Product Hopping, Big Pharma and the High Cost of Prescription Drugs

ATTORNEY: ADAM KURTZ
POMERANTZ MONITOR, MARCH/APRIL 2015

The Monitor has been reporting for years on so-called “pay for delay” schemes used by brand name drug manufacturers to stave off generic competition. Such schemes are subject to antitrust challenge as unlawful restraints of trade, and the Firm has been pursuing such cases vigorously.

Now there is a new scheme, called “product hopping.” In the classic version of this anticompetitive scheme, brand name manufacturers come out with a “new” version of their drug and stop production of the previous version altogether, forcing everyone taking that drug to switch to the new version, even if isn’t any better. The newly introduced drug likely has only minor changes from the existing one (e.g., from tablet to capsule; from immediate to extended release) and does not provide any improvement in its therapeutic benefits. But, since there are no generic competitors for the new version, the brand manufacturer can continue to reap monopoly profits for years to come. By the time a generic of the original formula enters the market, there is no longer a demand for the original brand formula, because it has been discontinued. State laws that require generic substitution do not apply because the new brand drug is slightly different that the original. As a result of a successful product hopping scheme, generic competition—which reduces brand drug prices by about 90%—will be eliminated.

The pushback is beginning against product hopping. Notably, a New York Federal District Court recently granted an injunction stopping a brand name pharmaceutical company, Actavis, from discontinuing sales of its popular Alzheimer drug Namenda IR. The court concluded that the move was an unlawful product hopping scheme intended to switch vulnerable Alzheimer’s patients from the existing Namenda formula, which will face generic competition in 2015, to a newer, slightly different formula, which will not have generic competition until 2029. By removing original Namenda from the market, Actavis would have forced Alzheimer’s patients to switch to the new drug, with all its attendant risks, and would eventually force them to pay billions of dollars more for the new brand name treatment.

New York Attorney General Eric T. Schneiderman successfully brought this antitrust case against Namenda’s manufacturer, Forrest Labs, (now owned by Actavis) alleging that the forced switch to a so-called new and improved version was nothing more than illegal attempt to maintain its $1.6 billion Namenda monopoly even after its patent expires. According to Schneiderman, “[a] drug company manipulating vulnerable patients and forcing physicians to alter treatment plans unnecessarily, simply to protect corporate profits, is unethical and illegal.” The federal district court agreed, although this decision is now on an expedited appeal before the United States Court of Appeals. Oral argument on the appeal is scheduled for April 13, 2015.

In the Namenda case, the brand drug company not only introduced a new once-a-day (extended release) capsule, but also announced that it intended to stop selling its original twice-a-day (instant release) tablet, which was soon to face generic competition. There is no therapeutic difference between the two formulations.

As another court defined the issue last year, “although the issue of product-hopping is relatively novel, what is clear from the case law is that simply introducing a new product on the market, whether it is a superior product or not, does not, by itself, constitute exclusionary [antitrust] conduct. The 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.”

In particular, courts have increasingly found that where the brand drug company not only introduces a new drug version but also removes the original version of the drug from the market, it violates the antitrust laws. In cases involving the drugs Tricor and Doryx, the manufacturers introduced new versions of the drugs; stopped sales of the original versions; and removed unused inventory of the original formula from the market. In addition, in Tricor, the company changed the code for the original drug to ‘obsolete’ on an industry-wide database, which prevented pharmacies from filling Tricor prescriptions with a generic. In both cases, defendants’ exclusionary conduct restricted consumer choice. In the end, Tricor settled for in excess of $250 million, while Doryx is still pending.

More recently, In re Suboxone Antitrust Litig., allegations of another product hopping scheme were found sufficient to state an antitrust cause of action were the brand drug company not only introduced a new film version of the drug but made false safety claims about the original tablet version and threatened to remove the original version from the market. The court found that the “[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.”

Pomerantz’s antitrust attorneys have been at the forefront of challenging anticompetitive conduct by pharmaceutical companies that seeks to block generic drugs, including product hopping schemes, pay-for-delay agreements and overall anticompetitive conspiracies that combine the two.