Product hopping: a new framework.

Author:Carrier, Michael A.
Position:III. Judicial and Academic Analysis B. Walgreens: Soft Switch, Simplistic Choice through Conclusion, with footnotes, p. 194-230
  1. Walgreens: Soft Switch, Simplistic Choice

    In particular, such a course was shaped by the second case, Walgreen Co. v. AstraZeneca Pharmaceuticals (Walgreens), which involved AstraZeneca's conversion from heartburn drug Prilosec to Nexium. (132) The plaintiffs alleged that there was "almost no difference" between the drugs and there was "no pharmacodynamic reason" the two forms would have different effects in the body. (133) The plaintiffs also alleged that AstraZeneca "aggressively promoted and 'detailed' Nexium to doctors" while stopping its promotion and detailing of Prilosec. (134) And they claimed that AstraZeneca was able to switch the market (to a drug receiving patent protection for an additional thirteen years) only through "distortion and misdirection in marketing, promoting and detailing Nexium." (135)

    Unlike the court in TriCor, the District of Columbia court ignored the plaintiffs' detailed allegations of the price disconnect in pharmaceutical markets. The court granted AstraZeneca's motion to dismiss, concluding that "there is no allegation that AstraZeneca eliminated any consumer choices." (136) But that conclusion rested on three factual assertions, all of which required the court to ignore the price disconnect. The court asserted as facts that:

    [1] AstraZeneca added choices ... [by] introducing] a new drug to compete with already-established drugs ... [;]

    [2] [D]etermin[ations of] which product among several is superior ... are left to the marketplace [; and]

    [3] New products are not capable of affecting competitors' market share unless consumers prefer the new product. (137)

    Each of those factual assertions contradicted plaintiffs' allegations regarding the price disconnect and its effects. In a price-disconnected market, switching doctors' prescriptions from an original branded product (facing impending generic competition) to a reformulated product (not facing generic competition)--what the court called "add[ing] choices"--significantly impairs consumers' ability to choose a generic product. The "added choice" of the reformulated product is actually the means by which consumers' real choice is eliminated. Moreover, the question is not which product among several is superior, but rather which product offers the consumer the best trade-off between price and quality, a determination that "the marketplace" cannot make in a price-disconnected market. In fact, the switching of the market from the original to the reformulated version certainly is capable of affecting competitors' market shares despite consumers' preferences. The court's contrary assertion ignored not only the plaintiffs' detailed allegations, but also the economic rationale of fifty state DPS statutes and the Hatch-Waxman Act. (138) None of those statutes would be necessary if consumers in fact revealed their preferences through price/quality choices.

    In addressing a soft switch, the court confronted a different scenario than that in TriCor. But the divide between hard and soft switches did not need to be as stark as the court made it. The die was cast, however, when the court articulated an analysis of consumer choice that, even if it would make sense in non-pharmaceutical markets where consumers make the price/quality tradeoff, does not capture the realities of drug markets.

  2. Suboxone: Hard/Soft Switch, Nuanced Analysis

    A third court considered elements of both hard and soft switches in a nuanced analysis of the regulatory regime. In In re Suboxone Antitrust Litigation, (139) the Eastern District of Pennsylvania court considered allegations that Reckitt switched the market from opioid dependence-treating Suboxone tablets to sublingual film. Reckitt allegedly promoted Suboxone film to physicians, disparaged Suboxone tablets, warned of false safety concerns, publicly announced the removal of tablets for these fabricated safety reasons but did not remove the tablets until six months later, and raised the price of tablets in relation to film even though film was more expensive to manufacture and package. (140)

    The court began its analysis by noting that "[b]ecause ordinarily innovation will also inflict harm upon competitors, 'courts should not condemn a product change ... unless they are relatively confident that the conduct in question is anticompetitive.'" (141) But "when the introduction of a new product by a monopolist prevents consumer choice, greater scrutiny is appropriate," (142) with the test (similar to TriCor) for whether conduct is exclusionary based "not [on] total foreclosure, but whether the challenged practices bar a substantial number of rivals or severely restrict the market's ambit." (143)

    The court found that the conduct at issue "seems to fall somewhere between that alleged in" Walgreens and TriCor. (144) The behavior was more concerning than that in Walgreens because Reckitt removed tablets from the market, but less concerning than that in TriCor because Reckitt did not buy back tablets or label an old product "obsolete." (145) The court made clear that "simply introducing a new product on the market, whether it is a superior product or not, does not, by itself, constitute exclusionary conduct." (146) Rather, "[t] he key question is whether the defendant combined the introduction of a new product with some other wrongful conduct, such that the comprehensive effect is likely to stymie competition, prevent consumer choice and reduce the market's ambit." (147) Crucially, "[t] his analysis must be undertaken with the somewhat unique characteristics of the pharmaceutical market in mind." (148)

    Applying this analysis, the court found that "the facts presented sufficiently allege that the disparagement of Suboxone tablets took place alongside 'coercive' measures," as "[t]he threatened removal of the tablets from the market in conjunction with the alleged fabricated safety concerns could plausibly coerce patients and doctors to switch from tablet to film." (149) The court recognized that "Plaintiffs have plausibly alleged that various market forces unique to the pharmaceutical industry make generic substitution the cost-efficient means of competing for companies selling generic pharmaceuticals." (150) In particular, the court noted that the "disconnect" that "exists between the person paying for the prescription and the person selecting the appropriate treatment" led to "the ordinary market forces that would allow consumers to consider price when selecting a product [being] derailed." (151) A patient would not be able to "simply request to receive a generic from his or her pharmacist because the film and the generic tablets are not [bioequivalent] and thus may not be substituted." (152) The court noted but did not rely on the dichotomy between hard and soft switches, instead conducting an analysis rooted in the regulatory framework and ultimately concluding that the plaintiffs "plausibly pleaded exclusionary conduct." (153)

  3. Doryx: Ignored Regulatory Regime

    While the Suboxone court grounded its decision in the regulatory framework, the Third Circuit in Mylan Pharmaceuticals v. Warner Chilcott (Doryx) (154) did not. In that case, Warner Chilcott engaged in an array of behaviors that resembled those of Abbott in TriCor. it stopped selling capsule versions of acne-treating Doryx to wholesalers; removed Doryx capsules from its website; worked with retailers to "auto-reference" the Doryx tablet whenever a doctor filed a Doryx prescription; informed wholesalers, retailers, and dealers that "Doryx Capsules have been replaced by Doryx Tablets;" and bought back and destroyed capsule inventory. (155) Despite allegations of hard switches and lack of economic sense, the court rejected Mylan's claims of anticompetitive conduct, finding that "Mylan was not foreclosed from the market." (156) Even though it found, "viewing the facts in the light most favorable to Mylan, that Defendants had indeed made the Doryx 'hops' primarily to 'delay generic market entry,'" it affirmed summary judgment for the Defendants. (157)

    After concluding that the plaintiff--the competitor generic manufacturer--failed to adduce evidence of monopoly power, (158) the court indicated that it would have affirmed summary judgment on the alternative ground that the plaintiff failed to satisfy its initial burden of introducing evidence of anticompetitive conduct under the Rule of Reason. (159) But the court never explained what it considered to be an anticompetitive effect; nor did it consider whether a substantial reduction in the prescription base available for automatic generic substitution would count. Instead, in direct opposition to the Supreme Court's instruction that the relevant effect is on consumers, not competitors, (160) the court focused exclusively on the effect of Warner Chilcott's conduct on Mylan, the generic competitor, never even mentioning the effect on consumers. (161)

    Regarding the product hops' effects on Mylan (and assuming this were an appropriate inquiry, which it is not), the court offered only a series of non-sequiturs, asserdng that Warner Chilcott's conduct was not anticompetitive because:

    (1) Mylan received a 180-day exclusivity period under the Hatch-Waxman Act (162) (although Mylan's sales at relatively high generic prices are irrelevant to whether Warner Chilcott substantially reduced the number of sales and profits that Mylan would have made absent the product hops);

    (2) Mylan set its generic price higher than the brand price for a period of time (163) (although the court failed to explain the relevance of this fact and did not consider whether the product hop caused Mylan's pricing strategy--a generic unable to distribute its product through automatic substitution might well increase price for the sales it can make);

    (3) Mylan made profits of $146.9 million on the sales of generic Doryx (164) (although that number is meaningless unless compared to the profits that Mylan would have made absent the product...

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