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BIOCRAFT GENERIC CEPHALEXIN ANTIDUMPING SUIT VERSUS LYPHOMED WILL BE HEARD BY ITC ON DEC. 7; COMMERCE ANNOUNCES INTENT TO INVESTIGATE PENDING ITC DECISION

Executive Summary

The International Trade Commission's six commissioners will meet in a "briefing and vote" session on Dec. 7 to determine whether there is proof of material injury to the domestic generic cephalexin industry from the export of cephalexin capsules to the U.S. by the Canadian joint venture LyphoMed/Novopharm. The commissioners will hear from the ITC investigative staff, which has compiled a report on Biocraft's allegations of material injury resulting from the export of cephalexin to the U.S. Novopharm is the sole Canadian exporter of generic cephalexin capsules, which are distributed in the U.S. through LyphoMed. Biocraft filed a petition with the ITC on Oct. 27, claiming that Canadian generic cephalexin capsule exporters have been "dumping" cephalexin on the U.S. market at "less than fair value" in order to lure customers away from domestic generic manufacturers. The petition further alleges that the action has led to a loss of profitability for Biocraft as the company has attempted to compete on price with LyphoMed ("The Pink Sheet" Nov. 14, T&G-6). ITC initiated a same-day preliminary investigation. The Department of Commerce subsequently announced an investigation of its own in a Nov. 16 Federal Register notice. Finding that the petition meets the requirements under section 732 of the Trade Act, the notice states that the continuation of the Commerce investigation is contigent upon an ITC determination of material injury. If the ITC decides that "imports of [cephalexin] materially injure, or threaten material injury to a U.S. industry" the Commerce investigation will continue and the department will make a "preliminary determination on or before April 5, 1989." In its petition, Biocraft argues that as a "producer of a `like product' to the capsules being imported from Canada," it is a member of a domestic generic cephalexin industry. Much of Biocraft's proof of injury hinges on the argument that generic and brandname producers represent different industries because of a difference in resources, pricing, and a guaranteed market share based on a bias for the innovator product. Biocraft offered the example of state-enforced two-line and one-line prescription forms. According to the firm, studies have shown that physicians have demonstrated a preference for the brandname product by writing `do not substitute' on the two-line form 66% of the time and `dispense as written' on the one-line 43.6% of the time. Biocraft maintained that the 1988 Trade Act supports the distinction with provisions in the Antidumping Act which direct ITC to "evaluate all economic factors ... within the context of the conditions of competition that are distinctive to the affected industry." In rebuttal, LyphoMed/Novopharm has called Biocraft the "Goliath or the schoolyard bully" of generic cephalexin capsule manufacturers and accuses Biocraft of circular reasoning in its separate domestic industry argument. The Canadian company noted the statement in the Biocraft petition: "If the producer of Keflex [Lilly] were included within the industry producing a `like product' to the imports to be investigated, the sales of generic imports below fair value might not be found to cause or threaten material injury to that `domestic industry." In its comments, LyphoMed/Novopharm argues that Biocraft's claim of material injury through loss of profitability is a specious one. Quoting market share summaries, LyphoMed/Novopharm shows that Biocraft's share has been "sky-rocketing." For the period of May 1987 to August 1988, the company claims Biocraft's market share for 250 mg capsules (100-cap bottles) has risen from 26.1% to 50.8% and from 29.6% to 45.7% for 500mg capsules.

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