Antitrust Lawyer Blog Commentary on Current Developments

Pfizer’s Suit Regarding J&J’s Rebate Trap Survives

On August 10, 2018, the Eastern District of Pennsylvania denied J&J’s motion to dismiss Pfizer’s antitrust action involving infliximab products.

Background on Pfizer/J&J

In September 2017, Pfizer filed an antitrust lawsuit under Sections 1 and 2 of Sherman Act alleging J&J engaged in exclusionary anticompetitive practices to keep Pfizer out of the market for infliximab products.

In 1999, J&J introduced the first infliximab product under the brand name Remicade, a biologic, which treats a variety of immune-mediated diseases. In 2016, Pfizer launched Inflectra as the first biosimilar to Remicade.

According to Pfizer’s allegations, within a week of Inflectra’s launch, J&J began to deploy its “Biosimilar Readiness Plan,” which allegedly involved a multi-pronged anticompetitive scheme including exclusive contracts and bundle rebates and multi-product bundling.   Pfizer’s allegation was that J&J threatened to withhold rebates (which often grow larger as performance metrics such as market share or volume rise, or which may be bundled together with rebates for other products) from insurers unless they agreed to exclude biosimilars from their formularies.  This is what Pfizer refers to as a “rebate trap”.

Exclusive Contracts: Pfizer alleges J&J sought and secured contractual commitments from commercial insurance companies to exclude Remicade biosimilars, such as Inflectra, from their plans.  These contracts made Remicade the exclusive infliximab product available to patients covered under those plans. At least 70% of commercially insured patients in the U.S. fall under plans that have adopted these express or de facto agreements to exclude Inflectra and other biosimilars.  As of September 2017, J&J maintained market share of over 96% of infliximab unit sales in the United States.

Bundling Rebates: Pfizer alleges J&J enticed insurers into accepting exclusive contracts via a rebate program that would provide discounts off Remicade’s increasing list price—but only so long as new patients are also given Remicade rather than Pfizer’s biosimilar, Inflectra. (bundling of new (contestable) and existing (noncontestable) patients)

Multi-Product Bundling: Pfizer alleges J&J bundled rebates across multiple products such that if an insurer refuses to grant exclusivity to Remicade, the insurer would be forced to pay a higher price on other J&J products in addition to Remicade.

Impact on Prices and Competition:

Pfizer alleges that both J&J’s net price accounting for rebates and other discounts continued to rise despite insurers and providers now having a lower-cost alternative in Pfizer’s Inflectra.  As a result, Pfizer claims that it has been prohibited from competing for at least 70% of all commercially insured patients in the United States.

Biosimilars:

Biosimilars are expected to be a key factor in efforts to contain prescription drug costs.  Biologics are complex, large-molecule medicines derived from living organisms and are used to treat a range of serious conditions, including rheumatoid arthritis, plaque psoriasis, Crohn’s disease, lymphoma, leukemia, breast cancer, and diabetes.  Biologics are among the most expensive prescription drugs in the United States and account for an increasing share of U.S. prescription drug costs.

The development of biosimilars is still a nascent industry.  But many industry experts and former Commissioner Gotlieb of the Food & Drug Administration (“FDA”) have expressed their views that increased competition from biosimilars could result in enormous benefits to the tune of $54 billion in savings between 2017 to 2026 for the U.S. healthcare system so making sure that biosimilars are allowed to compete on fair terms with higher priced branded biologic medicines is vitally important.  Some have indicated that the savings could be approximately $150 billion under the right conditions.  Exclusionary tactics through the use of a rebate wall threatens to stifle biosimilar competition and reduce patients access to affordable life saving drugs.

District Court’s Opinion

In J&J’s motion to dismiss, J&J argues that Pfizer failed to plead facts that constitute an antitrust injury.  J&J also identified a number of alternative reasons why Pfizer’s launch failed other than J&J’s conduct.  The district court found that Pfizer’s complaint sufficiently and plausibly alleges that it suffered an antitrust injury because it contained detailed allegations regarding J&J’s exclusionary terms with the nation’s largest insurers; the incentive structure that forces end payers and providers into accepting those terms; Pfizer’s efforts to compete (e.g., guarantee that Inflectra would cost less than Remicade); and showed how market participants on many levels are injured from J&J’s ability to sell Remicade without any competition.  With regards to bundled rebates, the district court noted that bundled rebates pose antitrust concern when a defendant forecloses competition from its product in a competitive market by linking it to a product on which it faces no competition. LePage’s Inc. v. 3M, 324 F.3d 141, 156 (3d Cir. 2003); SmithKline Corp. v. Eli Lilly & Co., 575 F.2d 1056, 1065 (3d Cir. 1978).The district court cited, SmithKline, noting the Third Circuit affirmed as an antitrust violation the defendant’s rebates based on the purchase of multiple products because the bundle, in effect, “insulated its product from true price competition.” 575 F.2d at 1065.  The district court noted the same was true in LePages’s, where the defendant “used its monopoly in transparent tape, backed by its considerable catalog of products, to squeeze” its competitor from the market. 324 F.3d at 157. Similar to exclusive dealing agreements, bundled rebate claims are analyzed under a rule of reason framework.

J&J relying on Eisai argued that Pfizer did not suffer antitrust injury because Pfizer did not allege that it was incapable of offering its own multi-product bundle and that bundling contestable and noncontestable patients cannot be an antitrust violation.  The district court rejected both arguments basically saying that discovery will show if Pfizer will have the facts to prove the theory of harm and Eisai lost on summary judgment because of a lack of factual support.

Takeaways:

Pfizer’s win is big step in the right direction.  Indeed, the ultimate outcome of this case will help define the scope of antitrust protections for biosimilars for years to come and may even determine the viability of the biosimilar industry.  This case demonstrates how some pharma manufacturers engage in contracting practices that create what is known as a rebate wall or trap.  This conduct may be anticompetitive if they block and delay the entry of biosimilars. When a rebate wall is successfully erected, an insurer faces strong financial disincentives to grant access to new and innovative therapies such as biosimilars, as doing so would result in punitive action that would result in the loss of hundreds of millions in guaranteed rebate dollars for the payor. This condition creates a “trap” for insurers which would otherwise be inclined to grant formulary access to biosimlars.

In many cases, these rebate traps prevent patients and physicians from seriously considering new medications at competitive prices.  The conditional rebate penalizes insurers if they use biosimilars because they would lose their rebates not only on the incumbent branded drug, but on all the products in which the rebate is bundled together.  Accordingly, these rebates are not discounts that benefit customers rather they are exclusionary tactics designed to stifle the entry of rivals.

In summary, rebate walls distort the workings of the free market, result in higher prices, and reduce patients’ access to affordable drugs.  Even worse, if J&J’s rebate trap is successful, it will provide other pharma manufacturers a roadmap on how to stifle stifle biosimilar competition and pharma manufacturers will have less incentives to develop biosimilars in the future.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com