STOCK PRICE EVIDENCE FOR ANTICOMPETITIVE EFFECTS IN THE NEXIUM “REVERSE-PAYMENT” SETTLEMENT

Abstract

The 2014 Nexium trial was the first major “reverse-payment” trial in the drug industry following the Supreme Court's landmark FTC v. Actavis decision, which directed attention to the magnitude of and possible explanations for a payment from the patent-holder to the generic as part of settlement including an agreed-upon entry date. A reverse payment exceeding the patent-holder's avoided litigation costs (with no other reasonable explanation) is regarded as buying a delay, logic that has come to be labeled as the “Actavis Inference.” This paper presents and explains a complementary form of evidence, an event study assessing how the Nexium settlement announcement affected the stock price values of AstraZeneca, the patent holder, and Ranbaxy, a generic manufacturer. On the single day on which the Nexium settlement was announced, the stock market capitalization of AstraZeneca and Ranbaxy went up (after statistical adjustments) by $2.8 billion and $0.3 billion, respectively, indicating that the agreement created substantial anticompetitive gains through delayed generic entry. Although the jury decided against the plaintiffs on a causation question framed by the court rather than on economic grounds, the lessons for assessing evidence of anticompetitive effect in Nexium are relevant to the many ongoing reverse-payment antitrust cases in the drug industry.