Health and Pharmaceuticals Committee: Recent Developments Series

March – April 2016

May 17, 20161:00pm EST

Cornerstone Research

Agenda

• Mergers and Acquisitions• State and Agency Actions• Civil Litigation• Reverse Payments / Product Hopping

Presenters

Joseph BreedloveSenior EconomistWashington, D.C.

Kivanc KirgizVice President

Washington, D.C.

Presenters

Dina Older AguilarVice President

San Francisco, CA

Sally WoodhouseVice President

Boston, MA

Mergers and Acquisitions

Anthem – Cigna

• Parties: Anthem and Cigna, two national health insurers.

• Anthem announced its proposed acquisition of Cigna for $54 billion on July 24, 2015.

– 3/1/2016: In a letter to William Baer, the head of the D.O.J. Antitrust Division, the American Hospital Association warned the deal would increase the dominance of Blue Cross Blue Shield insurance plans.

• William Baer later acknowledged that, combined with the Aetna -Humana Merger, the Anthem - Cigna Merger would be a big change, reducing the number of national insurers from five to three.

– 3/29/2016: The California Department of Insurance held a hearing allowing both supporters and critics of the potential merger to voice their concerns.

Anthem – Cigna

– 3/29/2016: The California Insurance Commissioner, CA’s top insurance official, asked for more information on how Anthem –Cigna’s estimated $2 billion in yearly savings would be passed on to consumers.

– 4/1/2016:The Florida Office of Insurance Regulation issued a decree approving the Anthem Cigna Merger.

• As a part of the agreement in Florida, Anthem and Cigna agreed to expand their combined offers on the federal government health exchange market by 2020 if the merger should go through.

– 4/15/2016: The D.O.J. has deposed a number of executives at both Anthem and Cigna as a part of its antitrust investigation into the two companies.

Aetna – Humana

• Parties: Aetna and Humana, two national health insurers.

• Aetna announced its proposed acquisition of Humana for $37 billion on July 3, 2015.

– 4/15/2016: The D.O.J. has deposed a number of executives at both Aetna and Humana as a part of its antitrust investigation into the two companies.

– 4/26/2016: The American Hospital Association (AHA) released a letter stating that the Aetna – Humana merger would have an anticompetitive effect in many Medicare Advantage markets.

Aetna – Humana

– 4/29/2016: The Virginia Bureau of Insurance approved the proposed Aetna – Humana Merger.

• Bureau found that the merger would not substantially reduce competition in individual, small group, large group, or dental plans.

– As of 4/29/2016, 14 out of 20 states reviewing the merger had cleared it, with Virginia being the most recent.

Centene – Health Net

• Parties: Centene and Health Net, two health insurance companies with products for government health programs.

• Centene proposed its $7 billion acquisition of Health Net on July 2, 2015.

– Early termination of the waiting period was granted in August 2015.

‒ 3/22/2016: The California Dept. of Managed Health approved Centene’s purchase of Health Net‒ The approval was subject to conditions including a $65M

contribution to “improving the health of enrollees, supporting locally based consumer assistance programs and strengthening the health care delivery system” and a $75M contribution into “California’s health care infrastructure for underserved groups.”

Northshore – Advocate

• Parties: Advocate Health Care Network and NorthShore University HealthSystem.

• A merger between the two Chicago-area hospital systems was announced in September 2014.

– The merger was challenged by the FTC in December 2015.

– 4/11/2016: The preliminary injunction hearing began in US District Court for the Northern District of Illinois.

• The FTC argued that the merged entities would run 6 of 11 hospitals in Chicago’s northern counties and that the price of medical services would rise by 8%.

Northshore – Advocate

– The Parties argued that the FTC is incorrectly defining the market by ignoring most of the general acute care hospitals in the Chicago area, and that the merger would lower prices at the party hospitals by 10%, benefitting people in Chicago by $200-$500M per year.

– Executives from Northwestern Memorial Healthcare and Blue Cross Blue Shield of Illinois claimed that the merger would raise prices. However, NorthShore’s CEO claimed that Northwestern executives told him they hoped NorthShore would lose the merger case so that Northwestern could merge with NorthShore.

– 4/15/2016: The judge rejected the parties’ request to have the merger thrown out.

– 4/26/2016: A motion was filed to move the start of the administrative trial from May 24, 2016 to June 15, 2016.

Cabell Huntington – St. Mary’s

• Parties: Cabell Huntington Hospital and St. Mary’s Medical Center.

• A merger between two Huntington, WV hospitals was proposed in November 2014.

– The merger was challenged by the FTC in November 2015.

– West Virginia’s Attorney General approved the merger in 2015, subject to certain conditions meant to preserve competition in the area. The FTC did not find the conditions sufficient and took the parties to court.

– 3/18/2016: West Virginia’s governor signed a bill into law that made the West Virginia HealthCare Authority (WVHCA) the decision-maker on health care provider mergers within the state.

– 4/18/2016: the FTC filed a public comment urging the WVHCA to deny the merger, which the FTC said would harm patients in the four counties surrounding Huntington.

Penn State Hershey –PinnacleHealth

• Parties: Penn State Hershey Medical Center and PinnacleHealth System.

• The parties signed a letter of intent to merge in June 2014

– The merger was challenged by the FTC in December 2015.

– 4/11/2016: Preliminary injunction hearing began in US District Court for the Middle District of Pennsylvania.

– The FTC argued that the merger would give the parties 76% of the market in central Pennsylvania and that they are the two largest providers in the Harrisburg area.

– The parties argued that many of their patients lived outside of the FTC’s defined market area.

Penn State Hershey –PinnacleHealth

– Further, the parties stated that they had agreements with insurance companies to protect them from potential rate increases, and that the merger was meant to help the parties compete with other hospitals aligning with larger hospital networks.

– 5/17/2016: Administrative hearing is scheduled to begin.

Provider Briefs

• Prime Healthcare – St. Michael’s– 3/10/2016: The state of New Jersey approved Prime Healthcare’s

$62.2M acquisition of Saint Michael’s Medical Center, which had been auctioned out of bankruptcy in 2015.

• CentraCare – St. Cloud– 3/16/2016: Minnesota’s Attorney General announced that her office

would investigate a proposed merger between CentraCare Health and St. Cloud Medical Group over market power concerns.

• RegionalCare – Capella– 3/22/2016: RegionalCare Hospital Partners and Capella Healthcare

agreed to a $550M merger.

Provider Briefs

• DSI Renal – U.S. Renal Care– 3/18/2016: The FTC approved U.S. Renal Care Inc.’s $640M purchase

of DSI Renal, provided that three of DSI’s outpatient clinics in Laredo, Texas be divested to Satellite Healthcare, Inc.

Abbott – Alere

• Abbott, a pharmaceutical company, announced its acquisition of Alere, a diagnostic service provider, in February 2016.

– Late April: Alere rejected Abbott’s request to back out of their $5.8B merger agreement.

– Abbott was concerned about the DOJ’s foreign bribery probe into Alere. Abbott was also concerned about Alere’s delay in filing its 2015 annual report.

– Abbott offered between $30M and $50M to terminate the agreement, which would have covered Alere’s transaction fees.

Abbott – St. Jude

• 4/28/2016: Abbott announced a $25B acquisition of St. Jude, a cardiovascular medical device company.

– Abbott said that this would make them the first or second-largest competitor in many cardiovascular device markets.

– Current shared product markets include atrial fibrillation and devices pertaining to coronary and peripheral artery disease.

Pfizer – Allergan

• Pfizer announced its acquisition of Allergan on November 23, 2015.

– 3/30/2016: Pfizer and Allergan receive a second request from the FTC.

– 4/6/2016: Pfizer and Allergan agreed to terminate the acquisition agreement.

– Under the merger, Pfizer would have reduced its tax bill by redomiciling to Ireland where Allergan is registered. The $160B deal would have been the largest “tax inversion” ever.

– However, new regulations to curb these corporate “tax inversions” were issued by the U.S. Treasury on 4/4/2016,.

– Pfizer will pay Allergan $150M as reimbursement for transaction costs.

Teva – Allergan

• 3/10/2016: The EU approved Teva’s $40.5B acquisition of Allergan’s generic business.

– The parties agreed to divest a number of its drugs, including all of Teva’s generics in Iceland and many of Allergan’s generics in Ireland and the U.K.

– 3/15/2016: Teva announced that it could take until June 2016 to complete the acquisition as it works to obtain clearance from the FTC. This is delay from the previous expected timing of Q1 2016.

Pharmaceutical Briefs

• Bristol-Myers Squibb – Padlock– 3/23/2016: Bristol-Meyers Squibb announced a $600M purchase of

Massachusetts-based Padlock Therapeutics.

– Bristol-Myers would gain Padlock’s protein/peptidyl arginine deiminase (PAD) inhibitor discovery program, focused on discovering better treatments for rheumatoid arthritis.

– 4/1/2016: Bristol-Meyers Squibb announced that the deal was completed.

Pharmaceutical Briefs

• Lupin – Gavis‒ 4/26/2016: The FTC settled with Lupin Ltd. and Gavis

Pharmaceuticals LLC, allowing the $850M merger provided that Lupin divest two generic drugs sold by Gavis: doxycycline monohydrate capsules (two dosage strengths) for treating bacterial infections, and mesalamine extended release capsules for treating ulcerative colitis.

State and Agency Action

State and Agency Action

• FTC Litigation– In the Matter of Victrex, plc; Invibio, Limited; and Invibio, Inc., File No. 141-0042– “The Pet Medications Industry: Issues and Perspectives”– Regulating Professional Boards– Alaska State Health Comment– Kentucky Denturist Comment

• State Action– State of Maryland v. Johnson & Johnson Vision Care Inc.– Connecticut Executive Order No. 51

In the Matter of Victrex, plc; Invibio, Limited; and Invibio, Inc.

• On April 27, Invibio, a supplier of high-performance polymer for medical implants, settled FTC charges that it used long-term contracts to maintain a monopoly, violating antitrust laws.

• Invibio is the first company to sell implant-grade polymer (PEEK) to medical device makers and set up long-term contract terms with manufacturers.

– According to the FTC’s complaint, Invibio “expand[ed] the scope and coverage of exclusivity terms in PEEK supply contracts to prevent Solvay and Evonik from developing into effective competitors.”

In the Matter of Victrex, plc; Invibio, Limited; and Invibio, Inc.

• The FTC’s proposed consent order:– Prohibits Victrex, plc; Invibio, Limited; and Invibio, Inc; from entering into

exclusive supply contracts.– Allows customers to modify existing contracts to eliminate the term requiring

them to purchase PEEK exclusively from Invibio.– Bars Victrex, plc; Invibio, Limited; and Invibio, Inc from using pricing terms in new

contracts that could result in an exclusive supply contract between Invibio and a customer

• This includes using minimum purchase requirements, conditioning discounts, and retroactive volume discounts.

FTC on the State of Competition in the Pet Medications Industry

• On April 29, 2016, Tara Koslov, Deputy Director of the FTC’s Office of Policy Planning, described the state of competition in the pet medications industry, as well as the FTC’s work in this area before the House Subcommittee on Commerce, Manufacturing, and Trade.

• The FTC finds:– Consumer options for purchasing pet medications are expanding. Non-

veterinarian outlets are particularly suited to sale of medicine for chronic conditions.

– Portability of pet medication “gives consumers the benefits of competition, including lower prices and more choice.”

– Veterinarians, manufacturers, and distributors generally argue that veterinarians are in the best position to prescribe and dispense pet medications to consumers, and tend to oppose automatic prescription release.

– Exclusive distribution policies, limiting distribution of pet meds to non-veterinarian outlets, can limit the benefits of competition.

FTC on the State of Competition in the Pet Medications Industry

• The FTC pushes for policies increasing awareness, availability of portable prescriptions for pet meds, stating the following reasons:

– Lack of prescription portability limits competition between veterinarian and non-veterinarian retailers in the sale of pet medication.

– The rationale for limiting access to prescription portability are unsupported by evidence and limits appear to be greater than required to address concerns.

– Requiring automatic prescription portability for all medications prescribed by veterinarians would expand competition and benefit consumers.

• FTC noted that manufacturer distribution of pet meds to non-veterinarian retailers would also be needed to increase competition.

– Most manufacturers have some policy against sale directly to non-veterinarian retailers.

– Secondary distribution channels may be inefficient in comparison to direct sales from manufacturers.

Regulating Professional Boards

• February 25, 2015: the Supreme Court ruled on FTC v. North Carolina State Board of Dental Examiners that:

– “Because a controlling number of the Board’s decision makers are active market participants in the occupation the Board regulates, the Board can invoke state-action antitrust immunity only if it was subject to active supervision by the State”

• March 28, 2016: Governor Charles Baker of the Commonwealth of Massachusetts issued an executive order instructing the director of professional licensure and commissioner of public health to review any acts, rules, regulation that may potentially reduce competition in the market of professional services.

• On April 6, 2016, Senior Assistant Attorney General of California DOJ Kathleen Foote, remarked that state legislators are not moving very ‘rapidly’ on professional boards.

Kentucky Denturist Legislation

• On March 25, 2016, the FTC released a staff comment to the Kentucky General Assembly regarding House Bill 77.

– Current Kentucky Law allows people to obtain dentures only though a dentist. – HB 77 would create another oral health professional to directly treat people who

need dentures as well as create a board to govern its practice.

• The FTC claims:– HB 77 would “enhance competition among qualified providers of dentures, in

ways that may benefit consumers.”– Benefits include: increase access to qualified oral health providers and lowering

cost of care.– “Unnecessarily strict scope of practice restrictions can suppress these important

benefits [of competition] by limiting the supply of qualified care providers.”

Telehealth

• Alaska Senate Bill 74– Passed in Senate on March 11; awaiting action by House of

Representatives.– SB 74 would allow licensed Alaska physicians located out-of-state to

provide telehealth services as Medicaid recipients who are located in-state.

– the FTC released a staff comment on March 25, 2016, to the Alaska State Legislature supporting the telehealth provisions of Senate Bill 74. The FTC claims this bill would be a “procompetitive improvement in Alaska’s telehealth law”.

• Florida House Bill 7087, passed March 11– Creation of a Telehealth Advisory Counsel– Counsel to gather data and provide assessment of telehealth landscape

with recommendation on commercial reimbursement by October 2017

State of Maryland v. Johnson & Johnson Vision Care Inc.

• On February 29, 2016, Maryland Attorney General filed a complaint against Johnson & Johnson, claiming the company violated antitrust laws by “establishing a minimum retail price for the sale of contact lenses to consumers”.– When eye care professionals complained to J&J that larger retailers like

Costco were selling contact lenses at a lower price, J&J introduced a new policy that fixed minimum retail prices for their contact lenses.

– According to the complaint, because J&J “did not want to lose Costco as a retail distributor”, J&J negotiated the resale price agreement with Costco.

State of Maryland v. Johnson & Johnson Vision Care Inc.

• Allegation is that Johnson & Johnson did not unilaterally institute a resale price maintenance policy, but instead instituted their policy in agreement with Costco: “Johnson & Johnson's Resale Price Maintenance Policy, which was the result of an agreement with Costco, is thus per se illegal.”– In 2007, in Leegin Creative Leather Products, Inc. v. PSKS, Inc., the

Supreme Court held that minimum resale price maintenance agreements are no longer “per se illegal” and instead to first examine “the economic effects of vertical agreements to fix minimum resale prices and to determine whether the per se rule is nonetheless appropriate”.

– However, in 2009, the Maryland General Assembly amended the Maryland Antitrust Act ruling that making an agreement to establish a minimum retail price is per se illegal.

Connecticut Executive Order No. 51

• On February 25, 2016, Connecticut governor issued an executive order to undertake comprehensive review of state certificate of need laws.

• Creates a Certificate of Need taskforce to review the scope, authority, and structure of existing agencies, and determine potential changes to promote transparency and access, affordability and competition.

Civil Litigation

Civil Litigation

• New Cases:– Generic drug price fixing suits– Express Scripts: monopolization suit

• Case Updates:– Suture: Predatory pricing suit dismissed, Suture likely to appeal– Kaiser: Monopoly claims dismissed– Premier Health Partners: Monopoly claims to be revisited

Generic Drug Price Fixing Cases

• Numerous civil class action cases have been filed against 6 pharmaceutical companies: Allergan, Mylan, Par, Lannett, ImpaxLabs, and West-Ward (Eastern Penn. District).

– Sherman Act– State Antitrust and Consumer Protection Statutes

• Plaintiffs allege that the companies conspired to raise the price of the antibiotic doxycycline and the heart medication digoxin.

• Damages Class (Indirect Purchasers): those who purchased, paid and/or reimbursed generic digoxin or doxycycline manufactured by the Defendants during Oct. 1, 2012 to present in the 30 states and District of Columbia.

Generic Drug Price Fixing Cases

• Follow on cases to DoJ’s investigations of price increases in generic drugs in 2014.

• DoJ investigation encompasses generics other than the two at issue in recent suits, so complaints may be amended to add more parties and claims as the scope of the agency’s work is further clarified.

• Complaint does not include specifics of alleged conduct.– Alleges discussions of and agreements on pricing– Points out abrupt price increases with no “reasonable” justification– Discusses DoJ investigation and grand jury subpoenas to employees

Prime Aid Pharmacy Corp.

• Prime Aid Pharmacy Corp sued three Pharmacy Benefit Managers:– Express Scripts (2:16-cv-02182)– Humana (2:16-cv-02104)– Envision (2:16-cv-02105)

• Prime Aid Pharmacy is an independent specialty pharmacy in NJ.• Express Scripts, Humana and Envision are PBMs that also operate

their own pharmacies (mail order).• Prime Aid Pharmacy alleges that:

– PBMs’ exclusive agreements with health plans allow them to determine which specialty pharmacies could provide services to members of these health plans.

– Defendants excluded Prime Aid from their networks to divert patients to their own captive specialty pharmacies and monopolize specialty pharmacy services to New Jersey residents locked into their own networks.

– PBM agreements through which Defendants obtain exclusive rights are agreements in restraint of trade.

JOA: Concerted Action or Single Entity

• The Medical Center at Elizabeth Place LLC v. Atrium Health System et al., 2014 4166 (US Sixth Circuit Court of Appeals)

• Premier Health Partners, a four hospital network with a joint operating agreement (JOA). Under the JOA, members jointly negotiated MCO contracts, shared revenue/losses through specified formula and retained separate ownership of assets.

• Suit was filed in January of 2012– Allegation: Defendants coerced insurers and doctors not to deal with the Plaintiff– October 2014: District Court dismissed on summary judgement, finding that the

four hospitals operated as a single entity and therefore could not conspire

• March 22, 2016: A Sixth Circuit reversed and remanded– Whether the network constitutes a single entity or concerted action among

competitors for purposes of Section 1 of the Sherman Act

Bundled Discounts: Suture

• Suture Express v. Owens & Minor, et al, 2016 163065 (U.S. Tenth Circuit Court of Appeals)

• Suture alleged that Cardinal Health’s and Owens & Minor’s, bundling actions were an illegal tying practice

– Suit was filed in December of 2012.– Suture claims that defendants imposed a tying arrangement by offering a

bundled discount that makes it uneconomic for customers to contract for “tied” product separate and apart from the “tying” product.

– Judge opined that “This case exposes the rough-and-tumble business of competition in the American marketplace” and described defendants’ bundled pricing as an innovation to regain lost customers.

– Judge wrote that bundling of products has not halted competition but lower prices. He also pointed out the success of other firms in market and the continued competition between Cardinal and Owens & Minor.

– April 4, 2016: Suture announced their decision to appeal the dismissal.

Dismissal of Case Against Kaiser and SEIU Affirmed

• Prime Healthcare Services Inc. v. Service Employees International Union, United Healthcare Workers-West et al, 1357185 (U.S. Ninth Circuit Court of Appeals)

• Issue – Prime Healthcare Services Inc. alleged that Kaiser and SEIU had conspired to exclude it from emergency care market and increase service workers wages it paid.

– Initial suit was filed in November of 2011; dismissed in Aug 2012 without prejudice.

– Refiled case was dismissed again in April 2013.– Ninth Circuit Panel affirmed the dismissal in March 2016. – Panel noted that Prime Healthcare failed to demonstrate Kaiser’s monopoly

power in the relevant market.– Panel concluded that Prime Healthcare did not sufficiently plead facts showing the

Defendants harmed competition in the acute care emergency hospital services.

Reverse Paymentsand

Product HoppingUpdate

New Reverse Payment Litigation

• Opana ER / Lidoderm– FTC sued Endo, Teikoku, and generic manufacturers – first time FTC

has sued over an agreement not to compete through an authorized generic

– Teikoku settled agreeing not to enter into any patent litigation settlement agreements involving reverse payments

• Asacol– Direct purchaser class action filed in April alleging Warner Chilcott and

Zydus entered into a reverse payment settlement agreement that delayed generic entry for Asacol until after Warner was able to reformulate the drug.

• Loestrin– CVS/Rite Aid sued Warner Chilcott over allegedly delaying entry and

subsequent product hopping to follow-on products Lo-Loestrin and Minestrin.

Reverse Payments – Class Cert

• Provigil– District court certified a direct purchaser class – Mylan and Ranbaxy are

appealing to the Third Circuit– Both sides filed their briefs with the Third Circuit– Defendants focused on the Supreme Court’s Comcast decision.– Apotex filed an amicus brief arguing that defendants have

misrepresented the standard for holding each defendant fully responsible for the competitive harm in reverse payment class actions

Reverse Payments - Appeals

• Effexor:– Drug buyers are urging the Third Circuit to revive their claims against

Wyeth and Teva– FTC submitted an amicus brief in March focused on defendants’ Noerr-

Pennington Doctrine defense– Drug buyers filed their reply brief in April

• Lamictal:– GSK petitioned the Supreme Court for certiorari regarding the Third

Circuit’s decision that a no-AG agreement represents a payment– The Court asked the purchaser class to respond to GSK’s petition

despite it waiving its right to respond– NAM, PhRMA, GPhA, WLF filed briefs support GSK’s petition

Reverse Payments – Appeals (continued)

• Lipitor:– Pfizer and Ranbaxy urged the Third Circuit to uphold the dismissal of

class actions filed by direct purchasers and end payors– GPhA and PhRMA filed briefs supporting defendants

• Nexium– AstraZeneca and Ranbaxy asked the First Circuit to affirm Judge

Young’s ruling that purchasers could not get a new trial• Wellbutrin XL

– The FTC submitted an amicus brief claiming the district court made four legal errors when granting GSK summary judgment

Reverse Payments – UK

• Serosat– GSK appealed the U.K. Competition and Market Authority’s £37.6 fine

related to allegedly paying generic companies to postpone generic entry– Generic companies also filed challenges to related penalties

Product Hopping

• Doryx– Case is on appeal in the Third Circuit – district court ruled for Warner

Chilcott (in summary judgment)– Parties are fighting over whether Warner Chilcott should be allowed to

file a surreply to Mylan’s reply brief• Suboxone:

– In the case brought by Amneal (a potential generic competitor), Indivior filed a motion to dismiss claims related to its citizen petition and false advertising

• Amneal has since filed a response– In direct purchaser and end payor class actions, Indivior filed for partial

summary judgment on claims related to its citizen petition