Fed. Trade Comm'n v. Shire Viropharma, Inc.

• Decision Date: 25 February 2019
• Docket Number: No. 18-1807,18-1807
• Parties: FEDERAL TRADE COMMISSION, Appellant v. SHIRE VIROPHARMA, INC.
• Court: U.S. Court of Appeals — Third Circuit

917 F.3d 147

FEDERAL TRADE COMMISSION, Appellant

v.SHIRE VIROPHARMA, INC.

No. 18-1807

United States Court of Appeals, Third Circuit.

Argued December 11, 2018

Filed: February 25, 2019

Bradley S. Albert, Meredyth Andrus, Thomas J. Dillickrath, Matthew M. Hoffman [ARGUED], June Im, Nicholas Leefer, Joel R. Marcus, Joseph Mathias, James H. Weingarten, Federal Trade Commission, 600 Pennsylvania Avenue, N.W., Washington, DC 20580, Counsel for Appellant

J. Clayton Everett, Jr., Scott A. Stempel, Morgan Lewis & Bockius, 1111 Pennsylvania Avenue, N.W., Suite 800 North, Washington, DC 20004, Noah J. Kaufman, Morgan Lewis & Bockius, One Federal Street, Boston, MA 02110, Steven A. Reed [ARGUED], Jessica J. Taticchi, Morgan Lewis & Bockius, 1701 Market Street, Philadelphia, PA 19103, Counsel for Appellee

George P. Slover, Consumers Union, 1101 17th Street, N.W., Suite 500, Washington, DC 20036, Counsel for Amicus Appellant

Richard A. Samp, Washington Legal Foundation, 2009 Massachusetts Avenue, N.W., Washington, DC 20036, Counsel for Amicus Appellee

Before: SMITH, Chief Judge, McKEE, and FISHER, Circuit Judges

OPINION OF THE COURT

SMITH, Chief Judge.

Shire ViroPharma, Inc. ("Shire"),¹ manufactured and marketed the lucrative drug Vancocin

, which is indicated to treat a life-threatening gastrointestinal infection. After Shire got wind that manufacturers were considering making generic equivalents to Vancocin, it inundated the United States Food and Drug Administration ("FDA") with allegedly meritless filings to delay approval of those generics. The FDA eventually rejected Shire's filings and approved generic equivalents to Vancocin, but the filings nonetheless resulted in a high cost to consumers—Shire had delayed generic entry for years and reaped hundreds of millions of dollars in profits.

Nearly five years later—and after Shire had divested itself of Vancocin—the Federal Trade Commission ("FTC") filed suit against Shire in the United States District Court for the District of Delaware under Section 13(b) of the Federal Trade Commission Act, 15 U.S.C. § 53(b). The FTC sought a permanent injunction and restitution, alleging that Shire's petitioning was an unfair method of competition prohibited by the Act. Shire moved to dismiss, arguing that the FTC's allegations of long-past petitioning activity failed to satisfy Section 13(b)'s requirement that Shire "is violating" or "is about to violate" the law. The District Court agreed and dismissed the case.

On appeal, the FTC urges us to adopt a more expansive view of Section 13(b). According to the FTC, the phrase "is violating, or is about to violate" in Section 13(b) is satisfied by showing a past violation and a reasonable likelihood of recurrent future conduct. We reject the FTC's invitation to stretch Section 13(b) beyond its clear text. The FTC admits that Shire is not currently violating the law. And the complaint fails to allege that Shire is about to violate the law. We will therefore affirm the District Court's judgment.

I.²

A.

A company that wishes to manufacture and market a new drug in the United States must submit to the FDA a New Drug Application ("NDA") demonstrating the safety and efficacy of the product.³ Usually, the NDA filer demonstrates safety and efficacy by using expensive in vivo clinical endpoint studies, where researchers provide sick patients with either the proposed drug or a placebo to compare the safety and efficacy of the drug with the placebo. See Fed. Trade Comm'n v. Actavis, Inc. , 570 U.S. 136, 142, 133 S.Ct. 2223, 186 L.Ed.2d 343 (2013) (describing the "long, comprehensive, and costly testing process" underlying an NDA). After FDA approval, the manufacturer must seek approval through a supplemental NDA if it wishes to change the drug or its label.

A generic drug manufacturer need not file an NDA because it is essentially copying the approved branded drug. The generic manufacturer must instead file an Abbreviated New Drug Application ("ANDA"), which relies on the approved drug's profile for safety and efficacy. See id. ("The Hatch-Waxman process, by allowing the generic to piggy-back on the pioneer's approval efforts, speeds the introduction of low-cost generic drugs to market, thereby furthering drug competition." (internal alteration, quotation marks, and citation omitted)). The generic manufacturer must demonstrate, inter alia , that the proposed generic drug is bioequivalent to the referenced branded drug.⁴ See 21 C.F.R. § 314.3(b) (defining bioequivalence as "the absence of a significant difference in the rate and extent to which the active ingredient or active moiety in pharmaceutical equivalences or pharmaceutical alternatives becomes available at the site of drug action....").

B.

Shire develops, manufactures, and markets branded drugs. Until Shire divested itself of the product in 2014, this included Vancocin

capsules.⁵ Vancocin capsules are an oral antibiotic used to treat Clostridium-difficile associated diarrhea, which is a serious, potentially life-threatening gastrointestinal infection. When Vancocin capsules were developed, the NDA did not include in vivo clinical endpoint studies because the capsules were an alternative delivery system to Vancocin oral solution, which the FDA already knew to be safe and effective. Instead, the NDA included in vitro dissolution data (which measures how quickly the capsules dissolve) and in vivo pharmacokinetic data (which compares the absorption of the drug in capsule form versus oral solution form).

In April 1986, the FDA approved Vancocin

capsules. Shire acquired Vancocin capsules in November 2004. From then until 2011, Vancocin capsules were Shire's largest revenue-generating product. Vancocin capsules accounted for all of Shire's net revenue until 2009 and up to 53% of its net revenue in 2011. United States sales for Vancocin capsules grew from $ 40 million in 2003 to almost $ 300 million in 2011.

Generic manufacturers, attracted by Vancocin's financial success, wanted to enter the market. Vancocin was vulnerable to generic competition because it lacked both patent protection and regulatory exclusivity. One primary barrier to generic entry remained—the FDA's recommendation that generic manufacturers seeking to demonstrate bioequivalence conduct in vivo clinical endpoint studies. Ironically, these tests were more expensive and onerous than the in vitro dissolution testing and in vivopharmacokinetic studies

that had been used to gain approval of Vancocin capsules in the first place. The FDA apparently realized this inconsistency; in October 2004 it convened a public meeting of the Advisory Committee for Pharmaceutical Science (the "Advisory Committee")⁶ to reassess bioequivalence testing for locally-acting gastrointestinal drugs like Vancocin.

Shire became increasingly concerned that the FDA might allow generic manufacturers to demonstrate bioequivalence using in vitro data. Shire thus hired a bioequivalence consultant to advise it on the FDA's likely course of action. In November 2005, the consultant confirmed Shire's suspicions, advising Shire that the FDA would likely allow generic manufacturers to submit in vitro dissolution data to establish bioequivalence to Vancocin

capsules. The consultant counseled Shire to submit a citizen petition "sooner than later" but warned that without supporting clinical data, Shire "could not convince the FDA of its position against use of in vitro dissolution testing." Compl. ¶ 45.

Shire's fear came to pass: the FDA indeed changed its position on bioequivalence testing for Vancocin

capsules. In February 2006, the FDA advised a generic manufacturer that bioequivalence for Vancocin capsules could be demonstrated by in vitro dissolution testing. The FDA also shared this guidance with other generic manufacturers that inquired. In March 2007, the first generic manufacturer submitted its ANDA for Vancocin

capsules. Two other generic manufacturers followed suit later that year.

C.

Not surprisingly, Shire wanted to protect its monopoly on the Vancocin market. Among its options was a citizen petition. The First Amendment guarantees individuals the right to petition the government. U.S. Const. amend. I. Consistent with that right, the Administrative Procedure Act permits any "interested person" to petition a federal agency "for the issuance, amendment, or repeal of a rule." 5 U.S.C. § 553(e) ; see also 21 C.F.R. § 10.30 (FDA regulation governing citizen petitions).

The filing of a citizen petition can substantially delay approval of a generic drug. During the time period at issue here, the FDA automatically suspended ANDA approval if a branded manufacturer filed a citizen petition.⁷ The FDA is obligated to respond to every citizen petition within 180 days.⁸ Id. § 10.30(e)(5) ; see also 21 U.S.C. § 355(q)(1)(F). But the FDA's response need not dispose of the entire petition within that time. The FDA may deny the petition, approve it in whole or in part, provide a tentative response, or delay a decision by modifying or postponing any suggested action. See 21 C.F.R. § 10.30(e)(2)(i)–(iv).

From March 2006 to April 2012, Shire submitted a total of forty-three filings to the FDA and instituted three federal court proceedings—all allegedly to delay the approval of generic Vancocin capsules by convincing the FDA to require ANDA applicants to conduct in vivo clinical endpoint studies. Shire's filings ranged from a citizen petition and amendments thereto to public comments on other manufacturers' ANDAs. Many of these filings were around the same time Shire suspected the FDA was nearing approval of generic equivalents to Vancocin.

On April 9, 2012, the FDA rejected Shire's citizen petition.⁹ The FDA concluded that Shire's scientific challenges to the bioequivalence recommendation "lack[ed] merit" and "were unsupported." Compl. ¶ 104 (internal quotation marks omitted); App. 77–95. On that same day the FDA approved three ANDAs for generic Vancocin capsules. Shire lost almost 70% of its unit sales for...