Life Science Compliance Update

October 04, 2017

New Research Published on Generic Competition

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As the FDA looks to boost generic competition, a new working paper published by the National Bureau of Economic Research (NBER) suggests that competition among generic drugmakers slows over time, potentially leading to higher prices for older treatments and drug shortages. The analysis authored by Ernst Berndt and Stephen Murphy of the Massachusetts Institute of Technology, and Rena Conti from the University of Chicago, reveals that generic drug prices have risen by a statistically significant margin over time as the rate of new entrants to the market has slowed and the number of firms competing for individual drugs has fallen over time. After 2007, the authors say the median number of competitors for an individual generic dropped from between two and three to just two through 2016, with 40% of generics being made by a sole manufacturer.

Implications of the Research

The findings of this paper have several implications. First, the research indicates that the generic drug markets in the U.S. are supplied by monopolists. Some therapeutic classes and molecule formulations appear to be long characterized by this market structure. With such limited suppliers of generic drugs observed over the study’s time frame and high levels of concentration, the researchers wonder why prices of generic drugs and associated revenues have not risen more dramatically over the time they have observed.

Another implication of the paper’s findings is that while the Waxman-Hatch Act is founded on the assumption of the desirability of establishing competition through lowering initial entry costs, less policy focus has been placed on the long-term maintenance of competition in generic prescription drug markets. Over time, several forces may act to erode the latter. Alleged anticompetitive activities among generic manufacturers and between generic and branded firms include raising entry barriers by, for example, “pay for delay” agreements. The paper’s evidence suggests that federal policies in pursuit of worthy goals, including ACA and GDUFA I, might have inadvertently eroded generic competition through increased user fees that increased entry barriers and incentives to exit.

Future Research

The paper’s authors note their results are preliminary and their limitations suggest potentially fruitful areas for future research. One such area involves further analyzing of manufacturer “type” by identifying annual revenue, country of incorporation, year of incorporation, organizational structure, and the existence and timing of mergers and acquisitions among manufacturers using the databases on companies registered in the U.S. This could provide information on the roles of consolidations and merger and acquisitions on measures of concentration, and ultimately on price levels, price changes and revenues.

Finally, future research might explore use of semi-structural and structural models to relate cross-sectional and dynamic market structure to observed pricing and revenue trends among generic drugs under conditions of imperfect competition. To circumvent issues of endogeneity, one could limit the sample to triopolies, and examine the price and aggregate output effects of exits that result in a duopoly, or entrants that result in a four-firm market.

September 18, 2017

Ohio Drug Distribution Verification: America’s Key Battleground State Shakes Up the Pharmaceutical Supply Chain

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The pharmaceutical industry faces monumental challenges in the age of globalization within the United States: state laws and regulations that are more stringent than their federal counterparts. This article provides the historical context and current overview of Ohio’s laws, regulations, and sub-regulatory guidance concerning the distribution of prescription drugs, including drug samples, into and within the state, the verification requirements when distributing product to terminal distributors of dangerous drugs and prescribers, record retention responsibilities, and penalties for noncompliance. The article then examines the industry’s response from a major manufacturer, a distributor/third-party logistics provider, verification vendor, and compliance advisory vendors. It concludes with a call to action to the industry to form a new coalition to address state legislative and regulatory actions that have the potential to disrupt the entire supply chain.

The pharmaceutical industry faces a major dilemma: active state legislatures, administrative agencies, and state attorney generals. There is a plethora of reasons why states have turned their attention towards the manufacturers and trading partners, such as wholesale distributors and third-party logistics providers (“3PLs”). There is an opioid crisis gripping the nation, an ever-growing increase in healthcare costs, unstoppable negative publicity aimed at the pharmaceutical industry, an emboldened citizenry demanding their legislatures to do something, hospital and insurance lobbies joining the fight. As a result, state politicians are using all of this to their advantage to pass laws aimed at the industry.

This article discusses a law that has been on the books for over forty years, and amended numerous times, including a 2017 revision that lead to Ohio becoming pharma’s “key battleground state.”

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September 08, 2017

Celgene Settles Whistleblower Suit for $280 Million

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Late July 2017, Celgene Corp., a manufacturer of pharmaceuticals, agreed to pay $280 million to settle fraud allegations related to the promotion of two cancer treatment drugs for uses not approved by the United States Food and Drug Administration (FDA).

The settlement resolves allegations brought in a “whistleblower” lawsuit that Celgene promoted two cancer drugs – Thalomid and Revlimid – for uses that were not approved by the FDA and not covered by federal health care programs. The allegations included the use of false and misleading statements about the drugs, and paying kickbacks to physicians to induce them to prescribe the drugs. The lawsuit also alleged that Celgene violated the laws of 28 states and the District of Columbia by submitting fraudulent claims to state health care programs, including California’s Medi-Cal program. The whistleblower lawsuit was filed in United States District Court by Beverly Brown, who was employed as a sales manager by Celgene, under the qui tam provisions of the False Claims Act and similar laws of the District of Columbia and the 28 states included in the lawsuit.

Ms. Brown alleged that her supervisors at Celgene instructed her and other sales employees to promote to doctors various off-label uses of the drugs, and that she was rewarded for it in her compensation. The lawsuit alleged the marketing activities caused doctors to write prescriptions for the drugs that government health programs such as Medicare shouldn’t have paid for, but did.

According to Reuben A. Guttman, an attorney representing the whistleblower, cancer drugs are typically more difficult to pursue in off-label promotion cases because oncologists tend to prescribe drugs for unapproved uses in an effort to combat a deadly and often times mysterious disease. “The company got the idea that it could be fast and loose with what it was saying about its drug because it was selling to cancer patients who might be in need.” Guttman continued, noting, “At the end of the day, what this is about is that even when you’re on life’s edge,” a company “can’t break the law by off-label marketing a drug.”

Pursuant to the settlement, Celgene will pay $259.3 million to the United States and $20.7 million to the 28 states and the District of Columbia. California will receive $4.7 million, more than any other state.

Though the DOJ's marketing prosecutions lately have focused on kickbacks, the Celgene case is a off-label marketing lawsuit. Brown alleged that Celgene used sales meetings to train its reps to market Thalomid and Revlimid for cancers it wasn't approved to treat. Celgene reps allegedly touted studies that, according to Brown, failed to provide adequate scientific evidence to support those off-label uses. Brown also claimed that the initial label on Thalomid didn't include warnings related to its use in cancer, which she alleges made the off-label prescriptions "tantamount to ongoing human experimentation." One case is unlikely to show a tide turning within the DOJ’s prosecutorial discretion.

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