“product hopping” is necessary to recoup losses off of state DPS laws and prevent free rides by generics

Hickey and Ward, 01-30-2024, (Kevin J. Hickey, Legislative Attorney, and Erin H. Ward, Coordinator of Research Planning/ALD). "The Role of Patents and Regulatory Exclusivities in Drug Pricing," Congressional Research Service, . – MoState JG

Debate Critics of product hopping deride it as an anticompetitive practice that inhibits the entry of generic and biosimilar competitors, allowing a brand to maintain its dominant market position (and higher prices) without substantial benefits for consumers.449 In particular, critics contend that by shifting product demand from the previous product to a new product, the market for a generic form of the previous version dissipates by the time the generic can enter the market.450 All fifty states have enacted drug product selection (DPS) laws, which aim to lower consumer prices by allowing, and sometimes even requiring, pharmacists to fill a prescription written for a brand-name drug with a generic version of that drug.451 Typically, pharmacists may only substitute a generic drug for a branded drug if the generic version is “AB-rated” by FDA.452 To receive an AB rating, the generic must be therapeutically equivalent to the branded drug, which means it must have the same active ingredient, form, dosage, strength, and safety and efficacy profile.453 The generic must also be bioequivalent—in other words, the rate and extent of absorption of the generic cannot significantly differ from that of the brand drug.454 Thus, if the brand’s new version of a drug, for example, changes the form of the drug (e.g., capsule to tablet) or the dosage of the active ingredient (e.g., 10 mg to 12 mg) from the older version, the generic product may not receive the AB rating required to be substitutable by pharmacists.455 Even if the generic is eventually able to obtain an AB rating to allow substitution, that process may take years to achieve.456 Thus, the “hop” to a new product can prevent automatic substitution with a generic product, thereby giving the brand an additional period during which it is substantially unaffected by generic competition. Defenders of product hopping counter that manufacturers have legitimate reasons to create new patented products and encourage doctors to prescribe the new product instead of an old product for which there is generic competition.457 One commentator has argued that patent law encourages brands to create new drugs or switch to new versions of drugs because they receive an exclusive period during which they may charge higher prices.458 That period is critical, it is argued, to recoup the estimated $2.6 billion average cost of bringing a new drug to market— compared to the $1 or $2 million its costs to bring a new generic product to market.459 Once a branded drug’s patents expire, however, the brand may lose 80% to 90% of its sales to generic drug manufacturers.460 Thus, according to one commentator, brands have little incentive to keep marketing a product that is subject to generic competition; doing so would arguably transfer approximately 80% of the sales to their generic competitors. That is, even if the brand succeeds in convincing a doctor to prescribe the old product, DPS laws would allow a pharmacist to substitute a generic product instead.461 Given these economic realities, defenders argue that the brand would be effectively paying to market its competitors’ products.462 On this view, product hopping aims at maximizing profits for the brand (which can be used for additional R&D) and preventing freeriding by generics, not at preventing fair competition.463 Commentators also respond that generic manufacturers could reduce the impact of product hopping by marketing their own products.464 In that view, generic manufacturers choose to rely on DPS laws for sales.465 Instead, one commentator argues, the generic companies could advertise and promote their own products in the same way that brand manufacturers do. 466 In any event, patients and doctors can arguably choose to use the generic version of the old product if the brand’s new product is not worth the cost.467