Markman Advisors
Patent Valuation, Monetization and Investments

Blog

Markman Advisors Patent Blog

What are the takeaways from the Remicade® antitrust decision between Pfizer and J&J?

Zachary Silbersher

We previously blogged about Pfizer’s ($PFE) antitrust lawsuit against Johnson & Johnson ($JNJ) related to Janssen’s Remicade®.  In short, Pfizer launched Inflectra® in 2016, which is a biosimilar to Janssen’s Remicade®.  Yet, Inflectra® has struggled to eat into Janssen’s monopoly for Remicade®.  Pfizer claims that Inflectra®’s poor sales are due to anticompetitive rebate schemes by Janssen.  Specifically, Janssen forced hospitals and insurers to enter exclusive arrangements and bundled-rebated programs that discouraged them from stocking or covering Inflectra®.  Pfizer sued Janssen in the Eastern District of Pennsylvania.  Janssen moved to dismiss, but on August 10, the Court denied Janssen’s motion to dismiss.  What are the takeaways?

The Court Denies Janssen’s Motion to Dismiss.

On August 10, 2018, the Pennsylvania Court denied Janssen’s motion to dismiss.

First, the Court held that Pfizer was not required to disprove all alternate theories of causation on a motion to dismiss.  Janssen offered numerous reasons that Inflectra® has likely failed, which have nothing to do with Janssen’s exclusionary agreements with insurers and providers.  Remicade® has been on the market for years, and physicians are very familiar with it.  By contrast, biosimilars remain very new, and physicians and patients are still learning to embrace them.  Inflectra® is a biosimilar for Remicade®, but not deemed interchangeable.  Remicade® remains cost-effective, and even discounted biosimilars are insufficient to move physicians and patients off the originator drug.  Finally, Inflectra® does not just compete against Remicade®, but against lots of other FDA-approved drugs for chronic inflammatory conditions. 

Put simply, Janssen argued there is no nexus between Inflectra®’s poor sales and Janssen’s exclusionary contracts.  The Court found that Pfizer was not required to disprove all other causes on a motion to dismiss.  Importantly, however, the Court left open the door for Janssen to show that one of more of these reasons to exonerate itself. 

That is an important takeaway because it highlights that even though the Court found that Janssen’s tactics can, in theory, lead to antitrust liability, it also highlighted the way for future companies to avoid such liability.

Second, the Court held that bundled rebates can be anticompetitive when they foreclose competition in a competitive market by linking it to a non-competitive market.  Specifically, Janssen bundled rebates for both the contestable (new) and incontestable (legacy) patients in the infliximab market.  Taking as true the allegation that incontestable demand is truly inelastic, the Court found that Janssen’s rebate program thus used its power in the incontestable market to break the competitive mechanism in the contestable market.

This is also an interesting finding because it shows the manner in which rebate schemes may be tailored by innovators to potentially exclude non-competitive products, and still avoid antitrust liability.  Given that most biologics also have legacy patients, this factor may be relevant to future rebate schemes.

As a corollary, Pfizer also attacked Janssen for bundling its rebates across multiple different products.  In response Janssen had previously argued that Pfizer could have offered its own competing bundled rebate.  Given that Pfizer has the capacity to do so, since it is not a single-product producer, the Court held that Janssen’s tactic of bundling rebates across multiple products is not, per se, an antitrust violation.  While I personally find that reasoning somewhat suspect, the District Court’s opinion is beginning to define the contours of which parts of a rebate scheme are permissible and which are not.  And a lot of that will depend on who the biosimilar competitor actually is.

Finally, Janssen disputes Pfizer’s claim that its biosimilar is actually priced lower than Remicade®.  Rather, Janssen claims that after accounting for discounts, rebates and price concessions, Inflectra®’s net price is not competitive against Remicade®.  The Court held that Pfizer ultimately plead sufficient facts to overcome the motion to dismiss, which was anticipated.  The outcome of this case, if it goes through trial, will likely shed more light on which pricing practices are suspect under antitrust laws, and which are not.

FDA’s Biosimilar Action Plan.

Against the backdrop of this case is the FDA.  Janssen’s exclusionary tactics appear to have been in the sights of the FDA.  A few weeks ago, the FDA made remarks that expressly criticized the sorts of exclusionary rebate programs used by Janssen to stem entry of biosimilar competition.

On July 18, 2018, FDA released its Biosimilars Action Plan. Along with that plan, the FDA issued prepared remarks by Commissioner Gottlieb.  In those remarks, Gottlieb lamented that competition for biosimilars in the US is “anemic.”  Gottlieb identified two primary reasons for “anemic” competition. 

First, Gottlieb pointed at rebate programs that bundle products.  Gottlieb stated that biosimilar competition is “anemic because consolidation across the supply chain has made it more attractive for manufacturers, Pharmacy Benefit Managers, Group Purchasing Organizations and distributors to split monopoly profits through lucrative volume-based rebates on reference biologics—or on bundles of biologics and other products—rather than embrace biosimilar competition and lower prices.”

Second, Gottlieb also pointed at patent litigation due to “patent thickets.”  Gottlieb stated that biosimilar competition is “anemic because litigation has delayed market access for biosimilar products that are, or shortly will be, available in markets outside the U.S. several years before they’ll be available to patients here. These delays can come with enormous costs for patients and payors.”

Gottlieb further stated, “[b]ut rebating schemes or patent thickets that are purely designed to deter the entry of approved biosimilars are spoiling this sort of competition. Long-dated contracts are another toxin. The branded drug makers thwart competition by dangling big rebates to lock up payors in multi-year contracts right on the eve of biosimilar entry.

“We’re also concerned that volume-based rebates may encourage dysfunctional clinical treatment pathways. We’ve heard from multiple sources that some payors are requiring step-therapy or prior authorization on the reference biologic before patients can access a biosimilar. We see no clinical rationale for these practices, since a biosimilar must demonstrate, among other things, that it has no clinically meaningful differences from the reference product as a part of demonstrating biosimilarity.”

Gottlieb stated that the FDA is not going to play “regulatory whack-a-mole with companies trying to unfairly delay or derail the entry of biosimilar competitors.”  He further expressed concern that delay tactics by innovator drug companies -- either through anticompetitive rebating programs or patent thickets – are discouraging development of biosimilar drugs.  He stated that expanding access to affordable biosimilar drugs is more critical today than it was in 1984, when the Hatch-Waxman Act for small-molecule generics was enacted.

Because of this, Gottlieb announced that the FDA’s new Biosimilar Action Plan will, among other things, support “market competition by reducing gaming of FDA requirements or other attempts to unfairly delay market competition to follow-on products.”

            So what are the takeaways?

Two things are clear.  The FDA has frowned upon the sorts of exclusionary tactics used by Janssen to keep out Pfizer’s biosimilar for Remicade®.  And at least one United States District Court has now held that those tactics may, under certain circumstances, rise to the level of impermissible monopolization.  Together, these developments should give innovator biologics producers pause before entering similar exclusionary and rebate agreements with insurers and providers. 

That pause is important.  Innovator biologics have used two primary ways of delaying competition from biosimilars.  The first is through enforcement of patents, and the second, as shown by Janssen, is with exclusionary discount agreements. 

These exclusionary agreements are important in the context biologics.  Remicade®, like most biologics, are often infusion products.  They are a “medical benefit” product, rather than a “pharmacy benefit” product.  That means they must be stocked in advance by clinics and hospitals, rather than directly purchased by patients on an as-needed basis.  Since providers—hospitals, clinics and so forth—are the ones bearing the risk of reimbursement, there is an incentive for them to stock the drug that will actually be covered by the most insurers.

On the other hand, the District Court did not conclusively hold that Janssen’s tactics are necessarily wrongful just yet.  All the Court did was rule that Pfizer’s case can proceed to trial.  Indeed, Janssen argued that there are a number of reasons that Inflectra® has not been successful separate and apart from Janssen’s agreements with insurers and providers.  The District Court left open the door that Janssen will be able to show, at trial, that Inflectra®’s sales have nothing to do with Janssen’s tactics, and have everything to do with circumstances outside of Janssen’s control.  That should give biologics some comfort that rebate programs and other tactics are not unkosher, just yet.

At this point in time, the District Court’s decision is comparatively more important—at least in the near term—to Commission Gottlieb’s remarks.  The FDA does not regulate rebate agreements between drug companies and providers and insurers, and it remains unclear how the FDA will, in its own words, support “market competition by reducing gaming of FDA requirements or other attempts to unfairly delay market competition to follow-on products.”  Indeed, some commentators have suggested that Commissioner Gottlieb’s remarks are notable for what they did not mention—namely, that pricing practices by biosimilars may have a lot to do with their failure to achieve anticipated market penetration.

All told, the outcome of Pfizer’s antitrust case could have significant long-term impact on the biologics industry.  Janssen’s bid to short-circuit the suit has failed, and so the case proceeds.