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Recent Suit Includes “Product Hopping” Theory in Pay for Delay Claim

The Pennsylvania Employees Benefit Trust Fund (“PEBTF”) recently filed a purported class-action antitrust complaint relating to the brand name drug Opana ER, an extended-release formulation of a medication used to treat pain and other conditions. The core of PEBTF’s allegations are that the brand manufacturer paid more than $100 million to prevent the launch of a generic version for approximately two and a half years. But PEBTF also alleges that the manufacturer reduced generic competition even further by introducing a crush-resistant version of the drug (which helps prevent abuse) called Opana ER CRF. According to the plaintiff, the manufacturer introduced Opana CRF to induce physicians to stop prescribing the prior product, preventing automatic generic substitution.  Plaintiffs and commentators have labeled that type of conduct “product hopping.”

District courts have previously addressed “product hopping” allegations in the pharmaceutical context. In Abbott Laboratories v. Teva Pharmaceuticals USA Inc., 432 F. Supp. 2d 408 (D. Del. 2006), plaintiffs alleged that on two separate occasions Abbott had reformulated its cholesterol drug TriCor in order to impede generic substitution. Among other things, the plaintiffs alleged that the new formulations provided no benefits over the prior formulations and that after each new formulation was approved, the defendant ceased selling the prior branded version. On a motion to dismiss, the court concluded that a rule of reason analysis should apply to a market where branded products have market power due to patent protection, that removal of the prior formulations from the market impeded consumer choice, and that a factual analysis of the benefits of the new formulations was required in order to determine whether those benefits outweighed anticompetitive concerns. In denying the motion to dismiss, the court ruled that plaintiffs would therefore not be “required to prove that the new formulations were absolutely no better than the prior version or that the only purpose of the innovation was to eliminate the complementary product of a rival.” Similarly, in Mylan Pharmaceuticals Inc. v. Warner Chilcott Public Limited Co., 2013 U.S. Dist. LEXIS 152467 (E.D. Pa. June 12, 2013), the plaintiffs alleged that defendants had reformulated the brand drug Doryx from tablets to capsules in order to impede generic competition and that the new formulation provided little to no benefit to patients. Although the Warner court found defendants’ arguments that the reformulation did not violate the Sherman Act because generic manufacturers remained free to advertise and sell their generic versions of the drug “compelling,” and although it was “skeptical that the ‘product hopping’ alleged here constitutes anticompetitive conduct under the Sherman Act,” the court nonetheless concluded that a definitive ruling would require factual development beyond the pleadings and denied defendants’ motions to dismiss.

Other courts have refused to entertain product hopping claims where the manufacturer did not remove the original formulation from the market. In Walgreen Company v. AstraZeneca Pharmaceuticals L.P., 534 F. Supp. 2d 146 (D.D.C. 2008), plaintiffs alleged that AstraZeneca attempted to switch the market from its branded drug Prilosec to both Nexium (another branded drug) and a new over-the-counter version of Prilosec. The court granted defendants’ motion to dismiss, finding that plaintiffs had failed to allege anticompetitive conduct. Critical to the court’s analysis was the fact that AstraZeneca continued to sell branded Prilosec after the introduction of over-the-counter Prilosec and branded Nexium. The court concluded that rather than eliminating consumer choices, AstraZeneca had added choices by introducing “a new drug to compete with already-established drugs—both its own and others’—and with the generic substitutes for at least one of the established drugs.” The court found no need to evaluate the potential benefits of Nexium over Prilosec and found that AstraZeneca was free to encourage “market switching through sales persuasion” so long as no false representations were made. And in AstraZeneca A.B. v. Mylan Laboratories Inc., 2010 U.S. Dist. LEXIS 50049 (S.D.N.Y. May 19, 2010), the court dismissed antitrust counterclaims related to Prilosec on similar grounds.

Given the lack of appellate guidance regarding product hopping theories, it is difficult to predict how PEBTF’s claims will fare. PEBTF alleges both that the crush-resistant form of Opana provides limited benefits over the prior version (and even alleges that Opana ER CRF may pose safety risks) and that the manufacturer withdrew Opana ER from the market when Opana ER CRF was launched. This appears to place the facts close to those in Abbott, but it is unclear how PEBTF’s claims will be analyzed in a case pending in the Northern District of Illinois. Nonetheless, any ruling in this matter may add to the library of district court cases providing limited guidance about the viability of product hopping theories.