Are branded manufacturers obligated to sell their drugs to generic manufacturers so they can make copies?

Generic drug manufacturers must conduct bioequivalence testing on a proposed drug and its branded counterpart before the generic drug can be approved by FDA. This process necessarily involves obtaining sufficient samples of the branded product in order to conduct the testing. In most circumstances, generic manufacturers obtain the branded samples from pharmaceutical wholesalers. But if the branded drug is covered by FDA-mandated Risk Evaluation Mitigation Strategies (“REMS”), distribution can be severely restricted, thereby eliminating access to the wholesalers and ultimately the generic manufacturers as well. Under these circumstances, generic manufacturers must appeal directly to their branded competitors for access to the drugs, and some generic manufacturers have argued that branded manufacturers are required by statute and/or antitrust law to comply with these requests. But branded manufacturers might understandably ask the question: Am I really obligated to sell my product to my competition so they can copy it?

Restricted Access to Drugs under REMS

The FDA Amendment Act of 2007 (“FDAAA”) was intended to better inform the public about drug safety and to provide FDA with new tools to reduce the danger of drugs with known serious risks. One part of FDAAA provides FDA with the authority to require manufacturers to adopt REMS when FDA deems it “necessary to ensure that the benefits of the drug outweigh the risks of the drug.”¹ Upon notice from FDA that REMS is required for a particular drug, the manufacturer must develop and submit a plan for approval by FDA. REMS may include various types of safety measures but most commonly include: (1) medication guides and patient package inserts; (2) communication plans to health care providers; and/or (3) restricted access to drugs with known serious risks by requiring that the “pharmacies, practitioners, or health care settings that dispense the drug are specially certified.”² As of mid-January 2012, 104 FDA-approved REMS were in effect, approximately 34 of which involved some element of restricted drug access.

Congress was well aware that restricted access to branded drugs could cut off the usual channels that generic manufacturers use to obtain samples of a drug in order to perform the bioequivalence testing required for an Abbreviated New Drug Application (“ANDA”). In fact, an early House draft of FDAAA included provisions that would have expressly required branded manufacturers whose drugs were subject to REMS distribution restrictions to sell ANDA applicants “a sufficient quantity of drug to conduct bioequivalence testing” if the generic manufacturer agreed to distribution and safe-use restrictions that FDA deemed adequate.³ That language, however, was not included in the final bill passed by Congress. Instead, the final version of FDAAA included only a non-specific prohibition on branded manufacturers using their REMS “to block or delay approval of an application … to a drug that is subject to the abbreviated new drug application.”⁴

This vague language has created uncertainty regarding the scope of a branded manufacturer’s duty to supply testing samples to potential generic competitors, and it has already resulted in litigation and regulatory inquiry. In two instances – both involving drugs marketed by Celgene – generic manufacturers have accused Celgene of improperly using REMS to restrict access to drugs in an effort to stifle generic competition. Although neither case has produced clear guidance on the issue, there is some indication that FDA and some courts support the concept of required access for generic manufacturers. In addition, the cases have drawn the attention of federal and state antitrust regulators, resulting in investigations and document requests from the FTC and at least one state attorney general.

Dr. Reddy’s Citizen Petition Against Celgene

In June 2009, Dr. Reddy’s Laboratories filed a Citizen Petition⁵ with FDA accusing Celgene of unreasonably refusing to sell samples of REVLIMID® (lenalidomide), which Dr. Reddy’s needed in order to perform bioequivalence testing. REVLIMID® is approved for myelodysplastic syndrome and multiple myeloma, and it is subject to REMS that include restricted distribution requiring the prescriber, patient, and pharmacy all to be registered before the drug can be dispensed. Dr. Reddy’s cited correspondence in which it sought to purchase samples of REVLIMID® from Celgene for bioequivalence testing and assured that it would implement comparable controls for any capsules provided by Celgene. Celgene responded that it had no obligation to supply samples of REVLIMID®, citing its regulatory exclusivity as an orphan drug and protection by at least 11 patents. Dr. Reddy’s then filed its Citizen Petition, accusing Celgene of engaging in “a company-wide campaign to block generic competition” in violation of FDAAA.⁶ The petition asked FDA to adopt procedures that would ensure generic applicants the right to buy sufficient samples to perform bioequivalence testing of drugs that were subject to REMS distribution restrictions. Dr. Reddy’s also suggested that FDA refer any complaints about the anticompetitive use of REMS distribution restrictions to the FTC for investigation.

Celgene denied that it had behaved anticompetitively. Celgene argued that the legislative history strongly suggested that Congress considered and rejected a proposed guaranteed access procedure like the one proposed by Dr. Reddy’s, and therefore, FDA should not use its administrative authority to adopt a similar procedure.

Celgene further argued that requiring innovator companies to sell their products to potential generic competitors would violate long-standing principles of antitrust and intellectual property law. Finally, Celgene warned that compelling branded manufacturers to supply drugs with known safety risks to generic manufacturers would impose undue liability risks on the innovator company.

As of February 2012, FDA has not taken substantive action on Dr. Reddy’s Citizen Petition.

Lannett’s Antitrust Complaint Against Celgene

In a separate line of attack against Celgene, generic manufacturer Lannett Company initiated antitrust litigation in the Eastern District of Pennsylvania that accused Celgene of using its REMS for THALOMID® (thalidomide) to violate the antimonopolization provisions of the Sherman Act.⁷ Echoing Dr. Reddy’s complaints, Lannett alleged that its requests to obtain thalidomide samples from Celgene in order to conduct bioequivalence testing in support of an ANDA were improperly denied.

Celgene’s THALOMID® is approved to treat multiple myeloma and certain side effects of leprosy. Due to the toxicity associated with fetal exposure to thalidomide, it is subject to very strict REMS distribution restrictions. In September 2006, Lannett sought FDA approval to obtain samples for use in the required bioequivalence testing. In February 2007, Lannett received a letter from FDA’s Office of Generic Drugs that detailed FDA’s position on this issue.

It is FDA’s view that certain [REMS distribution] restrictions are needed to ensure safe use of the drug; however it is not the agency’s intention to permit restrictions of the [Celgene REMS] program to prevent manufacturers of generic drugs from obtaining Thalamid for use in the bioequivalence testing necessary to obtain approval of an abbreviated new drug application for a thalidomide product.⁸

But the letter contained some mixed messages. Although FDA broadly said it would not permit restrictions to prevent access to generic manufactures, it made a much weaker statement about Celgene’s specific obligations. The letter said that Celgene was permitted to bypass the REMS distribution restrictions and provide the requested samples once Celgene received written confirmation that FDA was satisfied that the generic manufacturer’s proposed bioequivalence study would be conducted in such a manner as to ensure the safety of the subjects. The letter did not say that Celgene was required to provide the samples.

Lannett sent a copy of the February 2007 FDA letter to Celgene and asked Celgene to provide the requisite samples. Celgene refused. Celgene’s position did not change even after Lannett provided Celgene with written confirmation of FDA’s favorable review of its bioequivalence study protocol. In August 2008, Lannett filed an antitrust lawsuit that sought a preliminary injunction requiring Celgene to provide the drug samples.⁹ Lannett argued that access to THALOMID® was an “essential facility”¹⁰ for the development of generic thalidomide, and that Celgene’s refusal to provide THALOMID® samples was unlawfully perpetuating Celgene’s alleged monopoly. Celgene moved to dismiss, arguing that the United States Supreme Court had significantly limited the essential facilities doctrine, and it was inapplicable in this context.¹¹ Celgene’s motion also pointed out that, under well-established patent law principles, a patent holder may refuse to sell its patented invention to rivals, even if the refusal has an anticompetitive effect, so long as the effect does not extend beyond the scope of the patent.¹²

In early 2011, the district court summarily denied Celgene’s motion to dismiss in a three-line order. Although the court did not issue a reasoned opinion, the ruling suggests that some courts may look favorably upon antitrust claims premised on alleged misuse of REMS, notwithstanding the diminished strength of the essential facilities doctrine. The case was set for trial beginning in February 2012, but the parties settled before the trial began, thereby postponing further judicial review of antitrust claims premised on alleged abuse of REMS distribution restrictions.

Investigations by Government Antitrust Enforcement Agencies

These cases have highlighted the potential antitrust problems that REMS distribution restrictions may present, and the antitrust enforcement agencies have taken notice. Celgene’s SEC filings reveal that it has received two Civil Investigative Demands from the FTC, as well as a subpoena from the Connecticut Attorney General, seeking information on whether Celgene used its REMS distribution restrictions for either REVLIMID® or THALOMID® to engage in unfair competition. The exact status of these investigations in unknown, but Celgene has publicly disclosed that it is continuing to respond to information requests from antitrust regulators, more than three years after receiving the initial request.

Considerations for Branded Manufacturers

The language of FDA’s February 2007 letter to Lannett suggests that the Agency would use its enforcement authority to ensure a generic competitor’s access to drugs subject to REMS distribution restrictions. However, FDA has yet to exercise that authority, either in or outside the context of the pending Citizen Petition. Nonetheless, the combination of these FDA statements, the Eastern District of Pennsylvania’s summary denial of Celgene’s motion to dismiss Sherman Act allegations, and the continuing investigations by federal and state antitrust enforcement agencies, raises caution flags for branded manufactures whose products are covered by REMS distribution restrictions.

Although antitrust theories based on abuse of REMS seem strained in light of a weakened essential facilities doctrine, these claims have survived dismissal once. And even a manufacturer who defeats an antitrust challenge must still confront FDA’s administrative authority and various governmental antitrust investigative agencies. Consequently, when confronted with a generic manufacturer’s request for testing samples of a drug subject to REMS distribution restrictions, branded manufacturers must carefully consider and balance their business interests and liability risks that may arise from complying with the request on the one hand, with the potential consequences under both FDAAA and the Sherman Act of refusing the request on the other hand.