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FTC INVESTIGATING REGULATORY AND JUDICIAL ABUSES AGAINST GENERIC COMPETITION, COMMISSION TELLS PRYOR; ATTENTION TO FDA PROCESSES GOES BACK ABOUT TWO YEARS

Executive Summary

The Federal Trade Commission (FTC) is investigating abuses of regulatory and judicial processes in the pharmaceutical industry, FTC Bureau of Competition Acting Director Mark Whitener told the Senate Aging Committee at a Nov. 16 hearing. FTC has an "ongoing investigation," Whitener reported, which "involves the possible abuse of regulatory processes by an incumbent firm in order to defeat or retard market entry by a competitor." Whitener testimony represents the first public disclosure of the commission's investigation in this area. Major brand and generic firms deny any knowledge of the investigation which would appear to indicate that the FTC is in an early staff stage of pursuing the project. It is understood, however, that FTC staffers have been visiting FDA for about two years to study the generic drug approval process, presumably to develop a foundation for an examination of potential abuse of the system. In his prepared remarks, Whitener noted that it is difficult to prove abuse of a system. In general, participation in regulatory or judicial action is protected by the Supreme Court's 1965 Noerr-Pennington doctrine. However, FTC believes that the Supreme Court has "made clear that where one uses the governmental process -- as opposed to the outcome of that process -- as an anti-competitive weapon, the protection of the Noerr doctrine may not apply." Whitener said that conduct such as "filing frivolous objections to the license application of a competitor with no real expectation of acheiving denial of the license only in order to impose expense and delay" is not protected by the Noerr doctrine. Antitrust concerns "may be raised," Whitener argued, if patent infringement litigation and intervention in the regulatory process by firms is "objectively baseless." The FTCer pointed out that judicial and regulatory proceedings can be the principal hurdles faced by new entrants into pharmaceutical markets. FTC did not identify any specific cases in the drug business that it is examining. There are several highly visible situaitons involving major products which would appear to fit the general descripiton of the commission's interest. The type of high-profile issue that could have piqued FTC's interest include the regulatory activity around conjugated estrogens and albuterol. Entry into these markets by generic competitors have been delayed by long processes to determine what forms of bioequivalence studies should be necessary as prerequisites for generic approval. In February 1991, for example, FDA convened an advisory committee on the conjugated estrogens question. The committee determined that bioequivalence studies for conjugated estrogens should measure both rate and extent of absorption, when previously FDA had only required that extent of absorption be measured. Wyeth-Ayerst, maker of the innovator product Premarin, raised the first objections about how generic conjugated estrogen products were tested, leading FDA to withdraw approval of conjugated estrogens applications from companies including Barr and Able Labs. Four years post-patent expiration for the innovator product, Glaxo's Ventolin, FDA is still trying to develop a bioequivalence study guidance for generic albuterol metered dose inhalers. At a recent advisory committee meeting, the agency said it hopes to issue an interim guidance by the end of the year. Study guidelines for generic bronchodilators were the topic of advisory committee meetings in 1989 and 1988. Schering-Plough, which markets albuterol under the name Proventil, through the citizen petition process has challenged FDA and lost over generic approvals of albuterol solution for inhalation. In December 1989, Schering petitioned FDA not to approve any ANDAs for nonsystematically absorbed drugs. FDA denied the petition in June 1990. Following FDA's November 1991 approval of Copley's generic albuterol solution for inhalation, Schering filed a preliminary injunction seeking to suspend Copley's ANDA. In denying Schering's request, a D.C. federal court judge concluded that the FD&C Act does not rule out the possibility of alternate showings of bioequivalence. Also in the judicial arena, a number of brandname firms are involved in disputes to protect patents which maintain exclusivity beyond initial patent expiration dates and could give brandname firms marketing protection for periods close to the full 17-years of patent life. For example, Glaxo has defended a second form patent for Zantac which would carry exclusivity on that product until 2002 ("The Pink Sheet" Oct. 4, T&G-13). In addition to the regulatory abuse investigation, Whitener maintained that the FTC is examining all competitive issues in the pharmaceutical market including price discrimination, illegal tie- ins and mergers. At a hearing before the Senate Labor & Human Resources Committee on Nov. 18, Pharmaceutical Manufacturers Association President Gerald Mossinghoff said he was surprised to learn that FTC had undertaken a discriminatory price investigation. Mossinghoff used the investigation to reiterate PMA's argument against the anti-discriminatory pricing provision contained in the Clinton proposal, noting that "despite the fact that we have some pretty high priced antitrust lawyers, no one's quite told us what the difference is between that provision and the Robinson-Patman Act." Given the ongoing litigation that has been brought by retail pharmacy against manufacturers over discounting practices, as well as the Federal Trade Commission's stated intention to investigate those practices in light of the Robinson-Patman Act, Mossinghoff suggested that addressing the issue in new legislation is ill- timed. "I would submit it's probably not the right thing to do to change the law in some unknown or unspecified way while you have both FTC taking a look at it and you have very active litigation," Mossinghoff maintained. Whitener also maintained that the acquisitions of generic firms by brandname companies are being examined under section seven of the 1988 Clayton Act. Further, under the 1992 Horizontal Merger Guidelines, FTC determines "whether a proposed merger is likely substantially to lessen competition." The FTC official told the committee that "the commission will examine whether the generic and brandname drug companies are direct competitors." The FTCer said "for example, if the generic company holds FDA approvals to sell generic equivalents of branded drugs that are produced or sold by the acquiring company FTC will closely scrutinize the proposed transaction." Whitener added that "similar scrutiny will be warranted" if a branded company proposed to acquire a generic manufacturer of drugs that are therapeutically similar to the brandname firm. Whitener concluded that "even if the generic manufacturer is not a direct competitor" the acquisition may raise antitrust concerns if the generic manufacturer "appears to be one of only a few firms that are likely to enter the market." While FTC is publicly stating its interest, the commission has permitted several forms of brand/generic mergers, including horizontal deals such as Marion Merrell Dow/Rugby and vertical deals such as Hoechst/Copley.
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