Celgene ACCC authorisation withdrawal provides no vote of confidence for future pharmaceutical patent settlements

Pharmaceutical industry onlookers may have been expecting to derive some insights into the competition law scrutiny of patent law settlements from the patent settlement authorisation decision due to be published by the Australian Competition and Consumer Commission (ACCC) last week. Instead, pharmaceutical manufacturer Celgene, generic pharmaceutical distributor Juno and generic pharmaceutical manufacturer Natco (the Parties) withdrew their authorisation application on the scheduled decision date.

The Parties had settled patent infringement and revocation proceedings in October last year based on an agreement which proposed to allow Juno and Natco to supply generic versions of Celgene’s blood cancer drugs (Revlimid and Pomalyst) before the expiry of Celgene’s patents. Wary of any potential anti-competitive nature of the arrangement, the Parties applied to the ACCC for authorisation of the agreement.

In March the ACCC foreshadowed its intention to deny authorisation based on a number of concerns including that:

• the agreement would establish Juno/Natco as the first generic supplier/ “first mover” and in doing so could deter other generic suppliers from entering the market;
• there was little evidence the agreement would result in greater security of supply, given the ACCC received little evidence of historical supply issues; and that
• while in principle, facilitating generic entry could be of public benefit if it reduced the cost of a drug subsidy under the Pharmaceutical Benefits Scheme (PBS), in this matter the ACCC was not convinced the settlement would create any cost savings under the PBS when compared to the patent litigation continuing.

Of the seven third party submissions made to the ACCC following the draft Determination, three of these strongly submitted that the authorisation should be refused, another three raised issues but did not state a strong overall position, and only one submission strongly argued that the authorisation should be granted. Concerns raised across the submissions included:

• that the proposed licence would give a brand company a degree of control over a generic competitor;
• the discontinuation of the patent revocation proceedings would deny the public the benefit that flows from the removal of invalid patents from the Australian Register, and disincentivises future challenges to patents of “dubious” validity; and
• that the settlement could incentivise generic medicine companies to enter into similar agreements with the effect of “evergreening” pharmaceutical patents placing them under long periods of control.

The parties have not disclosed the reasons for the withdrawal of the application. There have been unconfirmed media reports that Celgene was reluctant to provide additional information to the ACCC about the benefits of the settlement, which the ACCC had requested in order to test the application. Noting the volume of evidence put before the ACCC by the Parties, it could be assumed that the withdrawal decision was not made lightly.

As the ACCC commented, withdrawal from the authorisation application does not prohibit the parties from settling the patent dispute proceedings nor from agreeing to a licence agreement. The ACCC recognises that patent disputes may be settled without breaching competition laws as long as the settlement terms are appropriately designed.

The ACCC has not published any other guidance for parties considering similar settlements. The withdrawal of this application may give pause to other parties considering the authorisation option rather than taking their own advice on acceptable terms.

The draft Determination and subsequent application withdrawal is likely to signal to future market participants the challenges that may be faced, both by other market participants and the ACCC, if considering the authorisation approach. Parties seeking authorisation will need to have clear and demonstrable evidence of the public benefits claimed in the authorisation application and should obtain competition law advice ahead of submitting any such application.