Competition Law360
November 29, 2017
Brand-name pharmaceutical companies employ a variety of strategies to preserve and extend their branded drug products’ monopolies. Challenges by generic drug manufacturers and consumers to those efforts as allegedly manipulative of regulatory and administrative processes have met with varying degrees of success. This article focuses on the antitrust implications of three such strategies that have the effect of blocking or delaying lower-priced generic drugs from entering the market: (1) using citizen petitions to inhibit final approval of generics, (2) introducing a reformulated version of a patented drug that effectively prevents generic substitution (a strategy referred to as “product hopping”); and (3) transferring drug patents to entities with sovereign immunity — like Native American tribes — to foreclose certain patent challenges.
Drug companies engage in these strategies to avoid the substantial decline in revenue that coincides with competition from generic drugs, either after the expiration of regulatory exclusivities, or after a patent expires, a concept referred to as the “patent cliff.” Given the significant impact that generic competition has on a company’s bottom line, coupled with long development and testing cycles required to successfully develop and market a new drug,[1] brand-name pharmaceutical companies are incentivized to adopt strategies that could potentially extend the life of their patents.
These “anti-generics” strategies can have a significant negative impact on competition and consumers. Generic manufacturers enter the market with bioequivalent but less expensive alternatives. Delaying the entry of, or blocking access to, affordable generic alternatives results in consumers and insurers paying higher prescription prices. As discussed below, given the potential of these strategies to stymie generic competition, antitrust scrutiny likely will only intensify. The ramifications for generic and brand-name pharmaceutical companies, consumers, payors and sovereign entities could be significant as courts consider more claims challenging these burgeoning strategies.
Citizen Petitions
The U.S. Food and Drug Administration allows individuals and firms to raise safety and efficacy concerns about new generic drug products through “505(q)” citizen petitions.[2] While such petitions are not inherently anti-competitive, certain drug companies have filed allegedly dubious petitions that delay generic entry and extend the branded drug’s exclusivity period, thus raising antitrust concerns. Between 2011 and 2015, brand-name pharmaceutical companies submitted 92 percent of all 505(q) citizen petitions filed with the FDA; only 8 percent overall were successful.[3] Because the FDA generally does not approve a generic drug until it resolves any pending citizen petitions, brand companies can delay the approval process by filing one or more citizen petitions, allowing the branded drug to earn potentially additional monopoly profits during the pendency of the review even if the petition is ultimately rejected.[4]
Accordingly, generic drug manufacturers may seek to challenge their branded counterparts for allegedly abusing the citizen petition process.[5] While these unlawful monopolization challenges require proof of a relevant market, monopoly power, and antitrust injury, they also require analysis as to whether the petitioning activity is protected under the Noerr-Pennington doctrine,[6] which generally immunizes from antitrust liability efforts to petition the government for a redress of grievances. Petitioners are not protected under the doctrine, however, if they use the citizen petition process as a sham to interfere with competitors.[7]
To establish that a citizen petition is a sham, a generic manufacturer must show that (1) a petition is “objectively baseless in the sense that no reasonable [party] could realistically expect success on the merits;” and (2) the subjective intent of the defendant brand-name pharmaceutical company is to inhibit competition, not to petition the FDA for redress.[8] If the petition is shown to be both objectively and subjectively baseless, the Noerr-Pennington doctrine will not immunize the defendant from antitrust liability. In determining whether a citizen petition is a sham, courts have considered the presence of the following four “plus” factors: whether (1) the petition has suspect timing (i.e., is filed on the eve of generic entry); (2) a sophisticated petitioner seeks relief that is contrary to FDA regulations and practice; (3) the FDA, when rejecting a petition, criticizes it for lacking any basis or convincing evidence; and (4) the petition actually caused delay (i.e., final approval was granted on the same day as the FDA denied the citizen petition).
In a significant development in the sham petition arena, the Federal Trade Commission filed an enforcement action in February, alleging that Shire ViroPharma Inc. violated the antitrust laws through “repetitive, serial, and meritless petitioning” to delay the approval of a generic drug and exclude competition.[9] According to the FTC, between 2006 and 2012, “ViroPharma made at least forty-three submissions to the FDA and initiated three more proceedings in federal court to obstruct and delay the FDA’s approval of [the generic competitor], including: [t]wenty-four citizen petition filings.”[10] ViroPharma’s motion to dismiss (on Noerr-Pennington and other grounds) is currently pending. How this case plays out could have significant antitrust ramifications for citizen petition challenges going forward.
Product Hopping
While introducing a reformulated version of a drug alone typically does not raise anti-competitive issues, courts have increasingly scrutinized product reformulations combined with other anti-competitive conduct aimed at avoiding the patent cliff or maintaining a monopoly. This so-called “product hopping” strategy gained prominence in Abbott Laboratories v. Teva Pharmaceuticals USA Inc. (“TriCor”).[11]
In TriCor, the defendant introduced a slightly reformulated product (switching from capsules to tablets), stopped selling the old capsules, bought back existing supplies of capsules, and changed the National Drug Data File code for the old capsules, essentially preventing pharmacies from filling prescriptions with a generic capsule formulation.[12] In denying defendant’s motion to dismiss, the court applied a rule of reason analysis, concluding that “if Plaintiffs show anticompetitive harm from the formulation changes, that harm will be weighed against any benefits presented by Defendants.”[13]
Other courts have since applied their own interpretations of TriCor and its progeny. In Walgreen,[14] for example, the plaintiffs alleged that defendant AstraZeneca (1) introduced Nexium as the patent for its equivalent drug, Prilosec, was about to expire; (2) aggressively promoted Nexium to doctors; and (3) stopped promoting Prilosec. In granting defendant’s motion to dismiss, the court distinguished TriCor because AstraZeneca had not removed the...
