For nearly two decades, reverse payments have been the perennial focus in the pharmaceutical industry and among antitrust professionals. But while courts continue to grapple with the implications of the Supreme Court’s decision in FTC v. Actavis, Inc., 570 U.S. 136 (2013), more attention is being brought to pharmaceutical companies’ lifecycle management strategies.
With lifecycle management strategies like new product innovations, adjusting dosage or delivery for safety, efficacy, and patient compliance, and modifying the mode of action, pharmaceutical companies may successfully create a franchise that outlasts the original innovation. The Federal Trade Commission (FTC), state attorneys general, and private class actions have sought (with modest success) to use antitrust theories of harm to interfere with these lifecycle management strategies.
OVERVIEW OF LIFECYCLE MANAGEMENT
The Hatch-Waxman Act and principles of patent law provide innovators with a proscribed period of exclusivity as a reward for their invention and as a way to incentivize further innovation in pharmaceuticals. These exclusivity provisions, as contemplated by the statutory structure, permit incremental innovation and do not draw a line between ground breaking change and relatively minor (yet important) tweaks for patient safety, efficacy, and compliance concerns — instead, encouraging all innovation in pharmaceutical product development.
As generic companies file for (and receive) approval to launch in direct competition with their branded counterparts, brands face the reality that state automatic substitution laws allow or require pharmacists to switch out the brand for the generic at the pharmacy, and that insurance companies drastically reduce the co-pays due at the pharmacy for generic drugs, which effectively increases the cost for any consumers who still may want to use the brand. A brand that can somehow limit the impact of these triggers can create a lasting revenue stream.
Branded pharmaceutical companies may develop lifecycle management strategies to create new, iterative, and innovative versions of existing drugs nearing the end of their exclusivity window that can be protected from generic competition by new patents and new regulatory exclusivity. These strategies often leverage the goodwill created through the success of the original brand. Providers may change their prescribing habits and switch patients from the soonto-be-generic market to a brand-exclusive market — a practice that antitrust enforcers and private plaintiffs call ‘product hopping.’ This switch minimizes price and market share erosion for the brand. Especially in light of government and private plaintiff challenges, the question becomes whether or at what point these actions may contravene the antitrust laws.
ENFORCEMENT EFFORTS & EARLY DECISIONS
Early enforcement efforts and court decisions have drawn a distinction between a ‘hard switch’ and a ‘soft switch,’ finding that the ‘hard switch’ may create antitrust liability because it affirmatively removes the original branded product from the market, reduces the size and scope of the market left at generic entry, and forces patients to buy the new product (particularly when the original may have better outcomes or be safer). The ‘soft switch,’ on the other hand, is a branding-driven switch that, to a certain degree, relies on the relative value and innovation inherent in the new product.
The two leading-edge cases drew this distinction quite clearly. In Abbott Laboratories, Abbott reformulated its flagship TriCor product from a capsule to a tablet, stopped selling the old capsules, bought back the existing capsule supply, and changed the National Drug Data File code for the capsules, blocking automatic substitution at the pharmacy for generic capsules.1 In AstraZeneca, AstraZeneca launched Nexium before patents for Prilosec expired, stopped promoting Prilosec and turned promotional efforts to Nexium, but left Prilosec on the market and continued to produce and sell Prilosec.2 The two district courts faced with these facts found that the ‘hard switch’ in Abbott survived a motion to dismiss but that the ‘soft switch’ in AstraZeneca should be dismissed. The fundamental difference appears to be in the interference with the market for anti-competitive ends. In Abbott, the court found the brand sought to manipulate the market and eliminate competition by removing the mechanism for generic competition, but in AstraZeneca, the brand’s efforts to switch the market were to allow the market (including providers and patients) to choose and to compete on the merits against generic competitors. This line encourages investment in the brand and new innovation, and seeks to reduce minor, perfunctory reformulations that may only drive higher prices.
In the 2015 Namenda decision, the Second Circuit was the first appeals court to decide on — and endorse (though tacitly and incompletely) — the Abbott/AstraZeneca factual distinction as a relevant antitrust distinction. Actavis, through its subsidiary Forest Laboratories, launched Namenda XR, an extended-release version of its blockbuster Alzheimer’s drug Namenda IR, and prior to generic entry, Actavis withdrew Namenda IR from the market.3 The court found that this ‘hard switch’ served to accelerate the move to Namenda XR and ensure there was no remaining market for Namenda IR when generics launched a few months later. In affirming the district court’s granting of a preliminary injunction, the Second Circuit stated the withdrawal of the original product as a “hard switch crosses the line from persuasion to coercion and is anticompetitive.”4
A year later, the Third Circuit affirmed summary judgment for a branded manufacturer, despite a ‘hard switch,’ on grounds that the generic still had access to the market and the product withdrawal was not a pretext for anticompetitive results.5 Mylan, a competitor preparing to launch a generic Doryx product, claimed that Warner Chilcott aggressively repurchased and destroyed inventory, developed a new formulation with no patient benefits, and withdrew the original Doryx from the market as it launched the new formulation. The Third Circuit differentiated Namenda on grounds that generic competition existed for Doryx, that patents were not blocking competition and the new formulations were not patent-based, and that Namenda was on a preliminary injunction rather than on a full record at summary judgment. Importantly, Warner Chilcott built a record that its actions in withdrawing products from the market were tied to patient safety because the capsules caused esophageal problems that the tablets were designed to remedy, and the different dosages and tablet scoring allowed Doryx to compete with other acne products such as Adoxa and Solodyn, which were both offered in several dosage levels to allow precision treatment.6
More recently, courts have continued to allow plaintiffs’ claims that a brand engaged in anti-competitive lifecycle management strategies to survive motions to dismiss and proceed to discovery. In both Asacol and Suboxone, Warner Chilcott withdrew the original product from the market as it launched new reformulations and transitioned the market to the patent-protected version ahead of generic competition.7 And, based on the ‘hard switch,’ both cases survived motions to dismiss.
TAKEAWAYS & NEXT STEPS
Enforcement efforts and court interpretations are evolving on lifecycle management strategies, particularly on so-called product hopping allegations. The remaining (somewhat) bright line rule to reduce the risk of liability (but not necessarily scrutiny or a complaint from an enterprising plaintiff) is to avoid the ‘hard switch’ by keeping the original product on the market, and instead focus on building the ‘soft switch’ strategy that relies on the marketing efforts and strength of the new product innovation.
But Namenda does not clearly draw the distinction between the ‘hard switch’ and ‘soft switch’ strategies as a bright line rule, instead focusing on the provider and patient coercion aspect of the switch, arguably leaving the door open to future cases premised on a ‘soft switch’ that fall somewhere beyond AstraZeneca, though short of Abbott and Namenda. This theory remains untested, but is premised on showings of coercion absent a ‘hard switch.’ Importantly, the decision in Mylan squares with this untested, expansive view of the provider and patient coercion analysis in Namenda because a broader market with the existence of competing generics in Mylan removed concerns about coercion.
Interestingly, the FTC and Department of Justice have largely been quiet on product hopping and lifecycle management strategies, instead, leaving enforcement to state attorneys general and private litigants. Although the FTC was active in support of enforcement as an amicus in the Mylan case at the district court and the Third Circuit, it has yet to file a complaint in federal district court on a product hopping theory, although it has expressed an interest in doing so.