'Product-Hopping' Can Be Snagged Under the Antitrust Laws

Branded drug companies naturally want the exclusivity period to last as long as possible. Extending a period of market dominance without patent or regulatory protection, however, raises antitrust concerns. One recent practice of the branded drug companies, called “product-hopping,” or “product-switching,” has started to generate private antitrust claims from generic drug companies and end users. Product-hopping refers to changing the form of a drug ' e.g., from a tablet to a capsule or liquid ' or the dosage amount, rather than its underlying composition. Changing the form of the drug prevents a generic company from relying on the streamlined ANDA that had been issued based on the branded manufacturer's submissions on the previous form; the U.S. Food and Drug Administration's (FDA) authorization for a generic form of a branded tablet, for example, does not allow the generic company to market, without additional ANDA submissions and approval, a generic form of the branded manufacturer's newly released capsule. Further, the particular delivery method for the new form of the drug may be separately patented, providing a further defense to market entry by competing generic drugs.

Generic-drug companies claim these changes restrain competition by manipulating the FDA approval process to prevent their market entry. Per the generics, the changes in drug form do not improve the existing drug, but restrain trade by shifting the target the generic company must hit to directly compete with the new form of the branded drug.

The law is still evolving as to the antitrust implications of product-hopping. Thus far, there are only a few decisions, and only at the district court level, exploring the issues, and there are some inconsistencies even among those.

Abbott Laboratories v. Teva Pharmaceuticals

The first case addressing a claim that product-hopping violated the antitrust laws is Abbott Laboratories v. Teva Pharmaceuticals, 432 F. Supp. 2d 408 (D. Del. 2006) (Jordan, J.). In Abbott, the generic-drug manufacturers made several attempts to bring to market generic substitutes for Abbott Laboratories' TriCor, a drug used to treat high triglyceride levels. Abbott and its partner, Fournier, twice changed the already approved formulation for TriCor, twice forcing the generic competition to play catch-up.

Abbott and Fournier took steps to remove prior versions of TriCor from the market by stopping sales of prior versions and buying existing supplies back from pharmacies. Abbott also removed the prior versions of TriCor from a private database of FDA-approved drugs, which, according to the plaintiffs, meant that generic drugs could not be substituted for the branded drug.

A putative class of plaintiffs, including generic drug manufacturers and end users, brought a complaint alleging that Abbott and Fournier's actions violated Sections 1 and 2 of the Sherman Act. According to the plaintiffs, the changes to TriCor were merely attempts to manipulate the regulatory process to extend the effective exclusivity period for TriCor.

Abbott and Fournier moved to dismiss the complaint on the grounds that the changes to the TriCor products constituted innovation, which benefits consumers and cannot be anti-competitive. The Delaware district court determined the critical question before it was whether the plaintiffs properly alleged that Abbott and Fournier restricted consumer choice. The court cited the U.S. Court of Appeals for the Second Circuit's opinion in Berkey Photo v. Eastman Kodak, 603 F.2d 263 (2d Cir. 1979), for the proposition that: 1) true innovation, even though it harms competitors, does not harm competition; 2) it therefore is not itself a violation of the antitrust laws; and 3) consumers should be allowed to judge whether the new product is truly an improvement. But the court also noted that, in Berkey Photo , the defendant did nothing to impede consumers' choice between the prior product and the new product. By contrast, in United States v. Microsoft, 253 F.3d 34 (D.C. Cir. 2001), the D.C. Circuit had held that innovation even by a monopolist is not unlawfully anti-competitive so long as its effect is to make its own products more attractive rather than to foreclose its rivals from selling their products for use in the monopolist's network.

The Abbott court found that the plaintiffs sufficiently alleged that Abbott and Fournier committed exclusionary acts and denied the name-brand manufacturers' motion to dismiss.

Walgreen v. AstraZeneca Pharmaceuticals

The next case that addressed the antitrust implications of product-hopping was Walgreen v. AstraZeneca Pharmaceuticals, 534 F. Supp. 2d 146 (D.D.C. 2008). That case involved AstraZeneca's marketing of its patent-protected Prilosec heartburn medication, which for many years had been sold only by prescription. As the patent for Prilosec neared expiration, AstraZeneca shifted its marketing efforts to two new products, an over-the-counter version of Prilosec, and Nexium, a similar prescription heartburn medication.

Several generic companies filed antitrust claims alleging that AstraZeneca violated Section 2 of the Sherman Act by switching consumers from prescription Prilosec, which faced generic competition, to a virtually identical drug, Nexium, which did not face generic competition.

The district court granted AstraZeneca's motion to dismiss, relying on Abbott , Berkey Photo and Microsoft to find the critical inquiry to be whether AstraZeneca had impeded consumer choice, irrespective of the relative benefits of the products. Under the facts before it, AstraZeneca had only added to the consumers' choice of heartburn medications. Accordingly, the court found no plausible violation of the antitrust laws.

Mylan Pharmaceuticals v. Warner Chilcott

In the third case addressing product-hopping, Mylan Pharmaceuticals v. Warner Chilcott, No. 12-3824 (E.D. Pa. June 13, 2013) (Diamond, J.), the plaintiffs alleged that the defendants violated Section 2 of the Sherman Act by switching from tablets to capsules of the acne medication Doryx, by discontinuing the sale of prior versions of Doryx, and by asking their major customers to return unused inventory of prior versions of Doryx.

The court issued a brief opinion denying the defendants' motions to dismiss. The court did not cite any leading case addressing the antitrust implications of product innovation. Therefore, the Mylan decision adds very little to the analysis of the antitrust implications of “product-hopping.”

In re Suboxone Antitrust Litigation

In the recent In re Suboxone Antitrust Litigation, MDL No. 13-MD-2445 (E.D. Pa. Dec. 3, 2014) (Goldberg, J.), the plaintiffs alleged the defendants violated Section 2 of the Sherman Act by raising false safety concerns about the original form of its own anti-addiction drug, Suboxone. According to the plaintiffs, the defendants switched their Suboxone product from a tablet to a sublingual film, and then disparaged the tablet form of the drug through false safety concerns.

The district court denied the defendants' motion to dismiss. Relying on Abbott and Walgreen, the court viewed the state of the law as requiring some additional exclusionary activity other than introducing a new product into the market.

The district court characterized the alleged facts before it as falling somewhere between Abbott and Walgreen. The defendants went beyond AstraZeneca in Walgreen, doing nothing to impede consumers' choice other than to change the focus of its marketing efforts. By contrast, the district court found the exclusionary conduct before it less severe than the actions in Abbott.

According to the court, the threatened removal of Suboxone tablets, when combined with the allegedly false safety concerns, could have coerced consumers to switch from the Suboxone tablet to Suboxone film.

Unclear Antitrust Implications

The antitrust implications of product-hopping remain far from clear. The only decisions addressing product-hopping are from district courts in the context of a motion to dismiss. How these claims will fare at summary judgment or before a jury remains to be seen. Nevertheless, the existing product-hopping decisions provide some guidance:

• District courts have been likely to accept that, in some instances, allegations of product-hopping can support an antitrust claim for pleading purposes.
• Courts have been unlikely to substitute their judgment for the consumers about whether the new product is superior to the product it replaced.
• Instead, a product-hopping claim has been most likely to survive a motion to dismiss if it alleges some wrongful conduct in addition to simply changing the form of the branded drug.

These broad principles could change quickly as new decisions emerge. Given the size of the annual market for pharmaceuticals, and the potential availability of treble damages in antitrust claims, product-hopping claims are likely to become more prevalent in the near future. Stay tuned.

Carl W. Hittinger is a senior partner in Baker & Hostetler's antitrust group and is litigation group coordinator for the firm's Philadelphia office. He can be reached at 215-564-2898 or [email protected]. Gary Levin is a patent litigation partner in the firm's intellectual property group and is the litigation coordinator for the group's chem/bio/pharma practice. Reach him at 212-564-8363 or [email protected]. William T. DeVinney is counsel in the firm's antitrust group and litigation group in the firm's Washington, DC, office. Reach him at 202-861-1554 or [email protected]. This article also appeared in The Legal Intelligencer, an ALM sister publication of this newsletter.

The Drug Price Competition and Patent Term Restoration Act, more commonly known as the Hatch-Waxman Act, together with the patent laws, attempt to advance the competing goals of preserving pharmaceutical companies' incentives to make the staggering investments necessary to bring new, improved drugs to market, as well as fostering lower prices through competition from generic versions of branded drugs. Developing and bringing to market new, better drugs requires enormous investments in research and development. To protect the branded-drug manufacturers' incentives to make those investments, the Hatch-Waxman Act established an extension of the term for patents relating to drugs that were subject to lengthy regulatory delays and could not be marketed prior to regulatory approval, even though the term of the patent covering the drugs was running. Pharmaceutical companies depend on the higher prices they can often charge while their drugs are under the exclusivity protection of a patent ' or other statutorily granted exclusivity, such as for orphan drugs ' to recoup their investments in bringing the branded drug to market.

On the other hand, the Hatch-Waxman Act promotes price competition by allowing generic drug manufacturers to obtain expedited approval of the generic counterparts to previously approved branded drugs. The generic drug companies may enter the market using a streamlined application process ' an Abbreviated New Drug Application (ANDA) ' under which the generic drug manufacturer may rely on data from clinical trials and other costly procedures already done by the branded drug companies, in order to make the showing necessary for ANDA approval ' that the proposed generic drug is, in fact, the bioequivalent of the branded drug.

'Product-Hopping'

Branded drug companies naturally want the exclusivity period to last as long as possible. Extending a period of market dominance without patent or regulatory protection, however, raises antitrust concerns. One recent practice of the branded drug companies, called “product-hopping,” or “product-switching,” has started to generate private antitrust claims from generic drug companies and end users. Product-hopping refers to changing the form of a drug ' e.g., from a tablet to a capsule or liquid ' or the dosage amount, rather than its underlying composition. Changing the form of the drug prevents a generic company from relying on the streamlined ANDA that had been issued based on the branded manufacturer's submissions on the previous form; the U.S. Food and Drug Administration's (FDA) authorization for a generic form of a branded tablet, for example, does not allow the generic company to market, without additional ANDA submissions and approval, a generic form of the branded manufacturer's newly released capsule. Further, the particular delivery method for the new form of the drug may be separately patented, providing a further defense to market entry by competing generic drugs.

Generic-drug companies claim these changes restrain competition by manipulating the FDA approval process to prevent their market entry. Per the generics, the changes in drug form do not improve the existing drug, but restrain trade by shifting the target the generic company must hit to directly compete with the new form of the branded drug.

The law is still evolving as to the antitrust implications of product-hopping. Thus far, there are only a few decisions, and only at the district court level, exploring the issues, and there are some inconsistencies even among those.

Abbott Laboratories v. Teva Pharmaceuticals

The first case addressing a claim that product-hopping violated the antitrust laws is Abbott Laboratories v. Teva Pharmaceuticals , 432 F. Supp. 2d 408 (D. Del. 2006) (Jordan, J.). In Abbott, the generic-drug manufacturers made several attempts to bring to market generic substitutes for Abbott Laboratories' TriCor, a drug used to treat high triglyceride levels. Abbott and its partner, Fournier, twice changed the already approved formulation for TriCor, twice forcing the generic competition to play catch-up.

Abbott and Fournier took steps to remove prior versions of TriCor from the market by stopping sales of prior versions and buying existing supplies back from pharmacies. Abbott also removed the prior versions of TriCor from a private database of FDA-approved drugs, which, according to the plaintiffs, meant that generic drugs could not be substituted for the branded drug.

A putative class of plaintiffs, including generic drug manufacturers and end users, brought a complaint alleging that Abbott and Fournier's actions violated Sections 1 and 2 of the Sherman Act. According to the plaintiffs, the changes to TriCor were merely attempts to manipulate the regulatory process to extend the effective exclusivity period for TriCor.

Abbott and Fournier moved to dismiss the complaint on the grounds that the changes to the TriCor products constituted innovation, which benefits consumers and cannot be anti-competitive. The Delaware district court determined the critical question before it was whether the plaintiffs properly alleged that Abbott and Fournier restricted consumer choice. The court cited the U.S. Court of Appeals for the Second Circuit's opinion in Berkey Photo v. Eastman Kodak , 603 F.2d 263 (2d Cir. 1979), for the proposition that: 1) true innovation, even though it harms competitors, does not harm competition; 2) it therefore is not itself a violation of the antitrust laws; and 3) consumers should be allowed to judge whether the new product is truly an improvement. But the court also noted that, in Berkey Photo , the defendant did nothing to impede consumers' choice between the prior product and the new product. By contrast, in United States v. Microsoft , 253 F.3d 34 (D.C. Cir. 2001), the D.C. Circuit had held that innovation even by a monopolist is not unlawfully anti-competitive so long as its effect is to make its own products more attractive rather than to foreclose its rivals from selling their products for use in the monopolist's network.

The Abbott court found that the plaintiffs sufficiently alleged that Abbott and Fournier committed exclusionary acts and denied the name-brand manufacturers' motion to dismiss.

Walgreen v. AstraZeneca Pharmaceuticals

The next case that addressed the antitrust implications of product-hopping was Walgreen v. AstraZeneca Pharmaceuticals , 534 F. Supp. 2d 146 (D.D.C. 2008). That case involved AstraZeneca's marketing of its patent-protected Prilosec heartburn medication, which for many years had been sold only by prescription. As the patent for Prilosec neared expiration, AstraZeneca shifted its marketing efforts to two new products, an over-the-counter version of Prilosec, and Nexium, a similar prescription heartburn medication.

Several generic companies filed antitrust claims alleging that AstraZeneca violated Section 2 of the Sherman Act by switching consumers from prescription Prilosec, which faced generic competition, to a virtually identical drug, Nexium, which did not face generic competition.

The district court granted AstraZeneca's motion to dismiss, relying on Abbott , Berkey Photo and Microsoft to find the critical inquiry to be whether AstraZeneca had impeded consumer choice, irrespective of the relative benefits of the products. Under the facts before it, AstraZeneca had only added to the consumers' choice of heartburn medications. Accordingly, the court found no plausible violation of the antitrust laws.

Mylan Pharmaceuticals v. Warner Chilcott

In the third case addressing product-hopping, Mylan Pharmaceuticals v. Warner Chilcott, No. 12-3824 (E.D. Pa. June 13, 2013) (Diamond, J.), the plaintiffs alleged that the defendants violated Section 2 of the Sherman Act by switching from tablets to capsules of the acne medication Doryx, by discontinuing the sale of prior versions of Doryx, and by asking their major customers to return unused inventory of prior versions of Doryx.

The court issued a brief opinion denying the defendants' motions to dismiss. The court did not cite any leading case addressing the antitrust implications of product innovation. Therefore, the Mylan decision adds very little to the analysis of the antitrust implications of “product-hopping.”

In re Suboxone Antitrust Litigation

In the recent In re Suboxone Antitrust Litigation, MDL No. 13-MD-2445 (E.D. Pa. Dec. 3, 2014) (Goldberg, J.), the plaintiffs alleged the defendants violated Section 2 of the Sherman Act by raising false safety concerns about the original form of its own anti-addiction drug, Suboxone. According to the plaintiffs, the defendants switched their Suboxone product from a tablet to a sublingual film, and then disparaged the tablet form of the drug through false safety concerns.

The district court denied the defendants' motion to dismiss. Relying on Abbott and Walgreen, the court viewed the state of the law as requiring some additional exclusionary activity other than introducing a new product into the market.

The district court characterized the alleged facts before it as falling somewhere between Abbott and Walgreen. The defendants went beyond AstraZeneca in Walgreen, doing nothing to impede consumers' choice other than to change the focus of its marketing efforts. By contrast, the district court found the exclusionary conduct before it less severe than the actions in Abbott.

According to the court, the threatened removal of Suboxone tablets, when combined with the allegedly false safety concerns, could have coerced consumers to switch from the Suboxone tablet to Suboxone film.

Unclear Antitrust Implications

The antitrust implications of product-hopping remain far from clear. The only decisions addressing product-hopping are from district courts in the context of a motion to dismiss. How these claims will fare at summary judgment or before a jury remains to be seen. Nevertheless, the existing product-hopping decisions provide some guidance:

• District courts have been likely to accept that, in some instances, allegations of product-hopping can support an antitrust claim for pleading purposes.
• Courts have been unlikely to substitute their judgment for the consumers about whether the new product is superior to the product it replaced.
• Instead, a product-hopping claim has been most likely to survive a motion to dismiss if it alleges some wrongful conduct in addition to simply changing the form of the branded drug.

These broad principles could change quickly as new decisions emerge. Given the size of the annual market for pharmaceuticals, and the potential availability of treble damages in antitrust claims, product-hopping claims are likely to become more prevalent in the near future. Stay tuned.

Carl W. Hittinger is a senior partner in Baker & Hostetler's antitrust group and is litigation group coordinator for the firm's Philadelphia office. He can be reached at 215-564-2898 or [email protected]. Gary Levin is a patent litigation partner in the firm's intellectual property group and is the litigation coordinator for the group's chem/bio/pharma practice. Reach him at 212-564-8363 or [email protected]. William T. DeVinney is counsel in the firm's antitrust group and litigation group in the firm's Washington, DC, office. Reach him at 202-861-1554 or [email protected]. This article also appeared in The Legal Intelligencer, an ALM sister publication of this newsletter.