FTC Amicus Brief: Improper Use of Restricted Drug Distribution Programs May Impede Generic Competition

The Federal Trade Commission filed an amicus brief in the U.S. District Court for the District of New Jersey explaining that brand name drug manufacturers may improperly use restricted drug distribution programs to impede generic competition.

The FTC filed the brief in the matter of Actelion Pharms Ltd. v. Apotex Inc. (Case No. 1:12-cv-05743), which involves allegations that Actelion Pharmaceuticals has prevented Actavis, Apotex, and Roxane from offering competing generic versions of Actelion’s brand drug products, Tracleer and Zavesca, by precluding them from obtaining samples of those drug to perform necessary testing.

In order to receive approval from the Food and Drug Administration, generic firms are required to conduct bioequivalence testing to demonstrate that a generic formulation is therapeutically equivalent to the brand drug.  This testing requires access to a limited amount of the brand product. Tracleer (bosentan) is used to treat pulmonary arterial hypertension and Zavesca (miglustat) is used to treat type 1 Gaucher disease, a disorder in which the body does not produce enough of an enzyme to break down fatty substances.

Certain brand drugs are subject to distribution restrictions that may be used to prevent generic firms from accessing samples of the brand product. In many instances, these restricted distribution programs are implemented as part of FDA-mandated risk management programs known as Risk Evaluation and Mitigation Strategies (REMS).  Brand firms also have implemented distribution restrictions for drugs that are not subject to a REMS.

[Bio-Pharma]

In the case currently pending before the district court, Actavis, Apotex, and Roxane allege that Actelion has imposed distribution restrictions that prevent them from buying samples of Actelion’s brand products through customary distribution channels, and that Actelion refuses to sell the products directly, thereby precluding them from meeting FDA requirements for developing generic versions of these drugs.

Among other claims, the generic firms allege that Actelion’s conduct violates the federal antitrust laws.  Actelion seeks a broad declaration that it is under “no duty or obligation” to sell its products to potential competitors.  Although Actelion contends that its distribution restrictions are required by the FDA, it argues that its right to refuse to sell to the generic firms is nearly absolute and would apply even without any FDA mandate.

The FTC’s amicus brief explains that Actelion’s legal position, if adopted by the court, could pose a significant threat to competition in the pharmaceutical industry.  In the Hatch-Waxman Act, Congress designed a regulatory framework to encourage the introduction of low-cost generic drugs while preserving incentives for innovation.  The Act created a mechanism for accelerated approval of generic drugs based on a showing that the generic formulation is bioequivalent to the brand drug, which has been very successful in facilitating generic competition and generating large savings for consumers.

The FTC’s brief explains, however, that the Act cannot function as Congress intended if generic firms are unable to access samples of brand products.  Without taking a position on the factual merits of the case, the brief explains that the generic firms’ antitrust claims are not barred as a matter of law.  It describes how the generic firms’ allegations in this case fit within established Supreme Court precedent holding that a monopolist’s refusal to sell to its potential competitors may, under certain circumstances, violate Section 2 of the Sherman Act.  It also clarifies that a distribution agreement between a brand drug manufacturer and its distributors may violate Section 1 of the Sherman Act, even when the agreement involves a patented product.

The Commission vote approving the filing of the amicus brief was 4-0.  It was filed on March 11, 2013 in the U.S. District Court for the District of New Jersey.  (FTC File No. P859910; the staff contact is Michael Perry, Bureau of Competition, 202-326-3349.