The CREATES Act of 2019 and Lowering Drug Prices: Legal Background and Overview

The CREATES Act of 2019 and Lowering Drug Prices: Legal Background and Overview

Legal Sidebari

The CREATES Act of 2019 and Lowering Drug
Prices: Legal Background & Overview
March 12, 2019
On February 5, 2019, the Creating and Restoring Equal Access to Equivalent Samples Act of 2019
(CREATES Act) was reintroduced in both the Senate and the House. The bill, first introduced in the 114th
Congress (S. 3056) and again in the 115th Congress (S. 974 and H.R. 2212), aims to facilitate the timely
entry of lower-cost generic and biosimilar versions of brand-name drugs and biological products (i.e.,
products such as vaccines and blood components that are derived from living organisms) to promote
competition in the market for such products. Specifically, the CREATES Act aims to address the concern
that some brand manufacturers have improperly restricted the distribution of their products, including by
invoking a distribution safety protocol known as Risk Evaluation and Mitigation Strategies (REMS), to
deny generic product developers access to samples of brand products. (For ease of reference, this Sidebar
uses “generic product” to refer to both generic drugs and biosimilars). Because generic product
developers need samples to conduct certain comparative testing required by the U.S. Food and Drug
Administration (FDA), some have attributed the inability to timely obtain samples as a cause of delay in
the entry of generic products. To remedy this concern, the CREATES Act would create a private cause of
action that permits a generic product developer to sue the brand manufacturer to compel it to furnish the
necessary samples on “commercially reasonable, market-based terms.”
This Sidebar provides an overview of the generic drug and biosimilar application process, noting the view
that some brand manufacturers have used restricted distribution to deny generic product developers the
brand samples needed for regulatory approval. It next explains how the existing legal framework
addresses these practices and how the CREATES Act would modify that legal framework.
Generic Drug and Biosimilar Application Process
To encourage market entry by generic drugs, the Drug Price Competition and Patent Term Restoration Act
of 1984 (Hatch-Waxman Act, P.L. 98-417) created an expedited pathway for generic drug approval.
Unlike a brand manufacturer, who must submit an extensive new drug application (NDA) that includes,
among other things, clinical trial data, a generic manufacturer may submit an abbreviated NDA (ANDA)
that demonstrates that the generic is bioequivalent to a previously approved brand drug. Similarly, the
Biologics Price Competition and Innovation Act of 2009 (BPCIA, P.L. 111-148) created an expedited
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pathway for the approval of a biological product that is either biosimilar to or interchangeable with a
biological product previously licensed under a Biologics License Application (BLA).
To conduct the necessary comparative testing to prove bioequivalence, biosimilarity, or
interchangeability, a generic product developer must have access to samples of the relevant brand product
in sufficient quantities. For products subject to normal distribution channels, obtaining brand samples
generally does not present a significant hurdle—the generic product developer can purchase the product
from licensed wholesalers. However, some brand products are subject to restricted distribution that limits
how they can be sold.
Restricted Distribution and Sample Denial
The distribution of a brand product can be restricted in one of two ways. First, a brand manufacturer can
voluntarily place its products into restricted distribution in order to have more control over who can
purchase their products. Second, some high-risk drugs are subject to more restrictive distribution
strategies and safety protocols under statute and FDA regulations.
Under the Federal Food, Drug, and Cosmetic Act (FFDCA), as amended by the Food and Drug
Administration Amendments Act of 2007 (FDAA Act, P.L. 110-85), FDA may require the sponsor of an
NDA or BLA to submit a proposed REMS, a risk management plan that uses strategies beyond labeling to
ensure that the benefits of the drug or biologics outweigh its risks. Examples of less restrictive REMS
requirements include medication guides for patients and communication plans for healthcare providers.
More restrictive REMS programs have elements to assure safe use (ETASU), which can include
prescriber and dispenser certification requirements, patient monitoring or registration, or controlled
distribution that limits how the product can be sold. If a brand product is subject to REMS with ETASU,
the brand manufacturer and the generic product developer generally must agree on a single, shared REMS
system before the generic product goes on the market. However, FDA can waive the shared REMS
requirement and allow the generic product developer to use a different, comparable system.
Since the enactment of the FDAA Act, some generic product developers have complained that they have
been unable to access the samples needed for comparative testing because of restricted distribution.
According to Scott Gottlieb’s July 2017 testimony before the House Subcommittee on Regulatory
Reform, Commercial, and Antitrust Law, some brand manufacturers have impeded generic product
developers’ ability to obtain samples by implementing their own restrictions on distribution (e.g., through
contract provisions that deny sales to potential generic product developers). Alternatively, if their products
are subject to REMS with ETASU, some brand manufacturers have either (1) invoked the restricted
distribution component of a REMS with ETASU to deny sales to generic product developers; or (2) used
the existence of REMS with ETASU to substantially prolong negotiations over the sale of samples or the
development of a single, shared REMS system.
Existing Law Governing Sample Denials
The existing statutory and regulatory framework offers little legal recourse to generic product developers
who have been denied access to or experience long delays in obtaining samples. As an initial matter, there
are no statutes or regulations that specifically prohibit a company from imposing voluntary distribution
restrictions on its products. For products subject to REMS, the FDAA Act includes a general prohibition
that brand manufacturers should not use their REMS to “to block or delay approval of an application ... to
a drug that is subject to the abbreviated new drug application.” Critically, however, the act sets forth no
enforcement mechanism that would effectuate this prohibition—it neither authorizes FDA to create an
administrative enforcement process nor creates a private right of action for aggrieved generic product
developers. An early version of the FDAA Act (H.R. 2900) included a provision that affirmatively
required a brand manufacturer to provide a sufficient quantity of a product subject to REMS to a generic

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product developer for bioequivalence testing. The final version of the bill, however, omitted this
provision, and, as a result, there is no specific obligation under the law for brand manufacturers to provide
samples to generic product developers.
In light of this statutory framework, as well as FDA’s longstanding view that “issues related to ensuring
that marketplace actions are fair and do not block competition would be best addressed by [the Federal
Trade Commission],” FDA has not asserted that it has the authority to compel the sale of samples for
comparative testing. Instead, to help generic product developers obtain access to samples, FDA has, on
request, reviewed generic product developers’ proposed comparative study protocols to assess whether
they provide safety protections comparable to those in the applicable REMS, and if so, issued letters to
the brand manufacturers stating so. The letters would also state that FDA will not consider it a violation of
the REMS for the brand manufacturers to sell samples of the relevant products for comparative testing.
These FDA letters, however, do not purport to compel the provision of samples, and their legal effect has
been disputed.
Given the lack of recourse under FDA law, generic product developers seeking to compel the sale of
samples have instead filed actions alleging antitrust violations. The most typical claim is a
monopolization claim under Section 2 of the Sherman Act, alleging that the brand manufacturer has
unlawfully maintained a monopoly over the relevant market for the brand product by refusing to sell
samples or otherwise unreasonably delaying the sale of samples in order to impede generic entry.
A generic product developer’s ability to obtain relief for sample denial under antitrust law is currently
uncertain. Under longstanding antitrust precedents, a company—even a monopolist—generally does not
have a duty to deal with its competitors. A refusal to deal, however, could be an antitrust violation if it
constitutes a willful effort to maintain monopoly power via anticompetitive means, but the case law has
not provided a clear standard for this exception to the general rule. Moreover, some courts have held that
a refusal to deal is only anticompetitive if the monopolist seeks to terminate a prior course of dealing with
the competitor, while other courts have held that termination of a prior course of dealing is merely strong
evidence of anticompetitive intent but is not required to establish antitrust violation. This difference in
interpretive approach can be dispositive—because a generic product developer often would have no prior
course of dealing with the brand manufacturer, the generic product developer would have no antitrust
recourse before a court that has adopted or chooses to adopt the former approach. Even before a court that
adopts the latter approach, a generic product developer’s road to relief can be lengthy and filled with
uncertainty. To date, courts appear to have addressed the sample denial issue in a handful of cases. Most
of the cases that have been permitted to proceed beyond the motion to dismiss stage were resolved by
settlements, meaning that courts have not had the opportunity to offer significant guidance. The two cases
that have not settled continue to be litigated today, more than four years after they were first filed. It is
unclear when, if at all, those courts will shed light on the relevant refusal to deal standard.
The CREATES Act of 2019
The CREATES Act seeks to address the uncertainties in the existing legal framework by creating a private
cause of action that generic product developers can use to initiate expedited litigation to obtain the brand
samples they need. Instead of asserting an antitrust claim, the bill would allow a generic product
developer to sue to compel the provision of brand samples, if specific statutory elements are met.
For brand products not subject to a REMS with ETASU (including a product that is subject to voluntary
restrictive distribution imposed by the brand manufacturer), the generic product developer would need to
show that:
1. it had made a request for samples,

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2. the brand manufacturer failed to deliver, on commercially reasonable, market-based
terms, sufficient quantities of the samples within 31 days of receiving the request, and
3. as of the filing date of the action, it is still unable to obtain sufficient quantities of the
needed samples on commercially reasonable, market-based terms.
For products subject to REMS with ETASU, the bill would first create a process by which the generic
product developer can request from FDA an authorization to obtain sufficient quantities of the relevant
samples. FDA would issue the authorization if it determines that the generic product developer has agreed
to comply with or otherwise met the safety conditions or requirements deemed necessary by FDA. The
process outlined in the bill appears to largely codify the FDA’s existing practice, but would give FDA’s
authorization legal effect as a component of the statutory claim. In this situation, the generic product
developer would need to show elements (1) and (3) above, and that the brand manufacturer failed to
deliver, on commercially reasonable, market-based terms, sufficient quantities of samples either within 31
days of receiving the request or within 31 days of receiving notice of FDA’s authorization, whichever is
later.
If a generic product developer prevails by meeting either set of elements, the bill would require the court
to issue injunctive relief compelling the brand manufacturer to provide the samples without delay and
award attorney’s fees and costs. If the court finds that the brand manufacturer delayed providing the
samples without a “legitimate business justification,” the court could also award monetary damages.
These damages are not to exceed the revenue the brand manufacturer earned on the product during the
period beginning on the day that is 31 days after the receipt of the request for samples (or, if the product is
subject to REMS with ETASU, on the day that is 31 days after the receipt of the FDA notice of
authorization, if that date is later), and ending on the date on which the generic product developer receives
sufficient quantities of the brand sample.
The bill would also provide FDA more latitude to approve a separate REMS system that the generic
product developer could use if it cannot reach an agreement on a shared strategy with the brand
manufacturer. Specifically, rather than requiring the use of a shared system as the default, the bill would
amend the relevant statutory provisions to permit the use of a shared system or a different but comparable
system as available alternative options.
To address the concern that a more relaxed REMS requirement may expose the brand manufacturers to
liability, the bill includes a provision that limits the brand manufacturer’s liability against claims arising
out of a generic product developer’s failure to follow adequate safeguards during the development and
testing of the generic product.
The CREATES Act appears targeted to address an issue that several stakeholders view as undermining the
intended operation of the Hatch-Waxman Act and the BPCIA—the timely development of generic
products entering the market. Based on the existing legal framework, there are several potential legal
avenues that could be used to address the issue, including additional statutory guidance on the relevant
antitrust standards, clarification on FDA’s authority to enforce the prohibition against improper sample
denials, and the approach ultimately adopted by the CREATES Act—the creation of a private cause of
action for generic sample developers to compel the provision of brand samples through judicial
proceedings. New legal questions may arise under this approach, as the remedy created under the bill,
while not unprecedented, is unusual in this context because there is generally no private right of action
under the FFDCA. At the same time, the broader debate over the CREATES Act and competing legal
remedies often centers on questions of efficacy that are detailed in other CRS products.

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Author Information

Wen S. Shen

Legislative Attorney

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