Shire, Pfizer antitrust lawsuits could rewrite the rules for formulary contracts: report

Shire is one of several pharma companies seeking relief from the courts from payer-contracting practices that they say stifle competition.

Last week, Shire filed a lawsuit in a federal court against Allergan, claiming anticompetitive practices in its reimbursement contracts with payers on the eye drug Restasis. It's the latest in a series of similar cases, and the verdicts could well upturn all pharma-payer negotiations.

Shire makes a rival product, Xiidra, and its fight against Allergan challenges long-standing negotiation practices that many makers of follow-on products argue are stifling competition.

The verdicts in these cases could well rewrite the rules that govern how drugmakers form contracts with payers, said Bernstein analyst Ronny Gal in a note to investors. Any verdicts in favor of the antitrust arguments could make it easier for manufacturers of biosimilars and other products entering well-established markets to steal share from the incumbents.

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In Shire's case, it’s arguing that Allergan improperly entered into exclusive contracts for Restasis with Medicare Part D providers. Those exclusive deals prevent makers of rival dry-eye remedies from competing for patients, the suit said.

Shire’s bid for legal relief came just a few weeks after Pfizer sued Johnson & Johnson, alleging that J&J had formed “exclusionary contracts” with health insurers and providers for its drug Remicade. The drug is used to treat several autoimmune diseases. Pfizer’s biosimilar, Inflectra, has been on the market for a year at a 15% discount to Remicade, but it hasn’t made much headway against the $7-billion-a-year original.

And earlier this year, Sanofi filed a federal suit against Mylan, arguing that the EpiPen manufacturer improperly offered steep rebates to insurers after hiking up the price of the antiallergy shot, and that its payer contracts stipulated that they refuse to cover rival products. These and other moves essentially made it impossible for Sanofi’s competing product, Auvi-Q, to regain the market share it had lost after a 2015 recall to correct dosing issues, the French drugmaker alleged. (Sanofi ultimately handed rights to the product back to its inventor, Kaléo.)

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The alleged bad conduct in these suits, wrote Gal, constitutes nothing more than standard pharma practices. For example, antitrust laws dictate that a single company can’t stipulate in a contract that it will be the sole provider in one product category.

But that results in several gray areas when it comes to drugs, Gal explained. Some incumbents apply “loyalty discounts” that are tied to market share. Or they bundle discounts that are contingent on the use of their product over competing therapies. “In fact, the industry is essentially asking the courts to apply antitrust law to its circumstances and define the rules of the road for use of basic formulary tools,” Gal wrote.

Interestingly, all three suits were filed in the same court: the Court of Appeals for the Third Circuit, which covers Pennsylvania, New Jersey, Delaware and the Virgin Islands. That’s not a coincidence, Gal said.

“This particular court was willing to move away from classic industrial concepts of focusing on whether the incumbent priced below its cost and to consider more complex arrangements, which could still frustrate competition,” Gal explained.

So what’s next? Gal predicts court decisions will be handed down beginning in mid- to late-2018. He predicts that if the verdicts go against bundling and other common practices, it will be a net negative for large incumbents that are set in their ways. But such decisions would likely help new entrants to well-established markets, such as makers of novel drugs to treat autoimmune disorders, Gal wrote.

“It would specifically help the biosimilars, in particular, late entrant biosimilars,” he said.

Then again, if the verdicts support the status quo, the opposite would be true, Gal said. Then the large incumbents that have been relying on bundle discounts and other deals with payers would essentially be given a license from the courts to continue those practices.