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Robert Maness, Brian Segers, Apr 29, 2014
The Federal Trade Commission, as part of its ongoing enforcement of perceived anticompetitive abuse of the regulatory and legal structure in the pharmaceutical industry, has turned its gaze to branded pharmaceutical firms’ refusal to sell samples of restricted distribution products to firms seeking approval to market generic versions.
The types of restricted distribution arrangements that gave rise to these concerns are relatively new, dating from Food and Drug Administration Amendments Act of 2007. The FDAAA granted the FDA powers to require branded firms to design and implement risk evaluation and mitigation strategies for drugs with potentially serious and significant side effects. REMS requirements include a virtual continuum of potential distribution restrictions including requirements to distribute medication guidelines to patients, monitoring and reporting of adverse events, communication plans to disseminate safety information to healthcare providers, certification and training of healthcare providers and pharmacies, and limited distribution to only registered cites of service. The most severe restrictions include Elements to Assure Safe Use and Implementation Systems.
REMS restrictions in one form or another became increasingly common in new drug approvals. However, more recently, the FDA has been reducing the number of products with REMS designations. There are currently 65 FDA approved individual REMS and an additional six shared system REMS. While the number of REMS programs has been falling (142 drugs have been released from REMS programs), the severity of REMS restrictions has increased dramatically. Over half (40 of 71) of the existing REMS contains an ETASU requirement. This is a stark change from 2009, when nearly 75 percent of REMS programs required only medication guides.
It is these highly restrictive ETASU and implementation system programs that have given rise to antitrust complaints. Highly restrictive REMS programs have resulted in situations where generic manufacturers have difficulty procuring sufficient quantities of samples for bioequivalence demonstration, as required under Hatch-Waxman. Generally, generic manufacturers have no difficulty obtaining samples of branded products through normal distribution channels. In the case of REMS programs with ETASU components, though, some generic firms have been unable to obtain samples through normal channels, such as drug wholesalers, and have requested samples from the branded manufacturers. Branded manufacturers have sometimes refused to provide these samples, citing REMS restrictions, and in at least three cases, generic firms have responded with Section 2 antitrust allegations alleging that the refusal to deal illegally prevents generic competition.
The FTC joined the fray, filing an Amicus brief in one of these cases noting that the refusal to provide samples could be a violation of either Section 1 or Section 2 of the Sherman Act. In summary, while the FTC acknowledges that the Hatch-Waxman Act sought to strike a balance between encouraging low-cost generic entry and protecting branded firms’ incentives for continued innovation, the FTC has focused its attention on the potential for misuse of certain REMS programs to impede generic competition.
The FTC argues that a branded monopolist’s refusal to sell drugs under REMS programs to rivals supports “a plausible theory of exclusionary conduct.” The FTC further asserts that, contrary to the branded manufacturers’ position, anticompetitive refusal to deal does not require a prior course of dealing with competitors. The FTC instead focuses on a profit sacrifice test and essentially argues that because branded firms sell REMS restricted drugs at substantial profit, “refusal to sell to generic rivals may provide evidence of its willingness to sacrifice profitable sales in the short run in order to protect its long-term monopoly profits.”
In a companion piece to this one, Jan Rybnicek makes a similar argument that a prior course of dealing, while potentially relevant, is not the determinative factor in a refusal to deal inquiry. Instead, he argues that a “no economic sense” test is a better approach to assessing whether a refusal to deal in the context of REMS restrictions is anticompetitive. In this paper, we discuss some of the economic factors that would come into play under such an approach. Those factors would include a balanced view of the costs and benefits of sharing samples with a generic firm-over and above the potential competition that such sharing could facilitate-as well as a balanced view of the role of Hatch-Waxman and antitrust policy in the dynamic competition to develop new drugs.
