ANTICOMPETITIVE MANIPULATION OF REMS: A NEW EXCEPTION TO ANTITRUST REFUSAL-TO-DEAL DOCTRINE.

Author:Garrett, Tyler A.
Position:Risk Evaluation and Mitigation Strategy
 
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TABLE OF CONTENTS INTRODUCTION 657 I. LEGISLATIVE ORIGINS OF REMS 660 A. The Hatch-Waxman Act 660 B. The FDAAA 662 II. BRAND DRUG MANUFACTURERS' USE OF REMS TO BLOCK GENERIC ENTRY 664 A. Bioequivalence Testing and Generics' Lack of Access to Samples 664 B. REMS' Negative Effect on Generic Market Entry and Subsequent Economic Harm 665 III. INSTITUTIONAL FAILURE TO ADDRESS GENERICS' REMS CONCERNS 666 A. Repeated Congressional Inaction 667 B. Absence of FDA Enforcement Against REMS Abuses 671 C. REMS Enforcement: The Role of the FDA or the FTC? 673 IV. AN ANTITRUST ANALYSIS OF REMS: THE REFUSAL-TO-DEAL DOCTRINE 676 A. Section 1 Is Not a Source of Brand Antitrust Liability 677 B. Brands Hold Monopoly Power Under Section 2 677 C. Jurisprudence of the Refusal-to-Deal Doctrine: Otter Tail, Aspen Skiing, and Trinko 679 D. The "No Economic Sense" Test Protects Brands from Violating Section 2 683 1. Brand Manufacturers and Generic Competitors Have No Prior Course of Dealing 684 2. Brand Manufacturers Under REMS Regulation Do Not Make Their Drugs Available to the Public 686 3. Fear of Tort Liability Serves as a Valid Business Reason for Brands' Refusals to Deal with Generics 689 4. Under Current Antitrust Doctrine, Brands' Refusals to Deal with Generics Do Not Fail the "No Economic Sense" Test 692 V. COURTS SHOULD CREATE A NEW EXCEPTION TO THE REFUSAL-TO-DEAL DOCTRINE TO IMPOSE LIABILITY UPON BRANDS 694 CONCLUSION 698 INTRODUCTION

Spending on pharmaceutical drugs in the United States is exorbitantly high, amounting to $325 billion in 2015--just under 2 percent of GDP. (1) And this spending is rising: prescription drug spending is projected to increase by over 6 percent per year over the next decade. (2) One of the factors most responsible for these high medical and pharmaceutical costs is the price of brand drugs. Although branded drugs compose only 11 percent of prescriptions in the United States, that 11 percent is responsible for 73 percent of total American drug spending. (3) Soaring pharmaceutical costs are not a new problem, either; Congress's strongest attempt to decrease spending on pharmaceutical drugs occurred in 1984, when Congress passed the Hatch-Waxman Act (4) to encourage the entry of generic drugs into the pharmaceutical marketplace. (5) Generic drugs are often substantially cheaper than their branded counterparts, as their average cost across the industry is 80-85 percent lower than brand drugs. (6) Yet, when the Hatch-Waxman Act was enacted, approximately 150 brand drugs whose patent protection had expired faced no generic drug competition. (7) Therefore, it is no surprise that Congress, seeking to provide "low-cost, generic drugs for millions of Americans," (8) targeted accelerating market entry of generic drugs as a way to decrease rising pharmaceutical costs. (9)

The Hatch-Waxman Act has been fairly successful in encouraging generic competition. (10) But recently, generics have encountered an additional hurdle to entering the market. In 2007, Congress passed the Food and Drug Administration Amendments Act of 2007 (FDAAA), which granted the Food and Drug Administration (FDA) the authority to require drug manufacturers to create a Risk Evaluation and Mitigation Strategy (REMS) to ensure the safety of their products. (11) The drug manufacturer designs a REMS program to restrict the distribution of potentially dangerous drugs by limiting drug access to selected and approved distributors. (12) However, many brand-name drug manufacturers have designed their REMS programs in such a way that prevents generic drug manufacturers from obtaining access to the branded drugs. (13) Generic drug manufacturers need access to samples of the branded drugs to develop and test their generic drugs for bioequivalence with the branded drug, in order to qualify their products for fast-tracked regulatory approval through the FDA's Abbreviated New Drug Application (ANDA). (14) Without being able to test for bioequivalence, the generic drug manufacturers face significant barriers to market entry. (15) As generics are unable to enter the pharmaceutical product's market, the lack of competition leads to higher prices because the branded drug manufacturer retains a monopoly over the market, even if the company's patent has expired. (16) To overcome this regulatory side effect, generics have increasingly turned to the courts and antitrust law to enjoin brands to provide them with samples of the brand drugs. (17)

This Note argues that brand drug manufacturers have manipulated REMS to engage in anticompetitive behavior that undermines the purpose of the Hatch-Waxman Act and hurts the public interest by preventing market entry of generic competitors. Part I will give an overview of the Hatch-Waxman Act and the FDAAA to examine the legislative origins of Congress's regulations of the pharmaceutical industry affecting generic market entry. Part II will explain why brands' refusal to share samples with generics has anticompetitive effects, and will highlight the economic consequences that have resulted from this behavior.

Part III will address the legislative history behind the FDAAA, focusing on the limitation of REMS "block[ing]" behavior under [section] 355-1(f)(8), (18) and will detail how Congress has attempted to clarify brands' duties under REMS but has failed to issue firm legislation on the matter. Part III contends that this lack of clear congressional intent has played a large role in why the FDA has acted with extreme passivity towards generics' allegations of brands' uses of REMS to justify anticompetitive behavior. Part III will also argue that while the FDA has seemingly requested the Federal Trade Commission (FTC) to intervene on behalf of generics' antitrust claims, the FDA is better positioned to regulate REMS disputes in a way that relieves antitrust concerns and streamlines the ANDA approval process while appropriately resolving safety concerns.

Part IV will survey possible antitrust remedies available to generics, and will identify the refusal-to-deal doctrine under Section 2 of the Sherman Antitrust Act as the most appropriate avenue for judicial analysis. After analyzing Supreme Court jurisprudence on the refusal-to-deal doctrine, Part IV argues that current refusal-to-deal doctrine and analysis will not impose antitrust liability on brands because brands' refusals to deal are motivated by a legitimate business purpose of avoiding tort and product liability. Absent an evidentiary showing of anticompetitive motivation, generics' litigation against brands for their refusal to sell samples will likely prove unsuccessful.

However, Part V will explain why REMS provides an ideal context for courts to impose a new exception to the right of firms to refuse to deal with competitors. Under the analysis set forth by Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP, (19) the FDA and the REMS regulatory framework have fallen short of effectively providing a regulatory antitrust check. This failure has opened the door for the judiciary to intervene and apply antitrust principles to alleged anticompetitive uses of REMS. Part V will ultimately conclude that courts should step through this opening and apply antitrust scrutiny within the REMS context--an area of the pharmaceutical industry currently beset by a vacuum of anticompetitive liability.

  1. LEGISLATIVE ORIGINS OF REMS

    Studying the origins and purposes behind the Hatch-Waxman Act and the FDAAA--which, respectively, created procedures governing generic manufacturer entry into the pharmaceutical market (20) and REMS (21)--lays the foundation of understanding why the status quo of brands' use of REMS is problematic.

    1. The Hatch-Waxman Act

      The primary provision of the Hatch-Waxman Act (22) enabled a generic to circumvent the FDA's strict, time-consuming, and expensive testing requirements for a new drug (23) by permitting generics to file an Abbreviated New Drug Application (ANDA) instead of the typical New Drug Application (NDA). (24) AND As allowed generics to "piggy-back" (25) on a brand-name drug's successful application--including expensive safety and effectiveness studies (26)--if they showed their generic drug was bioequivalent to the brand drug. (27) In exchange for the increase in generic competition Congress created through ANDAs, the Act extended the patent term for brand drugs. (28)

      In an ANDA apphcation, the generic must certify one of the following four conditions: (I) a patent for the listed drug has not been filed; (II) the existing patent on the listed drug has expired; (III) the specific date on which a patent for a listed drug will expire; or (IV) the patent for the listed drug is invalid or will not be infringed by the generic's manufacture, use, or sale of the generic drug. (29) A filing under condition IV is called a "Paragraph IV certification," (30) and the first successful Paragraph IV ANDA applicant is awarded 180 days of generic exclusivity on the market. (31) However, once a generic has filed a Paragraph IV certification with both the FDA and the brand drug manufacturer, the brand may file an infringement action against the generic, (32) which leads to an automatic thirty-month stay of the generic's ANDA approval. (33)

      State drug product selection (DPS) laws, which are in effect in all fifty states, support the Hatch-Waxman Act's effort to aid generic market entry. (34) DPS laws allow--and often require--pharmacists to substitute generic drugs for prescribed brand drugs if the generic drug is rated by the FDA as bioequivalent to the brand drug. (35) DPS laws are critical for lowering consumers' pharmaceutical expenses, because even though branded drugs comprise only 11 percent of prescriptions in the United States, this 11 percent is responsible for 73 percent of drug spending. (36) Together, the Hatch-Waxman Act and state DPS laws have also been largely successful in increasing generic market entry: while generics...

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