This paper – which you can find here – looks at a specific type of obstacle to generic entry: refusals by originators to share samples of branded medicines.
As is often the case in this sector, this practice takes advantage of the existing regulatory scheme, in this case in the US. This strategy involves risk-management programs known as Risk Evaluation and Mitigation Strategies (“REMS”). Pursuant to legislation, REMS are required when a drug’s risks (such as death or injury) outweigh its rewards. According to the author, brands have used this regime, intended to bring drugs to the market, to block generic competition.
The paper is structured as follows:
- Part I provides a background on REMS, offering a history and overview of these programs before examining the concerns they raise regarding blocking generic entry. The FDA has defined REMS as “required risk management plans that use risk minimization strategies beyond the professional labeling to ensure that the benefits of certain prescription drugs outweigh their risks.”
The relevance of REMS to generic entry is, in short, that generic firms must have access to samples of brand drugs to engage in bioequivalence testing. Such testing requires the generic applicant to have “access to a sufficient quantity” of the brand drug “to conduct the necessary comparisons” between the two. Typically, generics can acquire samples from distributors or wholesalers. However, REMS often include “provisions barring distributors and wholesalers from selling the drug to entities without approval under the REMS,” which result in generics “turn[ing] to the branded manufacturers themselves to supply the drug samples directly.” When the brands then deny samples, the generics have no recourse and are unable to conduct bioequivalence tests, and hence to enter the market.
- Part II presents the case law on the topic, which is still developing. The author identifies a limited number of cases, and concludes that: “courts in four of the five cases addressing a refusal to provide samples for generic testing denied motions to dismiss, allowing the case to proceed. In contrast, the two cases involving a shared REMS program rejected antitrust liability for standalone claims, with one acknowledging potential liability as part of an overall course of conduct”.
- Part III outlines the relevant antitrust framework for the most appropriate theory of harm: a monopolization claim under Section 2 of the Sherman Act. Under this section, in order to be liable for illegal monopolization a company not only must have monopoly power but also must engage in exclusionary conduct. On the one hand: “The Supreme Court has held that a market can consist of a single product and courts have held that a single brand drug can constitute its own relevant market, which has led naturally to the conclusion of monopoly power.” On the other: “Courts have explained that generally, monopolists do not have a duty to deal with competitors (…) But the [Supreme Court also explained that] [u]nder certain circumstances, a refusal to cooperate with rivals can constitute anticompetitive conduct and violate [Section] 2.”.
In contemplating tests for exclusionary conduct, one conservative approach that has been employed is the “no economic sense test.” The no-economic-sense inquiry offers an economic test to determine whether the monopolist’s sole motive is to impair competition. If a firm undertakes conduct that makes no economic sense – e.g. foregoing short term profits for the purpose of achieving an anticompetitive end – its “anticompetitive intent” can be “unambiguously . . . inferred.”
- Part IV then applies this new antitrust framework. This section purports to show how the denial of samples and failure to participate in shared REMS programs each can violate antitrust law because they tend to lack economic sense other than by harming generic competition.
This section begins with an analysis of whether monopoly power exists, and concludes that this is unlikely to prove problematic. It then moves to look at the relevance of the regulatory framework, pointing out that it is designed to facilitate generic entry. However, as regards samples the regulatory regime is clearly not operating as intended – in effect, it is being used to prevent entry of generics – and there is no obvious non-legislative solution. Hence: “The regulatory regime, ineffectively enforced, opens the door for antitrust. And that regime is well-equipped to analyze behavior so extreme that it fails even the conservative, defendant-friendly, no-economic-sense test.”
Regarding exclusionary behaviour: “Most fundamentally, the refusal to provide REMS samples to generics makes no economic sense other than by harming generics. (…) it is clear that generics are willing to buy samples from brands and, in every reported instance, pay at least a profitable market rate. This situates the denials comfortably in the range of facts in which courts have found liability because of a refusal to accept a retail price.”
Another type of harm arises in the context of shared REMS programs, which may be required by the FDA and to which an alignment of brand and generic programs is crucial. Despite this need for coordination, on several occasions brands have delayed generic entry by failing to negotiate in good faith, claiming that generics “remain free at all times to develop their own REMS program”, or that their REMS program is confidential or protected by intellectual property rights. While this is not as obvious an antitrust harm as refusal to share samples, “in certain cases, the brand’s refusal to negotiate in good faith will run afoul of the no-economic-sense test.”
- Part V refutes the four justifications on which brand firms have most frequently relied in court thus far:
- There is no duty to deal – as described above, “While there might not be a general duty in many contexts, the unique pharmaceutical regulatory setting, when combined with conduct that fails the no-economic-sense test, suggests an exception for REMS behaviour”.
- A refusal-to-deal claim requires a prior course of dealing between the parties – this would indeed seem to be the rule developed in Trinko. The author argues that “[a] careful reading of the case law, however, reveals that a prior course of dealing is not a prerequisite for a refusal-to-deal claim”.
- Safety – Brands have stated that their denials are justified because of safety concerns. According to the author: “brands’ concerns that a generic’s use of samples automatically poses a heightened risk for which they would be responsible are misplaced. Use does not occur in a vacuum. The FDA ensures the safety of not only brand drugs but also generics. The agency tightly regulates the use of samples, including through clinical trials.”
- Product liability – brand companies argue that, under the failure to warn doctrine, they could be held liable for the products provided to generics. However, granting “generic access to samples during the patent term is an essential aspect of the regime, allowing generics to avoid replicating clinical studies. Allowing brands to deny samples based on product-liability (or safety) justifications would undermine the carefully balanced tradeoff between competition and innovation” set out in the statutory regime.
This is a very detailed article that identifies a new antitrust harm and explains in detail how a certain conduct infringes competition rules (even if one may think that the argument is a bit one-sided). For my purposes, I think it suffices to point out how this antitrust harm is specific to the US because – as is typical of antitrust enforcement in regulated sectors – the relevant conduct consists of an attempt to manipulate the (US) regulatory framework.