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FTC Wades Into Private “Product Hopping” Suit with Proposed Amicus Brief
“Product hopping” or “product switching” has been defined by critics as the practice of brand manufacturers introducing reformulations that reflect only “minor therapeutic changes” in an attempt to “switch” the market to the reformulation prior to generic entry by removing the prior version from the market or raising its price. For example, in Mylan v. Warner Chilcott, Mylan alleges that Warner Chilcott engaged in three product switches—(1) changing the dosage form from a capsule to a tablet; (2) increasing the dosage of the tablet product; and (3) switching from a “single-scored” to a “double-scored” tablet.
In its proposed brief opposing Warner Chilcott’s motion to dismiss, the FTC argues that product hopping allows the brand to stay one step ahead of would-be generic competitors that rely on state pharmacy rules permitting pharmacists to substitute a generic drug for a branded counterpart that is the same dosage and form. According to the FTC, this tactic effectively eliminates the market for the generic before it can enter. The FTC asserts that such conduct may constitute illegal monopolization in violation of Section 2 of the Sherman Act.
On the other hand, brand drug companies generally argue that introducing a new or redesigned product is pro-competitive where the new product constitutes an improvement; moreover the old product often is still available on the market so that the new product increases options for patients; at worst the introduction is competitively neutral where one product simply replaces another. They also say that penalizing the introduction of new products reduces incentives for brand manufacturers to pursue incremental innovation that can provide significant benefits for patients. The FTC counters that the pharmaceutical industry is particularly susceptible to anticompetitive product redesign because the brand may be able to achieve a shift of market demand to the new formulation regardless of whether patients or physicians prefer the new formulation.
Although the FTC has not yet brought a case primarily based on a “product hopping” theory, this recent filing suggests that such conduct is of concern to the agency and may receive close agency scrutiny.
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