FTC seeks review of a court ruling on generic drug competition

The US Federal Trade Commission has once again waded into a closely watched legal battle over a tactic that some experts believe is used to illegally thwart generic competition.

A four-year-old case is now lodged in a federal appeals court in Philadelphia where Mylan Pharmaceuticals — and the agency — are urging a review of an example of product hopping. The term is used to describe modest reformulations that are made to a medicine, but without offering any substantive therapeutic advantages.

Generic companies say such moves are a subterfuge designed to extend patents. Brand-name drug makers maintain such improvements are legitimate. In this instance, Warner-Chilcott, which is now owned by Allergan, added a line, or “score,” to its Doryx acne tablets. The company has contended that scoring served a useful consumer purpose by allowing patients to more easily divide their pills.

Mylan, however, has argued in court documents that the move was designed to “obstruct and constrain competition,” since Warner-Chilcott, more than once, scored different strength tablets and then removed older tablets from the market. Mylan contended the maneuvering was done deliberately to delay generic rivals from effectively designing and winning approval for updated, copycat versions.

Product hopping is not illegal, though, and last year, a federal court ruled Mylan failed to prove that Warner-Chilcott employed the tactic in order to hinder competition, which would violate antitrust law. Last July, a federal appeals court panel upheld the ruling. But two weeks ago, Mylan asked the appeals court to review the case, but this time by the entire court, not a three-judge panel.

There is some significance to this behind-the-scenes legal jockeying.

Here’s why: if Mylan wins its case in the Third Circuit Court of Appeals, it will mean two different federal appeals court took the same view toward the extent to which product hopping by brand-name drug makers is anticompetitive and can harm consumers.

Last year, the Second Circuit Court of Appeals sided with the New York State Attorney General that Actavis, which is now Allergan, violated antitrust law by using product hopping to limit competition for its Alzheimer’s pill called Namenda.

On the other hand, if the Third Circuit Court refuses to review — or agrees with — the July panel ruling, there will be a split among appeals courts, which some say would encourage brand-name drug makers to continue to pursue product-hopping tactics with less concern for antitrust violations. Moreover, the Third Circuit — which covers New Jersey, Pennsylvania, and Delaware — typically carries more weight in the pharmaceutical industry because many large drug makers have operations in the jurisdiction.

“If that ruling stands, drug companies can switch from one drug to another, hold off competition, and consumers would pay more as a result,” said Michael Carrier, a Rutgers University School of Law professor, who filed a brief on behalf of the American Antitrust Institute, urging the court to review the ruling and arguing that Warner-Chilcott engaged in anticompetitive behavior.

For its part, the FTC is also urging a review and last week filed its own motion for a full court hearing because the agency wants the appeals court to clarify its views on competition. In its July ruling, the appeals court panel reasoned that generic rivals and consumers were not harmed because “there were plenty of other competitors” already selling tablets to treat acne. In the Namenda case, by contrast, the Second Circuit appeals noted there were no alternatives.

“I think the FTC brief is most concerned with how you analyze pharmaceutical markets,” said Ankur Kapoor, an attorney at the Constantine Cannon law firm who specializes in antitrust law. The panel said “there was no proof that consumers couldn’t get competitive versions or other acne treatments. And if there’s no harm to competition, then it’s not an antitrust violation.”

But whether the Third Circuit Court will agree to a rehearing is uncertain. It’s worth noting that there was no dissent among the three-judge panel. Moreover, a full court rehearing is not typical.

Nonetheless, some remain optimistic. “The panel decision is an outlier,” said David Balto, a former FTC policy director, who last year filed a brief with the Third Circuit court panel on behalf of consumer groups that believe Warner-Chilcott violated antitrust laws. “Previous court decisions suggest that product changes can violate antitrust law if the firm does something to limit generic substitution. This is one of those cases.”