FTC Files Amicus Brief on Antitrust Implications of Minor Pharmaceutical Changes

The FTC submitted an amicus curiae brief asserting that minor, nontherapeutic changes to a pharmaceutical, known as “product hopping” or “product switching,” can be the basis of an antitrust lawsuit. The brief, filed before the Eastern District of Pennsylvania in the case Mylan Pharmaceuticals, Inc. v. Warner Chilcott Public Limited Company, opposes Warner Chilcott’s motion to dismiss the complaint, which alleges a violation of section 2 of the Sherman Act.

Plaintiffs’ Claims

The plaintiffs alleged that Warner Chilcott introduced three successive brand reformulations of the antibacterial drug Doryx that offered little or no apparent medical benefit to consumers and that each reformulation was designed to impede meaningful generic competition and preserve Warner Chilcott’s monopoly profits. The plaintiffs alleged that Warner Chilcott violated section 2 of the Sherman Act by suppressing competition from lower-priced versions of the drug. Warner Chilcott filed a motion to dismiss arguing that product changes or redesigns can never constitute exclusionary conduct.

Product Hopping

In its brief, the FTC explained that bioequivalent generic drugs typically capture over 80 percent of a brand drug’s sales within six months of its market entry. The threat posed to existing brand drugs can incentivize the company facing a dramatic loss of sales to engage in a strategy known as “product switching” or “product hopping”: the brand company makes a minor nontherapeutic change to the brand product and before generic entry, it removes the original product from the marketplace, either directly or indirectly by, for example, recalling the original product or raising its price. This can cause patients and doctors to abandon the original product, and the brand manufacturer can convert existing market demand from the original product to the reformulated product. When the original product is less available or more expensive, doctors will stop writing prescriptions for it, and because a prescription must contain the same dosage and form as the generic for a pharmacist to substitute it, substitution at the pharmacy counter has been eliminated.

Antitrust Implications

The FTC argued that such product changes can violate antitrust laws. Further, the potential for anticompetitive product redesign is particularly acute in the pharmaceutical industry, where the success of a product-switching scheme does not depend on whether consumers prefer the reformulated product or whether it provides any medical benefit. The FTC argued that the plaintiffs stated a plausible antitrust claim and urged the court to deny Warner Chilcott’s motion to dismiss.