FTC Amicus Brief: Improper Use of Restricted Drug Distribution Programs May Impede Generic Competition

The Federal Trade Commission has filed an amicus brief in the U.S. District Court for the District of New Jersey explaining that a brand name drug manufacturer’s improper use of a restricted drug distribution program to impede generic competition could violate the antitrust laws.

The FTC filed the brief in the matter of Mylan Pharms., Inc. v. Celgene Corp. (Case No. 2:14-cv-2094), which involves allegations that Celgene has prevented Mylan from offering competing generic versions of Celgene’s brand drug products, Thalomid and Revlimid, by precluding them from obtaining samples of those drugs to perform necessary testing. Both drugs are used to treat several forms of cancer, as well as other serious conditions.

To receive approval from the Food and Drug Administration, generic firms are required to conduct bioequivalence testing to demonstrate that a generic formulation is therapeutically equivalent to the brand drug. This testing requires access to a limited amount of the brand product. Certain brand drugs are subject to distribution restrictions that can be used to prevent generic firms from obtaining samples of the brand product for testing purposes.

In many instances, these restricted distribution programs are implemented as part of FDA-mandated risk management programs known as Risk Evaluation and Mitigation Strategies (REMS). When Congress authorized the FDA to require REMS programs, it directed that the FDA was not to use such programs to block or delay approval of generic drug products.

In the case currently pending before the district court, Mylan alleges that Celgene has exploited procedures intended to assure safety to prevent generic competition. It charges that Celgene imposes distribution restrictions that prevent it from buying samples of Celgene’s brand products through customary distribution channels and refuses to sell the products to Mylan directly, thereby precluding it from meeting FDA requirements for developing generic versions of these drugs.

Mylan alleges that Celgene’s conduct violates federal antitrust laws. Celgene argues that Mylan’s antitrust claims are barred as a matter of law. The FTC’s brief explains that Celgene’s legal position, if adopted by the court, could pose a significant threat to competition in the pharmaceutical industry.

In the Hatch-Waxman Act, Congress designed a regulatory framework to encourage the introduction of low-cost generic drugs, while preserving incentives for innovation. The Act created a mechanism for accelerated approval of generic drugs, based on a showing that the generic formulation is bioequivalent to the brand drug, which has been very successful in facilitating generic competition and generating large savings for consumers. The Act cannot function as Congress intended, however, if generic firms are unable to obtain samples of brand products, the brief states.

Without taking a position on the factual merits of the case, the FTC’s brief explains that Mylan’s antitrust claims are not barred as a matter of law. It describes how Mylan’s allegations in this case fit within established Supreme Court precedent holding that a monopolist’s refusal to sell to its potential competitors may, under certain circumstances, violate Section 2 of the Sherman Act. It also explains that a distribution agreement between a brand drug manufacturer and its distributors may violate Section 1 of the Sherman Act, and that under established law a brand name drug manufacturer’s patents do not reach activities undertaken in connection with bioequivalence testing.

The Commission vote approving filing of the brief was 4-1, with Commissioner Joshua D. Wright voting no. It was filed on June 17, 2014, in the U.S. District Court for the District of New Jersey. (FTC File No. P082105; the staff contact is James Rhilinger, Bureau of Competition, 202-326-2871)

The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to antitrust{at}ftc{dot}gov, or write to the Office of Policy and Coordination, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave., SW, Room CC-5422, Washington, DC 20580. To learn more about the Bureau of Competition, read Competition Counts. Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.