Mylan v. Warner Chilcott: a study in pharmaceutical product hopping.

AuthorIyengar, Vikram

INTRODUCTION I. THE HATCH-WAXMAN REGULATORY FRAMEWORK AND PRODUCT HOPPING A. The Hatch-Waxman Act 1. Abbreviated New Drug Application Procedure 2. Patent Suits and ANDA Stays B. State Drug Substitution Laws C. Pharmaceutical Product Hopping II. WARNER CHILCOTT'S MOTION TO DISMISS A. Mylan's Complaint B. Defendant's Motion to Dismiss C. The Court's Order III. LEGAL BACKGROUND FOR REGULATORY GAMING IN PHARMACEUTICALS A. Patent Settlements B. Product Hopping Caselaw IV. MANIPULATION OF THE HATCH-WAXMAN REGULATORY FRAMEWORK A. Was Mylan's Generic Entry Free-Riding? B. The Effect of Product Hopping on the Hatch-Waxman Compromise C. Withdrawal of Older Branded Versions in Mylan CONCLUSION INTRODUCTION

On June 11, 2013, a district court in the Eastern District of Pennsylvania denied Defendant Warner Chilcott's motion to dismiss in the ongoing pharmaceutical litigation suit, Mylan Pharmaceuticals, Inc. v. Warner Chilcott Public Limited Co. (1) The Plaintiff in the suit, Mylan Pharmaceuticals, alleged that when Warner Chilcott "switched the market" for their acne drug, Doryx, from tablets to capsules, solely to avoid generic competition, it engaged in "product hopping" and broke the antitrust laws. (2) In its order, denying Warner Chilcott's motion-to-dismiss, the court stated that because the defendant's antitrust defense required it to consider facts that were well outside the complaint, it could not address the defendant's arguments "without going beyond the pleadings." (3)

However, although the court denied Warner Chilcott's motion to dismiss, its characterization of Mylan's product hopping theory as "'novel' at best" and failing to state "an antitrust injury" (4) is troubling in light of the precedent. While the "court's dismissal decision" sends a "promising sign to those who oppose antitrust scrutiny" of regulatory gaming in general and product hopping in particular, it "does little to clarify the law." (5) Moreover, the court's stance on product hopping can have grave consequences for consumers, health care plans, and the government if the court ultimately refuses to submit Warner Chilcott's conduct to antitrust scrutiny.

In this Note, I explain how product hopping--making non-substantial changes to branded drugs to delay the entry of generic alternatives to the market--is a form of regulatory gaming. Product hopping defeats the intended purpose of the Hatch-Waxman Act, which was intended to expedite competition and the entry of generics. (6) Although in Mylan, no branded-drug patent is implicated, product hopping can occur even when a patent is in force and a generic competitor challenges it as invalid. (7) In such a case, a brand firm can manipulate Hatch-Waxman's regulatory framework to increase the amount of litigation and Food & Drug Administration (FDA) delay in approving the generic alternative to the detriment of consumers. Therefore, the consequences of the court's final decision in Mylan has implications reaching far beyond the facts of the suit to cases where invalid patents in combination with product hopping could hold up generic entry.

This Note is organized as follows. In Part I, I begin by describing the Hatch-Waxman regulatory framework, state drug substitution laws, and pharmaceutical product hopping. In Part II, I state the relevant facts and procedural history of the Mylan case, and describe the district court's decision and reasoning. In Part III, I present the legal background in this area before Mylan. In Part IV, I analyze whether Mylan's sought generic entry to the market was indeed free-riding as Warner Chilcott characterizes it, and whether Warner Chilcott's conduct sought to manipulate the Hatch-Waxman regulatory framework and frustrate Congress's stated intent.

  1. THE HATCH-WAXMAN REGULATORY FRAMEWORK AND PRODUCT HOPPING

    In this Part, I describe the regulatory framework established by Hatch-Waxman and state drug substitution laws. Congress enacted the Drug Price Competition and Patent Term Restoration Act of 1984--commonly known as the Hatch-Waxman Act (8)--in 1984 in order to "facilitate market entry of lowcost generics while incentivizing pharmaceutical companies to invest in developing new drugs." (9) Moreover, all fifty states have passed laws that allow pharmacists to substitute a generic when presented with a prescription for its branded equivalent, unless a physician directs, or the patient requests otherwise. (10) These state substation laws together with Hatch-Waxman "create a regulatory framework designed to reduce costs to consumers by lowering generic costs." (11) This pairing "have been remarkably successful in facilitating generic competition and generating large savings for patients" and third-party payers. (12)

    1. The Hatch-Waxman Act

      "Congress enacted Hatch-Waxman in response to the high costs of pharmaceuticals resulting from patent monopolies on branded drugs and delayed generic entry." (13) Previously, generics faced limited incentives to enter a market because of the need for expensive duplicative testing. (14) As a result, branded drugs continued to reap monopoly profits long after patents expired because of the effective extension of their monopoly term. Congress therefore sought to increase the availability of generics to reduce both healthcare costs and the high percentage of individual incomes spent on pharmaceuticals. (15) "The Supreme Court recently confirmed that Hatch-Waxman's purpose was to 'speed the introduction of low-cost generic drugs to market, thereby furthering drug competition.'" (16) A central provision of the Hatch-Waxman Act is the introduction of the Abbreviated New Drug Application (ANDA) procedure for generic manufacturers. (17)

      1. Abbreviated New Drug Application Procedure

        To introduce a new drug to market, a pharmaceutical company must provide detailed evidence of safety and efficacy tests, and also a listing of any relevant patents. (18) Hatch-Waxman expedites the approval process for generics that follow a branded drug. (19) "Rather than submitting full safety and efficacy data, a generic manufacturer can obtain FDA approval by filing an ANDA, which certifies the bioequivalence of the generic to an existing branded drug." (20) Once approved, the generic receives an "AB-rating," which allows pharmacists to substitute the generic when presented with a prescription for the branded product. (21)

      2. Patent Suits and ANDA Stays

        However, to protect the rights of patent holders, the Hatch-Waxman Act also requires generic manufacturers to identify any patents potentially relevant to their ANDA. (22) The patentee then has forty-five days to sue for infringement. (23) A patent suit at this stage leads to an automatic thirty- month stay of the ANDA. (24) The FDA has no mandate or discretion to reduce this stay. (25) Only a final court judgment of non-infringement or invalidity can truncate the stay. (26) As Professor Hovenkamp points out, "The effect of this rather remarkable rule is to delay drug price competition for several years even when a patent is clearly invalid, by granting what is akin to an automatic preliminary injunction whenever a pharmaceutical patent owner files suit against a generic manufacturer." (27)

    2. State Drug Substitution Laws

      Around the same time that Hatch-Waxman was passed, all 50 states passed drug substitution laws designed to lower prices for consumers. (28) These laws allow--and in many cases require--pharmacists, in the absence of a doctor's contrary instructions, to substitute generic versions of brand-name prescriptions. (29) State drug substitution laws are designed to address the disconnect in the industry between prescribing doctors, who are not directly responsive to drug pricing, and paying insurers and consumers, who do not directly select the prescribed drug. (30) State drug substitution laws therefore carve out a role for pharmacists, who are much more sensitive to prices than doctors.

      However, the Hatch-Waxman Act and state substitution laws have created a complex regulatory framework with certain loopholes that can enable brand firms to game the system in a way that extends their period of exclusivity, to the detriment of the public and generic rivals. (31) The FDA has neither the mandate nor the power to close these loopholes because it does not consider generic competition concerns when approving new products. (32) One strategy brand firms have turned to is product-hopping, making non-substantial changes to their branded products and taking advantage of the resulting time required for FDA approval to impede generic substitution and exclude competition. (33)

    3. Pharmaceutical Product Hopping

      When brand firms are faced with the possibility of generic competition once a patent expires or is held invalid, they can make trivial alterations to their approved drugs, get FDA approval for those trivial alterations, and then replace the old product with the new product. (34) For example, a brand firm might switch from selling a drug in capsule form to selling the same formulation of the same drug as a tablet. While the change will not matter much to consumers, it can be sufficient to require a generic manufacturer to restart the ANDA filing process, delaying the date of generic entry, and triggering an entirely new round of patent litigation and thirty-month stays. (35)

      Product-hopping is therefore an effort by a brand firm "to manipulate the lag times inherent in the FDA's generic-approval process in a way that, when combined with state drug substitution laws, excludes generic entry and the competition and lower prices that entry would bring." (36) Product-hopping delays generic competition in several ways. First, where the branded drug's patent is still in force, product hopping can prompt a whole new set of litigation-triggered thirty-month stays. (37) Second, by making trivial modifications to its branded product, the brand firm can require its generic rival to start the ANDA process all over...

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