By Rachel Sachs
Earlier this week, a bipartisan group of Senators introduced the Creating and Restoring Equal Access to Equivalent Samples (CREATES) Act, a bill designed to speed generic drug approvals (and thus lower drug costs) by removing a delaying tactic some branded drug companies use to impede the generic approval process. Essentially, branded drug companies sometimes refuse to sell samples of their drugs to generic companies who want to come to market, preventing them (for at least a time) from performing the necessary bioequivalence testing and extending their market dominance. Sometimes companies try to hide behind a regulatory program, Risk Evaluation or Mitigation Strategies (REMS), in claiming that they legally cannot provide such access. Other times, such as in Martin Shkreli’s case, no such excuse exists and the company simply refuses to provide access.
These delaying tactics have received substantial attention from both scholars (Jordan Paradise’s work can be found here) and lawmakers. This is Congress’ third attempt at addressing the situation, although as Ed Silverman helpfully notes at Pharmalot, the previous attempts would have only dealt with REMS delays, not Shkreli-like closed distribution systems. By contrast, the CREATES Act would require brand-name companies to provide access to samples of their drugs, whether subject to a REMS or not, on “commercially reasonable, market-based terms” or face potential civil action from the generic drug company in question. There’s already been a lot of commentary on the bill, including a particularly helpful blog post from Geoffrey Manne providing background on REMS abuses and on why antitrust law has not sufficed to solve the problem. Here, I want to add two points that I haven’t yet seen in the discussion: one about drug shortages and another about remedies.
First, the bill very interestingly limits the duties of innovator drug companies to provide samples in the event of a drug shortage. More specifically, the CREATES Act does not apply to “any drug or biological product that the Secretary has determined to be currently in shortage and that appears on the drug shortage list … unless the shortage will not be promptly resolved,” either “as demonstrated by the fact that the drug or biological product has been in shortage for more than 6 months” or “as otherwise determined by the Secretary.” In other words, companies experiencing only short-term drug shortages do not face a legal obligation to provide access on commercially reasonable terms, while companies experiencing long-term shortages will face such obligations.
In my view, this is a fairly sensible way to deal with the complex problem that is drug shortages. In the case of a long-term shortage, it’s certainly true that a company providing access to samples will be taking drugs away from some patients who need them today. But there’s a real benefit to those patients on the back end, as the introduction of a generic supplier should result in an increased supply of the drug in question and an alleviation of the shortage. In the event of a brief shortage, a company providing samples now will similarly be taking them away from patients, but there is no corresponding benefit on the back end if the company can alleviate the shortage itself, and at that time its legal obligation to provide such samples will resume. I could envision a different carve-out organized not by length of shortage but by the cause of the shortage or the relative importance of the product in question to patient care, but this is a thoughtful approach to the situation.
Second, as much as I support the goal of this bill, I am often skeptical that litigation is a good way to make almost anything happen faster, rather than slower. The bill creates a cause of action for generic companies to sue recalcitrant innovators, and it sets forth various penalties, including monetary damages, in the event that the generic prevails. Ideally, the bill will deter would-be delaying companies from refusing to provide such samples in the first place. But given the endlessly creative delaying tactics often observed in the pharmaceutical industry (a recent paper on this by Robin Feldman and Evan Frondorf is instructive), I would expect at least some amount of litigation as to what counts as “commercially reasonable” terms. As one obvious example, what about companies who don’t refuse to provide such samples but charge many times the market price of the drug?
Essentially, I worry that litigation to enforce the Act will be long, complicated, and expensive. It will likely be long simply because that is the nature of complex litigation. It will be complicated as the parties seek to demonstrate the meaning of “commercially reasonable” and provide evidence of each others’ actions. Here, I would guess that these claims will have some similarity to refusal to deal actions in the antitrust context, and judges’ uneasiness about adjudicating those disputes will likely carry over here as well. And the cost of discovery, of proving these allegations, and of the lawyers’ time involved may be substantial. I would suggest that in revising the bill, the sponsors reconsider the provision capping monetary damages at “the revenue that the license holder earned on the covered product” during the problematic refusal period in question. A treble damages provision might more helpfully deter firms from engaging in this behavior to begin with, while under the current draft some might view it as the cost of doing business.
The CREATES Act is generally a thoughtful response to a problem that is seemingly growing in public salience. I look forward to following its progress, particularly the hearing to be held on the subject next Tuesday.