Volume 92 | Issue 1
`
`11-2016
`
`Notre Dame Law Review
`
`Article 4
`
`Product Hopping: A New Framework
`
`Michael A. Carrier
`Rutgers Law School
`
`Steve D. Shadowen
`Hilliard & Shadowen LLP
`
`Follow this and additional works at: http://scholarship.law.nd.edu/ndlr
`Part of the Antitrust and Trade Regulation Commons, and the Intellectual Property Law
`Commons
`
`Recommended Citation
`92 Notre Dame L. Rev. 167
`
`This Article is brought to you for free and open access by the Notre Dame Law Review at NDLScholarship. It has been accepted for inclusion in Notre
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`Exhibit 1068
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`PRODUCT HOPPING: A NEW FRAMEWORK
`
`Michael A. Carrier* & Steve D. Shadowen**
`
`ABSTRACT
`
`One of the most misunderstood and anticompetitive business behaviors in today’s economy
`is “product hopping,” which occurs when a brand-name pharmaceutical company switches from
`one version of a drug to another. These switches, benign in appearance but not necessarily in
`effect, can significantly decrease consumer welfare, impairing competition from generic drugs to
`an extent that greatly exceeds any gains from the “improved” branded product.
`The antitrust analysis of product hopping is nuanced. It implicates the intersection of
`antitrust law, patent law, the Hatch-Waxman Act, and state drug product selection laws. In
`fact, the behavior is even more complex because it occurs in uniquely complicated markets charac-
`terized by doctors who choose the product but don’t pay for it, and consumers who buy the product
`but don’t choose it.
`It is thus unsurprising that courts have offered inconsistent approaches to product hopping.
`They have paid varying levels of attention to the regulatory structure, offered a simplistic analysis
`of consumer choice, adopted an underinclusive antitrust standard based on coercion, and
`focused on whether the brand firm removed the original drug from the market.
`Entering this morass, we offer a new framework that courts, government enforcers, plain-
`tiffs, and manufacturers can employ to analyze product hopping. This rigorous and balanced
`framework is the first to incorporate the economic characteristics of the pharmaceutical industry.
`For starters, it defines a “product hop” to include only those instances in which the brand manu-
`facturer (1) reformulates the product in a way that makes the generic non-substitutable and (2)
`encourages doctors to write prescriptions for the reformulated product rather than the original.
`The test also offers two safe harbors, which are more deferential than current caselaw, to ensure
`that the vast majority of reformulations will not be subject to antitrust scrutiny.
`The analysis then examines whether a brand’s product hop passes the “no-economic-sense”
`test. In other words, would the reformulation make economic sense for the brand if it did not
`have the effect of impairing generic competition? Merely introducing new products would pass
`the test. Encouraging doctors to write prescriptions for the reformulated rather than the original
`product—“cannibalizing” the brand’s own sales—might not. Imposing antitrust liability on
`behavior that does not make business sense other than through its impairment of generic competi-
`
`© 2016 Michael A. Carrier & Steve D. Shadowen. Individuals and nonprofit
`institutions may reproduce and distribute copies of this Article in any format at or below
`cost, for educational purposes, so long as each copy identifies the author, provides a
`citation to the Notre Dame Law Review, and includes this provision in the copyright notice.
`* Distinguished Professor, Rutgers Law School.
`**
`Founding partner of Hilliard & Shadowen LLP. Counsel for direct-purchaser
`plaintiffs in the TriCor, Walgreens, and Doryx cases and counsel for end-payor plaintiffs in
`the Suboxone case. We thank Kent Bernard, Scott Hemphill, Herb Hovenkamp, Mark
`Lemley, Christopher Leslie, David Sorensen, and participants in the Michigan Law School
`Intellectual Property Workshop for helpful comments.
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`tion offers a conservative approach and minimizes “false positives” in which courts erroneously
`find liability. Showing just how far the courts have veered from justified economic analysis, the
`test would recommend a different analysis than that used in each of the five product-hopping
`cases that have been litigated to date, and a different outcome in two of them.
`By carefully considering the regulatory environment, practicalities of prescription drug mar-
`kets, manufacturers’ desire for clear-cut rules, and consumers’ needs for a rule that promotes price
`competition without deterring valued innovations, the framework promises to improve and stand-
`ardize the antitrust analysis of product hopping.
`
`INTRODUCTION
`
`One of the most misunderstood and anticompetitive business behaviors
`in today’s economy is “product hopping.” A brand-name pharmaceutical
`company switches from one version of a drug (say, capsule) to another (say,
`tablet). The concern with this conduct is that some of these switches can
`significantly decrease consumer welfare, impairing competition from generic
`drugs to an extent that greatly exceeds any gains from the “improved”
`branded product.
`The antitrust analysis of product hopping is nuanced. It implicates the
`intersection of antitrust law, patent law, the Hatch-Waxman Act, and state
`drug product selection laws. In fact, the behavior is even more complex
`because it involves uniquely complicated markets characterized by buyers
`(insurance companies, patients) who are different from the decisionmakers
`(physicians).
`It thus should not be a surprise that courts have offered inconsistent
`approaches to product hopping. Some have emphasized the regulatory
`structure while others have ignored it. Some have offered a simplistic analy-
`sis of consumer choice, while others have adopted an underinclusive test
`based on coercion. Nearly all have focused on whether the brand firm
`removed the original drug from the market (a “hard switch”) or left it on the
`market (a “soft switch”).
`Entering this morass, we offer a new framework that courts, government
`enforcers, plaintiffs, and manufacturers can employ to analyze product hop-
`ping. The framework, which is balanced and rigorous, is the first to incorpo-
`rate the characteristics of the pharmaceutical industry. For starters, it defines
`a “product hop” to include only those instances in which the brand
`manufacturer:
`(1) reformulates the product in a way that makes the generic non-substi-
`tutable; and
`(2) encourages doctors to write prescriptions for the reformulated
`product rather than the original.
`This definition excludes many product reformulations, such as those in
`which the brand manufacturer does not “cannibalize”1 sales of the original
`
`1 “Cannibalize” is an industry term loosely defined as the brand manufacturer’s mar-
`keting against its own original product to encourage doctors to switch their prescriptions
`to the reformulated product. See Steve D. Shadowen et al., Anticompetitive Product Changes
`in the Pharmaceutical Industry, 41 RUTGERS L.J. 1, 44–45 (2009).
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`product. It also avoids targeting brand reformulations designed to improve
`the product by competing with other brands or growing the market, reserv-
`ing its focus for the switching of the market in order to stifle generic
`competition.
`Where the brand’s conduct does not satisfy both elements of a product
`hop, it is not subject to antitrust scrutiny. And when the conduct does meet
`both elements, our framework offers two stages of analysis. First, we propose
`two safe harbors that are more deferential than current caselaw and that
`ensure that the vast majority of reformulations will not face antitrust review.
`And second, for reformulations that are product hops and are outside
`the safe harbors, the framework examines whether the hop passes the “no-
`economic-sense” test. In other words, would the product hop make eco-
`nomic sense for the brand if the hop did not have the effect of impairing
`generic competition? Merely introducing new products would pass the test
`(indeed, would not even constitute a product hop). Encouraging doctors to
`write prescriptions for the reformulated rather than the original product—
`cannibalizing the brand’s own sales—might not. Imposing antitrust liability
`on behavior that does not make business sense—other than through its
`impairment of generic competition—offers a conservative approach and
`minimizes “false positives” in which courts erroneously find liability. In fact,
`our framework offers manufacturers three opportunities to sidestep antitrust
`liability: (1) avoid our definition of “product hop”; (2) be covered by one of
`the safe harbors; or (3) undertake conduct that makes economic sense.
`Showing just how far the courts have veered from justified economic analysis,
`the test would recommend a different analysis than that used in each of the
`five product-hopping cases that have been litigated to date, and a different
`outcome in two of them.
`By carefully considering the regulatory environment, realities of pre-
`scription drug markets, manufacturers’ desire for clear-cut rules, and con-
`sumers’ needs for a rule that promotes price competition without deterring
`valued innovations, the framework promises to improve the antitrust analysis
`of product hopping.
`Part I offers a background on product hopping. Section A categorizes
`various types of reformulations. Sections B and C address the relevant regu-
`lations: the Hatch-Waxman Act and state substitution laws. Section D then
`focuses on the crucial element of timing, explaining how generic entry
`before a brand reformulates a drug dramatically reduces price.
`Part II highlights the market failure that is unique to the pharmaceutical
`industry. Section A describes the “price disconnect” that distinguishes pre-
`scription drugs from other products and that separates the consumer’s
`price/quality determination that is unified in other markets. Section B ana-
`lyzes drug patents, emphasizing the limited role of the patent system and, in
`particular, the lack of a requirement of a medical improvement over earlier
`versions. Part C then provides several indicia of market failure based on
`medical evidence, the price of patented drugs in Mexico, U.S. prices before
`prescriptions were required, and lower prices in countries that have solved
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`the price disconnect. Given the absence of these measures in the United
`States, Part D highlights the importance of antitrust law.
`Part III examines the five judicial analyses of product hopping. Section
`A begins with TriCor, in which the court offered a nuanced analysis, albeit
`one that some later courts limited to “hard switches,” i.e., those in which the
`brand withdraws the original product from the market. Section B covers the
`Walgreens case, which offered a simplistic analysis of consumer choice in the
`context of a “soft switch” in which the brand did not withdraw the original
`product from the market. The first two product-hopping decisions, TriCor
`and Walgreens, framed the analysis for later decisions, with some courts
`assuming that hard switches could violate the antitrust laws but soft switches
`could not.
`The Suboxone case addressed in Section C revealed aspects of both hard
`and soft switches, with the court offering a nuanced understanding of the
`regulatory regime. The Doryx case covered in Section D, in contrast, is an
`outlier that neglected the regime altogether. Section E then focuses on
`Namenda, which considered the regulatory regime in the context of hard
`switches, offering an underinclusive framework based on coercion. While
`the courts generally have considered the regulatory regime, Section F dis-
`cusses the recent work of scholars that have paid less attention to this impor-
`tant issue.
`Part IV then presents a new framework for courts to analyze the antitrust
`implications of product hopping. Section A begins with two safe harbors that
`brand firms can use if they implement the product hop (1) outside a
`“Generic Window” in which generic entry is expected or (2) after a generic
`version of the original drug has entered the market. If the product hop
`occurs during one of these windows, it will be immune from antitrust liability.
`For product hops subject to antitrust scrutiny, Section B introduces a test
`based on whether the hop would make business sense for the brand manu-
`facturer if it did not have the effect of impairing generic competition. Courts
`and commentators have advocated a no-economic-sense test in other areas,
`but the test remarkably has not been employed in a setting tailor-made for it.
`If a brand acquires or maintains monopoly power by engaging in product
`hopping that fails the no-economic-sense test, courts should find it liable for
`illegal monopolization since the behavior makes no sense other than by sti-
`fling generic competition.
`Through the application of the no-economic-sense test, we show the
`errors of courts that have treated as outcome-determinative the distinction
`between hard and soft switches. In particular, a brand might be anticompeti-
`tively undertaking actions that make no economic sense not only when it
`makes a hard switch and withdraws the original product from the market, but
`also when it makes a soft switch, leaving the original drug on the market but
`reformulating the product and “cannibalizing” it (switching sales to the new
`version), for example by denigrating, misrepresenting features of, increasing
`the price of, or pulling the marketing and promotion from, its original
`product.
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`Part V then applies the new framework to the five product-hopping cases
`presented in Part III. It supports the conclusions of potential liability in
`TriCor, Suboxone, and Namenda, albeit on the different ground of the no-eco-
`nomic-sense test. And it suggests a different outcome from that in the Wal-
`greens and Doryx cases on the ground, again, that the product hop lacked
`economic sense except for its impairment of generic competition. The fact
`that judicial analysis would be so different under the defendant-friendly no-
`economic-sense test shows just how far the courts have veered from justified
`economic analysis.
`
`I. PRODUCT HOPPING
`
`Product hopping, which is also known as “evergreening” or “line exten-
`sion,” refers to “a drug company’s reformulation of its product”2 and encour-
`agement of doctors to prescribe the reformulated, rather than original,
`product. Under our definition, a brand manufacturer engages in a “product
`hop” by combining two actions:
`(1) reformulating the product in a way that makes a generic version of
`the original product not substitutable; and
`(2) encouraging doctors to write prescriptions for the reformulated
`rather than the original product, i.e., switching the prescription base from
`the original to the reformulated product.
`This definition of product hopping does not include any instance in
`which the manufacturer promotes the original and reformulated products
`equally and without encouraging doctors to switch to the reformulated prod-
`uct. For example, brands often, without reducing their promotion of the
`original version, introduce modestly adjusted versions of their products to fill
`out a product line or satisfy demand for a particular formulation or delivery
`mechanism. In contrast, our definition of a product hop is limited to the
`brand’s switch of the prescription base to a reformulated product for which
`the generic is not substitutable. Limiting potential antitrust liability to
`instances in which the brand switches the prescription base is crucial: our test
`does not target rational brand efforts to expand the prescription base by com-
`peting with other branded products or growing the market. The test instead
`identifies and targets a brand’s efforts to migrate the base in order to impair
`generic competition.3
`
`2 Michael A. Carrier, A Real-World Analysis of Pharmaceutical Settlements: The Missing
`Dimension of Product Hopping, 62 FLA. L. REV. 1009, 1016 (2010).
`3 The generic-impairing product switches are particularly concerning given the “price
`disconnect” between buyers and decisionmakers discussed below. See infra Section II.A
`and text preceding Section IV.A. From a policy and regulatory perspective, the act of
`switching the prescription base raises anticompetitive concerns in threatening the generic-
`promoting goals of the Hatch-Waxman Act and state drug product substitution laws, see
`infra Sections I.B, I.C, through a switch to a reformulation for which a generic cannot be
`substituted. And that conduct lacks any innovation-based justifications because the brand
`does not build up the prescription base by competing with other brands or expanding the
`market, but merely leverages already-gained power solely by blocking generic entry.
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`There are several types of reformulations, which Section A catalogs. Sec-
`tions B and C introduce the foundations of the regulatory regime: the Hatch-
`Waxman Act and state substitution laws. Section D then focuses on a crucial
`element of pharmaceutical competition: the timing of the brand’s reformula-
`tion in relation to generic entry.
`
`A.
`
`Forms of Product Hopping
`
`Product hopping occurs through one (or more than one) of several
`types of reformulations. One category involves new forms, which consist of
`switches from a capsule, tablet, injectable, solution, suspension, or syrup to
`another form, such as any of the above, as well as extended-release capsules
`or tablets, orally dissolving tablets, and chewable tablets.4 For example, the
`makers of antidepressant Prozac and cholesterol treatment TriCor switched
`from capsule to tablet form, while anxiety-treating Buspar was switched from
`tablet to capsule.5
`A second type of reformulation involves changing molecule parts
`(known as “moieties”) by adding or removing compounds. More technically,
`a manufacturer can switch from a mix of two enantiomers (one of a pair of
`chemical compounds that has a mirror image6) to a single enantiomer. For
`example, and foreshadowing the change discussed below from heartburn-
`treating Prilosec to Nexium, a manufacturer can “switch from a chemical
`compound that is an equal mixture of each enantiomer, only one of which
`contains the active ingredient, to a compound that includes only the enanti-
`omer that contains the active ingredient.”7 Chemical changes also explain
`the switches from allergy medication Claritin to Clarinex, antidepressant
`Celexa to Lexapro, and heartburn medication Prevacid to Kapidex.8
`A third category of reformulation involves a combination of two or more
`drug compositions that had previously been marketed separately.9 Combina-
`tions have involved migraine-treatment Treximet (combining Imitrex and
`Naproxen Sodium) and high-blood-pressure medications Azor (Norvasc and
`Benicar), Caduet (Norvasc and Lipitor), and Exforge (Norvasc and
`Diovan).10
`
`4 Shadowen et al., supra note 1, at 24.
`Id. at 37.
`5
`6 Enantiomer, MERRIAM-WEBSTER, http://www.merriam-webster.com/dictionary/enan-
`tiomer (last visited Oct. 22, 2016).
`7 Shadowen et al., supra note 1, at 24; see also id. at 25 (also including changes to
`molecules already on the market resulting in “new esters, new salts, or other non-covalent
`derivatives”); infra Section III.B.
`8 Shadowen et al., supra note 1, at 38.
`Id. at 25.
`9
`Id. at 38–41.
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`B. Hatch-Waxman Act
`
`A crucial element of the regulatory framework forming the backdrop of
`product hopping is the Hatch-Waxman Act, enacted by Congress in 1984 to
`increase generic competition and foster innovation in the pharmaceutical
`industry.11
`The Act promoted generic competition by creating a new process for
`obtaining U.S. Food and Drug Administration (FDA) approval, encouraging
`generics to challenge invalid or noninfringed patents by introducing a 180-
`day period of marketing exclusivity for the first generic to do so, and resusci-
`tating a defense that allowed generics to experiment on a brand drug during
`the patent term.12 The drafters of the Act sought to ensure the provision of
`“low-cost, generic drugs for millions of Americans”13 and recognized that
`generic competition would save consumers, as well as the federal govern-
`ment, millions of dollars each year.14
`One central goal of the Act was to expedite generic competition.15
`Generic drugs are very similar to patented brand drugs, having the same
`active
`ingredients, dosage, administration, performance, and safety.16
`Despite this equivalence, however, generic manufacturers were required,
`before the Act, to demonstrate safety and effectiveness by engaging in
`lengthy and expensive trials. They could not begin the process during the
`patent term since the FDA approval process took several years17 and the
`required tests constituted infringement.18 Generics thus waited until the end
`of the term to begin these activities. As a result, they were not able to enter
`the market until two or three years after the patent’s expiration. At the time
`of the Hatch-Waxman Act, there were roughly 150 drugs for which the patent
`term had lapsed but there was no generic on the market.19
`In the Act, Congress encouraged competition through several mecha-
`nisms. First, it allowed generics to experiment on the drug during the patent
`
`11 Drug Price Competition and Patent Term Restoration Act of 1984, Pub. L. No. 98-
`417, 98 Stat. 1585 (codified as amended in scattered sections of 15, 21, 28, 35 U.S.C.).
`12 Michael A. Carrier, Unsettling Drug Patent Settlements: A Framework for Presumptive Ille-
`gality, 108 MICH. L. REV. 37, 42–43 (2009).
`13 130 CONG. REC. 24,410, 24,427 (1984) (statement of Rep. Waxman).
`Id. at 24,456 (statement of Rep. Minish).
`14
`15 For an overview of the mechanisms employed to carry out the other primary goal,
`fostering innovation, see Carrier, supra note 12, at 43–45 (discussing patent term exten-
`sions, non-patent market exclusivity, and an automatic 30-month stay of FDA approval of
`generics).
`16 Generic Drugs: Questions and Answers, FOOD & DRUG ADMIN., http://www.fda.gov/
`Drugs/ResourcesForYou/Consumers/QuestionsAnswers/ucm100100.htm (last updated
`Jan. 7, 2015).
`17 CONG. BUDGET OFFICE, HOW INCREASED COMPETITION FROM GENERIC DRUGS HAS
`AFFECTED PRICES AND RETURNS IN THE PHARMACEUTICAL INDUSTRY 38 (1998).
`Id. at 3.
`18
`See H.R. REP. NO. 98-857, pt. 1, at 17 (1984), as reprinted in 1984 U.S.C.C.A.N. 2647,
`19
`2650.
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`term.20 Along these lines, the legislature exempted from infringement the
`manufacturing, use, or sale of a patented invention for uses “reasonably
`related to the development and submission of information” under a federal
`law regulating drugs’ manufacture, use, or sale.21
`Second, the Act provided 180 days of marketing exclusivity to the first
`generic to challenge a brand’s patent or claim that it did not infringe the
`patent.22 This exclusivity “was reserved for the first generic firm—known as a
`‘Paragraph IV filer’—that sought to enter during the patent term.”23 During
`the 180-day period, which begins after the drug’s first commercial marketing,
`the FDA is not able to approve other generic applications for the same
`product.24
`Third, and most relevant for our purposes, Congress created a new pro-
`cess for generics to obtain FDA approval. Before the Act, generic firms that
`offered identical products to approved drugs were required to prove safety
`and efficacy.25 In fact, one reason that generics decided not to bring drugs
`to the market after the expiration of a patent was the time and expense
`involved in replicating clinical studies.26 The Act created a new type of drug
`application, called an Abbreviated New Drug Application (ANDA), through
`which generics could rely on brands’ safety and effectiveness studies, thereby
`avoiding the need to engage in lengthy and expensive preclinical or clinical
`studies.27
`In short, faced with the problem of insufficient generic entry and high
`drug prices, Congress enacted legislation that introduced several industry-
`shaping mechanisms to encourage generic entry.
`
`20 35 U.S.C. § 271(e)(1) (2012).
`Id. For an elaboration on this discussion, see Carrier, supra note 2, at 1013, from
`21
`which this passage draws.
`22 21 U.S.C. § 355(j)(5)(B)(iv) (2012). Three other patent certifications apply if the
`drug is not patented, the patent has expired, or the generic agrees it will not seek approval
`until the patent expires. 21 U.S.C. § 355(j)(2)(A)(vii).
`23 21 U.S.C. § 355(j)(5)(B)(iv).
`24 Carrier, supra note 2, at 1014; see also FED. TRADE COMM’N, GENERIC DRUG ENTRY
`PRIOR TO PATENT EXPIRATION: AN FTC STUDY 7 (2002) [hereinafter FTC, GENERIC DRUG
`STUDY], https://www.ftc.gov/sites/default/files/documents/reports/generic-drug-entry-
`prior-patent-expiration-ftc-study/genericdrugstudy_0.pdf. Until amended in 2003, the
`Hatch-Waxman Act included as a second trigger for the 180-day period a court decision
`finding invalidity or lack of infringement. Colleen Kelly, Note, The Balance Between Innova-
`tion and Competition: The Hatch-Waxman Act, the 2003 Amendments, and Beyond, 66 FOOD &
`DRUG L.J. 417, 439–40 (2011).
`25 Elizabeth Stotland Weiswasser & Scott D. Danzis, The Hatch-Waxman Act: History,
`Structure, and Legacy, 71 ANTITRUST L.J. 585, 588 (2003).
`See id.
`26
`27 FTC, GENERIC DRUG STUDY, supra note 24, at 5. For an elaboration on this discus-
`sion, see Carrier, supra note 2, at 1013, from which this passage draws.
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`C.
`
`State Drug Product Selection Laws
`
`States have also made it easier for generics to reach the market through
`their enactment of drug product selection (DPS) laws. Such laws, in effect in
`all fifty states today, are designed to lower consumer prices.28 The laws allow
`(and in some cases require) pharmacists—absent a doctor’s contrary instruc-
`tions—to fill prescriptions for brand-name drugs with generic versions.29
`States enacted DPS laws to address the price disconnect in the industry,
`described in detail below,30 between doctors, who prescribe a drug but are
`not directly responsive to drug pricing, and insurers and consumers, who pay
`but do not directly select a prescribed drug.31 In particular, the laws ensure
`an important role for pharmacists, who are more price-sensitive than doc-
`tors.32 Doctors are subject to “a vast array of drug promotion, which includes
`detailing (sales calls to doctor’s offices), direct mailings, free drug samples,
`medical journal advertising, sponsored continuing medical education pro-
`grams, and media advertising.”33 Pharmacists, in contrast, make greater mar-
`gins on generics and recommend them to consumers,34 competing with
`other pharmacies on price.35
`The DPS laws “typically allow pharmacists to substitute generic versions
`of brand drugs only if they are ‘AB-rated’ by the FDA.”36 This is solely a
`safety regulation, unconcerned with and unresponsive to the requirement’s
`effect on competition. For a generic drug to receive an AB rating, it must be
`“therapeutically equivalent” to the brand drug, which means that it “has the
`same active ingredient, form, dosage, strength, and safety and efficacy pro-
`file.”37 The drug also must be “bioequivalent,” which means “the rate and
`extent of absorption in the body is roughly equivalent to the brand drug.”38
`
`See, e.g., Norman V. Carroll et al., The Effects of Differences in State Drug Product Selection
`28
`Laws on Pharmacists’ Substitution Behavior, 25 MED. CARE 1069 (1987).
`29 Carrier, supra note 2, at 1017.
`See infra Section II.A.
`30
`31 BUREAU OF CONSUMER PROT., DRUG PRODUCT SELECTION: STAFF REPORT TO THE FED-
`ERAL TRADE COMMISSION 2–3 (1979); see also In re Schering-Plough Corp., 136 F.T.C. 956,
`985 (2003) (“The underlying premise of these [DPS] laws . . . is that generic competition
`has the potential to lower prices,” and “these regulations need to be accepted as real mar-
`ket factors in an antitrust analysis.”).
`32 ALISON MASSON & ROBERT L. STEINER, GENERIC SUBSTITUTION AND PRESCRIPTION
`DRUG PRICES: ECONOMIC EFFECTS OF STATE DRUG PRODUCT SELECTION LAWS 7 (1985).
`33 STUART O. SCHWEITZER, PHARMACEUTICAL ECONOMICS AND POLICY 87–93 (2d ed.
`2007). For an elaboration on this discussion, see Carrier, supra note 2, at 1017, from which
`this passage draws.
`34 Shadowen et al., supra note 1, at 16.
`35 MASSON & STEINER, supra note 32, at 7; see generally Carrier, supra note 2, at 1017–18.
`36 Carrier, supra note 2, at 1018.
`37 Orange Book Preface: Approved Drug Products with Therapeutic Equivalence Evaluations,
`CTR. FOR DRUG EVALUATION & RESEARCH, FOOD & DRUG ADMIN., http://www.fda.gov/
`drugs/developmentapprovalprocess/ucm079068.htm (36th ed. last updated June 10,
`2016).
`See id. For an elaboration on this discussion, see Carrier, supra note 2, at 1018, from
`38
`which this passage draws.
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`Product-hopping schemes exploit this regulation. By making minor
`changes to the original product—for example, switching from a capsule to a
`tablet, or from a 10-mg to a 12-mg dose—the brand can prevent the generic
`from obtaining the AB rating the generic needs to be substituted for the
`brand. After the brand’s reformulation, the generic cannot be substituted
`for the new version. To become substitutable it must start the FDA approval
`process all over again. And while the generic may eventually obtain an AB
`rating to the reformulated product, such a showing likely will not occur for
`years as the generic reformulates its product, seeks FDA approval, and typi-
`cally files a Paragraph-IV certification, which tends to be “followed by the
`brand firm’s automatic ‘thirty month stay’ of FDA approval and additional
`delays from patent litigation.”39 All of these delays prevent the effective
`operation of the DPS laws, removing the role of pharmacists and depriving
`consumers of the practical opportunity to consider a lower-priced generic
`version of the drug.
`
`D. Timing of Generic Entry
`
`A seminal event in the lifecycle of a prescription drug is generic entry.
`When multiple generics enter the market, the price falls to a fraction of the
`brand price.40 Brand firms thus have every incentive to delay the entry of
`generic competition as long as possible. The dramatic effects of generic
`entry explain the crucial role played by the Hatch-Waxman Act and state DPS
`laws. And they shed light on the essential characteristic, in the product-hop-
`ping context, of the timing of generic entry.
`Put simply, the brand firm will be much more successful in forestalling
`generic competition if it can switch the market to the reformulated drug
`before a generic of the original product enters the market.41 Without a
`generic on the market, the brand’s heavy promotion and marketing artillery
`can convince doctors to prescribe the reformulated drug. If the brand suc-
`cessfully switches the market to the reformulated product before the generic
`enters, the generic entry is of no practical significance: there are few or no
`prescriptions for the original product for which the generic can be
`substituted.42
`Several examples demonstrate the crucial role of timing, in particular
`the brand’s recognition of its dramatically higher success if it can switch the
`
`39 Carrier, supra note 2, at 1018.
`40 Generic Competition and Drug Prices, FOOD & DRUG ADMIN., http://www.fda.gov/
`AboutFDA/CentersOffices/OfficeofMedicalProductsandTobacco/CDER/ucm129385.htm
`(last updated May 13, 2015); see generally Fiona Scott Morton & Margaret Kyle, Markets for
`Pharmaceutical Products, in 2 HANDBOOK OF HEALTH ECONOMICS 763, 792–93 (Mark V. Pauly
`et al. eds., 2012) (summarizing recent studies on generic penetration rates and price