require any payment to the plaintiff classes. Teva settled during trial, after conspiracy claims
linking the Teva and Ranbaxy settlements were dismissed on a directed verdict.
Trial
At trial, the plaintiffs argued that the AstraZeneca-Ranbaxy settlement agreement contained an
unexplained large reverse payment designed to delay generic entry. They asserted that, but for
the settlement, a cheaper, generic Nexium would have entered the market before May 2014.
However, plaintiffs theory had challenges. First, Ranbaxy never received final FDA approval to
market its generic Nexium product. In fact, during trial in November, the FDA rescinded its
previously granted tentative approval of Ranbaxys ANDA for generic Nexium.xviii And, since
the Court had previously ruled against Ranbaxy causation, plaintiffs causation argument was
attenuated.
Plaintiffs alleged that, absent the AstraZeneca-Ranbaxy settlement, Teva would have teamed
with Ranbaxy to launch a generic form of Nexium. For this to take place, plaintiffs needed to
prove that: 1) AstraZeneca would have licensed Ranbaxy (and Teva) to enter at an earlier date; 2)
Teva would have to paid Ranbaxy to forfeit its 180-day first-filler exclusivity; and 3) Teva
would have accelerated its efforts to obtain FDA approval.

Defendants pointed out that the plaintiffs case rested entirely on speculation. Again, plaintiffs
were in the unenviable position of trying to show that, in the but-for world, the generic
manufacturers could have and would have received FDA approval prior to May 2014, when
in reality no company had tentative approval at the conclusion of trial November. According to
the defendants, the settlement did not cause any delay in the launch of generic Nexium products.
Verdict
On December 5, 2014, the jury returned a verdict that AstraZeneca exercised market power in
the market for Nexium, and that the AstraZeneca-Ranbaxy settlement contained a large and
unjustified payment as required by the Supreme Court in Actavis. The jury also found that the
settlement was unreasonably anticompetitive and that its anticompetitive nature was not
outweighed by any pro-competitive justifications. Judge Young wrote that [b]y checking yes
to Questions 1, 2, and 3, the jury indicated that they were convinced that the AstraZenecaRanbaxy Settlement Agreement was unreasonably anticompetitive under a rule of reason
standard.xix But, by checking no to Question 4, the jury ultimately concluded that, regardless
of the anticompetitive settlement, AstraZeneca would not have agreed to an earlier launch date.
Accordingly, the settlement did not cause the overcharges the plaintiffs allegedly had suffered as
consumers of Nexium.
Post-Trial
After the jurys verdict, plaintiffs filed a motion for a new trial under Rule 59 of the Federal
Rules of Civil Procedure. Plaintiffs claimed that because of the pre-trial motions, they could not
put forth evidence to show that Ranbaxy would have involuntarily lost its first-filer exclusivity,
relieving the bottleneck for other generics. Judge Young, in denying the motion, rejected this
argument and explained that not only were plaintiffs free to pursue an involuntary forfeiture
theory, they did in fact present evidence that Teva pressed forward relentlessly to develop its
generic version of Nexium.xx This issue is currently up on appeal at the First Circuit.
The Federal Trade Commission has filed an amicus brief at the First Circuit, attempting to clarify
the distinction between an antitrust violation, and antitrust damages or injury. The amicus points
out that the jury found that the challenged agreement was unreasonably anticompetitive under
the rule of reason. This, the FTC argues, constitutes a violation of the Sherman Act. The fact
that plaintiffs couldnt prove a but-for entry date is a failure to show injury-in-fact. In short,
there was an antitrust violation, but no damages.xxi

In re Nexium (Esomeprazole) Antitrust Litig., 2014 U.S. Dist. LEXIS 17718, *14 (D. Mass. Feb. 12, 2014).

ii

Aaron Edlin, Scott Hemphill, Herbert Hovenkamp & Carl Shapiro, The Actavis Inference: Theory and Practice, 67
Rutgers U. L. Rev. 585, 585 (2015).
iii
In his July 30, 2015 Order denying a new trial, Judge Young wrote that the Court believed the plaintiffs case was
hanging by a thread. In re Nexium (Esomeprazole) Antitrust Litig., 309 F.R.D. 107, 117 (D. Mass. 2015).
iv
Id. at 118.
v
Id. at 125.
vi
In re Nexium (Esomeprazole) Antitrust Litig., 968 F. Supp. 2d 367, 380 (D. Mass. 2013).
vii
A first filer has the right, once final FDA approval is secured, to enter the generic market first and exclusively
market its product for 180 days, during which time the FDA will not grant final approval to any other generic
manufacturer's version of the drug.
viii
AstraZeneca alleged that Ranbaxys generic version of Nexium would infringe six patents. Plaintiffs in the case
had contended that the purported invention of esomeprazole, Neziums active ingredient, is prima facie obvious in
light of the prior art.
ix
The presence of an authorized generic significantly lowers the revenue of a first-filer generic during the 180-day
exclusivity period by taking about half of the generic market share.
x
In re Nexium, 968 F. Supp. 2d at 381.
xi
In re Nexium (Esomeprazole) Antitrust Litig., 42 F. Supp. 3d 231, 246 (D. Mass. 2014). Because no other
manufacturer may launch a product until 180 days after the first filer has done so, a first filer's delay effectively
delays all of its competitors' entries, creating a bottleneck in the market that postpones the date on which any generic
product will become available.
xii
To prevent bottleneck, the Hatch-Waxman Act contains provisions to trigger the 180-day exclusivity period
either on the date that the first . . . filer begins marketing its generic drug, or on the date of a final court decision
finding the relevant . . . patents invalid or not infringed, whichever comes first. In re Nexium 42 F. Supp. 3d at 246.
Thus, if Teva was able get a declaratory judgment in 2008, it could have brought its generic Nexium to market by
2009.
xiii
In re Nexium, 968 F. Supp. 2d at 384.
xiv
In re Nexium, 2014 U.S. Dist. LEXIS 17718 at *19.
xv
In re Nexium, 309 F.R.D. at 116.
xvi
Id. at 116 n. 16.
xvii
This fact came to light during the testimony of Thomas McGuire, an economist specializing in the
pharmaceutical industry, and the Court promptly corrected course, charging the jury that antitrust liability could
exist if, absent the AstraZeneca-Ranbaxy Settlement Agreement, Teva would have teamed with Ranbaxy to launch a
generic form of Nexium prior to May 2014. In re Nexium, 309 F.R.D. at 120.
xviii
In re Nexium, 309 F.R.D. at 119.
xix
Id. at 125.
xx
Id. at 128.
xxi
Further, the FTC argues that a delay isnt the enunciated harm from a reverse payment settlement, but a
disruption to the competitive process that can include the generic abandoning its patent challenge and staying out of
the market regardless of whether the generic would actually have otherwise entered the market sooner than
permitted by the agreement.