On August 8 2012 the Federal Trade Commission (FTC) issued an advisory letter(1) which concluded that an initiative proposed by the Generic Pharmaceutical Association to address drug shortages is unlikely to harm competition. The advisory opinion was issued in response to the association's request for review of its proposed accelerated recovery initiative, pursuant to which manufacturers of generic drugs in short supply will compile competitively sensitive information and provide it to the US Food and Drug Administration (FDA) in order to help the FDA to address drug shortages. The FTC concluded that the programme contains sufficient safeguards to prevent the sharing of competitively sensitive information that could raise antitrust concerns.
Drug shortages have been a growing problem in the United States in recent years. As noted in the advisory letter, the FDA reports that the number of drug shortages nearly tripled between 2005 and 2010. Most of these shortages relate to generic drugs - particularly generic injectable drugs, which are "more complex and require more specialized processes and equipment to manufacture".
Under the accelerated recovery initiative, the association will engage IMS Health to collect inventory data, as well as current and projected production and supply schedules, from manufacturers of drugs on the FDA shortage list. IMS Health will "use this data, along with market data it currently collects, to analyze whether, and to what extent, the anticipated supply of a given drug is likely to fall short of the projected demand". It will then report its findings to the FDA.
The FTC observed that:
"an agreement among competitors to pool information about their output, both present and future... [when] undertaken for a legitimate purpose, may serve to promote rather than injure competition and consumer welfare."
However, in other circumstances "such data gathering programs can serve to facilitate collusion among competing sellers and thereby present a substantial risk of anticompetitive harm". The FTC therefore analysed the initiative under the rule of reason. According to the FTC, certain characteristics of the initiative increase the potential for harm to competition. In particular, it will pool competitively sensitive information on both present and future output. Moreover, as there are generally only a few manufacturers of any particular generic injectable drug, the potential for collusion is greater.
However, the FTC concluded that several elements of the initiative sufficiently limit the potential for harm to competition:
- Use of a third party to collect data - IMS Health will collect the competitively sensitive information. Generic manufacturers and the association will not have access to the data.
- Well-defined role of the third-party collection agent - IMS Health will be permitted to disclose the data and its subsequent analyses only to the FDA. It will not be allowed to use the data for any other purpose. Furthermore, IMS Health will not function as an intermediary between generic manufacturers and the FDA; nor will it be permitted to advise the FDA on how to address shortages. Instead, IMS Health will merely provide the FDA with "objective data and gap analysis reports".
- Confidentiality safeguards - the participation agreement and programme rules expressly prohibit participants from exchanging competitively sensitive information and emphasise the obligation on participants to ensure adherence to confidentiality provisions.
- Non-exclusivity - all manufacturers of drugs covered by the initiative may participate, including non-members of the association. Participation will be voluntary and participants will be free to participate in other comparable programmes.
The FTC advisory letter is specific to the facts of the initiative, but it illustrates that although information sharing among competitors can raise antitrust issues, such concerns can be mitigated through careful programme design. Companies considering their participation in such programmes should bear in mind that the associated antitrust risks vary significantly, depending on factors such as the type of information shared, the characteristics of the market and the presence of safeguards to protect against anti-competitive activity.
For further information on this topic please contact Lauren E Battaglia, Robert F Leibenluft, Eric J Stock or William H Rawson at Hogan Lovells US LLP by telephone (+1 202 637 5600), fax (+1 202 637 5910) or email (firstname.lastname@example.org, email@example.com, firstname.lastname@example.org or email@example.com).
(1) A copy of the advisory opinion is available at www.ftc.gov/opa/2012/08/gpha.shtm.
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