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FTC Says Brand Name Drug Redesign Violates Antitrust Law


Written by Gene Quinn
President & Founder of IPWatchdog, Inc.
Patent Attorney, Reg. No. 44,294
Zies, Widerman & Malek
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Posted: November 30, 2012 @ 9:00 am
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The Federal Trade Commission recently filed an amicus brief in a case in the U.S. District Court for the Eastern District of Pennsylvania.  The brief is notable because the FTC explains in the brief that it is their learned opinion that minor, non-therapeutic changes to a branded pharmaceutical product harm generic competition and can constitute exclusionary conduct that violates U.S. antitrust laws.

Wow! I almost don’t know where to start to unpack such nonsense, but I will give it the old college try! Before proceeding, however, I can’t help but notice that with the notable exception of the United States Patent and Trademark Office, the Obama Administration has recently started to sound quite anti-patent.

Not only is the FTC arguing that product changes to patented drugs violate U.S. antitrust laws, but the FTC and Department of Justice (DOJ) are going to look into whether patent enforcement activities that seek redress for infringement violate U.S. antitrust laws.  See FTC, DOJ to Hold Workshop on Patent Assertion Entities. This does not bode well for a second Obama term, and I have to wonder whether those in the patent community that decided to vote for President Obama due to his perceived friendliness to patents and smooth running of the Patent Office are going to start to have regrets, particularly now that David Kappos is leaving the USPTO.

The FTC Amicus Brief

The FTC’s amicus brief in Mylan Pharmaceuticals, Inc. v. Warner Chilcott Public Limited Co. states, “The potential for anticompetitive product redesign is particularly acute in the pharmaceutical industry.” Regardless of whether that is true or not, why is product redesign at all problematic? And the idea that a product design or redesign is believed to be anticompetitive shouldn’t come as a shock to anyone, does it? Isn’t the goal of business to succeed?  Don’t businesses that operate in the same field try and succeed more than competitors? Isn’t the very nature of a patent to prevent competition in exchange for the dissemination of information? Yes, yes and YES!

Frankly, when I hear government regulators or ivory tower academics complain about the anticompetitive nature of patents I feel nauseated. Such inane comments are like fingers on a chalkboard. Either they simply don’t understand the patent system, which in many cases is a distinct possibility, or they do understand the patent system and consciously taking an absurd anti-patent position. Unfortunately, both are bad, wrong-headed and rather ignorant. Those who don’t understand really shouldn’t be taking positions that can and will affect policy.  Those who do understand the issues and intentionally ignore history and business reality in favor of a world without patents are misguided at best, and malevolent in their disregard of truth at worst.

But how can the FTC believe the modifying a product, even a pharmaceutical, can lead to an antitrust violation? I don’t know, and neither will you even if you read the FTC amicus brief.  Their logic is never explained. Only conclusions are provided. If I were a professor grading this assignment it would receive at best a D. The writing is fine, the presentation good, citations seem in appropriate format, but on the central point there is an utter failure to explain how and why they reach their misguided opinion.

The FTC’s conclusion is that brand name pharmaceutical companies try to obstruct generic competitors and preserve monopoly profits on a patented drugs by making modest reformulations that offer little or no therapeutic advantages.  Prior to facing generic competition, a brand drug company can simply withdraw its original product from the market.  According to the FTC this then forces consumers to switch to the reformulated brand drug, which then through some feat of magic allows the branded company to keep its market exclusivity and prevent consumers from obtaining the benefits of generic competition. But why does the a switch of product have any impact at all on the generic? That is not explained, almost certainly because there would be no impact on the supplier of the generic.

The Problem with the FTC Argument

The problem with the FTC argument is that there is no argument. There is no logic. They leave the critical question unanswered.  Why can’t a generic drug company proceed to release the generic despite the product redesign?  The reason that vital question is not asked and is never answered by the FTC amicus brief is because the simple answer is that the generic drug company CAN still release the original generic despite a product redesign.

Once the patent expires anyone can make, use, sell, offer for sale or import the drug.  Of course, in the pharmaceutical arena there are other issues involved thanks to the regulatory power of the Food and Drug Administration (FDA). Generic companies don’t want to have to go through the complete FDA process required for new drugs, so they will file what is called an Abbreviated New Drug Application (ANDA) and piggy-back on the research of the brand name drug company to get approval to distribute an equivalent of the brand name drug. So once the original patented drug comes off patent and the FDA has approved an ANDA the generic company can sell.

The argument the FTC seems to be making is that brand name drug companies forfeit the right to make alterations to their products unless there is a therapeutic rationale for the change. Non-therapeutic changes are simply not allowed under the FTC view because that would lead to the finding of an antitrust violation, and no company wants that scrutiny. But why? Under what principle of law or logic does that make sense? None.

Why should the federal government be able to tell a drug company what types of designs or redesigns of a product are authorized? If the reformulation of the drug passes scrutiny under whatever process the FDA thinks is appropriate then why should the FTC have the authority to step in and say no? And what exactly is the problem with a reformulation given that the generic drug companies will be able to make the former version of the drug once it goes off patent?

Conclusion

It seems pretty clear to me that the FTC, and by necessary implication the Obama Administration, does not want patented drugs to be reformulated prior to generic competition. They seem to believe that patients will continue to want the reformulated drug that they recognize, with whatever advantages or differences (or perceived advantages or differences) it comes with over the previous version of the drug.  So when a reformulated version hits the market prior to the patent expiring they must think that the generic market will be compromised.  But why is the preference of consumers an antitrust violation?

It seems to me that the FTC, and by extension the Obama Administration, believes that consumers need to be protected from themselves. Perhaps it is better to say that the FTC thinks that generic manufacturers need to be protected from what they believe to be illogical or irrational choices of consumers. The real issues lies in a paternalistic view of consumers as needing protection. Non-therapeutic changes to a drug formulation can’t have any advantage or difference, so goes the FTC logic, so it is unfair to generic manufacturers for brand name drug companies to change formulations and provide consumers something different. But why?

Since when did providing an alternative product choice become an antitrust violation? Generic manufacturers can charge less than the brand name for the original patented drug that is now off patent. So how could it be manipulative and anticompetitive to charge more for something that provides no therapeutic value? You see, the FTC argument folds in on itself and collapses.

There is simply no justification for punishing brand name manufacturers for the conscious decisions of consumers. If consumers want to pay more for a drug that doesn’t have any additional therapeutic value that is a choice they are making.

Preventing consumers from having a choice is what is anticompetitive, and what the law has always sought to punish. How ironic that it is the FTC position that would lead to less competition.  Indeed, the FTC has jumped the shark and is advocating in favor of less choice.

For those interested in more reading on the topic, you might find the Motion to Dismiss filed in the case to be worth a read. I think the defendants have nailed it perfectly. Hopefully the district court will agree and put an end to what seems a wholly frivolous case if you ask me.

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Posted in: Antitrust, Federal Trade Commission, Food & Drug Administration, Gene Quinn, IP News, IPWatchdog.com Articles, Patents

About the Author

is a Patent Attorney and the founder of the popular blog IPWatchdog.com, which has for three of the last four years (i.e., 2010, 2012 and 2103) been recognized as the top intellectual property blog by the American Bar Association. He is also a principal lecturer in the PLI Patent Bar Review Course. As an electrical engineer with a computer engineering focus his specialty is electronic and computer devices, Internet applications, software and business methods.

 

 


11 comments
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  1. Reading the amicus brief seems to explain what the problem is pretty clearly. The changes made by this pharmacuetical company mean that when a doctor prescribes the brand name drug in it’s currently available form, they can’t, under current law, prescribe the generic version because it’s not a legally defined substitute For the sake of simplicity, let’s say that the change in formulation was from a gelcap pill form to liquid form (the exact formulations are probably very different, but probably not consequential to the argument), and this kind of difference is IMHO a better place to argue from). If the doctor prescribes the liquid form and all the generics are in gelcap form, the patient legally can’t choose the generic.

    In all fainess, it appears that this non-equivalence isn’t totally one-sided, though. The doctor could still prescibe the gelcap form generic, and then the brand name drug would be excluded. However, we aren’t going to see direct competition until the generic has a legally recognized equivalent on the market, which will take more time. The brief makes comparisons to Microsoft and changes they made that served no purpose other than to lock out competitors. It seems like quite an apt comparison. Put simply, product hopping is a means of eliminating prescription compatibility.

    I will agree that the ideal solution is probably not antitrust, at least not as a first choice, but rather, expansion of recognized equivalency substitutions. I’m not sure how broadly this could safely be done (if it’s unsafe, there’s obviously serious drawbacks), and it appears to be an issue primarily dealt with in state law, so even if it were a simple change to make, it would require action from a lot of legislatures before it is effective.

  2. Bobby-

    Of course you want to change the debate to suit you, that is what you normally do.

    The reality is that there is no right for a generic to exist in the first place. When drugs are patented the doctor faces the same situation you describe, which is they can’t prescribe a generic. If no generic manufacturer has filed an ANDA the doctor is in the same place even after a patent expires.

    There is absolutely no justification for the government or anyone else telling a company that is safe and approved by the FDA that they cannot sell the product. The generic companies don’t have a right to force drug companies to only sell what they have a right to sell as a generic. The generic companies can file another ANDA if they want to sell the reformulated composition of the drug.

    -Gene

  3. Your argument would be fine for over-the-counter drugs. In that case, a patient could just pick up the drug in the cheap, generic form, and the brand name drug would only enjoy an advantage if the changes were preferred. However, as the brief states, prescription drugs have rules associated with them, and this product hopping is being used as a means to take advantage of those rules to delay generics from taking over the market. This is precisely the kind of thing antitrust law was created to fight. I suspect the real issue for you is that you are pretty much against antitrust law altogether, so the usage of that law bothers you, especially when a patent holder is involved. You value intellectual honesty, so just state the truth instead of pretending that you don’t understand the FTC’s argument. I know you are more than intelligent enough to get that from the brief, and certainly can get it from my restating their position in my comment.

  4. I agree with the FTC on this one. Drug companies often make minor and inconsequential variations on drugs merely to extend the patent. Sure, generic companies may still sell generic versions of the old formula, but doctors rarely, if ever write prescriptions using the generic name of a drug (many doctors don t even *know* what a drug’s active ingredient is).

    The simple solution would be to force companies to use a different name on the reformulation. For example, the inventing company could use “Valium rx” as the name for reformulated Valium, that way a patient prescribed “Valium” by a doctor who always writes the same prescription for that patient’s ailment could still get the generic, while at the same time the doctor could always write the prescription for “Valium rx” if he thinks the reformulation would be better for that particular patient.

  5. Bobby-

    You write: “as the brief states, prescription drugs have rules associated with them, and this product hopping is being used as a means to take advantage of those rules to delay generics from taking over the market.”

    The problem is it is incorrect. There will be absolutely no delay of entry of a generic into the marketplace with respect to the previous formulation. That is exactly why the FTC is completely wrong here and will ultimately fail. The generics can enter the marketplace upon the expiration of the patent and the approval of an ANDA. What they seem to not want to do, however, is have to file another ANDA relating to the new formulation.

    So you (and the FTC) can try and pretend that this is exactly what the antitrust laws are supposed to prevent, but that is inaccurate. The antitrust laws have never been used in this way and there is no rational basis for ordering a company to not proceed to market with something that is legal and approved for distribution by the FDA.

    -Gene

  6. Justin-

    You write: “Drug companies often make minor and inconsequential variations on drugs merely to extend the patent.”

    What you say is 100% false. A patent will expire when the patent expires. These type of formulation changes will not under any circumstances extend the life of the patent.

    I think what you are trying to say is that once a patent on a drug is expired then there should be no future patents on innovative (i.e., new and non-obvious) improvements. That is quite a different matter. I find it quite ridiculous to cut off innovation simply so a generic could copy the latest patented formulation. Let the copy-cat, non-innovator copy the off-patent drug. Not the newest version of the drug.

    You and so many others, including the FTC, are missing the entire point. The generic CAN copy the off-patent drug. There is no delay in generics entering the market.

    -Gene

  7. “The problem is it is incorrect. There will be absolutely no delay of entry of a generic into the marketplace with respect to the previous formulation. ”
    That is true. What’s being delayed is not the entry of generics into the market. The delay is in the ability of patients to freely choose what they want to buy. If a doctor prescribes you Doryx in it’s current form, you can’t substitute it for the generic formulation already on the market because they are not considered AB equivalent. Like I said, with over the counter drugs, this is not an issue. Furthermore, if doctors were perfectly informed on the subject and truly on their patient’s side, this would not be an issue, and reformulations would actually be a major harm to the brand name drugs. However, I don’t think it’s reasonable to expect doctors to be savvy about the entire drug market, especially since there are many other things they could be learning about that would be more useful for their patients.

  8. Gene:
    “You and so many others, including the FTC, are missing the entire point.”

    I get your point. I just think that you’re skipping some important details.

    “The generic CAN copy the off-patent drug. There is no delay in generics entering the market.”

    Let me ask this directly: If a reformulation is done expressly for the purpose of making it harder for a patient to switch from a brand to a generic, do you think that is right? If it’s not right, should it be illegal?

    This is a hypothetical – I’m assuming for the purposes of the question that everybody involved agrees that there isn’t a pharmacological difference.

  9. Gopiballava-

    Your hypothetical is counterfactual.

    Under what circumstances would a non-therapeutic reformulation make it harder for a patient to switch?

    What this is all about is the brand name drug provider offering a different formulation that has no additional benefits. They market it and the consumer believes that it is somehow better than the generic and wants that rather than what the generic is selling because the generic is selling something different. The FTC must be arguing that people don’t want something different no matter how much cheaper. That is rather absurd. The entire generic market is based on people wanting therapeutic drugs off-brand for a fraction of the cost.

    -Gene

  10. Gene:

    “Under what circumstances would a non-therapeutic reformulation make it harder for a patient to switch?”

    Bobby explained it at 9:46pm, but I’ll try elaborating further.

    Let’s take a concrete example. Provigil, generic name modafinil. Both brand name and generic available. If my doctor writes me a prescription for Provigil, I can get brand or generic at my discretion at the pharmacy.

    If my doctor writes me a Nuvigil prescription (R-enantiomer of modafinil, no generic available), I can’t switch that to Provigil. If for the purpose of this discussion we accept the claim that the L–enantiomer of modafinil is minimally bioactive, the effects of both medications are the same.

    However, if my doctor wrote me a Nuvigil prescription and I wish to switch to generic modafinil, I have to have the prescription re-written – I can’t merely have the pharmacist fill the generic.

    Thus, it’s harder to switch from Nuvigil to modafinil. You’re making the patient and doctor have to decide on generic vs. brand at the time of prescription writing, when there isn’t nearly as much time to do research into the differences.

    So, no, not counterfactual. Entirely consistent with the facts. Can you answer my hypothetical, please?

    “What this is all about is the brand name drug provider offering a different formulation that has no additional benefits. They market it and the consumer believes that it is somehow better than the generic and wants that rather than what the generic is selling because the generic is selling something different.”

    If they’re coming up with a different name for functionally the same thing to mislead their customers, isn’t that dishonest?

    “The FTC must be arguing that people don’t want something different no matter how much cheaper.”

    I thought that the FTC was arguing that the companies are making things appear more different than they are in order to mislead customers.

    You know full well that “is identical to” is worth more than “is nearly as good as.” Misleading people into believing that an identical product is, in fact, different is a dishonest lie.

    “That is rather absurd. The entire generic market is based on people wanting therapeutic drugs off-brand for a fraction of the cost.”

    Yes, and it’s also based on the assertion that the generics are the exact same material with the exact same standards, rules and regulations. Misleading people into believing that there isn’t a true, identical generic available distorts the market and is misleading.

  11. Gene,

    You are correct on your first point; I was typing on my phone (which is a very tedious process) and didn’t notice my glaring misrepresentation. Drug companies do not and cannot “extend patents” by reformulating; the original patent over the original formulation will always expire once it runs its course.

    Your second point is completely absurd. No where in reading my comment could you possibly come up with idea that I am “trying to say that once a patent on a drug is expired then there should be no future patents on innovative (i.e., new and non-obvious) improvements,” and it is completely intellectually dishonest of you to characterize my arguments as such.

    In my comment I state that a) these reformulations often are not innovative (“minor and inconsequential); and b) that an easy solution to the antitrust issue would be simply to force the inventing company to call the new reformulation by a different name than the old one. Nowhere in there did I come remotely close to saying that drug companies should not receive patents on innovative drug formulations, whether or not that reformulation is entirely new or a reformulation of an older drug.

    You accuse the FTC, myself and “so many others” of missing the point, but it is you who is missing the *real* point, which does not have so much to do with patents as it does with the way these drugs are regulated.

    As I already stated in my comment, if you bothered reading it, doctors write prescriptions for a brand name of drug. When that drug is reformulated under the same name, most doctors are unaware either of the fact that the drug has changed or of the fact that the doctor must now write the name of the generic equivalent (if he or she even knows what it is called) in order to enable the patient to actually purchase the generic equivalent (either because it is equivalent to what the patient has been taking all along or because the patient cannot afford the brand name). If the inventing company was forced to call the reformulation something else (e.g., “Valium RX” instead of just plain “Valium” then that would be an easy solution to the problem. Note that this solution has nothing to do with denying patent protection for innovative reformulations.

    To unpack this further, note that the FTC, in its amicus brief and according to your own words, says that drug companies are hurting competition by introducing “minor, non-therapeutic” changes which is antithetical to your argument that the FTC wants to stop patents for “innovative” reformulations (unless you believe that minor, non-therapeutic reformulations are in fact innovative). Regardless, in my opinion, if the drug company was forced to release reformulations under different names I don’t think it would matter as much that the USPTO continues to issue patents on useless modifications to existing formulations.

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