Antitrust Law

Can Antitrust Prevent Excessive Drug Price Increases?

The antitrust agencies are often asked to intervene in markets where pricing appears to be excessive to help protect consumers and stabilize markets. In the drug arena, healthcare providers, consumers and politicians have been extremely vocal in criticizing some companies, such as Mylan, Valeant and Turing, for price-gouging, and politicians have publicly called on the Federal Trade Commission (FTC) to investigate and take action against these companies. But at best, antitrust provides an incomplete response to drug pricing, forcing enforcers and private plaintiffs to be creative in the actions they bring.

Notable Price Increases

Valeant’s and Turing’s drugs are older compounds that are off-patent and had been on the market for several years prior to their acquisition. Following Valeant’s acquisition of Nitropress (for dangerously high blood pressure) and Isuprel (for the treatment of heart rhythm problems), Valeant increased its prices by three times and six times, respectively. Turing raised the price of Daraprim (used to treat toxoplasmosis and a key antibiotic used in treating HIV/AIDS) even more dramatically, with increases of over 5,000%. In both cases, the markets for these drugs, sold primarily to hospitals, were too small to attract generic entry. Valeant and Turing apparently targeted these niche monopoly products as able to bear considerable price increases without losing sales volume.

The situation with Mylan’s Epipen is somewhat different. Mylan acquired the EpiPen business in 2007, many years after the product came to market. The importance of the EpiPen is well-documented: Many adults and children rely on the product to manage life-threatening allergic reactions, and demand is magnified by the short shelf-life of the product. Outrage erupted after Mylan increased the price for an EpiPen two-pack from $100 in 2001 to $500-$600 in 2016, while manufacturing costs have apparently been stable.

Although off-patent and a considerable money-maker, generic entry for a competing auto-injector has been slow to emerge. Sanofi-Aventis’s competing epinephrine injector, Auvi-Q, was recalled in October 2015 for potential failures in delivering an accurate dose. A competing product from Amedra Pharmaceuticals, Adrenaclick, is not covered by many insurers. Teva has been developing a generic version of the EpiPen but failed to gain FDA approval earlier in 2016. This has left the playing field open for Mylan to continue to raise prices. In fact, it is likely that the imminence of generic entry has prompted the price increases, as Mylan seeks to optimize its sales dollars before its monopoly is eroded.

The Limits of Antitrust

The antitrust laws are designed to protect competition for the benefit of consumers. The theory is that competitive rivalry between firms leads to better outcomes for consumers in the form of lower prices, higher quality, more innovation and greater product diversity. There are several specific laws for combating anticompetitive activity, including prohibitions against restrictive agreements (notably price-fixing or bid-rigging cartels involving direct competitors), monopolization, and anticompetitive mergers. These laws can be difficult to apply in the drug-pricing context.

First, when drug-makers unilaterally impose price increases, per se prohibitions against anticompetitive agreements between competitors do not apply. Vertical agreements—those between manufacturers and customers—also have the potential to violate the antitrust laws, particularly where the manufacturer has market power, but these arrangements are usually assessed under the “rule of reason” standard, which requires proof of anticompetitive effects. This means that for an antitrust violation competition actually must be harmed, not necessarily consumers. Under current U.S. jurisprudence and agency practice, merely raising prices to take advantage of a monopoly that was legally acquired (whether through the patent laws or normal conduct of business) is not anticompetitive. Price increases may not affect the competitive process, because there is so little competition in the first place.

Monopolization also is a poor vehicle for enforcement in this context. Section 2 of the Sherman Act makes it illegal for a company to acquire or maintain a monopoly through improper means. The party must possess monopoly power in the relevant market and engage in the willful acquisition or maintenance of that power, as distinguished from growth or development as a consequence of a superior product, business acumen or historical accident. Taking advantage of a monopoly to raise prices is precisely what economics would indicate a monopolist should do and not the type of exclusionary act that would offend the antitrust laws.

Actions Underway

The New York Attorney General has taken an interesting angle to bring Mylan’s actions under the antitrust laws by investigating contracts that Mylan made schools sign as part of a program to provide discounted medication—the EpiPen4Schools program. Apparently, Mylan requires schools participating in the program to sign a contract agreeing not to purchase competitors’ epinephrine injectors for a year. If true, such a requirement could meet the elements for a claim of anticompetitive agreement and monopolization by effectively excluding rivals from the market for the sale of epinephrine auto-injectors to schools. Such an action, however, would not bring relief to the millions of consumers who purchase EpiPens outside the schools program.

The West Virginia Attorney General (AG) has taken another tack, opening an investigation of Mylan’s 2012 patent settlement with Teva, which prevented Teva from introducing its generic version of the EpiPen until 2015. Such an agreement could be a violation of the antitrust laws as a “pay for delay” settlement, although the claim will be complicated by Teva’s ultimate failure to win FDA approval to market its generic. (Click here to see our Antitrust Corner article concerning such settlements.) The AG also is investigating potential Medicaid fraud relating to rebates paid under the state’s Medicaid program.

Other actions have challenged Mylan’s practices under consumer protection laws, rather than the antitrust laws. A recently filed Michigan class action claims that, in selling EpiPens only in packs of two, Mylan made misstatements as to the need for two, omitted material information and engaged in deceptive and unconscionable acts in requiring consumers to purchase EpiPens in two-packs. Another class action filed in Ohio alleges that the price increases violate state consumer protection laws because “Defendant has a legal duty and obligation to set a fair, affordable, and reasonable [price] and not hold consumers hostage by forcing them to pay exorbitant prices for its medically necessary product.” It remains to be seen whether such claims survive judicial scrutiny. Given that exorbitant pricing has never been an offense in the past, and the benefits of and medical need for two EpiPens are well documented, Mylan’s defenses in these actions seem strong.

What Next?

Even assuming the New York Attorney General is successful in bringing Mylan to account for exclusionary conduct in the schools market, such an action is at best a limited solution to the situation and is unlikely to lead to broader price cuts. The consumer actions also seem to be a stretch, and it is unclear how long such actions will survive.

The more realistic solution likely lies in the legislature and policy realm, and in particular in the hands of the Food and Drug Administration (FDA), rather than the FTC. Several commentators have called for a reexamination of drug approval standards and potential legislative amendments to further fast-track the entry of generic competitors. Others have pointed to consumer-directed measures, such as transparency in the provision of pricing information. Whatever the approach, with prescription drug spending rising by over 7% a year, this issue will remain on the agenda.



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