[House Report 116-695]
[From the U.S. Government Publishing Office]
116th Congress } { Report
HOUSE OF REPRESENTATIVES
2d Session } { 116-695
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AFFORDABLE PRESCRIPTIONS FOR PATIENTS THROUGH PROMOTING COMPETITION ACT
OF 2019
_______
December 24, 2020.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
_______
Mr. Nadler, from the Committee on the Judiciary, submitted the
following
R E P O R T
[To accompany H.R. 5133]
The Committee on the Judiciary, to whom was referred the
bill (H.R. 5133) to amend the Federal Trade Commission Act to
prohibit anticompetitive behaviors by drug product
manufacturers, and for other purposes, having considered the
same, reports favorably thereon without amendment and
recommends that the bill do pass.
CONTENTS
Page
Purpose and Summary.............................................. 1
Background and Need for the Legislation.......................... 2
Hearings......................................................... 6
Committee Consideration.......................................... 7
Committee Votes.................................................. 7
Committee Oversight Findings..................................... 7
New Budget Authority and Tax Expenditures and Congressional
Budget Office Cost Estimate.................................... 7
Duplication of Federal Programs.................................. 7
Performance Goals and Objectives................................. 7
Advisory on Earmarks............................................. 8
Section-by-Section Analysis...................................... 8
Changes in Existing Law Made by the Bill, as Reported............ 10
Purpose and Summary
H.R. 5133, the ``Affordable Prescriptions for Patients
Through Promoting Competition Act,'' prohibits ``product
hopping,'' a particularly abusive form of anti-competitive
conduct used by drug manufacturers to protect and extend their
monopolies on prescription drugs. Product hopping occurs when a
branded drug manufacturer seeks to extend its market
exclusivity on a drug for which its patent is about to expire
by switching doctors and patients from the old version to a new
version, which may not offer any improvements in effectiveness
or safety. This practice allows a pharmaceutical company to
continue to reap monopoly profits by preventing generic
substitution for its new, but not necessarily improved, version
of the drug. The result can be years of additional market
exclusivity for the pharmaceutical company without substantial
improvements for patients in terms of effectiveness or safety.
H.R. 5133 will end this abusive delay tactic by expressly
prohibiting product hopping as an unfair method of competition
under the Federal Trade Commission Act. Public-interest
organizations--including Public Citizen, Consumer Reports,
Patients for Affordable Drugs Now, the Coalition for Affordable
Prescription Drugs, and the Coalition Against Patent Abuse--
support this bipartisan legislation.
Background and Need for the Legislation
BACKGROUND
Americans spend more on prescription drugs--about $1,200
per person--than residents of any other developed country.\1\
Total spending on prescription drugs in the United States is
also growing,\2\ rising to $333.4 billion in 2017.\3\ Americans
also pay more out-of-pocket for prescription drugs than for
hospital care or health insurance.\4\
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\1\OECD, Pharmaceutical Spending (last accessed on Mar. 1, 2019),
https://data.oecd.org/healthres/pharmaceutical-spending.htm.
\2\A Look at Drug Spending in the U.S.: Estimates and Projections
from Various Stakeholders, Pew Charitable Trusts (Feb. 27, 2018),
https://www.pewtrusts.org/en/research-and-analysis/fact-sheets/2018/02/
a-look-at-drug-spending-in-the-us.
\3\National Health Expenditure Data: NHE Fact Sheet, Ctrs. for
Medicare & Medicaid Servs. (Feb. 20, 2019), https://www.cms.gov/
Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/
NationalHealthExpendData/NHE-Fact-Sheet.html.
\4\Yusra Murad, As Drug Prices Soar, Policymakers Eye Dose of
Government Intervention, Morning Consult (Dec. 20, 2018), https://
morningconsult.com/2018/12/20/drug-prices-soar-policymakers-eye-dose-
government-intervention/.
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The role of biological products in rising drug costs is
particularly striking. A biological product, or biologic--a
pharmaceutical derived from living organisms\5\--is
significantly larger and has a more complex structure than a
conventional chemically derived, small-molecule drug, and it is
inherently more costly to develop, more difficult to
manufacture, and more expensive per dose.\6\ These dynamics are
reflected in high costs and spending totals. In 2018, net
spending on biologics totaled $125.5 billion in the United
States,\7\ and annual costs for some biologics can exceed
$250,000 per patient.\8\
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\5\Kristina M. Lybecker, The Biologics Revolution in the Production
of Drugs 3 (2016), https://www.fraserinstitute.org/sites/default/files/
biologics-revolution-in-the-production-of-drugs.pdf; see 42 U.S.C.
Sec. 262(i)(1).
\6\Kristina M. Lybecker, The Biologics Revolution in the Production
of Drugs 3, 7 (2016), https://www.fraserinstitute.org/sites/default/
files/biologics-revolution-in-the-production-of-drugs.pdf; Andrew W.
Mulcahy et al., The Cost Savings of Potential Biosimilar Drugs in the
United States 1 (2014), https://www.rand.org/content/dam/rand/pubs/
perspectives/PE100/PE127/RAND_PE127.pdf.
\7\Murray Aitken & Michael Kleinrock, Medicine Use and Spending in
the U.S.: A Review of 2018 and Outlook to 2023 26 (2019), https://
www.iqvia.com/insights/the-iqvia-institute/reports/medicine-use-and-
spending-in-the-us-a-review-of-2018-and-outlook-to-2023.
\8\Aaron S. Kesselheim et al., The High Cost of Prescription Drugs
in the United States: Origins and Prospects for Reform, 316 J. Am. Med.
Ass'n 858, 860 (2016).
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Anti-competitive conduct in the pharmaceutical industry
harms American consumers through higher drug prices and worse
healthcare outcomes. Delaying entry of generic and biosimilar
competitors deprives consumers of the lower prices that
competition brings to the market. For some consumers, these
delays could mean the difference between life and death. As a
result of rising prices, many patients skip doses, take less
than the prescribed amount of medicine, or do not fill their
prescriptions.\9\ According to a study by Kaiser Health News,
``[h]undreds of thousands of cancer patients are delaying care,
cutting their pills in half or skipping drug treatment
entirely.''\10\
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\9\Liz Szabo, Sticker Shock Forces Thousands of Cancer Patients To
Skip Drugs, Skimp On Treatment, Kaiser Health News (Mar. 15, 2017),
https://khn.org/news/sticker-shock-forces-thousands-of-cancer-patients-
to-skip-drugs-skimp-on-treatment/.
\10\Id.
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While decreased competition from generics and biosimilars
harms patients, delayed generic entry for a blockbuster drug--
even by just a few months--can be worth hundreds of millions of
dollars in additional revenue to the branded drug company. For
example, the Hepatitis C drug, Sovaldi, reached $7.9 billion in
sales in the United States in 2014.\11\ At that rate, three
additional months would constitute $1.98 billion in sales.\12\
Because branded drug manufacturers have so much to lose from
the entry of a generic competitor, they are highly incentivized
to block or delay generic entry. Product hopping is one way,
among others, that they achieve this--to the detriment of
consumers who end up paying higher prescription drug prices.
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\11\Lacie Glover, Here Are the Top-Selling Drugs in the US, Time
(June 26, 2015), http://time.com/money/3938166/top-selling-drugs-
sovaldi-abilify-humira/.
\12\Although competition would not reduce the sales to zero, a
price drop of even a modest 10% would be worth $198 million for three
months.
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Product hopping occurs when a branded drug manufacturer
seeks to extend its market exclusivity on a drug for which its
patent is about to expire by switching doctors and patients
from the old version to a new version, which may not offer any
improvements in effectiveness or safety. Branded drug
manufacturers can accomplish a product hop through what is
often referred to as either a hard switch or a soft switch. In
the case of a hard switch, the branded drug manufacturer may
remove the original drug from the market entirely and replace
it with a new product covered by a later-expiring patent, also
referred to as a follow-on product.\13\ The manufacturer may
even buy back and destroy any of the original drug product that
remains in the supply chain. In the case of a soft switch, the
branded drug manufacturer may impede the original product's
ability to compete with the follow-on product through more
subtle means.\14\ In either case, leading experts have noted
that the branded drug manufacturer's conduct threatens to
undermine the generic-promoting goals of the Hatch-Waxman Act
through a switch to a reformulation for which a generic cannot
be automatically substituted.\15\ As Professor Michael Carrier
and Steve Shadowen explain, such conduct ``lacks 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.''\16\
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\13\Antitrust Concerns and the FDA Approval Process: Hearing Before
the Subcomm. on Regulatory Reform, Commercial, and Antitrust Law of the
H. Comm. on the Judiciary, 115th Cong. (2017), https://docs.house.gov/
meetings/JU/JU05/20170727/106333/HHRG-115-JU05-Wstate-KesselheimA-
20170727.pdf (written testimony of Dr. Aaron S. Kesselheim, Associate
Professor of Medicine, Harvard Medical School, at 7).
\14\See, e.g., In re Suboxone Antitrust Litigation, 64 F. Supp. 3d
665 (E.D. Pa. 2014).
\15\See, e.g., Michael A. Carrier & Steve D. Shadowen, Product
Hopping: A New Framework, 92 Notre Dame L. Rev. 167, 171 n.3 (2016);
see id. at 217-18 (providing examples of generic making 2% of sales
after hard switch, 25% after soft switch, but 85% in absence of product
hopping).
\16\Id.
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An example of a hard switch involves Forest Laboratories,
which sold memantine, also known as Namenda.\17\ Namenda is an
immediate-release treatment for Alzheimer's that must be taken
twice daily.\18\ Before its patent expired, allowing a generic
version of Namenda to come on the market, Forest obtained FDA
approval for a new, patented version of the drug (memantine
XR). This version of Namenda was extended-release instead of
instant and only had to be taken once daily instead of
twice.\19\ Forest announced that it intended to remove the
original version of Namenda (memantine) from the market.\20\
Forest's removal of the original product from the market would
have forced doctors to switch patients from the original
(memantine) to the follow-on product (memantine XR),
eliminating the possibility of automatic substitution of a
lower-priced generic.\21\
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\17\Antitrust Concerns and the FDA Approval Process: Hearing Before
the Subcomm. on Regulatory Reform, Commercial, and Antitrust Law of the
H. Comm. on the Judiciary, 115th Cong. (2017), https://docs.house.gov/
meetings/JU/JU05/20170727/106333/HHRG-115-JU05-Wstate-KesselheimA-
20170727.pdf (testimony of Dr. Aaron S. Kesselheim, Associate Professor
of Medicine, Harvard Medical School, at 7).
\18\Id.
\19\Id.
\20\Id.
\21\Id.
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An example of a soft switch can be seen in the case of In
re Suboxone Antitrust Litigation.\22\ In that case, the
plaintiffs alleged that Reckitt switched the market from a
tablet form of Suboxone, a drug that treats opioid dependence,
to a sublingual film.\23\ The plaintiffs alleged that Reckitt
promoted the Suboxone film to doctors, disparaged the tablet
version of Suboxone, issued false warnings about safety
concerns related to the tablets, announced plans to remove the
tablets because of these false safety concerns, and raised the
price of the tablets relative to the film even though the film
was more expensive to make.\24\ In this case, Reckitt attempted
to shift the market without going so far as to withdraw the
tablet version from the market.
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\22\64 F. Supp. 3d 665 (E.D. Pa. 2014).
\23\Michael A. Carrier & Steve D. Shadowen, Product Hopping: A New
Framework, 92 Notre Dame L. Rev. 167, 195 (2016).
\24\Id.
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APPLICABLE LAWS
The federal antitrust laws preserve competition by
preventing cartelization, monopolization, and mergers or
acquisitions that may substantially lessen competition or tend
to create a monopoly. The first major federal antitrust statute
was the Sherman Antitrust Act of 1890.\25\ Section 1 of the
Sherman Act prohibits competitors from colluding or conspiring
with each other to restrain trade by reducing their overall
output or raising prices.\26\ Section 2 of the Sherman Act
prohibits any individual competitor from unilaterally and
willfully obtaining or maintaining control of an industry
through the use of exclusionary conduct.\27\
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\25\15 U.S.C. Sec. Sec. 1-7 (2019).
\26\15 U.S.C. Sec. 1 (2019).
\27\15 U.S.C. Sec. 2 (2019).
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In 1914, Congress established the Federal Trade Commission
(FTC) to promote, develop, and protect antitrust law and
competition policy.\28\ Section 5 of the FTC Act empowers the
Commission to prevent all ``[u]nfair methods of competition in
or affecting commerce . . . .''\29\ Although the FTC has no
authority to enforce the Sherman Act, the Supreme Court has
held that any conduct that violates the Sherman Act also
violates section 5 of the FTC Act.\30\ Section 5 may also reach
conduct that does not violate the Sherman or Clayton Acts.\31\
The FTC Act empowers the FTC to: (a) prevent unfair methods of
competition, and unfair or deceptive acts or practices in or
affecting commerce; (b) seek monetary redress and other relief
for conduct injurious to consumers; (c) prescribe trade
regulation rules defining with specificity acts or practices
that are unfair or deceptive, and establishing requirements
designed to prevent such acts or practices; (d) conduct
investigations relating to the organization, business,
practices, and management of entities engaged in commerce; and
(e) make reports and legislative recommendations to
Congress.\32\
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\28\Humphrey's Ex'r v. United States, 295 U.S. 602, 625-26 (1935)
(``[T]he language of the act, the legislative reports, and the general
purposes of the legislation as reflected by the debates, all combine to
demonstrate the congressional intent to create a body of experts who
shall gain experience by length of service; a body which shall be
independent of executive authority, except in its selection, and free
to exercise its judgment without the leave or hindrance of any other
officialor any department of the government.'').
\29\15 U.S.C. Sec. 45(a)(1) (2019).
\30\Fed. Trade Comm'n v. California Dental Ass'n, 526 U.S. 756, 763
n.3 (1999) (``The FTC Act's prohibition of unfair competition and
deceptive acts or practices . . . overlaps the scope of Sec. 1 of the
Sherman Act.'').
\31\See Fed. Trade Comm'n v. Sperry & Hutchinson Co., 405 U.S. 233,
239 (1972) (holding that section 5 empowers the FTC ``to define and
proscribe an unfair competitive practice, even though the practice does
not infringe either the letter or the spirit of the antitrust laws'').
\32\15 U.S.C. Sec. 45 (2019).
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NEED FOR THE LEGISLATION
H.R. 5133 is needed to strengthen the FTC's ability to
bring and win cases against prescription drug companies that
engage in product hopping. Although some courts have held
branded drug manufacturers accountable for engaging in product
hopping under existing antitrust law, other courts have let
companies off the hook. For example, in Mylan Pharmaceuticals
v. Warner Chilcott (Doryx),\33\ the Third Circuit Court of
Appeals affirmed a district court decision that Warner
Chilcott's product hopping strategy was not anti-competitive.
The court of appeals reached this outcome despite a district
court finding that ``viewing the facts in the light most
favorable to Mylan, [] Defendants had indeed made the Doryx
`hops' primarily to `delay generic market entry.'''\34\ The law
on what constitutes illegal product hopping activity,
particularly for soft switches, is conflicting and unsettled.
H.R. 5133 is needed to clarify that it is illegal for drug
manufacturers to engage in this conduct to the detriment of
patients.
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\33\Mylan Pharmaceuticals v. Warner Chilcott, 838 F.3d 421 3d Cir.
2016).
\34\Id. at 431. For criticism of the decision, see Michael A.
Carrier, Three Challenges for Pharmaceutical Antitrust, 59 Santa Clara
L. Rev. 613, 620-21 (2020) (noting that court ``focused exclusively on
the effect of [the brand firm's] conduct on . . . the generic
competitor, never even mentioning the effect on consumers'') (emphases
omitted).
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Furthermore, H.R. 5133 is needed to improve the agency's
ability to bring and win cases against companies that use
product hopping to block generic or biosimilar competitors from
entering the market. Litigation under existing law is extremely
resource-intensive in terms of time and money. Even when the
FTC is ultimately successful, as it was in the Supreme Court's
decision in Actavis on pay-for-delay agreements,\35\ litigation
can take too long to provide timely relief. The Actavis case
was not fully resolved until a decade after the FTC filed its
original complaint.\36\ As Markus Meier, then-acting director
of the FTC's Bureau of Competition testified before Congress,
``litigation . . . can be slow, it's expensive, and it's
uncertain.''\37\ By more clearly defining the conduct that
constitutes illegal product hopping and establishing a
framework for evaluating possible justifications, H.R. 5133
will help deter companies from engaging in this behavior in the
first place. In addition, by providing clearer guidance to the
courts, when the FTC must go to court and litigate a product
hop case, this bill should help expedite those proceedings.
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\35\Fed. Trade Comm'n v. Actavis, Inc., 570 U.S. 136, 158 (2013).
\36\Complaint, Fed. Trade Comm'n v. Watson Pharm., Inc., CV 09-
00598 (C.D. Cal. Jan. 29, 2009), https://www.ftc.gov/sites/default/
files/documents/cases/2009/02/090202androgelcmpt_0.pdf.
\37\Antitrust Concerns and the FDA Approval Process: Hearing Before
the Subcomm. on Regulatory Reform, Commercial, and Antitrust Law of the
H. Comm. on the Judiciary, 115th Cong. (2017), https://docs.house.gov/
meetings/JU/JU05/20170727/106333/HHRG-115-JU05-Transcript-20170727.pdf
(testimony of Markus Meier, Acting Director, Bureau of Competition and
Assistant Director, Health Care Division, FTC).
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Hearings
In the 116th Congress, the Subcommittee on Antitrust,
Commercial, and Administrative Law held a hearing on
``Diagnosing the Problem: Exploring the Effects of
Consolidation and Anticompetitive Conduct in Health Care
Markets.''\38\ At this hearing, several witnesses testified
about competition issues in health care markets, including Dr.
Fiona Scott Morton, Professor of Economics at Yale School of
Management; Dr. Martin Gaynor, Professor of Economics and
Health Policy at Carnegie Mellon University; Michael Kades,
Director of Markets and Competition Policy at Washington Center
for Equitable Growth; and Dr. Craig Garthwaite, Herman R. Smith
Research Professor at Northwestern University's Kellogg School
of Management. This hearing satisfies the requirement of H.
Res. 6, sec. 103(i).
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\38\Id.
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In the 115th Congress, the Subcommittee on Regulatory
Reform, Commercial, and Antitrust Law held a two-paneled
hearing on ``Antitrust Concerns and the FDA Approval
Process.''\39\ On the first panel, the Subcommittee heard
testimony from Dr. Scott Gottlieb, M.D., then-Commissioner of
the U.S. Food and Drug Administration (FDA), and Markus Meier,
then-Acting Director, Bureau of Competition at the FTC. On the
second panel, the Subcommittee heard testimony from Professor
David Olson, Boston College Law School; Professor Erika
Lietzan, University of Missouri School of Law; Alden Abbott,
Deputy Director and Senior Legal Fellow, the Heritage
Foundation; and Professor Aaron Kesselheim, M.D., M.P.H.,
Harvard Medical School. Dr. Kesselheim described various
examples of product hopping and testified that ``[p]roduct
hopping is especially problematic when the manufacturer removes
the original drug from the market shortly before its patent
term expires to channel physicians, consumers, and payors
towards its new product.''\40\ Dr. Kesselheim continued, ``The
manufacturer's conduct in these cases typically makes sense
only by harming the generic.''\41\
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\39\Antitrust Concerns and the FDA Approval Process: Hearing Before
the Subcomm. on Regulatory Reform, Commercial, and Antitrust Law of the
H. Comm. on the Judiciary, 115th Cong. (2017), https://docs.house.gov/
meetings/JU/JU05/20170727/106333/HHRG-115-JU05-Transcript-20170727.pdf.
\40\Id. (written testimony of Dr. Aaron S. Kesselheim, Associate
Professor of Medicine, Harvard Medical School, at 6-7).
\41\Id. at 7.
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Committee Consideration
On November 20, 2019, the Committee met in open session and
ordered the bill, H.R. 5133, favorably reported by unanimous
voice vote, a quorum being present.
Committee Votes
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the Committee advises that no
rollcall votes occurred during the Committee's consideration of
H.R. 5133.
Committee Oversight Findings
In compliance with clause 3(c)(1) of rule XIII of the Rules
of the House of Representatives, the Committee advises that the
findings and recommendations of the Committee, based on
oversight activities under clause 2(b)(1) of rule X of the
Rules of the House of Representatives, are incorporated in the
descriptive portions of this report.
New Budget Authority and Tax Expenditures and Congressional Budget
Office Cost Estimate
With respect to the requirements of clause 3(c)(2) of rule
XIII of the Rules of the House of Representatives and section
308(a) of the Congressional Budget Act of 1974 and with respect
to requirements of clause (3)(c)(3) of rule XIII of the Rules
of the House of Representatives and section 402 of the
Congressional Budget Act of 1974, the Committee has requested
but not received a cost estimate for this bill from the
Director of Congressional Budget Office. The Committee has
requested but not received from the Director of the
Congressional Budget Office a statement as to whether this bill
contains any new budget authority, spending authority, credit
authority, or an increase or decrease in revenues or tax
expenditures.
Duplication of Federal Programs
No provision of H.R. 5133 establishes or reauthorizes a
program of the Federal government known to be duplicative of
another Federal program, a program that was included in any
report from the Government Accountability Office to Congress
pursuant to section 21 of Public Law 111-139, or a program
related to a program identified in the most recent Catalog of
Federal Domestic Assistance.
Performance Goals and Objectives
The Committee states that pursuant to clause 3(c)(4) of
rule XIII of the Rules of the House of Representatives, H.R.
5133 would make prescription drugs more affordable for patients
and increase competition in the prescription drug market by
strengthening the FTC's ability to bring and win cases against
drug companies that engage in product hopping.
Advisory on Earmarks
In accordance with clause 9 of rule XXI of the Rules of the
House of Representatives, H.R. 5133 does not contain any
congressional earmarks, limited tax benefits, or limited tariff
benefits as defined in clause 9(d), 9(e), or 9(f) of rule XXI.
Section-by-Section Analysis
The following discussion describes the bill as reported by
the Committee.
Section 1. Short Title. Section 1 sets forth the title of
the legislation as the ``Affordable Prescriptions for Patients
Through Promoting Competition Act of 2019.''
Section 2. Product Hopping. Section 2 amends the Federal
Trade Commission (FTC) Act by adding a new Section 27 to the
FTC Act after Section 26 (15 U.S.C. Sec. 57(c-2)).
New subsection 27(a) sets forth various definitions.
New subsection 27(a)(4) defines ``follow-on product''
broadly to cover a drug or biological product which shares an
indication, in whole or in part, with the listed drug or
reference product.
New subsections 27(a)(4)(B)-(D) identify the types of
applications or supplements to an application for the new
version of the drug or biological product that are excluded
from the definition of a ``follow-on product.'' Subsection
27(a)(4)(B) establishes a narrow exclusion for the specified
application or supplement to an application that is requested
by the Secretary or necessary to comply with law.
New subsection 27(a)(4)(C) establishes a narrow exclusion
when the FDA has granted New Chemical Entity (NCE) exclusivity
for the individual application or supplement to an application
for the new version of the drug or biological product. This
exclusion applies to follow-on products that have been granted
NCE exclusivity independent of the listed drug or reference
product (original drug) application to which it is a
supplement. Whether or not the original drug or biological
product was granted NCE exclusivity would not affect whether a
product qualifies for this exclusion.
New subsection 27(a)(4)(D) establishes a narrow exclusion
for the specified application or supplement to an application
that has been granted exclusivity pursuant to section 351(k)(7)
of the Federal Food, Drug, and Cosmetic Act.
New subsection 27(a)(6) defines the term ``disadvantage''
to encompass actions that impede the original drug's ability to
compete on the merits with the follow-on product by creating an
obstacle or hindrance to the marketing, sale, or distribution
of the original drug.
New subsections 27(a)(6)(A) and (B) establish narrow
exclusions from the definition of ``disadvantage,'' for actions
that consist solely of either (1) truthful, non-misleading
advertising; or (2) ceasing promotional marketing for the
listed drug or reference product. These subsections do not
exclude actions that misrepresent or obscure information about
the existence, identity, availability, or efficacy of the
listed drug or reference product such as the manufacturer
removing the product from the list of available drugs on its
website.
New subsection 27(b)(1) establishes that a manufacturer of
a reference product or listed drug shall be liable for engaging
in an unfair method of competition under section 5(a) of the
FTC Act if the Commission demonstrates that the manufacturer
engaged in a hard switch, as set forth in subsection
27(b)(1)(A), or a soft switch, as set forth in subsection
27(b)(1)(B) during a specified time period. This time period
begins when the manufacturer first receives notice that a new
drug applicant has submitted an abbreviated new drug
application (ANDA) or a biosimilar biological product license
application. The time period ends on the date that is the
earlier of 180 days after the generic or biosimilar drug
referencing the listed drug or reference product is first
marketed or 3 years after the manufacturer's follow-on product
is first marketed.
New subsection 27(b)(1)(A) establishes that a manufacturer
engaged in a hard switch if the Commission demonstrates that
the manufacturer engaged in the actions described in
subsections 27(b)(1)(A)(i) or 27(b)(1)(A)(ii).
Under subsection 27(b)(1)(A)(i), the actions that
constitute a hard switch are that upon the manufacturer's
request, the Commissioner of Food and Drugs withdrew the
approval of the listed drug's or reference product's
application or placed the drug on the discontinued products
list, and the manufacturer marketed or sold a follow-on
product. Under subsection 27(b)(1)(A)(ii), the actions that
constitute a hard switch are, first, that the manufacturer
ceased providing a supply of the listed drug or reference
product to the marketplace for commercial distribution or sale
by withdrawing, discontinuing the manufacture of, or
withdrawing the application for the listed drug or reference
product in a way that impedes competition from a generic or
biosimilar drug (unless this was done in response to a request
from the Commissioner of Food and Drugs) and, second, marketed
or sold a follow-on product.
An alternate set of actions that constitute a hard switch,
under subsection 27(b)(1)(A)(ii), are that, first, the
manufacturer destroyed its inventory of the listed drug or
reference product in a way that impedes competition from a
generic or biosimilar drug and, second, marketed or sold a
follow-on product.
New subsection 27(b)(1)(B) sets forth that a manufacturer
engaged in a soft switch if the Commission establishes that,
first, the manufacturer took one or more actions with respect
to the listed drug or reference product that unfairly
disadvantage that drug relative to the manufacturer's follow-on
product in a way that impedes competition from either a generic
or biosimilar drug and, second, the manufacturer marketed or
sold a follow-on product. A manufacturer ``unfairly''
disadvantages the listed drug or reference product where the
manufacturer has not demonstrated a justification under
subsection 27(b)(2)(A) or where that justification has been
rebutted by the Commission's Response.
New subsection 27(b)(2) sets forth certain justifications
that a manufacturer can offer for engaging in either a hard or
soft switch. For both, the manufacturer first must prove that
it would have taken the actions regardless of whether the
corresponding generic or biosimilar drug had already entered
the market. For a hard switch, in addition to the first part,
the manufacturer must prove that it took these actions due to
safety risks to patients or due to a supply disruption outside
of its control. For a soft switch, in addition to the first
part, the manufacturer must prove that it had legitimate pro-
competitive reasons, apart from the financial benefits of
reduced competition, for taking the actions.
New subsection 27(b)(3) establishes that if the
manufacturer is able to demonstrate one of the justifications,
the Commission will nonetheless prevail in its case if it
establishes that the hard or soft switch conduct was not
reasonably necessary to achieve the justification or that it
could have been achieved through less anti-competitive means.
Alternatively, the Commission will prevail if it establishes
that the pro-competitive benefits from the hard or soft switch
conduct do not outweigh the anti-competitive effects.
New subsection 27(c)(1) provides that, except as stated in
subsection 27(c)(2), the Commission shall enforce this section
pursuant to the same jurisdiction, powers, duties, and remedies
provided for by all applicable terms and provisions of the FTC
Act.
New subsection 27(c)(2) provides that any manufacturer that
is subject to a final order of the Commission may petition for
review in the D.C. Court of Appeals or the court of appeals for
the circuit in which the manufacturer is incorporated. This
subsection also sets forth that on review, the Commission's
factual findings shall be conclusive if supported by the
evidence.
New subsection 27(c)(3) provides that nothing in new
subsection 27 may be construed as requiring the Commission to
bring a suit seeking a temporary injunction under paragraph
(1)(B) before bringing a suit seeking a permanent injunction
under paragraph (1)(C); or affecting any other authority of the
Commission under this Act to seek relief or obtain a remedy
with respect to a violation of this Act.
Section 2(b) sets the Act's effective date such that the
Act applies to all conduct that occurs on or after the date it
is enacted.
Section 2(c) establishes that nothing in this Act shall
impair, limit, or supersede the applicability of existing
antitrust laws. Further, nothing in this Act shall affect the
ability of the FTC to bring a cause of action against companies
that engage in product hopping under existing antitrust
statutes including current section 5 of the FTC Act.
Section 2(d) establishes that the Commission may issue
rules to carry out new section 27 of the FTC Act.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (new matter is
printed in italics and existing law in which no change is
proposed is shown in roman):
FEDERAL TRADE COMMISSION ACT
* * * * * * *
SEC. 27. PRODUCT HOPPING.
(a) Definitions.--In this section:
(1) Abbreviated new drug application.--The term
``abbreviated new drug application'' means an
application under subsection (b)(2) or (j) of section
505 of the Federal Food, Drug, and Cosmetic Act (21
U.S.C. 355).
(2) Biosimilar biological product.--The term
``biosimilar biological product'' means a biological
product licensed under section 351(k) of the Public
Health Service Act (42 U.S.C. 262(k)).
(3) Biosimilar biological product license
application.--The term ``biosimilar biological product
license application'' means an application submitted
under section 351(k) of the Public Health Service Act
(42 U.S.C. 262(k)).
(4) Follow-on product.--The term ``follow-on
product''--
(A) means a drug approved through an
application or supplement to an application
submitted under section 505(b) of the Federal
Food, Drug, and Cosmetic Act (21 U.S.C. 355(c))
or a biological product licensed through an
application or supplement to an application
submitted under section 351(a) of the Public
Health Service Act (42 U.S.C. 262(a)) for a
change, modification, or reformulation to the
same manufacturer's previously approved drug or
biological product that treats the same or a
related indication;
(B) excludes such an application or
supplement to an application for a change,
modification, or reformulation of a drug or
biological product that is requested by the
Secretary or necessary to comply with law,
including sections 505A and 505B of the Federal
Food, Drug, and Cosmetic Act (21 U.S.C. 355a,
355c);
(C) excludes such an application or
supplement to an application submitted under
section 505(b) of the Federal Food, Drug, and
Cosmetic Act (21 U.S.C. 355(c)) that has been
granted New Chemical Entity exclusivity (21
U.S.C. 355(c)(3)(E)(ii)) by the Food and Drug
Administration; and
(D) excludes such an application or
supplement submitted under section 351(a) of
the Public Health Service Act (42 U.S.C.
262(a)) that has been granted exclusivity
pursuant to section 351(k)(7) of such Act (42
U.S.C. 262(k)(7)).
(5) Commission.--The term ``Commission'' means the
Federal Trade Commission
(6) Disadvantage.--The term ``disadvantage'' means to
impede the listed drug or reference product's ability
to compete on the merits with the follow-on product.
This term excludes actions that consist solely of--
(A) truthful, non-misleading promotional
marketing; or
(B) ceasing promotional marketing for the
listed drug or reference product.
(7) Generic drug.--The term ``generic drug'' means a
drug approved under an application submitted under
subsection (b)(2) or (j) of section 505 of the Federal
Food, Drug, and Cosmetic Act (21 U.S.C. 355).
(8) Listed drug.--The term ``listed drug'' means a
drug listed under section 505(j)(7) of the Federal
Food, Drug, and Cosmetic Act (21 U.S.C. 355(j)(7)).
(9) Manufacturer.--The term ``manufacturer'' means
the holder, licensee, or assignee of--
(A) an approved application for a drug under
section 505(c) of the Federal Food, Drug, and
Cosmetic Act (21 U.S.C. 355(c)); or
(B) a biological product license under
section 351(a) of the Public Health Service Act
(42 U.S.C. 262(a)).
(10) Reference product.--The term ``reference
product'' has the meaning given the term in section
351(i) of the Public Health Service Act (42 U.S.C.
262(i)).
(11) Ultimate parent entity.--The term ``ultimate
parent entity'' has the meaning given the term in
section 801.1 of title 16, Code of Federal Regulations,
or any successor regulation.
(b) Prohibition on Product Hopping.--
(1) Prima facie.--Except as provided in paragraph
(2), a manufacturer of a reference product or listed
drug shall be considered to have engaged in an unfair
method of competition in or affecting commerce in
violation of section 5(a) of the Federal Trade
Commission Act if complaint counsel or the Commission
demonstrates by a preponderance of the evidence in a
proceeding initiated by the Commission under subsection
(c)(1), or in a suit brought under subparagraph (B) or
(C) of subsection (c)(1), that, during the period
beginning on the date on which the manufacturer of the
reference product or listed drug first receives notice
that an applicant has submitted to the Commissioner of
Food and Drugs an abbreviated new drug application or
biosimilar biological product license application and
ending on the date that is the earlier of 180 days
after the date on which that generic drug or biosimilar
biological product or another generic drug or
biosimilar biological product referencing the listed
drug or reference product is first marketed or 3 years
after the date on which the follow-on product is first
marketed, the manufacturer engaged in either of the
following actions:
(A) The manufacturer engaged in a hard
switch, which shall be established by
demonstrating that the manufacturer engaged in
either of the actions described in clause (i)
or (ii):
(i) Upon the request of the
manufacturer of the listed drug or
reference product, the Commissioner of
Food and Drugs withdrew the approval of
the application for the listed drug or
reference product or placed the listed
drug or reference product on the
discontinued products list; and
(I) the manufacturer marketed or sold
a follow-on product.
(ii)(I) The manufacturer of the
listed drug or reference product--
(aa) withdrew, discontinued
the manufacture of, or withdrew
the application with respect
to, or announced withdrawal of,
discontinuance of the
manufacture of, or withdrawal
of the application with respect
to, the drug or reference
product in a manner that
impedes competition from a
generic drug or a biosimilar
biological product, as
established by objective
circumstances, unless such
actions were taken by the
manufacturer pursuant to a
request of the Commissioner of
Food and Drugs; or
(bb) destroyed the inventory
of the listed drug or reference
product in a manner that
impedes competition from a
generic drug or a biosimilar
biological product, which may
be established by objective
circumstances; and
(II) marketed or sold a follow-on
product.
(B) The manufacturer engaged in a soft
switch, which shall be established by
demonstrating that the manufacturer engaged in
both of the following actions:
(i) The manufacturer took one or more
actions with respect to the listed drug
or reference product other than those
described in subparagraph (A) that
unfairly disadvantage the listed drug
or reference product relative to the
follow-on product described in clause
(ii) in a manner that impedes
competition from either a generic drug
or a biosimilar biological product,
which may be established by objective
circumstances.
(ii) The manufacturer marketed or
sold a follow-on product.
(2) Justification.--
(A) In general.--Subject to paragraph (3),
the actions described in paragraph (1) by a
manufacturer of a listed drug or reference
product shall not be considered to be an unfair
method of competition in or affecting commerce
if--
(i) the manufacturer demonstrates to
the Commission or a district court of
the United States, as applicable, by a
preponderance of the evidence in a
proceeding initiated by the Commission
under subsection (c)(1), or in a suit
brought under subparagraph (B) or (C)
of subsection (c)(1), that--
(I) the manufacturer would
have taken the actions
regardless of whether a generic
drug that references the listed
drug or biosimilar biological
product that references the
reference product had already
entered the market; and
(II)(aa) with respect to a
hard switch under paragraph
(1)(A)(i), the manufacturer
took the action for reasons
relating to the safety risk to
patients of the listed drug or
reference product;
(bb) with respect to an
action described in item (aa)
or (bb) of paragraph
(1)(A)(ii)(I), there is a
supply disruption that--
(AA) is outside of
the control of the
manufacturer;
(BB) prevents the
production or
distribution of the
applicable listed drug
or reference product;
and
(CC) cannot be
remedied by reasonable
efforts; or
(cc) with respect to a soft
switch under paragraph (1)(B),
the manufacturer had legitimate
pro-competitive reasons, apart
from the financial effects of
reduced competition, to take
the action.
(B) Rule of construction.--Nothing in
subparagraph (A) may be construed to limit the
information that the Commission may otherwise
obtain in any proceeding or action instituted
with respect to a violation of this section.
(3) Response.--With respect to a justification
offered by a manufacturer under paragraph (2),
complaint counsel or the Commission, as applicable,
will prevail in its case if it establishes by a
preponderance of the evidence that--
(A) the conduct described in subsection
(b)(1) is not reasonably necessary to address
or achieve the justifications claimed under
paragraph (2)(A)(II)(aa-cc), or such
justifications could be reasonably addressed or
achieved through less anticompetitive means; or
(B) the pro-competitive benefits from the
conduct described in subparagraph (A) or (B) of
paragraph (1), as applicable, do not outweigh
any anticompetitive effects of the conduct,
even in consideration of the justification so
offered.
(c) Enforcement.--
(1) Enforcement by the federal trade commission.--
Except as provided in paragraph (2), the Commission
shall enforce this section in the same manner, by the
same means, and with the same jurisdiction, powers,
duties, and remedies provided for by all applicable
terms and provisions of the Federal Trade Commission
Act (15 U.S.C. 45 et seq.).
(2) Judicial review.--
(A) In general.--Notwithstanding any
provision of section 5 of the Federal Trade
Commission Act, any manufacturer that is
subject to a final order of the Commission that
is issued in a proceeding initiated under
paragraph (1) may, not later than 30 days after
the date on which the Commission issues the
order, petition for review of the order in--
(i) the United States Court of
Appeals for the District of Columbia
Circuit; or
(ii) the court of appeals of the
United States for the circuit in which
the ultimate parent entity of the
manufacturer is incorporated.
(B) Treatment of findings.--In a review of an
order issued by the Commission conducted by a
court of appeals of the United States under
subparagraph (A), the factual findings of the
Commission shall be conclusive if those facts
are supported by the evidence.
(3) Rules of construction.--Nothing in this
subsection may be construed as--
(A) requiring the Commission to bring a suit
seeking a temporary injunction under paragraph
(1)(B) before bringing a suit seeking a
permanent injunction under paragraph (1)(C); or
(B) affecting any other authority of the
Commission under this Act to seek relief or
obtain a remedy with respect to a violation of
this Act.
* * * * * * *
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