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Moderator Mark Gidley began the panel discussion with the topic of product hopping, asking Elinor Hoffmann to describe product hopping and its key issues in the pharmaceutical context. Hoffmann explained that product hopping happens when a pharmaceutical company makes a modest reformulation to a brand-name drug prior to the expiration of its market exclusivity, most often claiming that the drug was made as an effort to better compete in the marketplace. Unlawful product hopping that is challenged under Section 2 of the Sherman Act involves the introduction of a new product, perhaps a reformulation, by a monopolist in combination with exclusionary conduct that has the purpose and effect of impeding or delaying lower-cost competition. These cases are analyzed under a burden-shifting approach. Gidley then followed up by asking how to distinguish between legitimate innovation and anticompetitive conduct in the area of product hopping? Hoffmann responded saying that it may be a matter of focusing on the kind of conduct that would be regarded as anticompetitive rather than distinguishing between the innovation and anticompetitive behavior. The anticompetitive effects of particular conduct may outweigh any benefits of the innovation.
Eric Stock added to the discussion, noting that one of the key issues that sometimes arises in product hopping is the consideration of whether the new product is innovative or adds something to the market as compared to the first product. The US is unique in the sense that this issue has the potential to be assessed by a jury or in jury trial, which may not be the best forum for resolving such a question. The way that the case law has developed, however, a pharmaceutical company can likely obtain dismissal of a product hopping claim regardless of this issue if there has been no interference with the availability of the original product in the market. In that case, courts have held that there is no need for judicial assessment of the incremental value of the new product because that will be determined through the mechanism of the free market.
Gidley then pivoted the discussion to citizen petitions, asking Stock to address the antitrust issues in the US that surround pharmaceutical branded-drug manufacturers in citizen petitions. Stock explained that a citizen petition is a piece of advocacy that an interested party in the US can submit to the Food and Drug Administration (FDA) to seek an outcome, for example to request that the FDA take a position on how to approve generics. He noted that generic entry and the exclusivities that prohibit generic entry or provide exclusivity for the first generic are among issues that are frequently the subject of citizen petitions. There is essentially a balancing issue between the concern over preventing regulatory gamesmanship and avoiding interfering with the branded manufacturer’s free speech—including speech that potentially raises important safety or similar concerns that branded manufacturers are often in the best position to present to the agency. He further noted that an issue that comes up in the US system is: If the merits of the complex scientific issues in a citizen petition have to be evaluated by a jury that was randomly selected from the general population, how confident can we be that they are going to get it right? And is that going to create a chilling effect on the filing of meritorious citizen petitions with the FDA? Stock suggested that there are good arguments that courts should be reluctant to send such cases to a jury due to the potential chilling effect on branded companies advocating before, and presenting important information to, government agencies.
Gidley then moved the discussion forward to the topic of REMS (Risk Evaluation and Mitigation Strategies) practices. Jeffrey Bank described REMS drug safety programs that are required by the FDA for certain medications with serious safety concerns. The issue of REMS arises in certain antitrust cases when branded manufacturers allegedly use elements of a REMS program to delay or foreclose potential generic competitors. . For example, a company seeking to develop a generic version of a drug subject to restricted distribution REMS programs may not be able to obtain sufficient samples of the branded product to use in development. Courts have held that an antitrust violation may occur if the branded manufacturer refuses to sell to or stonewalls the generic competitor in such a situation, because without the samples, the generic competitor then cannot perform bioequivalence testing, develop the drug product, file its application with the FDA, or enter the market. As is the allegation in many of these cases, consumers are then forced to pay more for their prescriptions because there are no generic cheaper alternatives available. A similar foreclosure issue may arise even if there is no REMS program in place, where the branded manufacturer implements its own restricted distribution arrangement independent of FDA requirements.
Gidley then shifted the discussion to reverse payments. In the US, a brand could sue a generic to block the generic from coming into the market or seek damages for patent infringement. He explained that some courts have found certain settlement agreements resolving those infringement suits may constitute unlawful “reverse payments” – essentially, a payment from the brand to the generic to delay competitive entry. Gidley then turned to Christine Meyer for an economist’s view on reverse payments. Meyer acknowledged that it is still unclear as to what is considered lawful and procompetitive as opposed to anticompetitive in the reverse payments area. She highlighted two areas that serve to illustrate what some of the challenges are on both sides of the issue: (1) determining the relevant market, and (2) understanding what constitutes a “large unjustified payment.” She noted that there has been a lot of nuance surrounding the question of the relevant market. For example, there can be substantial competition among brands in addition to any competition that that generic might bring into the market. There is also the new area of biologic medicines in which generics do not necessarily have the benefit of automatic substitution at the pharmacy. Ultimately, defining the relevant market still relies largely on case-by-case analysis. In terms of defining “large unjustified payment,” Meyer said that while she appreciated the Supreme Court’s attempt to give a “shortcut,” when looking at economic models, there truly is no shortcut. After analyzing pro and anti-competitive effects, there is still a debate over the meanings behind “large,” “unjustified,” and “payment.”
Questions and Answers:
One participant asked the panelists for their thoughts regarding situations where conduct may lead to anticompetitive effect, but anticompetitive or exclusionary intent cannot be proven. Hoffmann responded saying that intent is important and that it may be difficult, but certainly not impossible, to win an antitrust case without showing some element of intent. If one is looking at the elements of a monopolization case, evidence of intent is important in coloring how one looks at the conduct the defendant is engaged in. Bank added that it is also important to look at whether the evidence of the intent matches the procompetitive argument that is being put forth by the defendant. Stock also added that where government petitioning is involved, intent can be a full defense to a case.
Another participant raised the issue of distinguishing between keeping out competition and competing, raising the example of rebate contracts that have been used among branded-pharmaceutical manufacturers; he asked the panelists how they would determine whether a firm is keeping out competition or just effectively competing. Meyer responded saying that from an economic standpoint, it is important to lay out what the alternative is because anytime price goes down, there is skepticism of anticompetitive behavior. Hoffmann said that she does not believe there is a bright line in these cases as they need to be evaluated on a case by case basis. Stock, however, responded saying that he believes there is at least one bright line. He said that in the case of rebates, if the rebate covered less than 30 percent of the market, then there is case law that suggest that the level of foreclosure cannot support an antitrust claim.