Authorized generics: anititrust issues and the hatch-waxman act

Authorized Generics: Antitrust Issues and the Hatch-Waxman Act narinder s. banait* An authorized generic (AG) is a pharmaceutical product that was originally marketed and sold by a brand In 1984, Congress enacted Hatch-Waxman with the company, but is relabeled and marketed under a generic intent, inter alia, to open up the market for products product name. One problem with AGs is that they do not that were previously patent protected. Between 1962 have to abide by the 180-day market exclusivity provision and 1984, approximately 150 drugs went off-patent. granted by the Hatch-Waxman Act to the first generic on However, there were no generic drugs, and the off- the market. AGs could thus undercut the public policy patent drugs continued to be sold at high prices. This rationale underlying the Hatch-Waxman Act, and have the resulted in a de jure and de facto ability to exclude potential of threatening the generic industry as a whole. beyond the exclusivity provided by the patent term. Generics cost less than the branded drugs. For example, An AG, also known as "authorized copy" or "brand-in- in 2001, the generic prescription drugs totaled 45% of bottle," may be marketed by the brand company itself or all prescriptions filled at a cost of about $11.1 billion, through a subsidiary, or the brand company may license while branded drugs totaled 55% of the prescriptions the product to another company for marketing in return filled at a cost of about $121 billion, or approximately for royalties. The AG is sold at a lower cost, and as an 91.6% of cost of drugs. The legislative intent of Hatch- alternative, to the branded product. The brand companies Waxman was to balance the competing policy interests may choose to launch an authorized generic for a variety of manufacturers of brand-name drugs and those of of reasons, including to settle patent litigation with a the generic trade group. The intention was to maintain generic company by partnering with it, to participate in inducements necessary for the brand companies to the generic market once generic competition starts, or to research and develop new therapies, and enable lower maintain manufacturing capacity for the drug substance cost generic products to reach the market. or the drug product. For example, of the 57 largest selling drugs in the United States, more than 30 are scheduled to Hatch-Waxman allowed generic manufacturers to file an loose patent protection by 2008, representing total sales Abbreviated New Drug Application (ANDA). The ANDA of more than $60 billion. The launching of AGs allows requires the generic company to demonstrate that its the branded companies to maintain cash flow, albeit at a product is "bioequivalent" to a referenced NDA's brand lowered rate, once generic competition starts. Similarly, name product. Proof of bio-equivalence for a drug is generic companies may choose to partner with the brand much easier to establish than the requirements for an company to launch an AG to settle litigation, to market a NDA: i.e., the active (not inactive) ingredients must be product they otherwise might not have been able to enter, proven "bioequivalent" by performing tests on twenty- or to increase their product portfolio.
four people exhibiting blood absorption rates within twenty percent of such rates exhibited for a "pioneer" fenwick & west 
brand named drug. Thus, ANDA is a far less expensive n "Paragraph I Certification"- No patent in the
process than filing an NDA.
NDA. This certification pertains to a drug listed
in the "Orange Book" that does not have an
In addition, Hatch-Waxman was a legislative reaction to accompanying patent as part of the NDA. The FDA Roche Products, Inc. v. Bolar Pharmaceutical Co., 733 shall approve any ANDA making this certification. F.2d 858 (Fed. Cir.1984). In Roche, the Federal Circuit, on appeal from the United States District Court for the n "Paragraph II Certification"- Term of patent(s)
Eastern District of New York, (572 F. Supp 255 (E.D.N.Y. in NDA has expired. The certification covers an
1983)), held that: NDA that contains one or more expired patents. Again, FDA shall approve any ANDA making this "Bolar's intended ‘experimental' use is solely for business reasons… Bolar's intended use of [the drug is], to derive FDA required test data, is thus n "Paragraph III Certification"- Patent(s) in NDA
an infringement of the ‘053 patent. Bolar may remains extant. This certification indicates that the
intend to perform experiments but unlicensed generic manufacturer seeks ANDA approval after experiments conducted with a view to the adoption the applicable patent(s) expires. The FDA can only of the patented invention to the experimentor's approve an ANDA with a Paragraph III Certification business was a violation of the rights of the after all patent(s) in the NDA have expired. patentee to exclude others from using his patented invention." n "Paragraph IV Certification"- Patent in NDA is
alleged to be invalid or the generic equivalent
The Federal Circuit refused to construe the experimental product does not infringe. By using this
use exception to cover activities required for submission certification a generic manufacturer can either to regulatory agencies. Thus, a generic company could challenge the validity of applicable patents in the not begin the experiments to obtain data required NDA or certify that the generic equivalent product for FDA drug approval until after the expiration of the will not infringe any patent held by the pioneer patents protecting the marketed product. As a result, drug company whose patent(s) is part of the NDA. the protection provided by patents extended beyond The generic manufacturer contemporaneously the statutory time. with its Paragraph IV Certification must notify the innovator manufacturer that it is filing a Paragraph In response to Roche, Hatch-Waxman defined the use IV certification with its ANDA.
by a generic manufacturer with the intention to file an ANDA of clinical information already in an NDA as Under Hatch-Waxman, as originally enacted, the first a non-infringing use. The ANDA must reference the generic company that filed an ANDA obtained a period NDA of the patented drug listed in the Approved Drug of 180 days during which it could exclude any other Products with Therapeutic Equivalence Evaluations, prospective generic market entrant from marketing the which is generally known as the "Orange Book." The same generic product based upon the same pioneer Orange Book provides a list of the applicable patents drug. The 180-day exclusivity commenced upon a to licensed drugs. In order to reference an NDA, the generic manufacturer's first sale of the generic after generic manufacturer must file one of four alternative receiving the FDA's approval of its ANDA. However, certifications provided for under Hatch-Waxman: under the original Hatch-Waxman provision, if the generic company holding the exclusivity period never  authorized generics: antitrust issues and the hatch-waxman act
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put the drug up for sale, all other generic manufacturers entering the marketplace. The new law eliminates who have filed an ANDA for the same drug would be multiple 30 month stay periods by providing that ANDA precluded from marketing another generic version of applicants can only provide Paragraph IV Certification the same pioneer drug.
in respect of patents listed in the Orange Book at the precise time the ANDA was filed. The new law also The 30-month stay ordered by the FDA upon the filing prohibits the patent holders from obtaining more than of a Paragraph IV Certification lawsuit could result one 30-month stay by including a different patent for a in substantially delaying the marketing of a generic drug that is the subject matter of the ANDA.
drug. The filing of the infringement suit triggered the "30 month stay" period. During this period the FDA The new law requires the company submitting a cannot approve the ANDA until the earlier of: (1) the Paragraph IV Certification to provide notice of the ANDA date the patent expires; (2) a court determination application to the NDA holder and patent owners within of non-infringement or patent invalidity; or (3) 30- 20 days of the receipt of notice from the FDA that its months after notification to the patent holder of the application has been filed. Previously, the law was Paragraph IV Certification. The 30-month stay results silent as to when the ANDA applicant was required from the filing of an infringement suit by the original to give such notice so that the applicant could file its patentee within 45 days of the prospective generic ANDA without immediately risking patent litigation.
manufacturer filing a Paragraph IV Certification. While Hatch-Waxman requires all NDA applicants to list all The new law also requires that the NDA holder bring patents that are part of an NDA for a branded drug in an infringement suit within 45 days against the ANDA the "Orange Book", it does not provide a mechanism applicant. If an infringement action is not commenced, for ascertaining the accuracy of the listing. There then the ANDA applicant may bring its own declaratory is no way for an ANDA filer to challenge an improper judgment action against the NDA holder. A precondition listing of a patent in the Orange Book. The Federal is that the ANDA applicant must allow the NDA holder Circuit held in Mylan Pharmaceuticals, Inc. v Thompson to review the confidential ANDA to determine if a 268 F.3d 1323, 60 USPQ 2d 1576 (Fed. Cir. 2001), and patent infringement suite should commence. The affirmed in Andrx Pharmaceuticlas, Inc. v. Biovial Corp. ability of the generic company to bring a declaratory 276 F.3d 1368, 61 USPQ 2d 1414 (Fed. Cir. 2002) and judgment action avoids it from going through the in Minnesoat Minin and Manufacturing and Riker regulatory process, receive an approval, and then upon Labs, Inc. and Alpharpharm, Ltd. v. Varr Laboratories, the first sale of the generic product, get embroiled in Inc. 303 F.3d 1294, 64 USPQ 2d 1270 (Fed. Cir. 2002) an infringement suit initiated by the brand company. that there is no private cause of action for delisting a Thus, the ANDA applicant can better manage the risk of patent from the FDA's Orange Book under the FFDCA. future uncertainties, such as litigation, while seeking Some companies developed a strategy for unlimited FDA approval, prior to its scale-up to manufacture and consecutive 30-month stays, thereby keeping generics incurring expenses of marketing a product.
from ever receiving ANDA approval.
Under the new law, the 180 day exclusivity period does medicare act of 2003
not begin until the first commercial marketing, thereby allowing an ANDA applicant to scale-up its manufacture The Medicare Act of 2003 amended Hatch-Waxman of an approved drug without sacrificing part of the in order to address some of these deficiencies and exclusivity period. Further, the exclusivity period begins to further reduce the barriers to more generic drugs upon the applicant's commercial marketing of either the fenwick & west
authorized generics: antitrust issues and the hatch-waxman act
NDA product or the ANDA product. This is a subtle point company develop a brand, enhance reputation in the in the new law, and addresses the situation in which a industry, and increase customer good will. Thus, the first ANDA applicant agrees to market the brand-name 180-day exclusivity period is very important to the drug instead of its own ANDA product. generic companies.
The exclusivity period is forfeited under the Medicare The economic and other tangible benefits of the six- Act of 2003 if the first ANDA applicant does not market month exclusivity are significantly reduced by the its drug within 75 days after of the ANDA approval, or introduction of the authorized generic products. The if the first applicant's ANDA is withdrawn or deemed entry of a second generic reduces the revenues of the withdrawn by the FDA for substantive reasons such as (i) first generic company by about 80%. The introduction the first applicant amends or withdraws its Paragraph IV of AG during the 180-day exclusivity period is similar to Certification, (ii) the Orange Book listed patents expire, two generic companies competing for the same market, or (iii) the ANDA applicant is found to have entered into and reduces the benefit to the paragraph IV ANDA filer. an agreement that violates the antitrust laws.
Mylan Pharmaceuticals reportedly lost an estimated $30 million in revenues when Proctor & Gamble The new law further clarifies that if more than one licensed Watson to sell the authorized generic version applicant files a "substantially complete" ANDA for a of nitrofurantoin for urinary tract infection treatment previously unchallenged drug on the same day each just as Mylan was about to bring its own generic version shares the same 180 day exclusivity period, and it to the market.
begins on the first day of marketing by one of the two applicants. This provision moots any question of which The position of the FDA is that the AGs do not have application was filed first on any particular day. Further, to abide by the 180-day market exclusivity to the first agreements among ANDA applicants and brand-name generic. The FDA reached the conclusion because it drug companies or other ANDA applicants as to the lacks the authority to regulate changes in approved exclusivity period, or the manufacturing, marketing, or products that do not potentially affect the safety or sale of the brand-name or generic drug must be filed the effectiveness of the product, as in AGs. Moreover, with the Federal Trade Commission and the Department the FDA stated that AGs appeared to promote rather of Justice within 10 days of execution.
than impede competition. Therefore, the FDA's current policy is to deny petitions to prohibit the sale of AG during the 180-day exclusivity period. (see denial of petition by Mylan Pharmaceuticals, Docket No. 2004P- The law gives a 180-day exclusivity to paragraph IV 0075/CP1, and by Teva Pharmaceuticals, U.S.A., Docket ANDA filer. The argument for the 180-day exclusivity grant is that companies need an incentive in order to develop generic products and to reward them for taking The fact that authorized generics may compete with the risk of an infringement suit. Further, it provides ANDA generic products, even during the 180-day an incentive to the generics to challenge potentially exclusivity period was affirmed by the U.S. District Court invalid patents. Aside from greater revenues and profits for the District of Columbia in Teva Pharmaceuticals generated during the 180-day exclusivity period, the v. FDA (D.D.C. December 23, 2004), and by the U.S. generic company can also establish itself with a larger Court of Appeal for the District of Columbia Circuit customer base thereby retaining a greater market (June 3, 2005). The court held that Pfizer may market share after the exclusivity ends. Further, it helps the  authorized generics: antitrust issues and the hatch-waxman act
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its own authorized generic version of its epilepsy drug by pursuing this scheme, the brand company had a Neurontin (gabapentin) during the 180-day exclusivity reasonable prospect of recovering its losses by slowing period granted to Teva Pharmaceuticals.
the growth of the generics. The second prong of the test is hard to meet.
Judge Keeley in Mylan Pharmaceuticals Inc. v. Food and Drug Administration, Civ. No. 1:04cv174 (N.D. W. For the particular product for which the exclusivity was Va.) (filed August 5, 2004; withdrawn without prejudice granted, additional generic companies will come in after Aug. 30, 2004), reportedly suggested that there might 6 months, thereby further decreasing the price of the be antitrust issues with AGs. For one, the introduction drugs. Therefore, the brand company is not likely to be of the AGs during the 180-day exclusivity period could able to increase the price after the 180-day exclusivity be an attempt to remove the economic incentive for period ends. Although the AG causes severe loss to the paragraph IV certification for other drugs thereby first generic company, it will be very difficult to show maintaining market share in other brand markets. that eventually there will be a rise in prices sufficient Secondly, selling the branded product at generic for the brand to recoup the costs.
prices could be predatory pricing. However, it could be difficult to prove these antitrust issues.
The launch of every paragraph-IV generic expected to be a blockbuster has been met with the availability of The generic company will have to show that the an AG since the fall of 2003. This has financially hurt introduction of AG is a willful anti-competitive conduct the generic companies, and could work against the that prevents the generic from fairly competing in the public policy of the Hatch-Waxman Act by removing relevant market for the drug. Factually, AGs do not the economic incentive from challenging the validity prevent a generic version from being introduced into and enforceability of weak patents. However, the the market; AGs decrease the revenues and the profits courts have upheld the rights of the brand companies of a generic during the exclusivity period. The generic to introduce AGs, and challenging AGs on antitrust company is thus able to enter the market, but will likely issues is likely to fail as well. Congressman Waxman not reap the economic and non-tangible benefits of has publicly stated that AG's violate the purpose of the being a paragraph IV filer. This will likely not meet the 180-day exclusivity period. Therefore, the best cause legal test under the Sherman Act.
for the generic companies might be to work with the government to amend the laws specifically prohibiting The second theory of predatory pricing may not be AGs during the exclusivity period.
of help to the generic companies either. A predatory pricing claim under §2 of the Sherman Act alleges *Narinder Banait is an associate at Fenwick & West LLP that the brand company priced its AG in an unfair in Mountain View, California. His practice focuses on manner with an object to eliminate or retard generic life sciences patent prosecution and patent litigation. competition and thereby gain and exercise control over He can be reached at [email protected].
the price. Proving predatory pricing is a two pronged THIS UPDATE IS INTENDED BY FENWICK & WEST LLP TO test. The generic must prove that the prices complained SUMMARIZE RECENT DEVELOPMENTS IN THE LAW. IT IS NOT of are below an appropriate measure of the brands INTENDED, AND SHOULD NOT BE REGARDED, AS LEGAL ADVICE. costs and that the brand had a reasonable prospect of READERS WHO HAVE PARTICULAR QUESTIONS ABOUT THESE recouping its investments in below cost prices. Thus, ISSUES SHOULD SEEK ADVICE OF COUNSEL. 2005 Fenwick & West LLP. All rights reserved.
even assuming that the generic could show that the price of the AG was below cost, it must also show that fenwick & west
authorized generics: antitrust issues and the hatch-waxman act

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