The United States District Court for the Eastern District of Pennsylvania handed Warner Chilcott PLC and Mayne Pharmaceuticals (Defendants) a victory on Thursday April 16, 2015 in the Doryx “product hopping” case. (“Product hopping” refers to the modification of an innovator drug shortly before the drug is to face generic competition, allegedly to block competition by the soon-to-enter generic competitors). Judge Paul S. Diamond rejected Plaintiff’s claims of “product hopping” and granted summary judgment in favor of the Defendants.

Background

In 2012, Mylan filed a complaint against Defendants alleging illegal monopolization, attempted monopolization, restraint of trade and tortious interference under Pennsylvania state law. Mylan complained that Defendants’ successive actions changing Doryx from capsules to tablets, introducing a single-scored tablet, adding additional doses of single-scored tablets, and finally, changing from single to dual scored tablets were anticompetitive. Doryx is a brand-name prescription antibiotic for severe acne that Defendants developed and manufactured.

Mylan argued that none of the changes Defendants made provided real benefits to patients, that Defendants’ business justifications were pretext and that Defendants’ actions were intended to delay generic market entry. The switches also allegedly prevented pharmacies from automatically substituting generic tablets for Doryx capsule prescriptions. Defendants argued that the changes benefited patients, and that Mylan essentially claimed that Defendants had a duty to help generic companies, which was just free-riding and “the antithesis of competition.” Defendants further argued that the switch did not preclude Mylan, one of the world’s largest pharmaceutical companies, from making, marketing and advertising its own version of generic Doryx.

In a two-page opinion that detailed little of Mylan’s or the Defendants’ arguments, the District Court denied the Defendants’ motions to dismiss in June 2013, deferring decision until there was a fully developed record. That unfortunately allowed expensive and protracted discovery to go forward. However, after discovery and motions for summary judgment, the District Court agreed with the Defendants and concluded for multiple reasons that none of Mylan’s claims could proceed.

No Monopoly Power

First, the District Court found that Defendants did not have monopoly power, a necessary element for an illegal monopolization claim. Monopoly power can be shown by direct evidence of power to control prices or anticompetitive effect, or by indirect evidence, such as a relatively high share of a relevant market. Judge Diamond criticized Mylan for failing to make “a serious effort to present direct evidence of Defendants’ monopoly power.” (emphasis added).

Mylan also failed to present convincing indirect evidence that Defendants had monopoly power. Mylan argued that the relevant product market in which to evaluate the Defendants’ monopoly power should be only branded and generic Doryx. Judge Diamond disagreed. The Judge noted that the “record abounds with uncontradicted evidence—some of it Mylan’s—confirming and reconfirming the interchangeability of Doryx with other oral tetracyclines.”

Using both Mylan’s and the Defendants’ internal documents, the court ruled that the market was all oral tetracyclines. This was in part because Defendants’ marketing documents consistently defined the market as including other oral tetracyclines. Likewise, Mylan’s documents repeatedly listed different tetracyclines as “Same/Similar” in its internal product analyses. The evidence also included information from dermatologists that all oral tetracyclines treat acne with similar effectiveness despite minor varying side effects, and that the FDA has approved virtually identical labeling for most oral tetracyclines. In addition, there was evidence that managed care organizations pressure providers to use other (less expensive) oral tetracyclines other than Doryx. Because the relevant market was all oral tetracyclines, Warner Chilcott represented only 18%, not enough for monopoly power.

No Anticompetitive Conduct

Second, the District Court found that “Mylan offer[ed] no evidence of anticompetitive conduct” on the part of the Defendants. Specifically, Judge Diamond found that Defendants did not exclude competition due to any of their actions, which included reformulating Doryx, introducing new versions of Doryx, marketing new versions of Doryx, and most importantly, withdrawing old versions of Doryx from the market. Moreover, the Judge found that Mylan competed with Defendants, and could continue to compete with Defendants, on the merits by marketing their own generic version of Doryx.

The Judge emphasized that Mylan is the third largest generic pharmaceutical company in the world, with $6.13 billion in revenue in 2011, including $146 million in profit from its 150 mg generic Doryx tablet alone. He also found it compelling that Mylan had actually raised the price of one of their first generic versions of Doryx, suggesting that Mylan could compete effectively in the generics market. The Court turned Mylan’s argument that Warner Chilcott was trying to circumvent the regulatory framework for pharmaceuticals on its head, stating “Mylan thus seeks to transform its own refusal to incur promotion costs into Defendants’ anticompetitive conduct.”

The Judge held that despite the Defendants’ actions, which may have been done to address generic competition, Mylan nonetheless could reach consumers through advertising, promotion, cost competition and superior product development. Because of this, nothing Defendants did excluded Mylan from the market. The Court went on to conclude that “Defendants certainly did not exclude competition by denying Mylan the opportunity to take advantage of a regulatory ‘bonus’”—the state automatic substitution laws.

Citing Verizon Commc’ns Inc. v. Law Offices of Curtis V. Trinko, LLP, the Court held that Defendants were not required to “facilitate Mylan’s business plan by keeping older versions of branded Doryx on the market.” Although Judge Diamond outlined some of the patient benefits of the new versions of Doryx early in the opinion, he concluded that he did not need to weigh procompetitive justifications from the introduction of new branded versions against alleged anticompetitive conduct. Judge Diamond ultimately held that “Mylan is thus a ‘victim’ of its own business strategy, not defendants’ ‘predatory’ conduct.”

Takeaways

This summary judgment ruling from the Eastern District of Pennsylvania has several takeaways for pharmaceutical companies:

  • While Defendants ultimately won, the mere fact of a decision later, at the summary judgment stage, has significant implications for pharmaceutical companies. Discovery is expensive in terms of both labor and technological costs and disruptive to the company’s day-to-day business. The Judge’s decision not to dismiss the case earlier also led to the Defendants settling with direct and indirect purchasers in 2014.
  • Should a complaint survive a motion to dismiss, contemporaneous documents will be vitally important, as they frame the facts. The Court heavily relied on both Mylan’s and the Defendants’ business documents to decide the relevant market, whether Defendants had monopoly power and whether other companies could still compete. The key facts focused on by this Judge included the size of the generic company, the generic company’s efforts to develop and market a drug in relation to whether the drug is on or off patent, the presence of other reasonably interchangeable drugs, the role managed care companies have played in pushing for generic substitutes and whether physicians could still prescribe the generic drug.
  • The District Court did not use a different legal standard for antitrust analysis simply because it was a pharmaceutical case. Although the Court acknowledged some of the unique aspects of the pharmaceutical industry, such as the Hatch-Waxman Act and regulatory approval procedures, the Court analyzed the alleged exclusionary conduct using the Rule of Reason as applied by Third Circuit case law, including Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297 (3d Cir. 2007), United States v. Dentsply Int’l, Inc., 399 F.3d 181 (3d Cir. 2005), and LePage’s Inc. v. 3M, 324 F.3d 141 (3d Cir. 2003).
  • Judge Diamond’s opinion offers important policy considerations that can be applied to potentially end cases before discovery, or at least focus on critical issues in discovery and summary judgment, which can help minimize overall litigation costs. Judge Diamond was critical of Mylan’s theory of “anticompetitive product redesign.” He noted that it invited a burden-shifting contest that would force courts and juries to determine which product changes were innovative enough to justify any alleged anticompetitive effects—something that courts and juries are ill-equipped to do. Judge Diamond was also concerned that Mylan’s theory could slow or stop pharmaceutical innovation because of the prospect of costly and uncertain litigation. Finally, Judge Diamond pointed out that the Hatch-Waxman Act is silent on “product hopping,” and accordingly, courts should not “substitute their legislative judgment for that of Congress.”