On November 3, 2016, the New York State Bar Association’s Sections, Food, Drug and Cosmetic Law and Antitrust Law, held a program in New York City: “REMS and Other Drug Distribution Restrictions: When Does a Brand Company Have a Duty to Deal with its Generic Rivals?” The program featured both federal and state antitrust lead attorneys working on these issues, as well as counsel for both reference and generic applicants, including:

Elinor R. Hoffmann, Office of the New York State Attorney General

Peter Safir, Covington & Burling LLP

Daniel W. Butrymowicz, Federal Trade Commission

Seth Silber, Wilson Sonsini Goodrich & Rosati

Moderators:

William Reiss, Robins Kaplan LLP

Janet B. Linn, Bleakley Platt & Schmidt, LLP

The program began with Safir providing an overview of what Risk Evaluation and Mitigation Strategeis (REMS) are meant to do in terms of benefit-risk for FDA-approved products. In his view, when a product has a REMS, particularly one with Elements to Assure Safe Use (ETASU), e.g., specialized training for prescribing doctors or restricted distribution often with patient testing prior to use, it would be “misbranding” for an innovator company to provide its product via wholesalers like other prescription drugs. So from an innovator’s prospective, he explained, an innovator company must wait for FDA to provide them with a letter to indicate that a generic or 505(b)(2) new drug application (NDA) applicant can obtain the product when adequate safeguards are in place (as determined by FDA) before making the product available to that applicant. And even then, he added, it may not be enough assurance from a liability perspective for the innovator to provide the product.

Hoffmann and Butrymowicz said that they view REMS and restricted distribution from a broader set of interactions between innovator and generic drug companies. Some of the interactions that concern them from an antitrust lens are pay-for-delay settlements, product-hopping plans to move patients from initial products that have generic competition to new products with no generic competition, as well as REMS and other closed distribution systems that prevent generic drug and 505(b)(2) applicants from obtaining reference drug products for necessary bioequivalence studies and reserve samples.

Butrymowicz noted that unlike most other countries that have some input on innovator and generic drug prices, the U.S. relies on generic drug competition to bring drug prices down. He said that REMs and closed distribution systems particularly concern him and the FTC, because until generic drug companies and 505(b)(2) NDA applicants can obtain reference samples, there can be no end to prevent generic drug competition.

Silber agreed that REMS and closed distribution systems are “more pernicious” than the other anticompetitive activities mentioned by Hoffmann and Butrymowicz, because they can prevent abbreviated new drug applications (ANDAs) from being filed. Silber explained that there are about 70 active REMs and about 40% of all FDA-approved drugs are tied to a REMS. Silber said that most of the REMS antitrust cases started with Lannett’s antitrust case against Celgene, which have generally survived motions to dismiss. However, he noted, most of these cases settle after they are not dismissed, unlike the case he is currently on, Mylan v. Celgene, which is scheduled to go to trial in 2017. While Silber could not comment on the pending issues for trial, he thought that while “blunt” and “expensive”, cases such as these have provided the proper venue for highlighting the overall problem of REMs and restricted distribution systems blocking access to wholesale samples for bioequivalence testing. Silber speculated that in the end the problem will most likely to be cured by legislative rather than a litigation fix.

Regarding the question whether innovator companies have a duty to help their potential competitors by making reference product samples available through traditional wholesale distributors, Hoffmann said that in her opinion that is not really the question to ask, at least from a competition standpoint. Instead, the question should be: “Is there monopoly power and is there exclusionary conduct with no legitimate business purpose other than to exclude competition?”

For the controversies raised in REMs-related antitrust cases, Silber explained that innovator companies question in the “but for” antitrust world whether the would-be applicants could overcome the listed Orange Book patents (patents listed by the innovator in a book maintained by FDA called the Orange Book), obtain FDA approval, and participate in a shared REMS or develop a comparable REMs program. Butrymowicz agreed that innovator companies often make the issue out to be related to patient safety, citing to concern about product liability being attributed to the innovator in all cases, even when the adverse event or harm followed use of a generic drug product. He ascribed this concern to result as a need for generic drug companies to copy the innovator’s labeling, which is why ultimately liability for failure to warn or inadequate labeling traces back to the innovator rather than the specific generic drug product taken.

Safir said that from where he sits, innovator companies see bioequivalence as a different issue than other clinical trials for new products because generic drug or 505(b)(2) applicants are administering inherently unsafe drugs to healthy patients with little checks and balances. Unlike NDAs where clinical trials are conducted following submission of an investigational new drug application (IND) to FDA, for example, where FDA can shut down a study that is posing danger to its subjects via a clinical hold, bioequivalence studies are conducted without FDA oversight. And while a letter from FDA indicating that a reference product may be provided to a generic drug company without FDA considering it a REMS violation offers an innovator company some protection, it does not provide a “get out of jail” card for a possible product liability suit for a generic drug trial gone awry from a safety perspective. Safir said that there are a number of proposed legislative “fixes” to the sample issue, but the issue is whether an applicant has a comparable risk management program and liability or indemnification protection for the reference product holder.

Hoffmann acknowledged that while innovator companies are espousing concern for patient or subject safety, the real issues to consider are intent and motive for the restrictive drug distribution system. She said a key focus area from where she sits is whether the restrictive distribution serves a legitimate reason or is merely a means to exclude would-be competitors. Butrymowicz agreed that another aspect of intent and motive may be gleaned by innovator companies willingly providing drug samples to universities and other research entities to explore new uses for their products, while at the same time denying access to generic or 505(b)(2) competitors. He also noted that some restrictive distribution systems have included voluntary limited distributions via specialty pharmacies, which had not been required by FDA as part of product approval or a REMS.

In response to audience questions, Safir said that he believes it is tough for innovator companies to provide REMS drugs without meeting the terms of the REMS or a without a letter from FDA authorizing such distribution to a particular company, but it may not technically required by law. In contrast, Silber said he thinks FDA’s review and letter-writing process to authorize distributing REMS drugs to potential applicants was only set up to assist generic companies and is not really a requirement.

Remarking on the various legislative fixes proposed so far, Safir said that innovator companies are concerned that such fixes may still set their companies up for litigation (by not providing reference samples) when the applicant is not capable of filing an ANDA (or obtaining approval or final marketing). Safir said he thinks it is important for the fixes to include adequate indemnification provisions and liability protections. He also expressed concern for the tight timeframes included in the proposed bills that are not realistic, e.g., to establish a shared REMs within a certain timeframe, when all of the companies sharing in the REMS have not been identified and accounted for (i.e., approved or capable or marketing the product) in the negotiation.

When considering whether an antitrust case is the proper type of venue for challenging a restrictive distribution system denying an applicant access to reference product samples, Butrymowicz said he thinks it is proper but not the only vehicle, especially because many of the elements of an antitrust case may be challenging for a would-be applicant to demonstrate. He said he thinks the legislative fixes are a step in the right direction to take the elements of antitrust case out of the equation. Butrymowicz noted that because most of the bills limit liability of the reference product holder, there should be no need for indemnification provisions. He also understands how difficult it is for companies to negotiate a shared REMS when the reference product holder knows that once the negotiations are concluded and generic competition begins, the innovator’s market has historically collapsed in terms of price. Hoffmann said that given the increased attention to pharmaceutical pricing in general, she believes it is a serious question whether an antitrust case is the best vehicle to address the restricted access question for reference samples. Like Butrymowicz, Hoffmann agreed that restrictive distribution systems, whether voluntary or mandated by FDA via a REMS, are now on their RADAR for the FTC and state authorities as potential issues to watch for concerning allegations of anticompetitive conduct.