Antitrust Law Daily Mylan's ‘product hopping’ claims properly rejected
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Thursday, September 29, 2016

Mylan's ‘product hopping’ claims properly rejected

By Jeffrey May, J.D.

Generic drug manufacturer Mylan Pharmaceuticals, Inc. did not establish that name-brand drug manufacturers Warner Chilcott and Mayne Pharma violated the antitrust laws through "product hopping," the U.S. Court of Appeals in Philadelphia has ruled. Mylan unsuccessfully alleged that the defendants, in an effort to protect their tetracycline drug "Doryx"—which is used to treat severe acne—made various insignificant product modifications to frustrate Mylan’s efforts to release a generic alternative to the medication. Summary judgment in favor of the defendants was affirmed (Mylan Pharmaceuticals, Inc. v. Warner Chilcott Public Ltd. Co., September 28, 2016, Fuentes, J.).

According to Mylan, changes were made to Doryx that had little or no therapeutic benefit. The modifications, such as switching from capsules to tablets and modifying the scoring on the products that assists in more effective self-dosing at patient-specific levels, were intended to prevent generics from obtaining the benefit of automatic substitution under the Hatch-Waxman Act and various state laws. As a result of the changes, Mylan was allegedly forced to re-enter a cumbersome regulatory approval process in an effort to compete with the latest versions of the drugs.

Monopolization. Mylan did not establish that the defendants had monopoly power or engaged in anticompetitive conduct to support its monopolization or attempted monopolization claims. The appellate court upheld the district court’s determination that Mylan failed to present direct evidence of monopoly power. Mylan offered expert analysis; however, the reports were devoid of any substantiated quantitative analysis showing that the defendants maintained high price-cost margins or markedly restricted output.

Because Mylan did not accurately define the market, it could not show monopoly power through indirect evidence. Mylan argued that the relevant market consisted of generic Doryx and name-brand Doryx and that the defendants maintained 100 percent of sales until generics entered the market. However, the market was much broader and consisted of all oral tetracyclines prescribed to treat acne, according to the appellate court, given the high degree of interchangeability and cross-elasticity demonstrated in the record. In this market, the defendants’ market share was relatively small and never exceeded approximately 18 percent. The court noted that health insurers and other managed care providers encouraged the widespread substitution of numerous other oral tetracyclines for Doryx. Further, as the district court had pointed out, when the defendants increased the price of Doryx, its sales decreased and the sales of other oral tetracyclines increased.

The appellate court also concluded that alleged product hopping strategy was not anticompetitive. "While product hopping under certain circumstances may be viewed as anticompetitive conduct, this is not one of those cases," the appellate court explained.

Mylan was not foreclosed from the market, the appellate court held. Generic companies were free to engineer their own versions of Doryx capsules for more than 20 years, it was noted. "[F]ar from being harmed by Defendants’ product changes, Mylan was advantaged in the generic market by its 180-day exclusivity period and ability to profit generously while raising prices," the court concluded.

The appellate court distinguished the Second Circuit's 2015 decision in New York v. Actavis PLC, known as the Namenda case, which held, in the product hopping context, that "the combination of withdrawing a successful drug from the market and introducing a reformulated version of that drug, which has the dual effect of forcing patients to switch to the new version and impeding generic competition, without a legitimate business justification, violates § 2 of the Sherman Act."

The defendants in the Namenda case attempted to avoid a so-called "patent cliff"—the end of patent exclusivity, corresponding to the brand drug’s loss of market share—by stringing together new periods of patent exclusivity through product changes in order to completely bar generics from entering the market, it was explained. In the current matter, there were no patent cliffs on the horizon, and the evidence demonstrated that there were plenty of other competitors already in the oral tetracycline market. The appellate court warned, however, that it was not ruling out the possibility of liability in future cases involving insignificant design or formula changes, combined with other coercive conduct.

Conspiracy. Because Mylan failed to produce evidence that the defendants’ conduct was anticompetitive for purposes of its Sherman Act, Section 2 claims, summary judgment in favor of the defendants on its Sherman Act, Section 1 claim also was proper. Among other things, in order to state a Section 1 violation, a plaintiff had to prove that concerted action produced anticompetitive effects within the relevant product and geographic markets. Mylan could not meet this element where if failed to prove that the defendants’ product hops were anticompetitive.

The case is No. 15-2236.

Attorneys: Courtney Armour (Wilson Sonsini Goodrich & Rosati) and Joseph M. Donley (Clark Hill PLC) for Mylan Pharmaceuticals Inc. Kevin C. Adam (White & Case LLP) and Leonard A. Gail (Massey & Gail LLP) for Warner Chilcott Public Ltd. Co.

Companies: Mylan Pharmaceuticals Inc.; Warner Chilcott Public Ltd. Co.

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