By Kurt R. Karst –
A Complaint filed earlier this year by Mylan Pharmaceuticals Inc. (“Mylan”) in the U.S. District Court for the Eastern District of Pennsylvania alleging that Warner Chilcott and Mayne violated Sections 1 and 2 of the Sherman Act by engaged in so-called “product hopping” with respect to DORYX (doxycycline hyclate) caught our attention. After all, the Complaint opens with the following salvo:
This action is brought as a result of Defendants’ relentless efforts to obstruct and constrain competition through an admittedly “anti-generic strategy.” Through multiple, concerted, and deliberate anticompetitive tactics commenced as early as 2005, Defendants have harmed [Mylan] and the public by preventing and/or delaying generic competition to Doryx – a delayed-release doxycycline hyclate product prescribed for the treatment of severe acne and other bacterial infections – years earlier. Defendants have accomplished their anticompetitive goals through the use of various strategies that were intentionally designed to unlawfully interfere with the regulatory process, cause delays in the approval of generic versions of Doryx, and disrupt the market for generic Doryx. This conduct violates Sections 1 and 2 of the Sherman Act, as Defendants have monopolized and restrained trade in the market for delayed-release doxycycline hyclate products.
We watched as other Plaintiffs – Direct and Indirect Purchasers – joined the case through a consolidation of related cases (see here), and filed the case in our memory bank until such time that something noteworthy (or, in our speak, “blogworthy”) happened. That day has come.
Last week, the Federal Trade Commission (“FTC”) filed a Motion seeking leave to file an amicus brief in the case to assist the court in its assessment of whether the Plaintiffs have plausibly alleged exclusionary conduct sufficient to state a claim under Section 2 of the Sherman Act. In doing so, the FTC also addresses what it says is the “appropriate antitrust framework to apply when assessing allegations that a brand drug reformulation unlawfully delayed or inhibited generic competition.” But before we get into the case, some background on “product hopping” is necessary.
Back in 2010, FTC Commissioner Rosch defined “product hopping” in a speech (pages 14-17) as the practice of “introducing new patented products with minor or no substantive improvements in the hopes of preventing substitution to lower-priced generics.” As the FTC explains in its proposed amicus brief, product hopping can work in the following way:
[F]irst, the brand manufacturer makes minor non-therapeutic changes to the brand product, such as a dosage or form change. Next, prior to generic entry, it removes the original product from the marketplace, or accomplishes this indirectly, such as by recalling supply of the original product or raising the price of the original product by a meaningful amount above the reformulated one. Such conduct can push patients and physicians to abandon the original product. In this way, a brand manufacturer can convert existing market demand for the original product to its reformulated product – not because physicians and patients prefer it, but simply because the original product is no longer as available or is more costly. Once the original version of the brand product is less available or more expensive, physicians will stop writing prescriptions for it. Because the prescription must contain, among other things, the same dosage and form as the generic for a pharmacist to substitute it for the brand, a product switch will effectively eliminate substitution at the pharmacy counter and thus meaningful generic competition.
(For a discussion of the intersection of patent settlement agreements and product hopping, see Michael A. Carrier’s “A Real-World Analysis of Pharmaceutical Settlements: The Missing Dimension of Product Hopping.”)
In the case of DORYX, Mylan alleges that Defendants effectuated three successive drug product reformulations to impeded generic competition: first, a conversion from DORYX Capsules to DORYX Tablets; second, from DORYX Tablets in 75 mg and 100 mg strengths to a DORYX Tablets 150 mg strength; and third, from a single-scored version of DORYX Tablets 150 mg to a dual-scored version of DORYX Tablets 150 mg. (A Warner Chilcott citizen petition related to this third conversion – Docket No. FDA-2011-P-0702 – was denied in February 2012.) Mylan also alleges that a fourth conversion was in the works – a formulation change of DORYX Tablets 150 mg. It is these conversions, argues Mylan, that foreclosed the company from competing in the various relevant markets identified in the Complaint and that are anticompetitive.
Warner Chilcott filed a Motion to Dismiss Mylan’s Complaint (and that of the Direct Purchasers) saying that it alleges “nothing more than innovation by Defendants, and the marketing of those innovations once government approvals were obtained,” which is not illegal under the Sherman Act. (Warner Chilcott also filed a Motion to Dismiss the Indirect Purchasers’ Complaint, which has been opposed, and Mayne filed a Motion to Dismiss the Mylan and Direct Purchasers’ Complaints.) According to Warner Chilcott, the DORYX conversions are per se lawful and that product changes (or redesigns or reformulations) can never constitute exclusionary conduct: “such conduct is either competition-enhancing (if the new version represented an improvement), or at worst competition-neutral because one version was replaced by another.” (Italics in original) As such, argues Warner Chilcott, Plaintiffs’ claims should be dismissed.
Not so, say Mylan and the Direct Purchasers in their Oppositions briefs (here and here). They cite Abbott Labs. v. Teva Pharms. USA, Inc., 432 F. Supp. 2d 408 (D. Del. 2006), which is referred to as “TriCor,” as articulating the appropriate standard for assessing whether there is a plausible allegation of exclusionary conduct sufficient to state a claim under Section 2 of the Sherman Act. In TriCor, the Delaware District Court denied a Motion to Dismiss where the brand-name company argued that its product changes were per se lawful. The court also rejected the suggestion that plaintiffs in that case were required to prove that the “new formulations [of the drug] were absolutely no better than the prior version or that the only purpose of the innovation was to eliminate the complementary product of a rival.” Instead, the district court, citing United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir 2001) (en banc), said that “if plaintiffs show anticompetitive harm from the formulation changes, that harm will be weighed against any benefits presented by defendants.”
The FTC, in its proposed amicus brief, says that drug product redesigns can constitute exclusionary conduct, and that, like the plaintiffs in Tricor, Plaintiffs in the DORYX case have articulated a plausible claim that the DORYX conversions are unlawful under Section 2 of the Sherman Act. “The allegations that defendants used product reformulations to manipulate the pharmaceutical regulatory system and thereby suppress generic competition are sufficient to state a claim of exclusionary conduct. Applying a per se legal standard, as Warner Chilcott effectively advances here, would entitle brand pharmaceutical companies, as a matter of law, to manipulate the FDA regulatory process and undermine state and federal laws that encourage generic competition,” writes the FTC.