Creating a Partial Solution to Delayed Generic Competition

This article explores the benefits and limitations of the proposed legislation, the CREATES Act of 2016.

A bipartisan group of U.S. senators recently introduced the latest piece of legislation meant to address the growing concern over brand drug manufacturers’ use—or misuse—of restrictive distribution arrangements to thwart potential competition from rivals seeking to introduce generic or biosimilar versions of branded products. The Creating and Restoring Equal Access to Equivalent Samples (CREATES) Act of 2016 is intended to provide generic drug manufacturers a clear path to the courthouse in the event a brand manufacturer unreasonably refuses to: (1) provide sufficient samples of branded product to their generic or biosimilar rivals for purposes of conducting the testing required to file applications for the approval to sell their generic or biosimilar products; or (2) cooperate on the formation of a shared distribution safety protocol with their generic or biosimilar rivals.[1]

If enacted, the CREATES Act will likely curb the worst abuses involving the sale of samples or development of a single, shared distribution safety protocol. However, while addressing certain forms of misconduct, the act does not address other types of conduct intended to delay generic or biosimilar competition—e.g., pay-for-delay agreements to resolve patent litigation between brand manufacturers and generic (or biosimilar) manufacturers. Nor does it provide a clear right of action to drug purchasers who are likely adversely affected by the very delays the act seeks to redress. This article explores the benefits and limitations of the proposed legislation.[2]

Restrictive Distribution Arrangements

Under the Food, Drug and Cosmetic Act (FDCA) and Biologics Price Competition and Innovation Act of 2009 (BPCIA), generic or biosimilar manufacturers are able to seek approval of generic or biosimilar versions of branded products by filing an Abbreviated New Drug Application (ANDA, for generics) or abbreviated Biologics License Application (aBLA, for biosimilars). By filing an ANDA or aBLA, generic or biosimilar manufacturers can rely on the scientific and clinical research used to support the approval of the referenced branded product.

However, both ANDAs and aBLAs require applicants to demonstrate that the proposed product will have the same pharmacokinetic properties as the referenced branded product.[3] As a result, ANDA and aBLA applicants must obtain sufficient samples of the branded product so that the proposed generic or biosimilar product’s pharmacokinetic profile can be compared against the branded product. Without such samples, the potential new entrant does not have the opportunity to meet the requirements necessary to enter the market to offer a cheaper, alternative drug product to consumers.

Obtaining samples is often easier said than done. For example, many drugs are encumbered by restrictive distribution arrangements that limit the ability of rival manufacturers to obtain sufficient samples. Sometimes these restrictions are imposed by the U.S. Food and Drug Administration under what are known as risk evaluation mitigation strategies with elements to assure safe use (REMS with ETASU).[4] REMS with ETASU essentially require brand manufacturers, and those involved in the distribution or administration of REMS-linked drugs, to monitor their distribution and use because of the significant health risks posed by these drugs if misused. Currently, there are over 40 pharmaceutical products with FDA-approved REMS with ETASU.[5] Absent a waiver from the FDA, generic manufacturers are required to work with brand manufacturers to develop a shared REMS with ETASU before bringing their generic product to market.[6] This is where problems can arise.

Brand manufacturers have been accused of using REMS with ETASU to justify their refusal to sell samples of their drugs to their generic rivals or to perpetuate negotiations over the sale of samples. Generic manufacturers have sued brand manufacturers under the antitrust laws, arguing that using REMS with ETASU in such a manner constitutes an unlawful refusal to deal under Section 2 of the Sherman Act.[7] Similarly, with respect to developing shared REMS with ETASU, forced cooperation arguably provides the brand manufacturer with the opportunity to slow a generic manufacturer’s ability to bring its product to market.

Even when there is no REMS with ETASU, brand manufacturers have tried to thwart generic entry by restricting the sale of their drugs to certain distribution channels. For example, shortly after acquiring the rights to Daraprim, an antiprotozoal, Turing Pharmaceuticals increased its price 5,000 percent and restricted its distribution channel to just a single pharmacy.[8] According to a former Turing employee, this decision was done to insulate Daraprim from competition by making it more difficult for generic rivals to obtain samples of the drug necessary for the filing of an ANDA.[9]

Industry stakeholders claim that restricted distribution arrangements add as much as $5.4 billion annually in health care costs due to the loss of potential generic competition.[10] Further, they have found that “as companies expand this practice to biosimilars, it could result in approximately $140 million in lost savings for every $1 billion in biologics sales.”[11]

The CREATES Act

The CREATES Act is the latest attempt to provide clarity to drug manufacturers about their duties to cooperate.[12] Although existing legislation already prohibits drug manufacturers from using a REMS with ETASU to thwart generic competition, it provides no guidance on how long a generic or biosimilar manufacturer must negotiate with the brand manufacturer before resorting to litigation.[13] Nor does it create a private right of action for such abuse. The CREATES Act addresses both issues by arresting the ability of a brand manufacturer to drag out negotiations indefinitely over the sale of samples and the development of a shared REMS with ETASU, and giving generic and biosimilar manufacturers a clear right of action.

With respect to sale of samples, the CREATES Act permits a generic or biosimilar manufacturer to sue the brand manufacturer if the brand manufacturer fails to sell sufficient samples on “commercially reasonable, market-based terms” within 31 days after receiving the generic or biosimilar manufacturer’s request if the product is not subject to a REMS with ETASU.[14] For products subject to REMS with ETASU, a generic or biosimilar manufacturer’s right to sue is triggered after 31 days has passed since the later of: (1) the generic or biosimilar manufacturer’s request for the sale of samples; or (2) receipt of written authorization from the FDA that the sale of samples will not constitute a violation of the applicable REMS.[15]

With respect to the development of a shared REMS with ETASU, the act permits a generic or biosimilar manufacturer to sue the brand manufacturer if no agreement has been reached after 120 days of initiating a request to develop a shared REMS with ETASU.[16]

Under the act, a generic or biosimilar manufacturer who brings an action is entitled to injunctive relief, monetary damages sufficient to deter the conduct causing the delay (i.e., refusing to sell samples or agree to a single, shared REMS with ETASU), and attorneys’ fees. Monetary damages under the act are potentially steep. A victorious generic or biosimilar manufacturer may receive damages equal to the brand manufacturer’s revenues on the drug at issue from the time when a generic or biosimilar manufacturer is entitled to sue until the brand manufacturer either provides the samples or agrees to a shared REMS with ETASU.[17] Further, the act expressly permits the continued use of the antitrust laws to redress injury caused by a brand manufacturer’s unreasonable refusal to deal.[18]

The Likely Effects of the CREATES Act

The CREATES Act will likely deter brand manufacturers from the most blatant abuses—e.g., outright refusals to sell samples or cooperate on a single, shared REMS with ETASU. This is because the CREATES Act sets a date certain for when generic and biosimilar manufacturers may seek court intervention. Once a generic or biosimilar manufacturer makes a request for the sale of samples or the creation of a shared REMS with ETASU, the pressure will be on the brand manufacturer to reach an agreement with the generic or biosimilar manufacturer within the timeframe provided by the statute. Failure to do so will subject the brand manufacturer to a lawsuit, where it faces not only an injunction, but also the prospect of paying significant damages and attorneys’ fees.

However, the civil actions permitted by the act may nonetheless be hampered because such lawsuits require generic manufacturers to show that the brand manufacturer failed to agree to “commercially reasonable terms.”[19] Commercial reasonability may be easier to define when it comes to the sales of widely distributed drug products. But it may be less so in the context of developing a shared REMS with ETASU, an issue highlighted by the fact that the FDA, to date, has not issued any specific guidance or rulemaking concerning the respective responsibilities of parties negotiating a shared REMS with ETASU, including as it relates to cost-sharing.[20] Precedent on shared REMS is limited, and currently, out of the nearly 250 FDA-approved REMS since 2007, only seven have been shared.[21] Despite the lack of guidance, courts will be required to wade into unknown waters to determine what is commercially reasonable in these types of arrangements.

Some have also argued that the CREATES Act handcuffs the FDA’s ability to demand that a generic or biosimilar applicant adhere to the stringent standards of existing REMS—thereby supposedly jeopardizing health and safety — because the FDA is required to provide authorization to generic or biosimilar applicants who seek it.[22] But this contention is somewhat strained because it seems improbable that the act’s sponsors intended to remove the FDA’s general mandate in safeguarding public health and safety for the sake of accelerating potential competition. And indeed, for REMS-liked drugs that are to be used in human testing, the act implicitly preserves the FDA’s ability to refuse authorization if the party requesting it cannot show that its protocols “are comparable those provided by the REMS for the covered product; or ... otherwise satisfied the [FDA] that such protections will be provided.”[23] Further, one commentator has noted that if a generic or biosimilar manufacturer fails to adhere to the proper safety protocols, the brand manufacturer will have no liability under the act for such a failure.[24]

The CREATES Act also does not provide a right of action for direct or end-payor purchasers of drugs encumbered by restrictive distribution arrangements. But the absence of a specific remedy for drug purchasers does not leave them powerless to address injury caused by the misuse of restrictive distribution arrangements. For example, drug purchasers are currently litigating whether Celgene violated the antitrust laws by misusing REMS with ETASU to prevent generic drug manufacturers from obtaining samples of Thalomid and Revlimid.[25]

Lastly, even though the CREATES Act will likely deter the most egregious abuses concerning access to drug samples and cooperation on shared REMS, brand manufacturers will still have strong incentives to protect their products from competition and aggressively defend their intellectual property rights through litigation. The risk remains that brand and generic (or biosimilar) manufacturers will enter into patent settlements where the brand manufacturer pays for delayed entry of a competitive generic product, as nothing in the act addresses this type of potentially anti-competitive conduct.

In sum, although the CREATES Act leaves some competitive concerns unanswered and raises some additional questions, it provides a starting point to address some of issues affecting access to cheaper generic and biosimilar drug products to millions of Americans.

—By Gregory Asciolla and Matthew Perez, Labaton Sucharow LLP

Gregory Asciolla is a partner in Labaton's New York office and is co-chairman of the firm's antitrust and competition litigation practice. Matthew Perez is an associate in Labaton Sucharow's New York office.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] S. 3056, 114th Congr. (June 14, 2016).

[2] On June 21, 2016, the Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights held a hearing on the CREATES Act and received testimony from several industry experts and stakeholders.

[3] See 21 U.S.C. § 355(j)(2)(A)(iv); 42 U.S.C. § 262(k)(2)(A)(i).

[4] See 21 U.S.C. § 355-1.

[5] http://www.accessdata.fda.gov/scripts/cder/rems/.

[6] 21 U.S.C. § 355-1(i)(1)(B).

[7] See, e.g., Order, Lannett Co. v. Celgene Corp., No. 2:08-cv-03920 (E.D. Pa., Dec. 7, 2011), ECF No. 51; Transcript of Oral Opinion, Mylan Pharms. Inc. v. Celgene Corp., No. 2:14-cv-02094 (D.N.J. Dec. 22, 2014), ECF No. 56.

[8] See The Creating and Restoring Equal Access to Equivalent Samples (CREATES) Act of 2016: Preventing Abusive Tactics that Delay the Creation of Affordable Generic Drugs, https://www.leahy.senate.gov/imo/media/doc/CREATES%20Act%20-%20One%20Pager%20for%20Press%20Release.pdf; Michael Carrier & Aaron Kesselheim, The Daraprim Price Hike And A Role For Antitrust, Health Affairs Blog (Oct. 21, 2015), http://healthaffairs.org/blog/2015/10/21/the-daraprim-price-hike-and-a-role-for-antitrust/.

[9] Id.

[10] Ltr. from Generic Pharmaceutical Association, et al. to Hon. Chuck Grassley, et al. at 1 (June 14, 2016), http://www.gphaonline.org/media/cms/CREATES_Act_Group_Letter.pdf.

[11] Id.

[12] In 2014, and again in 2015, the House of Representatives introduced the Fair Access for Safe and Timely (“FAST”) Generics Act, which sought to amend Section 505-1 of the FDCA concerning REMS. The legislation was intended to make it clear that unreasonable refusals to sell samples or cooperate on the development of a single, shared ETASU would provide generic or biosimilar manufacturers a claim under the Clayton Act. See FAST Generics Act of 2014, H.R. 5657, 113th Congr. (Sept. 18, 2014); FAST Generics Act of 2015, H.R. 2841, 114th Congr. (June 19, 2015). Both iterations of the FAST Generics Act have languished in the House Energy and Commerce Subcommittee on Health.

[13] 21 U.S.C. § 355-1.

[14] CREATES Act, § 3(b)(1)(B)(i)(IV). Brand manufacturers are afforded certain affirmative defenses to such a suit, including, among others, that there is no restriction on the sale of the product at issue. See CREATES Act, § 3(b)(1)(C).

[15] Id. at § 3(b)(1)(B)(i)(IV).

[16] Id. at § 3(b)(2)(B).

[17] Id. at § 3(b)(1)(D)(ii) & § 3(b)(2)(C)(ii).

[18] Id. at § 3(d)(2) (“Nothing in this section shall be construed to limit the operation of any provision of the antitrust laws.”).

[19] See CREATES Act, § 3(b)(1)(B)(i)(II), (IV) and § 3(b)(2)(B)(iv).

[20] See Prometheus Therapeutics & Diagnostics, Citizen Petition at 8, FDA Dkt. 2013-P-0572 (May 10, 2013); FDA, Guidance for Industry, Risk Evaluation & Mitigation Strategies: Modifications and Revisions, at 2 (April 2015), http://www.fda.gov/downloads/drugs/guidancecomplianceregulatoryinformation/guidances/ucm441226.pdf (“This guidance does not address additional procedures that may apply to application holders proposing changes to REMS that are part of a single shared system. FDA intends to address these procedures in future guidance.”).

[21] Historical REMS data can be downloaded from: http://www.accessdata.fda.gov/scripts/cder/rems/index.cfm?event=RemsData.page.

[22] See Written Testimony of Peter Safir, U.S. Senate Committee on the Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights, Hr’g on the CREATES Act of 2016 (S. 3056) (June 21, 2016), at 5, https://www.judiciary.senate.gov/imo/media/doc/06-21-16%20Safir%20Testimony.pdf.

[23] CREATES Act, § 3(b)(1)(B)(ii)(II)(bb)(AA) – (BB).

[24] See Written Testimony of Alden F. Abbott, U.S. Senate Committee on the Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights, Hr’g on the CREATES Act of 2016 (S. 3056) (June 21, 2016), at 6, https://www.judiciary.senate.gov/imo/media/doc/06-21-16%20Abbott%20Testimony.pdf (citing CREATES Act, § 3(c)).

[25] In re Thalomid & Revlimid Antitrust Litig., No. 2:14-cv-06997, 2015 WL 9589217 (D.N.J. Oct. 29, 2015) (denying defendants’ motion to dismiss).