Competition Bureau Discontinues Pharma "Product Hopping" Inquiry
On May 13, 2014, the Competition Bureau (Bureau) announced that it has discontinued its inquiry into Alcon for alleged abuse of dominance with respect to prescription ophthalmic drugs. As outlined in our previous article on the new draft Intellectual Property Enforcement Guidelines, the Bureau has indicated that it is focusing on the interface between intellectual property and competition law, more specifically in the pharmaceutical industry.
The Bureau was investigating whether Alcon had engaged in "product hopping" (also known as "product switching"), a product life-cycle management strategy whereby a brand name drug company patents a new formulation of an existing drug, protected by one or more additional patents, and then tries to prevent or delay competition from generic companies with respect to the original formulation by forcibly switching patients to the newer formulation before patent expiry on the original formulation.
As the patents on its ocular anti-allergy drug, Patanol, were approaching expiry, Alcon introduced a new reformulation called Pataday in 2011. Pataday contains the same medicinal ingredient as Patanol, with twice the concentration. In July 2012, Alcon stopped supplying Patanol to Canada and informed customers that Patanol was indefinitely on "back order." Afterwards, sales of Pataday replaced the vast majority of Patanol’s sales.
The Bureau began an abuse of dominance inquiry into Alcon in November 2012, because it was concerned that Alcon was attempting to block or limit upcoming generic competition to Patanol. As part of the inquiry, Alcon had to supply information to the Bureau in response to a court order under section 11 of the Competition Act (Act).
The Bureau concluded that, following the supply disruption, most Patanol prescriptions were switched to Pataday, Alcon’s second-generation formulation with longer patent protection. However, the disruption in supply of Patanol was only temporary, and Alcon resumed supply of Patanol to the Canadian market in January 2013.
The Bureau found that Alcon’s conduct did not result in a substantial prevention or lessening of competition, one of the required elements to establish abuse of dominance, because generic entry was not delayed as a result of the temporary supply disruption and generic versions of Patanol have been able to capture significant market shares. In addition, Patanol sales quickly went back in line with sales prior to the supply disruption. As a result, the competitive dynamic was restored, and consumers and prescribing physicians now can choose between Patanol, generic Patanol, Pataday and competing treatments. Therefore, the Bureau discontinued its inquiry in March 2014.
The Bureau recognizes that product life-cycle management has pro-competitive effects, such as spurring new innovation. However, the Bureau indicates that abuse of dominance concerns are likely to arise where there are deliberate attempts to block or delay competition from generic drug companies: for example, by eliminating, repurchasing or recalling the market supply of a drug about to face generic competition in order to force a switch in demand to a reformulation under longer patent protection.
This inquiry demonstrates the willingness of the Bureau to investigate practices in the pharmaceutical industry. Moreover, the Bureau has developed its expertise in product hopping during this inquiry by making market contacts as well as consulting with experts and foreign competition agencies. Accordingly, product life-cycle management strategies should be carefully reviewed to minimize risks under the Act.