Product Hopping: Common Considerations
Introduction to Product Hopping
Pharmaceutical manufacturers introduce new and improved versions of drugs as part of their research and development strategy. However, concerns about antitrust violations are raised when manufacturers are alleged to use anticompetitive tactics to stifle generic competition. One allegation with sparse case law and uncertainty in what constitutes anticompetitive behavior is product hopping—the practice of delaying generic competition by releasing new patented pharmaceuticals. Under this strategy, manufacturers allegedly introduce a new or modified version of an original brand-name product that is nearing the end of its exclusivity period. Though the new version has few therapeutic changes, it might include slight modifications in drug formulations or delivery mechanisms. In these cases, manufacturers attempt to switch consumer demand from the original to the new product to prolong market exclusivity and delay generic competition.
Creating new formulations of existing drugs can bring a procompetitive impact. Drugs can be modified in ways that create value for consumers, including changing the active ingredient composition to reduce side effects, creating a longer-lasting product by launching extended or delayed release, or developing a new delivery mechanism (e.g., orals, injectables, transdermal). These changes are costly but can create safer, more convenient, or more effective products. As pharmaceutical companies invest in research and development to bring new treatments to market, they leverage patent protections to recoup costs. The Hatch-Waxman Act provides a period of market exclusivity for new chemical entities of five years after FDA approval, during which no other manufacturer is permitted to sell the drug.
Product hopping is currently a focus of regulators, attorneys, and stakeholders across the pharmaceutical industry. On May 7, 2024, the US District Court of Massachusetts ruled to proceed with a case against Teva Pharmaceuticals, which includes allegations of product hopping to delay generic competition of its asthma inhaler. Teva is alleged to have employed two product hops for its QVAR inhaler. First, in 2014, Teva discontinued its original QVAR inhaler and replaced it with a new version that included a dose counter. This followed 2003 FDA guidance that required all new metered inhalers to include a dose counter, but purportedly did not apply to inhalers already on the market. Plaintiffs allege that a second product hop was employed in 2017, when Teva received FDA approval for QVAR Redihaler, which dispensed the drug upon inhale, and subsequently discontinued the original QVAR. Plaintiffs allege that Teva hampered competition by discontinuing products nearing patent expiration and switching consumers to new products with purportedly insignificant changes.
Previous case law has illuminated the complexities of pharmaceutical patent law but provides insight into the legal standards and delineation between procompetitive innovation and anticompetitive behavior. Using case studies that have shaped the discourse on product hopping, this article analyzes common considerations when questioning whether conduct by a firm with exclusivity constitutes “product hopping” and is in violation of Sections 1 and 2 of the Sherman Act. Recent case law suggests that there are three common considerations: consumer choice available in the market, the type of switch (i.e., “hard” or “soft” switch), and methods of coercion in switching from the original to the new product. These bases of determination are reviewed in the context of prior case law below.
Considerations from Prior Cases
Elimination vs Addition of Consumer Choice: Prilosec and Nexium
Case law suggests that the elimination or addition of consumer choices can be an important determination of whether the switch to a comparable drug is procompetitive or anticompetitive. A manufacturer may be eliminating consumer choice if consumers are forced to switch to a newer product and there are no alternatives available (e.g., the original product was removed from the market before its patent expiry or exclusivity period). However, if the original product was discontinued after generic alternatives have entered the market, replacing it with a newer product may be procompetitive as more products become available in the market.
In 2008, Plaintiffs in Walgreen v. AstraZeneca alleged that AstraZeneca violated of Section 2 of the Sherman Act for its effort to switch patients from Prilosec to its new FDA-approved equivalent, Nexium. In 1981, AstraZeneca obtained a patent for Prilosec, a branded proton-pump inhibitor containing omeprazole used to treat heartburn. AstraZeneca received Food and Drug Administration (FDA) approval in September 1989 and by 1999 Prilosec was producing $4 billion in revenue. AstraZeneca's patent expired in October 2001 and in December 2002, KUDCO launched a generic omeprazole, an equivalent to Prilosec. Additionally, while continuing to offer and market Prilosec, AstraZeneca received FDA approval for an over-the-counter version of prescription Prilosec and was granted market exclusivity through June 2006.
In February 2001, eight months before the expiration of Prilosec's patent, AstraZeneca received FDA approval for Nexium, a branded prescription drug containing esomeprazole also used to treat stomach-acid-related conditions. Its patent allowed AstraZeneca market exclusivity for Nexium until 2014. Upon Nexium's entrance into the market, AstraZeneca switched its marketing and promotion efforts from Prilosec to Nexium. However, AstraZeneca continued to offer Prilosec.
In the complaint, Plaintiffs claimed that AstraZeneca engaged in exclusionary conduct by switching consumers from Prilosec, which had generic competition, to a virtually identical drug, Nexium, which did not. The court, however, granted AstraZeneca's motion to dismiss for failure to state a claim. Plaintiffs maintained AstraZeneca's conduct was exclusionary as Nexium is patent protected and not superior to Prilosec. However, Plaintiffs were unable to show that obtaining patent protection is exclusionary conduct. The court referenced that a “patent is presumptively not a monopoly … [and] is no different than any other property right.” It further cited that “the Patent Act creates a federal right to exclude others from practicing the patent. … As a result, antitrust must tread lightly.”
AstraZeneca contended that its conduct was procompetitive as it launched a new product, in addition to its prescription and over-the-counter Prilosec. The court compared its conduct with cases in which the original drug was withdrawn from the market, which eliminated consumer options. The court found that through the introduction of a new drug to compete with already-established drugs, AstraZeneca had added products to the market. This additional availability of therapeutically equivalent substitute drugs led the court to also reject the Plaintiffs’ argument that Nexium depressed sales to generic Prilosec as generics were still free to compete with Prilosec.
Plaintiffs also argued that AstraZeneca used aggressive promotion and sales efforts to switch prescribers and patients from Prilosec to Nexium, which was an attempt to monopolize the market. The court found that sales persuasion, without false representation or fraud, cannot be considered exclusionary conduct. In granting the Defendant's motion to dismiss, the court reasoned AstraZeneca is allowed “to bathe [its] cause in the best light possible.” Excluding deceptive practices, advertising that highlights strengths and minimizes weakness does not constitute anticompetitive conduct violative of Section 2 of the Sherman Act.
Hard vs Soft Switch: Namenda IR and Namenda XR
Cases have shown that “hard” vs “soft” switches are considered when determining whether an introduction of a new version of an existing product is anticompetitive. A hard switch refers to a situation in which the original product is discontinued, specifically prior to the entrance of generic alternatives, which forces consumers to switch to the new product. Comparatively, a soft switch refers to a situation in which the original product remains on the market. When using a soft switch, manufacturers may encourage consumers to switch to the new product through marketing or discounts.
In 2014, the State of New York filed a claim against Actavis for inhibiting competition through soft and hard switching. In 2004, Actavis launched Namenda IR, an immediate-release branded memantine product to treat Alzheimer's disease taken twice daily. In 2010, the FDA approved Namenda XR, an extended-release version with the same active ingredient that is taken only once daily. Namenda IR was protected under its exclusivity period until July 2015, upon which generic alternatives were permitted to enter the market. The complaint alleged that there were five generic versions of Namenda IR with tentative FDA approval to enter the market in July 2015. As the two products have different strengths, formulations, and dosage regimens—Namenda IR consists of two 10mg immediate-release tablets while Namenda XR is one 28mg extended-release capsule—the generics would only be therapeutically equivalent to Namenda IR, not Namenda XR. As most state drug substitution laws require generics to be therapeutically equivalent, pharmacists are prohibited from dispensing the generic version of Namenda IR when Namenda XR is prescribed.
Actavis initially took on a “soft switch” approach, continuing to sell both Namenda IR and Namenda XR from its entrance in July 2013 through early 2014. During this time, however, Plaintiffs allege that Actavis no longer actively marketed Namenda IR and instead promoted Namenda XR to prescribers and provided discounts and rebates to make it less expensive than Namenda IR. In February 2014, Actavis announced its intention to discontinue Namenda IR. The announced imminent discontinuation of Namenda IR was considered a “hard switch.”
The Second Circuit Court of Appeals ruled that Namenda IR must continue to be offered for 30 days following the entry of generic alternatives. The conclusion was that withdrawing the immediate release before the opportunity for generic alternatives presented a detriment to competition in the generic market. As Namenda IR was removed from the market before prescribers and patients could determine the benefits of the new formulation, Actavis could not argue that the withdrawal of Namenda IR was because the benefits of Namenda XR rendered it obsolete.
Methods of Coercion: Suboxone Tablets and Sublingual Film
In the case of Suboxone, the courts weighed whether the combination of the introduction of a new formulation, in concert with secondary conduct, is anticompetitive. The courts stated that “simply introducing a new product on the market, whether it is a superior product or not, does not, by itself, constitute exclusionary conduct. ”Instead, the focus was on “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 2002, Reckitt Benckiser launched Suboxone, a tablet used to treat opioid addiction. Prior to the end of its exclusivity period and the entrance of generic alternatives, Reckitt introduced an alternative formulation, a sublingual film that dissolves under the tongue. The complaint alleged that Reckitt used coercive measures to shift consumers from the tablet to film. The allegations included claims that Reckitt misrepresented the original Suboxone tablets, warning of false safety concerns and announcing the removal of the tablets from the market, to encourage prescribers to transition to the Suboxone film.
The courts sided with the Plaintiffs, finding that the disparagement of Suboxone tablets constituted a coercive measure that prevented patients from making any real choice between the tablet and the film. The court stated that “[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.” The FTC subsequently obtained settlements from Reckitt and its former US subsidiary Indivior in 2019 and 2020.
Since the passage of the Hatch-Waxman Act, which established the regulatory market exclusivity period and the process for pharmaceutical approval, patent-related antitrust disputes have continued to be a major focus of regulatory bodies, courts, and firms throughout the pharmaceutical supply chain. Although laws governing patent disputes are well developed, product hopping remains a relatively new and emerging set of allegations, with dynamic and uncertain economic and legal frameworks and case law. Paired with a continually evolving pharmaceutical industry, the distinction between beneficial product reformulation and anticompetitive product hopping becomes increasingly complex, warranting a closer examination of the economic effects of tactics that have triggered alleged antitrust violations.
Read this full piece in Bloomberg Law.
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