TITLE:  Schering Corporation, B-286329.3; B-286329.4, February 2, 2001
BNUMBER:  B-286329.3; B-286329.4
DATE:  February 2, 2001
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Schering Corporation, B-286329.3; B-286329.4, February 2, 2001

Decision

Matter of: Schering Corporation

File: B-286329.3; B-286329.4

Date: February 2, 2001

Alex D. Tomaszczuk, Esq., and John E. Jensen, Esq., Shaw Pittman, for the
protester.

Maura C. Brown, Esq., Department of Veterans Affairs, for the agency.

Susan K. McAuliffe, Esq., and Christine S. Melody, Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.

DIGEST

Protest of terms of solicitation for formulary drug item is denied where
challenged requirements reasonably reflect agency's needs and evaluation
scheme provides a reasonable basis for the evaluation of proposals for
award.

DECISION

Schering Corporation protests the terms of request for proposals (RFP) No.
RFP-797-NC-00-0073, issued by the Department of Veterans Affairs (VA) for
non-sedating antihistamines (NSA). Schering contends that the solicitation
is flawed for improperly grouping two of the protester's NSA formulations
under the RFP. Schering also contends that the solicitation's weighted
evaluation scheme does not provide a reasonable basis for the evaluation of
proposals for award.

We deny the protest.

The RFP, issued on August 3, 2000, contemplates the award of a fixed-price
contract, for a 1-year base period and four 1-year option periods, to the
lowest-priced, responsible offeror under one of the solicitation's alternate
contract line items (CLIN) for a single NSA (fexofenadine or loratadine) to
meet stated VA, Indian Health Service (IHS), [1] and Department of Defense
(DoD) oral solid dosage NSA requirements. This procurement is part of the
agency's efforts to standardize the availability of pharmaceuticals and
medical/surgical items, through the use of a national formulary program. [2]
The successful NSA will be added to the VA national drug formulary to be
prescribed by VA physicians, and distributed by VA's medical facilities and
Consolidated Mail Out Patient Pharmacies (CMOP), to current NSA users and
new patients. If, however, a clinical need is cited by a VA physician for
the patient's use of a different, non-formulary NSA, the prescribed
non-formulary drug will be made available to the patient through the VA's
non-formulary approval process. Agency Report at 2. For DoD, the national
contract awarded under the RFP will only apply to initial (new patient)
prescriptions for an NSA for direct care patients at a DoD military
treatment facility (MTF). [3] The DoD formulary program, similar to the
VA's, also provides for a non-formulary drug approval process based on
clinical need. Id. The class of NSAs available under the formulary program
is expected to "close" upon award of the national contract under the RFP;
accordingly, during the contract period, medical facilities will be unable
to add any other oral solid dosage NSA to their individual formularies.
Supplemental Agency Report at 2.

The solicitation provides for competition between the two identified NSAs,
fexofenadine and loratadine, which, the agency reports, have been determined
by agency pharmacists to be therapeutically interchangeable. Agency Report
at 8; Supplemental Agency Report at 6. Fexofenadine is manufactured by
Aventis Pharmaceuticals and is marketed under the name Allegraï¿½. Loratadine
is manufactured by the protester, Schering, and is marketed under the name
Claritinï¿½. The RFP's pricing schedule, as amended, sets out separate CLINs
for alternate offers of solid dosage formulations of the two NSAs. RFP
amend. 7, attach. 1. For example, fexofenadine is solicited in two available
forms: 180-mg tablets (for once-daily dosage) and 60-mg capsules or tablets
(for twice-daily dosage). Separate CLINs (0001-0003, respectively) are
provided in the RFP's schedule, as amended, to allow for alternate offers
based on either the 180-mg or 60-mg formulations of fexofenadine, or both.
Under CLIN 0003, which provides for an alternate offer of both fexofenadine
formulations, prices for each of the two formulations (set out as CLINs
0003a and 0003b) are to be weighted to reflect the agencies' anticipated use
of each formulation. [4]

The RFP pricing schedule also provides for alternate offers of Schering's
loratadine product based on that NSA's two available oral solid dosage
formulations: 10-mg loratadine tablets (for once-daily dosage), and 10-mg
loratadine rapidly-disintegrating tablets (RDT) (also for once-daily
dosage). [5] CLIN 0004 provides for offers of 10-mg loratadine tablets. A
separate CLIN is not provided for the 10-mg loratadine RDT; the agency
explains that this is due to the minimal anticipated use of the RDTs.
Supplemental Agency Report at 4, 8. Rather, CLIN 0005 provides for an
optional alternate offer of both the 10-mg loratadine tablets and the 10-mg
loratadine RDTs. [6] For CLIN 0005, the offeror's proposed price for CLIN
0005a (for 10-mg loratadine tablets) is to be weighted at 99.5 percent; CLIN
0005b (for 10-mg loratadine RDTs) is to be weighted at .5 percent. [7] RFP
amend. 7, attach. 2, sect.sect. (c), (d). Award is to be made to the responsible
offeror that submits the lowest-priced offer, based on the average daily
dose price of each CLIN. [8] Id. sect. 1.

The protester's challenge focuses on CLIN 0005. Schering contends that the
agency's inclusion of the RDTs in the RFP in CLIN 0005 is improper because
the tablets and RDTs are, in Schering's opinion, distinct products and
therefore should not be included in the same procurement. [9] Schering cites
as the primary difference the fact that the 10-mg loratadine RDT can
dissolve on the patient's tongue prior to swallowing the medication, while
the 10-mg loratadine tablet is swallowed whole. In support of its position,
Schering points to the fact that the VA previously decided not to include
the RDT formulation in this procurement on the ground that it did not meet
the agency's needs. Schering also contends that if it does not win the
contract on the basis of its CLIN 0005 offer (for the combination of tablets
and RDTs), the effect of including the RDTs is to unfairly prevent Schering
from marketing its RDTs during the contract period to the agencies to be
served under the contract.

In response, the agency reports that it previously had decided to exclude
the RDTs from the RFP (due to concerns that the RDT blister packaging would
be inappropriate for elderly or dexterity-impaired patients, or for use in
the mail out pharmacy operations, which often repackage medications for
distribution). Agency Report at 4. Upon additional reflection, however, the
agency concluded that including the 10-mg loratadine RDTs with the 10-mg
loratadine tablets in this procurement would be proper because the two
formulations are the "same exact drug." Agency Report at 8. The VA
emphasizes that the tablets and RDTs have the same content, dosage, safety,
and efficacy, and are used interchangeably to treat the same symptoms. Id.
The agency reports that, although the cited packaging limitations of the
RDTs prevent their use as the sole loratadine formulation to be awarded the
formulary contract, it grouped the RDTs with the other solid form of the
same drug to allow for consideration of the RDTs in those cases where they
do meet the agency's needs. In doing so, the agency feels it is reasonably
increasing its flexibility in choosing the ultimately awarded CLIN, and in
being able to freely prescribe either loratadine formulation, if award is
made under that CLIN. Agency Report at 10. The agency also reasoned that the
inclusion of CLIN 0005 reasonably increases the flexibility of the offeror
in preparing alternate offers, if it chooses to have the RDTs considered for
the contract award. Id. The agency contends that the stated RDT terms are
not restrictive because Schering is not prevented from competing in any way.
[10] Moreover, the agency contends, inclusion of the RDTs is necessary to
ensure the integrity of the resulting award for a single solid dosage NSA
drug on the agencies' formularies. The agency states, as was argued by both
Aventis and Schering earlier in this procurement, that allowing NSA needs to
be met outside this contract, or allowing another NSA formulation or
comparable drug to remain fully available to physicians and patients after
award, would thwart the formulary process and objectives, since that drug
could compete for business anticipated under the contract, which would
undercut the value of the award. Agency Report at 11; Supplemental Agency
Report at 8.

A procuring agency is required to specify its needs and solicit offers in a
manner designed to achieve full and open competition, and may include
restrictive provisions or conditions in a solicitation only to the extent
necessary to satisfy the agency's needs. 41 U.S.C. sect.sect. 253a(a)(1)(A),
(a)(2)(B) (1994). The determination of the government's needs and the best
methods for accommodating those needs are generally the responsibility of
the contracting agency; we will review such determinations to confirm that
they are reasonably based. HG Properties A, L.P., B-284170 et seq. Mar. 3,
2000, 2000 CPD para. 36 at 10.

The protester does not refute the agency's medical judgment that its two NSA
formulations (the 10-mg loratadine RDTs and tablets) are the same drug in
terms of their content, dosage, safety and efficacy. [11] Instead, the
protester asserts that the agency's decision to group them as it has done in
CLIN 0005 in this solicitation was improper. We disagree.

The agency has determined, after consideration of arguments made by both
Aventis and Schering in this regard, that in having solicited a high-volume
formulary requirement in return for offers reflecting volume-discounted
prices, it is obliged to take reasonable action to protect the integrity of
the resulting formulary contract award. [12] To better ensure the
anticipated volume of business for the successful NSA, the agency explains
that it has included the protester's RDTs in the RFP to prevent any unfair
opportunity for that loratadine formulation to compete for business with the
awarded NSA during the contract term. Given that the two loratadine products
are therapeutically interchangeable, and the potential that the protester's
RDTs could compete with the drug selected under this contract if the RDTs
were not included in the scope of this procurement, we believe the agency
was reasonable to include them. [13]

The protester argues that the combined CLIN 0005 terms of the competition
are unfairly restrictive as to Schering. Schering has failed to persuade us
that the solicitation is unreasonably restrictive in any way. As the agency
points out, the protester is in no way precluded from competing here. If
Schering wins the formulary contract under CLIN 0005, it can market its RDTs
to all of the agencies' facilities as a nationally awarded NSA that the
facility should consider stocking, prescribing, and distributing to
patients. Additionally, the potential for substantial business opportunities
for its RDT formulation may remain for Schering, even if Schering does not
win the formulary contract under CLIN 0005. For instance, as the agency
reports, if Schering does not receive the formulary award, it can still
market each medical facility to inform doctors and potential patients that
its RDTs are available for the clinical need of patients who have difficulty
swallowing an NSA tablet. [14] Agency Report at 11. Similarly, win or lose,
Schering's NSA RDTs can still be prescribed and distributed at MTFs to
current users of the RDTs, and may be used to meet the pharmaceutical
requirements of the NMOP, which will continue to stock alternate NSA
products for distribution to patients prescribed that medication. [15]
Accordingly, we find no basis to conclude that the challenged solicitation
unduly restricts competition or Schering's ability to market or sell its
product.

Schering is essentially contesting the business risk associated with losing
the formulary contract. Some business risk, however, is inherent in every
procurement, especially, as here, in a competitive procurement for a
formulary contract for anticipated high-volume use of only one of two
(fexofenadine or loratadine) competing NSAs. Nonetheless, it is the
offeror's responsibility, in an exercise of its own professional expertise
and business judgment, to take these business risks into account in deciding
how to prepare its proposal and in determining what prices to propose. See
C3, Inc., B-241983.2, Mar. 13, 1991, 91-1 CPD para. 279 at 4.

Schering next protests the weighted evaluation scheme set out in the
solicitation for award. Schering argues that the .5-percent weighting
provided by CLIN 0005 for evaluation of its RDT price indicates such
insignificant product usage that it should not be considered in the
evaluation.

For evaluation of price, stated evaluation factors must provide some
reasonable basis for comparing the relative costs of competing proposals, so
as to establish whether one offeror's proposal would be more or less costly
than another's. See Health Servs. Int'l, Inc.; Apex Envtl., Inc., supra;
Penn, Ferrara, Adler & Eichel, B-224224, Feb. 9, 1987, 87-1 CPD para. 134 at
3-4. Our review of the record confirms the reasonableness of the RFP's
weighted factors for evaluation of the optional combined CLIN (0005) for
10-mg loratadine tablets and RDTs. The record shows that the weights
assigned to the two formulations reflect a reasoned determination by the
agency of its anticipated need for the evaluated sub-line items based upon
relevant historical RDT prescription data. Although the .5-percent weighting
is a minimal amount, it is not improper to consider it, as the protester
argues, because it represents a legitimate estimate of the agencies' need
(and the estimated resulting cost of the item to satisfy that need). In this
regard, our review of the record shows that DoD's NSA requirements represent
the vast majority of prescriptions to be issued under this contract and that
RDT use by DoD was .5 percent (the same figure used for evaluation under
CLIN 0005) of DoD's total NSA use in 1999, which amount is also expected, as
a minimum, under the RFP. As such, we believe it serves as a reasonable
basis for evaluation of the RDT sub-line item. [16] See Temps & Co.,
B-221846, June 9, 1986, 86-1 CPD para. 535 at 3-4 (use of weightings based on
expected quantities of differently-priced items is a proper basis for price
evaluation). Under the circumstances here, we find that the protester has
provided no basis to question the reasonableness of the challenged
solicitation terms.

The protest is denied.

Anthony H. Gamboa

Acting General Counsel

Notes

1. The needs of a small number of IHS facilities, which are not at issue in
this protest, will be served by this contract.

2. A formulary is a list of prescription drugs, grouped by therapeutic
class, which a health care organization prefers that its physicians
prescribe. Standardizing medical and pharmaceutical items in a national
formulary program anticipates concentrated buying power and volume-discount
pricing. Agency Report at 1. Drugs are chosen for a formulary on the basis
of their medical value and price. Defense Health Care: Fully Integrated
Pharmacy System Would Improve Service and Cost-Effectiveness,
(GAO/HEHS-98-176, June 12, 1998) at 2 n.1. The formulary system seeks to
standardize drug use, ensure availability and consistency of the product for
nationwide usage, increase the continuity of care, standardize the processes
for evaluating the safety and efficacy of drugs, and manage cost growth.
RFP sect. 1.2; VA Health Care: VA's Management of Drugs on its National
Formulary, (GAO/HEHS-00-34, Dec. 14, 1999) at 4.

3. DoD patients currently using another NSA drug will not have to convert to
the awarded NSA. Additionally, NSA distribution by DoD's National Mail Order
Program (NMOP), separate from MTF direct care, will not be limited to the
awarded NSA. RFP amend. 2, sect. 3.2. The NMOP instead will continue to stock
and distribute both formulary and non-formulary pharmaceutical items; the
NMOP will benefit, however, from use of the anticipated lower national
contract price of the successful NSA under the RFP. Id.

4. For evaluation purposes, the proposed price (under CLIN 0003a) for the
180-mg tablets is to be weighted at 70 percent, and the price (under CLIN
0003b) for the 60-mg capsules or tablets is to be weighted at 30 percent for
a total CLIN 0003 evaluated price. RFP amend. 7, attach. 2, sect. 1(b).

5. The 10-mg loratadine RDT, manufactured by Schering and marketed under the
brand name Claritin RediTabsï¿½, does not have to be swallowed like the 10-mg
loratadine tablet, since the 10-mg loratadine RDT will dissolve on the
patient's tongue. Aventis, the manufacturer of fexofenadine (Allegraï¿½), does
not currently manufacture an RDT of its NSA.

6. Due to the role of DoD's Basic Core Formulary (BCF), DoD's intended
treatment of an award under CLIN 0005, if one is made to Schering, is
different from its intended action resulting from award under any other
CLIN. The BCF mandates that all MTFs stock the drugs listed on the BCF; each
MTF also maintains its own formulary in excess of BCF items. The agency
reports that, due to only a minimal need for the RDTs, which would not
justify mandating a continuous stock of the RDTs at all MTFs, DoD will not
add the RDTs to its BCF, even if Schering wins the contract under CLIN 0005.
RFP amend. 7 para. 3; Supplemental Contracting Officer's Statement at 2. Rather,
in the event of a CLIN 0005 award, DoD would list on the BCF the 10-mg
loratadine tablets, for which DoD has a substantial need, and would include
on the BCF, in the notations section, an advisory to all MTFs that the RDTs
were the basis of award of a national contract and that each MTF could
decide to stock the approved item on its own formulary.

7. The agency reports that neither VA's nor DoD's historical prescription
data for Schering's NSA RDT exceeds .5 percent of the total solid dosage
NSAs (loratadine and fexofenadine) prescribed in 1999. Contracting Officer's
Statement at 4.

8. The average daily dose price is to be calculated by multiplying the unit
price by the average daily dose (i.e., 1 or 2) indicated in the proposal's
price schedule. RFP amend. 7, attach. 1, at 1. "To determine the lowest
priced offer, the Government will compare the average daily dose prices for
each individual line item." Id., attach. 2, sect. (d). The RFP further advises
that if "any of the successful offeror's alternate offers have an evaluated
average daily dose price that is lower than any other offeror's offer, the
Government reserves the right to accept the alternate offer." Id. sect. 1(e).

9. Schering argues that CLIN 0005 represents an improper bundling of
requirements. Schering's argument, however, is misplaced. Rather, as the
agency points out, improper bundling is associated with an inability of a
protester to compete for the full, bundled requirement. See Pemco Aeroplex,
Inc., B-280397, Sept. 25, 1998, 98-2 CPD para. 79 at 16. That is not the case
here, though, since Schering clearly has the ability to compete on the basis
of the challenged combined CLIN for its own products.

10. In fact, the agency believes that Schering could face a potential
substantial increase in RDT business if it wins on the basis of the combined
(tablet and RDT) CLIN, since the firm could bring to the agencies' medical
communities additional attention to its RDT formulation's receipt of a
national contract. Supplemental Contracting Officer's Statement at 3;
Supplemental Report at 13.

11. In any event, we note that such a determination of therapeutic
interchangeability involves a matter of the agency's medical judgments and
policies and is not for our review. See Pfizer, Inc., B-276362, June 6,
1997, 97-1 CPD para. 205 at 7.

12. Schering's contention that the agency must follow its initial
determination to exclude the RDTs, because their packaging limitations kept
them from being able to meet the agencies' full needs as a formulary drug
item, is insufficient to sustain its protest. An agency may reconsider and
revise its needs determination provided that its revised determination is
reasonable, as we conclude the agency's is here.

13. In fact, Schering itself argued early in this procurement for the agency
to take action to protect the integrity of the award. Specifically, the
protester had argued that the contract would be rendered "illusory" if
another antihistamine's historical use data was not included in the RFP,
because, without it, a potential antihistamine competitor could remain
outside the formulary contract restrictions to compete for future VA and DoD
needs. Schering contended that some of the needs for that antihistamine
could be met under the NSA formulary contract. This left a question,
Schering alleged, as to whether the government was in fact going to fulfill
all of its NSA requirements with this contract. Schering Protest, B-286329,
Sept. 22, 2000, at 8. (The agency subsequently made that data available to
Schering and Schering withdrew its protest.)

14. We also note that under DoD's current BCF, Schering similarly would have
to market to each MTF to include its product on its individual formulary
because the BCF, prior to this award, has allowed the MTFs to pick one of
several antihistamine products to stock.

15. Further, as to Schering's challenge to the DoD's intention not to add
the RDTs to its BCF even if Schering wins the award under CLIN 0005, we
agree with the agency that, in light of the relatively small percentage of
RDTs anticipated under the contract, it would be unreasonable to require DoD
to list the 10-mg loratadine RDT separate from the protester's 10-mg
loratadine tablet on the DoD's BCF. Schering also provides no reason to
suggest that it would be appropriate to list the RDTs on the BCF and thereby
mandate that each MTF be required to stock them. Given the circumstances,
where the MTF is in the best position to know its patients' pharmaceutical
needs, we find it reasonable that the MTFs determine whether to stock the
RDTs to meet their needs for that formulation of loratadine. In any event,
Schering can still market its product to the agencies, at least to
demonstrate its ability to meet particular clinical needs of patients, or,
regardless of need, for DoD's NMOP.

16. Based upon a mathematical error in amendment No. 5, Schering had argued
that the RDT historical data shows only a .0007-percent (for the VA) and a
.005-percent use of RDTs (by DoD) to satisfy the agencies' 1999 needs. The
number of doses cited in that amendment, however, shows that the correct
percentages, which have been confirmed by the agency, are .007 percent and
.5 percent, respectively. Since, as stated above, we find the .5-percent
weighting under CLIN 0005 for the RDT sub-line reasonably based on the
anticipated minimum use of the RDTs for the vast majority (i.e., DoD's
requirements) of NSA prescriptions anticipated under the RFP, we see no
reason to question use of this estimate, even though it is slightly higher
than the average of the VA and DoD prior RDT use.