Brand name pharmaceutical companies have long stood in the way of generic pharmaceuticals entering the market. To keep generics at bay, brands have used a variety tactics, including ultimately unlawful ones like fraudulently obtaining patents and product hopping—also known as evergreening.1 The legal defeat of these and other strategies has pushed brands to develop new ways to delay or preclude generic competition.
Most recently, brand drug companies have attempted to invoke their Risk Evaluation and Mitigation Strategies (REMS) to keep generic competition out of the market. Specifically, the brands have used REMS as way to block a generic's market entry by denying the generic access to drug samples needed for bioequivalence testing. Previously, little case law existed addressing the legality of brands using REMS in this way. Now, however, the Third Circuit has changed that. Several recent decisions from that court indicate that a brand name pharmaceutical company's use of REMS to block a generic's entry may violate antitrust laws in certain circumstances. A review of those decisions, along with the background of REMS generally, provides important lessons for both health sciences and antitrust lawyers.
The role of REMS
The FDA requires drug manufacturers to design and implement measures to inform patients of a drug's potential risks. These measures—REMS—extend above and beyond professional labeling, and must be in place for all dangerous drugs.
Specifically, the FDA may require a brand manufacturer to formulate and implement REMS if “necessary to ensure that the benefits of the drug outweigh the risks of the drug."2 REMS may include, for example, a guided plan to convey the drug's risks to patients or restrictions on the drug's distribution.
The effect of REMS
Generic drug makers must conduct bioequivalence testing before they can receive
FDA approval to market their generic drugs.3 But according to recent complaints, brand drug manufacturers have co-opted REMS requirements to deny generic competitors' access to drug samples needed for testing.
Branded drug manufacturers argue that selling samples of REMS-protected drugs to generic competitors violates the terms of their REMS. They also claim that it may subject them to legal liability if generic manufacturers do not take adequate safety precautions.
FDA oversight and FTC enforcement
The Food and Drug Administration Amendments Act of 2007 (FDAAA) states that no brand name manufacturer shall use their REMS to “block or delay approval" of a generic manufacturer's ANDA.4 The FDA went on to support this statement in 2014. It issued draft guidance describing the process whereby a generic manufacturer may request the FDA's assistance. Specifically, the FDA could inform the brand that providing drug samples for bioequivalence testing would not violate the REMS.
The FDA appears to disavow bringing any enforcement action on its own, however. It has instead asserted that “issues related to ensuring that marketplace actions are fair and do not block competition would be best addressed by the FTC [Federal Trade Commission]."5
The FTC has yet to file enforcement actions against brand companies for invoking REMS to preclude or delay generic competition. Recently though, the FTC has announced that REMS misuse is an enforcement priority. Accordingly, it has filed an amicus brief in private antitrust litigation to express its concerns about the practice.
Lessons learned from Third Circuit rulings
Generic drug manufacturers have brought several private actions alleging that the refusal to supply REMS-restricted drug samples violates antitrust laws. In an interesting twist, brand name drug manufacturers have also gone on the offensive. These brands have also filed their own actions for a declaratory judgment stating that they have no obligation to supply drug samples to generic competitors.
Several decisions to date—all in the Third Circuit—provide some insight into how courts analyze whether REMS misuse amounts to an antitrust violation. These decisions illuminate the following two important lessons:
A generic drug company may not need to allege a prior course of dealing to state a legally sufficient refusal-to-deal claim; and
The courts will likely reject a brand name company's reliance on safety concerns as a legitimate justification to deny drug samples to rivals.
Prior course of dealing not required
Determining when a monopolist has a duty to deal with its rivals is “one of the most unsettled and vexatious in the antitrust field."6 The law is even more vexing when it comes to a brand manufacturer's refusal to supply product to would-be generic rivals.
Mylan Pharmaceuticals, Inc. v. Celgene Corp. (Mylan), is one of the few decisions to address refusals to deal in the REMS context. 7 In Mylan, Celgene Corporation denied Mylan Pharmaceutical access to samples of two REMS-protected drugs. A federal district court in New Jersey upheld Mylan's complaint that Celgene's denial was in violation of Section 2 of the Sherman Act. In so holding, the court rejected Celegene's argument that a duty to deal only arises when:
There is a prior course of dealing between the parties, and
The alleged monopolist irrationally forsakes short-term profits for long-term anticompetitive gains.8
Instead, the court held that,
“the cases in our circuit that have considered the scope of the affirmative duty to deal suggest that a ‘prior course of dealing' is relevant but not dispositive in determining whether such a duty applies."9
Because Mylan pled there was no legitimate business reason for Celegene's refusal, the court concluded that the complaint “may give rise to a plausible § 2 claim."10
In Actelion Pharmaceuticals Ltd. et al. v. Apotex Inc. et al (Actelion)11 , Actelion took a different approach. It preemptively sued generic drug makers, seeking a declaratory judgment that antitrust laws did not compel it to do business with its potential generic rivals. At issue was the request by several generic drug manufacturers for access to samples of Tracleer.12
The generic manufacturer defendants asserted antitrust counterclaims. Actelion responded with a motion for judgment on the pleadings and a motion to dismiss the generics' antitrust counterclaims. The court denied Actelion's motions. It refused to find on the “scant record" before it that Actelion's refusal to sell samples to its rivals amounted to “protected and lawful conduct."13
The court further held that, when the Supreme Court's seminal refusal-to-deal decisions were read together, such cases are almost always “fact-specific" and “industry-specific." As a result, these decisions do not provide a “simple answer to the issue that's been presented to this Court."
Turning next to Aspen Skiing,14 the court noted that other exclusionary conduct could substitute for a prior course of dealing, such as the “refusal to sell at retail."15 Failure to plead a prior course of dealing, therefore, did not preclude the claim because the generics alleged facts demonstrating exclusionary conduct.
The takeaway from Mylan and Actelion is that courts will likely not require a prior course of dealing between the parties. Instead, they will look to other factors when evaluating complaints alleging that brand refusals to deal in the REMS context violate antitrust laws.16
Safety concerns no longer legitimate
In a refusal to deal case, a defendant has an opportunity to offer a legitimate business justification for denying product. In REMS litigation, brand drug companies argue that their refusals to supply samples are a legitimate business decision. Specifically, refusal ensures the safe distribution of their products. Defendants will find these arguments more difficult to make going forward in light of the FDA's recent draft guidance.
Additionally, a brand company's refusal to agree to an indemnification would appear to mitigate any argument that its refusal to deal stems from safety concerns. This situation occurred in Mylan. There, the plaintiff offered to indemnify the branded drug company for any liability arising from the sale of product samples to it.
Furthermore, courts may now look to facts that support a claim that a brand manufacturer is motivated by a desire to use REMS to extend its monopoly. This argument was at the heart of the dispute in Actelion. The generics argued that the brand's “government-mandated safety concerns" justification for refusing to deal masked Actelion's true motivation of earning monopolistic profits.17 The court addressed this claim during oral arguments. It stated that the plaintiffs might “very well" make out a Section 2 claim if they could show the defendant's motivation stemmed from its monopolistic interests.18
It is too early to tell what effect these Third Circuit REMS decisions will have across the country. Nonetheless, it appears that courts are supporting the claim that the misuse of REMS can very well violate antitrust laws.
Antitrust counsel on both sides should keep close watch on further case law developments. And, until the courts say otherwise, counsel for brand manufacturers should avoid solely relying on prior dealings and safety concerns arguments where tempting to invoke their REMS programs to deny a would-be competitor's request for drug samples. As recent decisions demonstrate, neither justification may be used to insulate a company from antitrust scrutiny even at the earliest stages of litigation.
1 Evergreening occurs where a branded manufacturer releases a new version of a pre-existing drug with only minor or no substantive improvements to prevent consumers from switching to lower-priced generic competitors.
2 Food and Drug Administration Amendments Act of 2007, 21 U.S.C. § 355-1(a).
3 In 1984, Congress enacted the Hatch-Waxman Act to expedite generic drug approval. Under the Hatch-Waxman Act, a generic manufacturer seeking to file an abbreviated new drug application (“ANDA") for FDA approval must demonstrate that its generic formulation is bioequivalent to the brand drug. To perform the necessary bioequivalence testing, the generic manufacturer needs access to a sample of the brand drug.
4 21 U.S.C. § 355-1(f)(8).
5 Partial Petition Approval & Denial at 7, No. FDA-2009-P-0266 (Aug. 7, 2013).
6 Byars v. BluffCity News Company, Inc., 609 F.2d 843, 846 (6th Cir. 1979).
7 Transcript of Oral Opinion, Mylan Pharmaceuticals Inc. v. Celgene Corp., No. 2:13-cv-02094-ES (D.N.J. Dec. 22, 2014).
8 Id. at 10.
9 Id. at 12.
10 Id. at 17.
11 Transcript of Motions Hearing, Actelion Pharm. Ltd. V. Apotex, Inc., 1:12-cv-05743 (D.N.J. Oct. 21, 2013).
12 Tracleer is a treatment for lung hypertension that medical studies have linked to severe liver problems.
13 Id. at 115.
14 Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 606, 611 (1985).
15 Actelion at 13-14.
16 See also Lannett Co., Inc. V. Celgene Corp., No. 08-3920, slip op. (E.D. Pa. Mar. 31, 2011).
17 Actelion at 116.
18 Mylan at 14-15, (quoting Actelion at 117).