Senate Judiciary Committee Targeting Alleged “Anticompetitive” Biopharmaceutical Industry Practices

On February 9, 2023, the Senate Judiciary Committee (Committee) favorably reported to the full Senate five bills pertaining to biopharmaceuticals. The bills, which were also introduced in the previous legislative session, target alleged anticompetitive tactics and “gamesmanship” before the United States Patent and Trademark Office (USPTO) and the U.S. Food and Drug Administration (FDA). They also would place new limitations on parties who appear before each agency; encourage interaction and information sharing between the agencies; deem certain tactics to be unfair methods of competition; and provide the Federal Trade Commission (FTC) with new authority to intervene in various circumstances of alleged anticompetitive behavior.

The path ahead for the bills is unclear. Despite all five bills advancing by voice vote, several Committee members expressed concern about disrupting the patent system, creating market uncertainty, and disincentivizing research and development. They also expressed a desire to see further improvements to the text. Floor time in the Senate is a precious commodity, and Senate Majority Leader Chuck Schumer (D-NY) has not indicated plans to schedule floor votes at this time. Meanwhile, House versions have yet to be introduced this Congress.

Nevertheless, the bills represent the first significant biopharmaceutical-related legislation to advance through the Committee this year, and the bipartisan list of supporters indicates potential further movement, even in a divided Congress. This Advisory provides a summary of the major developments in these five bills that could affect the biopharmaceutical industry.

1. Interagency Patent Coordination and Improvement Act of 2023

The Committee voted to advance the Interagency Patent Coordination and Improvement Act of 2023 (S. 79), which would establish an Interagency Task Force between the USPTO and FDA.¹ The task force’s purpose is to coordinate efforts between the agencies to share information and provide technical assistance on patents for human drugs and biological products. The task force is meant to promote interagency reciprocal access of information and would include:

• Sharing information on general processes of each agency, including what each takes into consideration in its review of applications
• Sharing information on new approvals of patents, human drugs and biological products, new technologies, and scientific developments

Additionally, the bill requires the task force to establish procedures that would grant patent examiners access to non-public information or communications between the FDA and drug or biologic sponsors. This would include access to relevant sources of a product’s application, approval, patent, and labeling information. This is meant to assist patent examiners in assessing prior art and the state of science and technology. Before this information is shared, the bill requires the FDA to provide notice to the sponsor of the drug or biologic, providing the sponsor with 30 days to consult with the agency about the information being shared. The bill would also require the USPTO to assist the FDA in its role of listing patents. Importantly, the bill would not change FDA’s “ministerial” role in listing patents.

2. Preserve Access to Affordable Generics and Biosimilars Act

The Committee voted to advance the Preserve Access to Affordable Generics and Biosimilars Act (S. 142), which would prohibit “anti-competitive pay-for-delay agreements” that arise in the context of patent claim settlements. Under such agreements, companies marketing a “brand name” pharmaceutical product pay a competitor to delay market entry of a generic or biosimilar version of the product. To curtail this practice, the bill would amend the Federal Trade Commission Act (FTC Act) to add a new section 27 that deems certain “patent claim” settlement agreements presumptively anticompetitive/illegal if two requirements are met:

• An ANDA or a biosimilar applicant receives anything of value, including an exclusive license
• The ANDA or biosimilar applicant agrees to limit or forgo research, development, manufacturing, marketing, or sales of the ANDA or biosimilar, as applicable, for any period of time

That presumption could be rebutted if the parties “demonstrate by clear and convincing evidence” that either (a) the “value” received by the ANDA/biosimilar applicant was for “other goods or services” the ANDA/biosimilar applicant “promised to provide” or (b) “the procompetitive benefits of the agreement outweigh the anticompetitive effects of the agreement.” A violation under the act would be treated as an unfair method of competition prohibited by the FTC Act. Penalties would include forfeiture and payment of a civil penalty to the United States of up to three times the value received by the party that is attributable to the violation. These remedies would be in addition to any other remedy provided by federal law.

Critically, the bill also modifies the grounds under which a generic may forfeit 180-day exclusivity: upon a finding by the FTC or the court that an agreement with another applicant, the listed drug application holder, or patent owner violates the new section 27 of the FTC Act.

3. Affordable Prescriptions for Patients Act of 2023

The Committee voted to advance the Affordable Prescriptions for Patients Act of 2023 (S. 150), which would empower the FTC to prohibit a practice referred to as “product hopping.” The goal is to stop branded drug manufacturers from trying to extend their market exclusivity on drugs nearing the end of patent or exclusivity protection by taking actions that result in patients being moved from their current product to a reformulation of the product that has market exclusivity. The bill amends the FTC Act to grant the FTC enforcement authority over what are characterized as “unfair methods of competition” referred to as “hard switches” or “soft switches.”

A “hard switch” occurs when the application sponsor:

• Requests that FDA withdraw an approved application or place a product on the discontinued product list,² and then markets a follow-on product
• Withdraws, discontinues manufacturing, or intends to withdraw an application in a manner that impedes competition by a generic drug or biosimilar product, and then markets a follow-on product
• Destroys the inventory of the listed drug or reference product in a manner that impedes competition from a generic drug or biosimilar product, and then markets a follow-on product

A “soft switch,” on the other hand, occurs when the manufacturer takes actions that “unfairly disadvantage” the listed drug or reference product relative to a follow-on product that it markets, in a manner that impedes competition from a generic drug or biosimilar product.

The bill also provides certain circumstances under which a manufacturer’s actions would not be considered unfair competition. In a hard switch scenario, the manufacturer would need to show that it took those actions due to safety-related reasons or due to supply disruptions. Under a soft switch scenario, the manufacturer would need to show that it had legitimate pro-competitive reasons for those actions beyond the financial effects of reduced competition. In both scenarios, the branded drug manufacturer would need to show that it would have taken the actions regardless of whether the generic drug had entered the market.

If the FTC has reason to believe that a violation has occurred, the Commission may initiate an administrative proceeding or seek an injunction (temporary or permanent) and equitable remedies.

In addition to the FTC Act amendments, the bill also places certain restrictions on patent litigation proceedings in federal district court. Specifically, it limits the number of patents a reference product sponsor can assert in an infringement action seeking to block the entry of a biosimilar competitor to 20 asserted patents that meet certain criteria, not more than 10 of which shall have issued after the listing of the referenced product.

4. Stop Significant and Time-Wasting Abuse Limiting Legitimate Innovation of New Generics (STALLING) Act

The Committee also voted to advance the Stop STALLING Act (S. 148), a bill that is primarily intended to deter the filing of "sham” citizen petitions with FDA. In some cases, these petitions are filed by or on behalf of “brand name” drug and biologic product sponsors in an attempt to deter or delay the approval of competitor generics and biosimilars. Under current FDA guidance, the agency may refer a petition to the FTC if the FDA determines it was submitted for the primary purpose of delaying an application. This bill supports FDA’s current practice and furthers the deterrence goal by making or causing the submission of a “covered petition” (or a series of petitions) that is “sham,”³ an unfair method of competition under the FTC Act. The fact that making or causing a sham petition to be filed is an unfair method of competition is important because it means that not only the brand company behind the petition, but also the filer, can be held liable for a violation.

If the FTC has reason to believe that the submission of a covered petition violates the FTC Act, then it may commence a civil action against any person that submitted or caused the sham petition to be submitted, including successors and assigns.⁴ Liability may result in civil penalties for each violation that would be imposed at not more than the greater of (a) any revenue earned from the sale of any drug product referenced in a covered application subject of a covered petition (or series of covered petitions) that is a sham, during its pendency under review or (b) $50,000 for each calendar day that each covered petition that is a sham or that was part of a series of covered petitions that is a sham was under review. The civil penalty is in addition to, and not in lieu of, any other remedies provided under federal law.

5. Prescription Pricing for the People Act of 2023

Last, the Committee advanced the Prescription Pricing for the People Act of 2023 (S. 113), which would require the FTC to study and report about anticompetitive practices and other trends in the pharmaceutical supply chain that may affect the cost of prescription drugs and to provide recommendations to increase transparency in the supply chain and prevent anticompetitive practices.

Within a year of enactment, FTC would be required to submit a report to Congress that includes, but is not limited to:

• Whether PBMs:
  • Charge payers a higher price than reimbursement rates for competing pharmacies while reimbursing pharmacies in which the PBMs have an ownership interest at the rate charged to payers
  • Steer patients to pharmacies in which the PBM has an ownership stake
  • Audit or review proprietary data of pharmacies not owned by the PBM and use it for competitive advantage
  • Use formulary designs to increase the market share of higher cost prescription drugs or depress the market share of lower cost prescription drugs (net of rebates and discounts)
• Trends or observations on the state of competition in the healthcare supply chain, including with respect to intermediaries and their integration with other intermediaries, suppliers, or payers of prescription drug benefits

The FTC must also provide additional findings and recommendations, including with respect to actions the FTC intends to take as a result of the November 2017 Roundtable, “Understanding Competition in Prescription Drug Markets Entry and Supply Chain Dynamics” and similar efforts. Additionally, the FTC’s report must include policy or legislative recommendations to improve transparency and competition, deter anticompetitive behavior in the pharmaceutical supply chain, and ensure that consumers benefit from cost savings or efficiencies that may result from mergers and consolidations.

The bill also requires that the FTC submit another report to Congress that includes the number and nature of complaints it receives regarding allegations of anticompetitive conduct by a sole-source drug manufacturer, the ability of the FTC to bring an enforcement action against such a company, and policy or legislative recommendations to strengthen enforcement actions relating to anti-competitive behavior.

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By advancing these bills, the Senate Judiciary Committee has demonstrated strong support for curtailing what some members, the FDA, and the FTC consider to be anticompetitive behavior in the biopharmaceutical industry. We will continue to monitor these bills, and actions by FDA or the FTC in this area, throughout the 118th Congress.

© Arnold & Porter Kaye Scholer LLP 2023 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.