Brand Drug Product Hopping Costs US $4.7B Annually

September 17, 2020 - A recent analysis found that product hopping for just five brand-name drugs costs the US healthcare system $4.7 billion annually.

The analysis from Matrix Global Advisors examined the effects product hopping had on the US healthcare system.

The drugs that were analyzed include Prilosec, TriCor, Suboxone, Doryx, and Namenda.

Product hopping is intended to combat generic competition and preserve monopoly profits. By product hopping, a brand drug company with a product nearing the end of its monopolistic life works to move patients to a reformulation of the drug that has longer exclusivity. 

“The brand-name drug company takes advantage of its market power to shift pharmacists, doctors, and consumers to new versions of drugs before a generic for the ‘old’ version is able to reach the market,” the analysis said. 

Product hopping has especially impacted spending on Prilosec, a top drug used to treat heartburn. 

The analysis found that AstraZeneca’s efforts to stop generic competition by releasing and encouraging the use of its new anti-ulcer drug, Nexium, in the early 2000s cost the healthcare system $2,362.9 million a year.

Similar efforts cost the US healthcare system an extra $1,045.8 million for Forest Laboratories’ Namenda, $748.8 million for Abbott Laboratories’ TriCor, $403.2 for Reckitt Benckiser’s Suboxone, and $152.1 for Warner Chilcott’s Doryx.

Some of the drugs, including TriCor and Doryx, were notably reformulated several times in order to stop generics from hitting the market.

Litigation against brand drug manufacturers engaging in product hopping has been successful. For example, the New York State Attorney General sued Forest to keep manufacturing Namenda IR after it launched an extended-release version through a product hopping scheme in 2013. In 2015, the Second Circuit Court of Appeals ruled that Namenda IR had to remain on the market for 30 days after generic market entry.

However, litigation has not always stopped product hopping.

Throughout the years, there have been proposals to address product hopping. This includes a proposal for the FDA to use suitability petitions to approve a generic drug with small differences from the reference product.  

The most common tool to combat product hops has been to sue branded firms under the antitrust laws, according to a Health Affairs blog post. Many commentators view antitrust law as the best, or perhaps only, mechanism for addressing product hopping. 

But antitrust actions have had mixed success, so many experts believe FDA could implement a more precise fix, which avoids the cost and delay of antitrust enforcement. 

“Antitrust suits are expensive and time-consuming, and any remedy they provide typically emerges many years after the fact. In contrast to judges and juries, the FDA is in an exceptionally good position to determine when product hops lack evidence of genuine innovation and to allow generic competition in that circumstance,” Arti K. Rai, professor of law at Duke School of Law, said in a 2018 Health Affairs blog post. 

An additional proposal to the Federal Trade Commission urged the agency to sue brand companies for product hopping. 

In 2017, Health Affairs also released blog post that talked about a framework for anticompetitive product hopping. 

Courts should start taking account of the realities of the pharmaceutical industry, including whether the brand firm, in reformulating its drug, “cannibalizes” the sales of the original product, the authors said.

This means encouraging doctors to write prescriptions for the reformulated instead of the original.

Additionally, the authors also urged courts to consider the timing of the switch. 

“We suggest the application of a conservative, respected test that asks if the conduct would make economic sense for the brand firm if it did not impair generic competition. In other words, would the brand have switched the product if it did not have the effect of harming generics?” they said. 

Considering the timing of the switch offers significant flexibility to the brand firm and also allows businesses to see that switches may result in anticompetitive harm, authors said.

Ending product hopping would generate greater generic drug savings and reduce out-of-pocket costs for patients.

The analysis estimated that, between 1995 and 2014, generic entry for brand drugs with sales greater than $250 million was delayed an additional 2.2 years on average.

Accelerating generic entry by 2.2 years would save the US healthcare system $31.7 billion.