Source: https://www.fdli.org/2016/11/new-antitrust-risks-introducing-new-drugs/
Timestamp: 2019-04-21 16:57:15+00:00

Document:
Recent court decisions and statements by federal and state antitrust enforcers regarding “product hopping”— the practice of introducing a new version of an existing drug allegedly to discourage generic substitution—raise significant antitrust risks for pharmaceutical companies marketing new drugs.
New drugs, which can only be approved by the Food and Drug Administration (FDA) if safe and effective, typically bring considerable benefits to consumers. As a result, pharmaceutical companies may not instinctively think about antitrust risks when crafting product development strategies. In light of recent developments, however, firms are well-advised to keep this developing antitrust law on the radar.
The Second Circuit’s endorsement of product hopping as an antitrust theory has encouraged others to challenge similar conduct. In September 2016, the attorneys general of 35 states and the District of Columbia filed suit against Indivior, alleging the firm delayed generic competition by withdrawing a tablet version of Suboxone, used to treat patients addicted to heroin and other drugs, to convert the market to a dissolvable oral strip or film version. The AGs also sued the company that licensed the film technology, alleging an illegal restraint of trade and conspiracy to monopolize as well as monopolization and attempted monopolization.
In this article, we distill key principles from this budding area of the law to help companies assess potential antitrust risks as they develop strategies for introducing new versions of existing drugs.
U.S. antitrust law prohibits both “agreements in restraint of trade” (Sherman Act § 1) and monopolization, attempts to monopolize and conspiracies to monopolize (Sherman Act § 2).
Congress did not intend the Sherman Act to “delineate the full meaning of the statute or its application in concrete situations.” The Supreme Court has explained that Congress, instead, expected courts “to give shape to the statute’s broad mandate.”4 Today’s understandings have been developed through common law case development over the last 100 years.
The Supreme Court, for instance, has recognized that “the legality of an agreement . . . cannot be determined by so simple a test, as whether it restrains competition [since e]very agreement concerning trade . . . restrains.”5 The Court has thus construed Section 1 to render unlawful only those restraints that unreasonably restrict competition.
Anticompetitive Product Hop—or Procompetitive Product Improvement?
Pharmaceutical companies typically have procompetitive reasons for researching, developing, and marketing new versions of existing drugs—whether based on a new delivery mechanism, different dosage, extended release, a combination with other drugs, reduced side-effects, longer shelf-life, or similar change. Their costly and risky efforts usually are of considerable value to patients, their care givers, and third-party payers—leading to drugs that are often safer, more effective, or easier to administer or take.
New versions of existing drugs can also benefit pharmaceutical companies by helping to grow or preserve revenues as patents on legacy products expire and they face the threat of generic competition. Pharmaceutical companies have understandable incentives to switch patients to newer, patent-protected products.
The antitrust risk from introducing a next-generation drug is smallest where (i) the drug offers potential benefits and (ii) doctors and pharmacists are able to choose between the new version of the drug and the legacy product, typically at a significantly discounted, post-generic entry price.
AstraZeneca underscores that pharmaceutical companies are best positioned to fend off antitrust claims when their challenged conduct adds choices to the market, even where there may be questions as to whether the new product is actually an improvement.
Clear evidence that a new product offers no benefit, but was instead introduced for the sole purpose of switching customers to avoid competition, however, may give rise to antitrust risk.
Where the introduction of a new version of a drug is coupled with conduct that forces users to switch to that drug, antitrust risk increases.
At the far end of the spectrum is new product introduction combined with conduct that restricts the generic drug from even coming to market, so that customers have no choice but to switch.
There are good arguments why product hopping should not amount to a violation. Under U.S. antitrust law, “any firm, even a monopolist, may bring its products to market whenever and however it chooses” and there is no general “duty to aid competitors.”17 And patent owners are generally free to choose whether or not to practice a patent as well as to exclude others from infringing a valid patent.
The extent to which pharmaceutical companies can engage in conduct designed to shift demand to a new drug before generic entry of the firm’s legacy drug is likely to remain a contested issue for the foreseeable future.
Both the Mylan and New York v. Actavis decisions employed a burden shifting framework for evaluating monopolization claims. Under that framework, the plaintiff bears the initial burden of establishing defendant’s conduct is anticompetitive or exclusionary. The defendant is then afforded the opportunity to come forward with non-pretextual, procompetitive justifications for its conduct. If it does, the plaintiff may rebut those justifications or demonstrate that the anticompetitive harm outweighs any procompetitive benefit.
Pharmaceutical companies introducing a new version of an existing drug should keep antitrust risks in mind when assessing product introduction and promotion strategies.
Conduct that prevents generic competition altogether is most likely to face antitrust scrutiny. But even without complete foreclosure, new product introduction coupled with withdrawal of a legacy drug—the so-called “hard switch” conduct condemned in New York v. Actavis—raises antitrust risk. Firms may argue that the introduction of a new product is procompetitive, and that there is no obligation to market a drug to assist generic competitors, but where courts will come out on such claims is far from certain.
Antitrust risks are also likely to be greatest when there is reason to believe the new product is not an improvement at all, at least if the legacy product is withdrawn in advance of generic entry. Pharmaceutical companies are therefore better positioned if they are able to highlight, both internally and in marketing documents, that the driver of the modification is the therapeutic benefit of the new drug rather than an effort to block generic competition.
Companies should be on firmer ground to engage in what the Second Circuit called a “soft switch,” promoting the new drug and not the old drug, or offering the new formulation at a discount, to encourage switching. A “soft switch,” however, may not be a “safe harbor” from antitrust challenge if the price of the legacy drug is increased or distribution restricted such that the exclusionary effect is similar to pulling the legacy product from the market.
The one thing that is certain is that with the FTC, state attorneys general, prospective generic competitors, and class action plaintiffs’ lawyers all attentive to product hopping conduct, there is likely to be more litigation in the coming years.
New York ex rel. Schneiderman v. Actavis PLC, 787 F.3d 638 (2d Cir. 2015).
Mylan Pharms. Inc. v. Warner Chilcott PLC, No. 15-2236, 2016 WL 5404626, at *1, *12 (3d Cir. Sept. 28, 2016).
National Soc’y of Prof’l Eng’rs v. United States, 435 U.S. 679, 688 (1978).
Board of Trade of Chi. v. United States, 246 U.S. 231, 238 (1918).
Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 407 (2004).
Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 605, 608 (1985).
United States v. Microsoft Corp., 253 F.3d 34, 65 (D.C. Cir. 2001).
Walgreen Co. v. AstraZeneca Pharms. L.P., 534 F. Supp. 2d 146, 148-51 (D.D.C. 2008).
In re Suboxone Antitrust Litig., 64 F. Supp. 3d 665, 682 (E.D. Pa. 2014); Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263, 287 (2d Cir. 1979) (“[N]o one can determine with any reasonable assurance whether one product is ‘superior’ to another. Preference is a matter of individual taste. The only question that can be answered is whether there is sufficient demand for a particular product to make its production worthwhile, and the response, so long as the free choice of consumers is preserved, can only be inferred from the reaction of the market.”).
CR Bard v. M3 Systems, 157 F.3d 1340, 1382-83 (Fed. Cir. 1998).
Abbott Laboratories v. Teva Pharmaceuticals USA, Inc., 432 F. Supp. 2d 408, 416, 423-24 (D. Del. 2006).
New York v. Actavis, 787 F.3d at 656, 661.
Trinko, 540 U.S. at 411; Berkey Photo, 603 F.2d at 286.
See, e.g., Mylan Pharms. v. Warner Chilcott PLC, No. 12-3824, 2015 WL 1736957, at *13-14 (E.D. Pa. April 16, 2015) (“Mylan remains able to reach consumers through, inter alia, advertising, promotion, cost competition, or superior product development…. Spending some of its revenue on advertising would have lessened Mylan’s now-increased profits. Mylan chose not to do so, relying instead on the ‘promotion’ provided by state automatic substitution laws. Mylan is thus a ‘victim’ of its own business strategy, not Defendants’ ‘predatory’ conduct.”).
Mylan, 2016 WL 5404626 at *3, *11 & n.80.
Id. at *11-12 & n.18.
Allied Orthopedic Appliances Inc. v. Tyco Health Care Group LP, 592 F.3d 991 (9th Cir. 2010).
New York v. Actavis, 787 F.3d at 654-56. Product hopping can also complicate settlement of patent litigation. Actavis, for instance, is facing claims it settled patent litigation to delay generic entry until it could convert patients to its new extended release Alzheimer’s drug. It recently lost a motion to dismiss, even though the alleged reverse payment was no more than projected litigation costs and the agreement allowed for entry before patent expiration. The court noted that the plaintiffs alleged the settlements were “intentionally designed to keep competitors out of the market” until patients were converted to the new drug, which it considered “idiosyncratic enough” to “require discovery to determine whether the early-entry licenses were in fact anticompetitive.” Sergeants Benevolent Assoc. Health & Welfare Fund v. Actavis, PLC, Nos. 15-cv-6549 & 15-cv-7488, 2016 WL 4992690, at *15 (S.D.N.Y. Sept. 13, 2001).
Mylan, 2016 WL 5404626 at *10-13.
Brief for the FTC as Amicus Curiae, Mylan Pharms., Inc. v. Warner Chilcott PLC, No. 15-2236 (3d Cir. Sept. 30, 2015).
Mylan, 2016 WL 5404626 at *11.
New York v. Actavis, 787 F.3d at 653 n.25, 658-59.

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