promoting generic drug competition in the united states ... · u.s. retail sales of generic...
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Promoting Generic Drug Competition in the United States’ Pharmaceutical Market: What Went Wrong with Hatch-Waxman, Why McCain-Schumer Will Not Work,
And What Will Allison K. Young, Esq.* Introduction Consumers, media outlets, and politicians all bemoan the cost of prescription
medication today. Indeed, the cost of prescription drugs in the United States is rising
dramatically, according to some private sector estimates by 14% to 18%, each year.1 The
dollar amount of that increase for 2001 alone is estimated at between $160 billion and
$170 billion.
Generic drugs typically cost less than half of their brand name counterparts, and
their availability in the market often motivates brand name manufacturers to lower the
price of their products. Over the past twenty years, laws have been enacted attempting to
accelerate generic competition in the drug industry. Unfortunately, those efforts have not
had the success legislators hoped for and have created new obstacles to pharmaceutical
competition. U.S. retail sales of generic prescription drugs totaled $11.1 billion in 2001,
in contrast to brand name prescription drug sales of $121 billion. In 2001, generic drugs
were dispensed in 45% of all prescriptions filled, but consumed only approximately 8.4%
of all drug therapy dollars spent at retail. Conversely, brand name prescription drugs
represented only 55% of all prescriptions but consumed approximately 91.6% of all drug
therapy dollars spent at retail.
*Allison Young graduated from the University of Maryland School of Law in 2002, and is licensed to practice law in California. Ms. Young interned at the Antitrust Division of the Office of the Attorney General for the State of Maryland in 2001, assisting in the multistate prosecutions and investigations of alleged antitrust competitive practices in the pharmaceutical industry. 1 Amy Barrett and John Carey. Drug Prices: What’s Fair? How Can We Encourage Research and Still Keep Prices Within Reach? Business Week, December 10, 2001.
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Legislators have struggled with this paradox over the years and passed complex
laws in an effort to propel generic drugs into the market quicker and more economically.
In 1984, Congress passed the Hatch-Waxman Act attempting to strike a careful balance
in the pharmaceutical industry. The purpose of the law was to encourage the expedition
of generic drug products into the marketplace in an effort to lower the sky-high prices of
prescription medication. Congress also wanted to maintain the integrity and strength of
the patent system and continue to provide incentives to brand name drug manufacturers
to innovate and discover new medications.
In the United States, it is an act of infringement to make, use, or sell a product
which is claimed in a patent. Therefore, generic drug manufacturers had to wait until
patent protection for brand name pharmaceuticals expired before they could participate in
the Food and Drug Administration’s approval procedure to produce and market a generic
drug. One provision of the Hatch-Waxman Act, known as the Bolar Exemption,
addressed this concern by declaring there is no act of infringement if one makes or uses a
product or process claimed in a patent prior to its expiration for purposes of gaining
regulatory approval. This allows generic manufacturers to ga in FDA approval and be
prepared to introduce generic drugs immediately upon the expiration of the brand name
manufacturer’s patent.
Additionally, the Hatch-Waxman Act created an Abbreviated New Drug
Application (“ANDA”) procedure, whereby generic manufacturers merely have to
demonstrate their drug is the bioequivalent of an already approved drug and thus do not
have to duplicate the lengthy and expensive clinical trials proving safety and efficacy.
ANDA filers must also file a certification along with their application referencing all
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patents associated with the brand name drug that are listed by the FDA in their
publication known as the “Orange Book”. Through these certifications, the ANDA filer
must declare either that their product will not be marketed prior to the expiration of the
patents, or that the patents are unenforceable or invalid, or their product will not infringe
the listed patents. The hope of this process was that generics will be able to enter the
market quicker and more will do so since they do not have to fund expensive clinical
trials. By allowing generics to be prepared to enter the market on the same day the brand
name loses its patent protection, Congress also hoped to limit resulting extended
exclusivity periods for the brand name drugs beyond the patent terms proscribed by law.
The Hatch-Waxman Act acknowledged this procedure greatly encroaches
upon the integrity of patent jurisprudence in the United States and thus designed an
intricate system of stays against generic application approvals if patent holders assert
their rights, and exclusivity grants for generic manufacturers who first challenge
potentially invalid patents. It is these automatic suspensions of ANDA approvals and
exclusive rights awarded to generics that have been manipulated for anticompetitive
results, created de facto patent extensions for the brand name pharmaceutical
manufacturers, and the reason Congress once again is considering legislation to remedy
the problems inherent in the Hatch-Waxman Act.
Senators John McCain of Arizona and Charles Schumer of New York
have introduced legislation in Congress, known as the McCain-Schumer Bill, in an
attempt to close the loopholes which were created by Hatch-Waxman. Many refer to this
proposed legislation as a generic industry wish list. Some of the provisions would be
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effective, but the bill is silent on many problems, has internal inconsistencies, and may
create more ambiguities than it resolves. The bill also does not address the fundamental
underlying problem of creating responsibilities for the FDA which lie outside of the
agency’s field of competence. The bill continues to allow patent listings in the FDA’s
Orange Book, which are listed solely upon the unverified assertions of the patent holder,
to preclude ANDA approvals and trigger additional exclusivity grants to the brand name
drug manufacturer, regardless of the authenticity of the listing. To truly accelerate
generic drug competition in the U.S. pharmaceutical industry, legislators need to divorce
intellectual property protection under the patent laws from considerations of a product’s
safety and efficacy, and remove the responsibility of protecting patent rights from a
federal agency whose mandate has nothing to do with the perpetuation of the patent
system.
I. The Nature of the Underlying Problem
A. The FDA Approval Process
In order to market a drug product in the United States, a drug manufacturer must
gain the approval of the Food and Drug Administration (“FDA”). Under the Federal
Food, Drug, and Cosmetic Act (“FFDCA”),2 in order to obtain approval a drug
manufacturer must submit a New Drug Application3 (a “NDA”) to the FDA presenting
comprehensive data on three separate phases of clinical trials conducted on patients to
show the safety and efficacy of the drug. These trials are extremely costly and time
2 21 U.S.C §§301 et seq. (1999). 3 21 U.S.C. § 355(a) (1999).
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consuming4, and until 1984 were required for any and all drugs seeking approval to enter
the U.S. market. That meant that any drug manufacturer wishing to develop and sell a
generic version of a drug that was already on the market and had been approved by the
FDA had to duplicate those same trials. Thus the goal of lower priced alternatives
remained an illusion since the costs and time to replicate the data necessary for the
original approval was cost prohibitive.
B. The Hatch-Waxman Act
Eighteen years ago, in an effort to expedite generic drug entry into the
marketplace and lower the cost of medications, Congress adopted the Drug Price
Competition and Patent Term Restoration Act, also known as the Hatch-Waxman Act5
after the bill’s sponsors. The Hatch-Waxman Act created a new form of application
referred to as an Abbreviated New Drug Application (“ANDA”) which allows a generic
manufacturer to avoid much of the costly and lengthy application process. The ANDA
applicant merely has to show that the drug is the same as and is “bioequivalent” to the
previously approved pioneer drug (i.e., the brand name) without having to replicate the
safety and efficacy studies required to gain FDA approval.
Additionally however, the ANDA must include a certification6 with respect to any
patents for the brand-name drug product that are listed in the FDA’s so-called “Orange
4 The Pharmaceutical Research and Manufacturers of America (PhRMA), the lobbying arm of brand name pharmaceutical companies, claims that the average pioneer drug costs $802 million in R&D, and takes “10-15 years to move from the laboratory bench to the pharmacy shelf.” www.phrma.org . Some scholars however put the amount at closer to $250-500 million. See Robert Levy, The Pharmaceutical Industry: A Discussion of Competitive and Antitrust Issues in an Environment of Change, Bureau of Economics Staff Report. Fed. Trade Commn. (Mar. 1999). See also Stephen S. Hall, Prescription for Profit, N.Y. Times Mag. 42 (Mar. 11, 2001). 5 Pub. L. No. 98-417, 98 Stat. 1585 (1984), codified at 21 U.S.C. §§355 (1984). 6 21 U.S.C. § 505(j)(2)(A)(vii).
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Book”. 7 The certification must make one of the following statements: (I) no patent
information on the drug product that is the subject of the ANDA has been submitted to
FDA; (II) that such patent has expired; (III) that the generic will not commence
marketing the drug until the expiration of patents listed in the Orange Book, and the date
on which such patents expire; or (IV) that such patents are invalid, unenforceable or will
not be infringed by the manufacture, use, or sale of the drug product for which the ANDA
is submitted. This last certification is known as a paragraph IV certification. A notice of
a paragraph IV certification must be provided to each owner of the patent that is the
subject of the certification and to the holder of the approved NDA to which the ANDA
refers.8
The submission of an ANDA for a drug product that is claimed in a patent is an
infringing act if it is intended to be marketed before the expiration of the listed patent(s)
(as is the case in a paragraph IV certification). Therefore, the act of filing a paragraph IV
ANDA alone may be the basis for a patent infringement suit to be filed against the
ANDA filer9. Under Hatch-Waxman, if the patent holder files suit against the paragraph
IV ANDA filer within 45 days of receiving notice of the certification, the FDA must
automatically impose a 30-month stay aga inst the approval of any ANDA (including the
7 Officially known as “Approved Drug Products with Therapeutic Equivalence Evaluations”, the Orange Book lists all patents related to every approved drug, as submitted by the pioneer drug applicant. 21 U.S.C. §355(j)(7)(A)(iii) (1999). The applicant must include information on any patent covering the drug, method of using the drug for treatment of disease, or delivery of the drug, for which a claim of patent infringement could reasonably be asserted against an unauthorized party. 21 U.S.C. §355(b)(1) (1999). 8 Additionally, the paragraph IV ANDA filer must provide the patent and NDA holder(s) a detailed statement of the factual and legal basis for the ANDA applicant’s opinion that the patent is unenforceable, not valid or will not be infringed by marketing a generic product. 9 21 U.S.C. §355(j) (“submitting an ANDA application for a drug claimed in a patent or the use of which is claimed in a patent is an act of infringement.”).
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one subject to the suit) until there is a final adjudication of the suit, the patents expire, or
the generic begins marketing their product (whichever comes first).10
C. The Orange Book
By law, the ANDA filer must file certifications with respect to those patents held
by the NDA holder pertaining to the brand name drug that are listed in the Orange Book.
Therefore, it is the Orange Book listings that give rise to many of the problems. The 180-
day exclusivity granted to the first paragraph IV ANDA filer, as well as the 30-month
stay of the approval of any ANDA following initiation of an infringement suit as a result
of the filing of a paragraph IV ANDA, all revolve around certifications made by the
ANDA filer with respect to patents that are listed in the Orange Book. Patent holders
inform the FDA of patents they hold and request their listing, which the FDA grants
without review. If an ANDA filer challenges those patents via a paragraph IV
certification, and claims to the FDA that the patent is improperly listed (for instance, that
the patent does not cover what the patent holder claims it covers), the FDA will send a
letter to the patent holder, requesting that they reaffirm that the patent covers what the
patent holder claimed it covers, and that the patent is properly listed. If the patent holder
does so, the inquiry is at an end, the FDA accepts the patent holder’s assertion, and will
not remove the patent from the Orange Book, nor approve the ANDA if suit has been
filed.
Unfortunately, there is no way for an ANDA filer to challenge an improper listing
of a patent in the Orange Book in a court of law. The Federal Circuit held in Mylan
10 21 U.S.C. §355(j)(5)(B)(iii) (1999).
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Pharmaceuticals, Inc. v. Thompson11, affirmed in Andrx Pharmaceuticals, Inc. v. Biovail
Corp.12, and most recently reaffirmed in 3M v. Barr Laboratories, Inc.13 that there is no
private cause of action for delisting a patent from the FDA’s Orange Book under the
FFDCA. In Mylan, the ANDA applicant sued the FDA and the NDA holder, alleging the
pertinent patent had been improperly listed in the Orange Book, and moved for
declaratory and injunctive relief requiring the NDA holder to delist the patent. On
appeal, the Federal Circuit concluded that the ANDA holder’s cause of action was not
tied to any recognized patent infringement defense but rather was “an attempt to assert a
private right of action for ‘delisting’”…and made clear that there was no private cause of
action for delisting under the FFDCA. 14 The Federal Circuit reaffirmed that holding in
Andrx, finding that a claim of improper conduct in the FDA proceeding was required to
be raised initially before the FDA itself and thereafter in a judicial review proceeding
brought under the Administrative Procedure Act (“APA”), 5 U.S.C. §§702-706.15
In fact, as was most recently suggested in dicta in 3M v Barr Laboratories,16 an
ANDA applicant must now first survive administrative challenge to their paragraph IV
certification notice, then attempt to use those same channels of an FDA administrative
hearing and an APA action to challenge Orange Book listings, since it is not permitted to
do so via a court challenge under the FFDCA. This means that a patent holder can
11 268 F.3d 1323, 60 USPQ 2d 1576 (Fed. Cir. 2001), (holding “nothing in the Hatch-Waxman Amendments alters the statement in section 337(a) of the FFDCA that ‘all such proceeding for the enforcement, or to restrain violations, of this chapter shall be by and in the name of the United States [emphasis added]’” (citing 21 U.S.C. §337(a) (1994))). 12 276 F. 3d 1368, 61 USPQ 2d 1414 (Fed. Cir. 2002). 13 Minnesota Mining and Manufacturing and Riker Laboratories, Inc., and Alpharpharm, Ltd .v. Barr Laboratories, Inc. 2002 U.S. App. LEXIS 8346 (May 1, 2002), (stating “we hold that 355(j)(2)(B) cannot be enforced by a private party in a patent infringement action, but must be enforced, if at all, only in the context of an action under the Administrative Procedure Act.”). 14 268 F.3d at 1332, 60 USPQ 2d at 1583. 15 276 F. 3d at 1379, 61 USPQ 2d at 1421.
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improperly list patents in the Orange Book, requiring the filing of a paragraph IV ANDA
certification, file an infringement suit which automatically triggers the 30-month stay
(resulting in an additional two and a half years of no generic competition), and there is
next to nothing that the ANDA filer can do to challenge the listing, since the FDA will
not make independent determinations as to the validity of the listing and merely defers to
the assertions of the patent holder.
D. Incentives for the Generic Applicant
Defending against a patent infringement suit is not for the faint of heart. It’s
extremely costly in capital and personnel resources, time, and company morale. In an
effort to encourage generics to undertake the risk of a lawsuit and the expense of
challenging a patent, the Hatch-Waxman Act provides an incentive for generics who file
a paragraph IV ANDA certification, 17 by granting the first filer of a paragraph IV
certified ANDA a 180-day exclusivity period, in which the ANDA filer is protected from
competition by any other generic competitor for the same drug. This 180-day exclusivity
period begins from the earlier of (1) the date a court decides the patent in question is
invalid, unenforceable, or not infringed, or (2) the date the generic manufacturer begins
marketing its drug. 18
Initially, there was a proposed requirement19 that the first ANDA applicant
submitting a paragraph IV certification be sued for patent infringement to obtain the 180-day
16 3M v. Barr Laboratories, 2002 U.S. App. LEXIS 8346 (May 1, 2002). 17 The FDA lists patents in the Orange Book based solely upon the assertions of the patent holder, rather than making any independent determinations that the patents are valid, cover what the applicant claims, or actually pertain to that drug, claiming (rightly) that it is not the agency’s field of expertise to render decisions about patentability. 18 21 U.S.C. §355(j)(5)(B)(iv) (1999).
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exclusivity. This interpretation was believed to be most consistent with the language of
Hatch-Waxman and furthered the congressional intent to encourage challenges to patents
that may be invalid or unenforceable 20. In response to a comment on the proposed rule, the
FDA added a requirement to the final rule that the first ANDA applicant submitting a
paragraph IV certification must successfully defend a patent infringement suit to be entitled
180-day exclusivity. The "successful defense" requirement was established in order to
eliminate "an incentive for frivolous claims of patent invalidity or noninfringement because
it would give ANDA applicants exclusivity even if the applicant was unsuccessful in
defending against the patent owner's lawsuit"21. The FDA’s “litigations” and “successful
defense” requirements for 180-day exclusivity were considered in Inwood Laboratories, Inc.
v. Young,22; Mova Pharmaceutical Corp. v. Shalala,23 and Granutec, Inc. v. Shalala24. In
Inwood and Mova, the court held that 180 days of marketing exclusivity should be granted
to the first ANDA applicant who files a paragraph IV certification, regardless of whether the
applicant is subsequently sued for patent infringement. These decisions were upheld on
appeal. The district court in Mova following the appeals entered an order on June 1, 1998,
stating that the successful defense requirement of 21 C.F.R. §314.107(c)(1) was invalid, and
permanently enjoined the FDA from enforcing it.
19 The proposed rule containing § 314.107(c)(1) was published in the Federal Register of July 10, 1989 (54 FR 28872, 28929). 20 54 FR 28872 at 28894. 21 59 FR 50338 at 50353. 22 723 F. Supp. 1523 (D.D.C. 1989), vacated as moot, 43 Fed. 3d 712 (D.C.Cir. 1989). 23 955 F. Supp. 128 (D.D.C. 1997). 24 No. 5:97-CV-485-BO (1) (E.D.N.C. July 3, 1997).
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E. The Consequences of the Hatch-Waxman Act
The Positive Effects The Act seems to have achieved its purpose in many respects. Generic drug
availability is on the rise. A 1998 Congressional Budget Office study found that savings
to consumers purchasing generic drugs in place of more expensive brand name
bioequivalents amounted to between $8 and $10 billion from retail pharmacy sales alone
in 1994.25 Generic drug industry reports claim that “generic drugs typically cost 50% or
less than ‘brands’…with generics often entering the market at prices 25% less than
brands, then dropping to 60% off the brand price after two years.”26 Since the passage of
Hatch-Waxman, the generic drug share of U.S. prescription sales has grown from 19% in
1983 to over 40% in 1995. There has also been an increase in the percentage of branded
drugs that have a generic competitor on the market – nearly 100% of the top-selling drugs
with expired patents have generic versions, compared to only 36% in 1983, and generic
share of prescription drug volume has increased by almost 150% since 1984.27
The Hatch-Waxman Act has not stifled innovation, despite the doomsday
predictions by the brand name pharmaceutical companies, collectively known as “Big
Pharma”. In fact, the prospect of facing generic competition and losing their patent
protection spurred Eli Lilly to develop a time release “once weekly dosage” version of
25 Congressional Budget Office, How Increased Competition From Generic Drugs Has Affected Prices and Returns in the Pharmaceutical Industry, ch. III, at 1,20 (July 1998). See also David A. Balto, Pharmaceutical Patent Settlements: The Antitrust Risks, 55 Food and Drug L.J. 325 (Fall 2000). 26 Generic Drugs: Saving Money at the Pharmacy, The Federal Trade Commission Web site, April 1998. www.accesstoaffordablemedicine.com, March 2002.
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their blockbuster drug Prozac, which helped motivate many other pharmaceutical
companies to create longer duration time released products (not withstanding the
motivation to increase exclusivity).
The Negative Effects
Unfortunately, there have also been some ill and unintended consequences. The
Act was meant to lower drug costs by stimulating competition in the pharmaceutical
market. Legislators hoped to provide generics a quicker and less expensive approval
process, incentives for challenging invalid patents through the 180-day exclusivity
period, and compensate innovator drug companies wishing to defend their intellectual
property patents by the grant of the 30-month stay of ANDA approvals during patent
litigation. However, many pharmaceutical companies have used these incentives (some
would call them loopholes) to actually extend exclusivity periods and block competition
from entering the market.
While Big Pharma employs a variety of different methods to extend the period of
exclusivity for their drug, this paper focuses solely on the exploitation of the Hatch-
Waxman Act.28 The most common means of twisting Hatch-Waxman into a vehicle for
Big Pharma to extend exclusivity is through patent litigation. Recall that if the patent
holder sues a paragraph IV ANDA filer within forty-five days of being notified of the
certification, the FDA will not even consider any application related to the drug in
27 Antitrust Issues in Settlement of Pharmaceutical Patent Disputes, Comments by Thomas B. Leary, Commissioner, Federal Trade Commission, Sixth Annual Health Care Symposium, Chicago, Illinois, November 2000. See also Congressional Budget Office, id note 14 at Ch. III, 1, 5, and 27. 28 Some alternative means involve gaining multiple patents on various aspects of a drug, varying dosages, and methods of use and staggering the time when they are applied for so that when one patent expires, others are still effective. These strategies are known as “patent stacking” and “evergreening”. Another method is via a six-month exclusivity extension awarded for conducting pediatric testing. While six months may seem short in terms of years of patent protection, consider that for spending only an estimated
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question for thirty months, essentially granting the patent holder an additional two and a
half years of marketing exclusivity. This encourages a present NDA holder to file suit
every time any generic files a paragraph IV certification, even if the suit would be
frivolous, since regardless of the merits of the suit the FDA must automatically grant the
stay, blocking all generic competition.
A closely related potential for abuse is the 6 months of exclusivity granted to the
first paragraph IV ANDA filer. The exclusivity for a generic version only begins when
either the patent infringement litigation is finally adjudicated, or upon the commencement
of marketing by the generic. Therefore, if litigants settle the suit out of court, the only
mechanism to trigger starting the clock on the 180-day exclusivity is the marketing of the
generic product. This situation has led to cases where brand name companies (the patent
holder) pay the generic company (the alleged infringer) to defer or abandon marketing
generics pursuant to the settlement agreement. Therefore, this exclusivity grant under the
Hatch-Waxman Act meant as an incentive to the generic, can actually be a backdoor
method of restraining competition by keeping generic products out of the marketplace
indefinitely.29
$3 million on a pediatric trial, Claritin was granted the six-month exclusivity, resulting in additional earnings of close to $1 billion. 29 21 C.F.R. §314 purports to provide when the exclusivity period will commence. However, the language of the statute does not indicate with any precision when that should occur, or any penalty for failure to begin marketing. The statute simply says that the applicant must promptly notify the FDA when it does begin marketing; if the applicant does not promptly notify the FDA of the commercial marketing commencement date, the FDA will consider the date of first marketing to be the date of ANDA approval. The statute does not define what is meant by “promptly”. The statute also does not define what might trigger the FDA’s decision to consider the first filer’s date of ANDA approval to constitute the date of first marketing. Presumably, the FDA’s consideration would be a retroactive response to a subsequent ANDA filer wishing to market the generic at issue sometime after the first ANDA filer had already begun marketing. The statute leaves open the question whether (assuming the paragraph IV ANDA filer was not sued for infringement) the paragraph IV ANDA filer may decline to commence marketing at all for a period of time and if so how long a period of time might be permissible before the first filer will be deemed to have lost his exclusivity period, if ever.
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Big Pharma is not the only player exploiting the ambiguities in Hatch-Waxman.
Another unfortunate byproduct of the Act has been the creation of a litigation cottage
industry, with some generic companies exploiting the exclusivity grants as a revenue
resource without ever intending to actually produce and manufacture a generic
pharmaceutical. Their strategy is to attract an infringement suit and get paid off in a
settlement, never intending to market a drug.
As an example of abusive behavior, Barr Laboratories, one of the largest generic
drug manufacturers in the United States, actually pays its outside patent lawyers several
hundred thousand dollars a month to search patent listings in order to target patented
drugs. Barr then files a paragraph IV ANDA on a targeted drug for the purpose of
actually getting sued so that the brand name company will pay them off in a settlement of
the litigation. Bruce Downey, Barr’s Chief Executive Officer, discussed this strategy
openly during a speech at an investment conference in 2001, stating “we see no end to the
patent-challenge opportunities as long as branded firms continue to get patents. I look at
it as them generating business opportunities for Barr.”30
Indeed, Barr has had many recent victories in the patent-challenge context over
major drug manufacturers. In one case challenging Cipro, Bayer-AG (“Bayer”) settled
with Barr agreeing to either sell Cipro to Barr for resale, or alternatively to pay Barr $30
million a year (which Bayer has been doing so far). In a settlement with AstraZeneca
over the drug tamoxifen (Nolvadex), Barr is permitted to buy the drug at a 5-15%
discount and then resell it. One analyst estimates that such settlement arrangements
account for over 65% of Barr’s revenues from the past four years.31 And in the case of
30 Bethany McLean. Prozac, A Bitter Pill, Fortune magazine, www.fortune.com. August 13, 2001, at 4. 31 Id. at 4.
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Prozac, Barr made it clear to Lilly that it actually wanted to settle the case, for $200
million and the right to begin selling Prozac prior to the expiration of the patent. The
only reason that case did not settle is Lilly refused to go for the deal.
The Unintended Consequences
These abusive manipulations of the provisions of the Hatch-Waxman Act have
led to some egregious behavior on the part of both brand name pharmaceutical companies
and their generic counterparts. To fully understand how these manipulations play out in
reality, consider the following cases.
FTC v. Hoechst Marion Roussel, Inc., Carderm Capital L.P., and Andrx Corporation
In March of 2000, the FTC filed a complaint alleging that Hoeschst and Andrx
settled an infringement suit with an agreement whereby Andrx (the first filer of an
ANDA with a paragraph IV certification) was paid millions of dollars to delay marketing
a generic version of Cardizem.32 Since Andrx held the “first filer” status, it also held the
180-day exclusivity period. By not marketing, this prevented any other generic from
gaining FDA approval, and effectively kept Cardizem free of competition. According to
the FTC, Andrx agreed it would not market their product even upon gaining FDA
approval, would not relinquish their 180-day exclusivity to any generic competitor, and
they would not market any other non-infringing generic.33
32 See Federal Trade Commission, FTC Antitrust Actions in Pharmaceutical Services and Products, www.ftc.gov/bc/rxupdate.htm. 33 Glasgow, Lara. Stretching the Limits of Intellectual Property Rights: Has the Pharmaceutical Industry Gone Too Far? 41 J.L. & Tech. 227 (2001).
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Abbott Laboratories and Geneva Pharmaceuticals
Abbott realizes roughly $550 million a year from its brand name drug Hytrin,
used to treat prostatic hyperplasia and hypertension. Geneva, a generic drug company,
received FDA approval to produce a generic version of Hytrin upon the filing of a
paragraph IV certified ANDA and inevitably drew an infringement suit by Abbott.
Abbott and Geneva entered an agreement to settle the suit, which included provisions that
Geneva would neither market their generic version, nor relinquish their 180-day
exclusivity period, in exchange for receiving payments in the amount of $4.5 million per
month from Abbott.34
Mylan v. Bristol Myers Squibb
Bristol Myers Squibb (“BMS”) held a patent for BuSpar (buspirone hydrochloride
or buspirone, an antianxiety medication) that was set to expire on November 22, 2000.
On November 21, 2000 however, BMS received a new patent, the ‘365 patent, which
claimed a method of use of a buspirone metabolite.35 Immediately after receiving the
patent, BMS approached the FDA to obtain listing of the ‘365 patent in the FDA’s
Orange Book. BMS certified to the FDA that the ‘365 patent covered FDA-approved
uses of buspirone and further certified that a claim of infringement could reasonably be
34 See In re Abbott Labs., 2000 FTC LEXIS 15 (Mar. 16, 2000). 35 In their application for a new patent, BMS initia lly claimed that the patent would cover (i) methods of using a metabolite of buspirone, and (ii) methods of using a prodrug of buspirone. A metabolite is a chemical produced by the body, while a prodrug is an inactive precursor of a drug that is converted into its active form by the body’s metabolic process. The Patent and Trademark Office issued a restriction requirement that an application for a patent could include only one invention. In response, BMS limited its patent application to include only claims to a method of using the prodrug of buspirone. The Patent and Trademark Office, however, rejected this claim because it determined that usage of the buspirone prodrug had been in the public domain for approximately fourteen years, and was therefore unpatentable. BMS then abandoned the prodrug claim and asserted that the patent would cover methods of using a buspirone
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asserted against a manufacturer of generic buspirone. These certifications were in direct
contradiction to BMS’s position taken before the Patent and Trademark Office when it
originally obtained the ‘365 patent.36 Two generic drug manufacturers, Mylan
Pharmaceuticals and Watson Laboratories, had received FDA approval and were
prepared to market generic versions of BuSpar on November 22, 2000. However, based
on BMS’s eleventh-hour assertions before the FDA that the ‘365 patent extended its
exclusive rights to sell buspirone, the FDA stopped Mylan and Watson from marketing
their generic versions.
F. Big Pharma’s Arguments
Big Pharma claims that their actions are within the scope of the law, and they are
entitled to protect their patent rights. The loudest and most fatalistic argument made by
the brand name pharmaceutical industry is that they need to realize large profits on drugs
in order to recover their research and development costs, and reinvest that money into
innovation in order to create newer and better lifesaving medications. The crux of Big
Pharma’s battle cry is that if they continue to face increased competition, while seeing a
reduction in their profit margins, they simply won’t be able to pursue research and
development of new lifesaving medications. In a most ominous statement, Robert
Armitage, the general patent counsel for Eli Lilly, (in discussing the loss of the last two
years on Prozac’s patent through a court determination it was invalid) claimed “[f]or two
metabolite. This patent covers only the systemic administration of buspirone metabolite into the body; it does not cover any FDA-approved uses of buspirone. 36 Before the Patent and Trademark Office, BMS took the position that the `365 patent did not cover any FDA-approved uses of buspirone. BMS took this position because any FDA-approved uses of buspirone would have been unpatentable prior art. In correspondence with the FDA, however, BMS conveyed that the `365 patent covered FDA-approved uses of buspirone for purposes of obtaining an Orange Book listing.
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years users will get somewhat cheaper Prozac, and Lilly will lose revenues that would
have enabled us to develop one new drug. Which lifesaving drug won’t we develop?”37
Indeed, on the day the last patent for Prozac was invalidated, a patent which would’ve
ensured exclusivity until 200338, Lilly had to notify the SEC which halted trading in its
stock, and Lilly lost $36 billion in market cap.39
But before anyone is tempted to feel sorry for Lilly, consider that Lilly is in a
better position today than it was prior to losing its stranglehold on the Prozac market.
Lilly’s stock, while down from its all time high two years ago, was still selling at twenty-
six times earnings last August, more than most big pharmaceutical company stocks. Its
antipsychotic drug, Zyprexa, has already generated more revenues than Prozac even
though it has only been on the market for five years; and Lilly has a powerhouse new-
product pipeline including drugs like Xigris (for septis), and duloxetine, which Lilly
believes could be more effective than Prozac, not to mention around $250 million in
annual sales thanks to Prozac Weekly. 40
The astronomical amount of revenue currently generated by pharmaceutical sales
greatly exceeds the amount of money needed to research and develop new medications at
today’s rates. Even if the cost of developing and bringing to market a brand name drug is
roughly half a billion dollars, the average legitimate exclusivity period granted to these
pharmaceutical companies is about twelve years. Many of these drugs earn upwards of
37 McLean. Prozac, A Bitter Pill id. at 8. 38 That decision was handed down on August 9, 2000. 39 However, only the 2003 patent was invalidated while the 2001 was upheld. Lilly received an extra six months of exclusivity on the valid patent for having performed pediatric testing. That additional six months of exclusivity amounted to an extra $1 billion in revenue. 40 McLean. Prozac, A Bitter Pill, see id. at 7.
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$1 billion per year or more in earnings.41 To put it in perspective, consider that since
1988, the return on equity of the five biggest U.S.-based drug manufacturers – Merck, Eli
Lilly, Pfizer, Pharmacia, and Schering-Plough – has averaged 30% a year. In 2000, it
was 36%, compared with 27% for Microsoft Corp., and 21% for companies in the
Standard & Poor’s 500-stock index. 42
As for the argument that Big Pharma will forgo developing lifesaving drugs
because they won’t have the money to do so, the truth is they already do, though not due
to any shortage of revenue but rather because lifesaving drugs are not cash cows. In spite
of annually increasing R&D budgets, there are still no major breakthroughs or new
blockbuster drugs for the most serious of illnesses and diseases.43 The fact is the vast
amount of funding does not go into drugs to fight the most serious of diseases like AIDS
and cancer, but rather big money-making drugs used by tens of millions of patients to
treat less serious aliments. Merck-Medco estimates that more than half of the projected
doubling in its spending over the next five years will come from just two main types of
drugs, i.e. cholesterol- lowering and other heart-related medications, and neurological
medications, such as psychiatric drugs or painkillers.44
Additionally, Big Pharma spends millions of dollars in developing new classes of
drugs to treat the same conditions already being treated by older drugs, even though the
41 Prilosec (heartburn medication) earns its maker AstraZeneca roughly $4 billion a year, Prevacid (ulcer medication) earns Tap Pharma $2.8 billion a year, and Paxil (antidepressive) earns GlaxoSmithKline $1.8 billion a year (figures from the Drug Patent Expiration List, www.gphaonline.org/news/drugs.php) . That means that Big Pharma recoups its initial R&D costs in roughly the first six months of marketing their blockbuster drugs, and then just reaps billions in profits for the next decade or so. 42 Barrett & Carey. Drug Prices: What’s Fair? id. at 64. 43 PhRMA claims that pharmaceutical companies spent upwards of an estimated $30 billion to discover and develop new medications in 2001, while simultaneously arguing that today’s high drug costs are warranted to stock the R&D coffers considering they will lose over $30 billion (25% of the market) within the next 5 years when many profitable drugs come off patent, and there aren’t enough new blockbusters in the pipeline to cover increased costs. www.phrma.org.
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benefits of the newer drugs are often marginal at best. For example, heavily advertised
painkillers Celebrex and Vioxx, with combined worldwide sales of $5.6 billion, “are no
more effective than Motrin, but cost up to 60 times as much”, according to Dr. Sharon
Levine, associate director of Kaiser Permanente’s physician unit.
Finally, many industry critics point to miserable R&D productivity relative to its
cost in dollars. According to Big Pharma, the bill for developing a new drug is between
$500 and $880 million. 45 However, the actual amount spent on any one marketable drug
is roughly one-quarter of that when you look at the drug development process.46 In the
past, researchers would make a number of variations of drugs and test each to determine
which ones worked. Now with the explosion in pharmaceutical research technology and
information about genes and biology, researchers attempt to identify particular targets in
a particular disease (say a damaged gene that causes cancer), and then develop a drug for
that target. This process can take ten years or more, meaning that about half of the
estimated $500-$880 million would not be spent at all. Instead, that amount represents
the opportunity cost, i.e., the measure of what the money tied up in the drug for so many
years could have earned with alterna tive investments.47
II. Fixing the Problem
To be sure, answering the question of how to advance generic drug availability,
lower the overall cost of pharmaceuticals, and still promote the advancement of science
and innovation while protecting patent rights in the United States is not easy. The most
44 Barrett and Carey, Drug Prices: What’s Fair , see id at 63. 45 The Myth of ‘Rising Drug Prices’ Exposed, Pharmaceutical Research and Manufacturers of America. www.phrma.org/press/ 46 Barrett and Carey, Drug Prices: What’s Fair? see id. at 64.
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successful means of achieving all of those goals is likely to be a combination of
approaches. Currently, the only vehicle for policing the behavior of participants in the
field lies in the hands of state and federal agencies and private lawsuits, e.g., for antitrust
allegations. These types of suits are complicated, difficult to prove, costly, and take years
to work their way through the courts. During this time pharmaceutical companies by
virtue of their exclusivity in the market are able to charge non-competitive prices for
medications patients need.48
A. Approaches to Lower Prescription Drug Costs
Obviously, education is one step. Consumers should be better informed about
how generic medications compare to brand name drugs and the value in taking generic
drugs, since many people falsely believe that generic drugs are somehow different, and
may not be as effective, as brand name drugs. Employers offering health care policies,
doctors, and health care insurers often fail to steer patients toward generic drugs that may
offer better value, or teach patients how to take medications properly.
The drug manufacturers themselves could also be encouraged to lower the cost of
medications through improved efficiency in their R&D productivity in order to save
money which could be put back into the reserves. Better guidelines governing the direct-
to-consumer advertisement of drugs could also be put back into place. Many drug
companies spend large sums to market expensive drugs to people who do not need them,
or spend millions to deve lop new versions of older drugs which may afford minimal
47 Id., at 64. 48 Currently, it is estimated that there are twelve separate actions pending against Big Pharma companies. See Ceci Connolly. Firms Use Strategy to Stretch Out Profits From Lucrative Drugs, The Washington Post, March 25, 2002.
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improvement and benefit while making dubious advertising claims that the drug is more
effective, or an improvement upon the older version, or has bigger benefits than it
actually does.49
Other approaches to reduce costs may include requiring insured patients to pay
out of pocket a percentage of a prescription’s cost, with percentages being more for
expensive brand name drugs and less for generics, disseminating better information to
consumers about suitable drug alternatives, reduce the need for medications (and hospital
stays and surgeries) by promoting preventative steps, and closing the legal loopholes in
the Hatch-Waxman Act, which major drug companies have employed to maintain their
exclusivity and limit competition. Combinations of these approaches may help reduce
the costs of prescription medication in this country, but it is the last of these, reforming
Hatch-Waxman, which would be most immediately attainable and most likely to have the
biggest impact upon drug costs.
B. The McCain-Schumer Bill
In an effort to address the previously described problems with the Hatch-Waxman
Act, Senators John McCain (R., Az.) and Charles Schumer (D., N.Y.) introduced
legislation in Congress on May 1, 2001 to amend Hatch-Waxman. The bill is known as
the Greater Access to Affordable Pharmaceuticals Act (GAAP), Senate bill 812, but is
more commonly referred to as the “McCain-Schumer” bill. The bill is reproduced in its
entirety in Appendix B (i-xi), but the following are the principle provisions relevant to
the Hatch-Waxman Act.
49 For example, Glaxo heavily markets Relenza, an expensive new flu drug, but it only shortens symptoms by a day.
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Under the McCain-Schumer legislation50:
• The automatic 30-month stay granted by the FDA to brand-name drug makers who file suit against a generic manufacturer's patent challenge would be eliminated. Instead, brand name manufacturers would seek a preliminary injunction from the courts. In an effort to clarify and expedite certification, brand-name manufacturers would be required to list all of a drug's relevant patents and certify with the FDA that the list is complete and accurate.
• Generic drug makers would be able to seek a declaratory judgment on any patent listed in the Orange Book, the FDA's catalog of currently-held patents, just as brand-name manufacturers have standing to sue on any patent challenge.
• The 180-day exclusivity period granted to the first generic applicant would become available to the next- filed applicant if the first applicant: reached a financial settlement with the brand-name to stay out of the market until the patents have expired; fails to go to market within 90 days once their application is effective; does no t get FDA approval within 30 months; fails to challenge a new patent within 60 days; withdraws their application; or is determined by the Health and Human Services Secretary to have engaged in anti-competitive activities.51
The McCain-Schumer bill is well intentioned, and some of its provisions may be
more appropriate than others. The bill on the whole, however, has multiple problems,
internal inconsistencies, and some provisions that may be unconstitutional. Rather than
enacting ever increasingly intricate legislation to address perceived abuses of the present
50 Press release from the official website of U.S. Senator John McCain, http://mccain.senate.gov/generic01.htm. 51 Other provisions are “Individuals or groups filing citizen petitions would be required to certify that their petitions are factually-based, warranted by existing laws or regulations, and are not submitted for any anti-competitive purposes, such as to cause unnecessary delay. Any petitions that are believed to be used for anti-competitive purposes would be investigated by the FTC and any company making false statements would be subject to existing criminal penalties”; “The multiple methods of establishing bioequivalence that are currently recognized by FDA regulations will be incorporated into statute, reducing frivolous legal challenges and accelerating consumer access to those drugs that require alternative forms of testing”; “The Federal Trade Commission would study the bill's effectiveness within five years of its enactment to see whether it has increased consumer access by promoting competition and has enabled generics to come to market in a fair and expeditious manner consistent with the intellectual property rights of patent holders”.
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Act, the most effective approach is to return to and apply existing law and statutory
schemes that have long proved effective in other legal areas.
The 30-month stay
One of the most significant proposals of the McCain-Schumer bill is the
elimination of the 30-month stay granted to patent holders who challenge paragraph IV
certified ANDAs through patent litigation. This proposal is likely to have the most
impact on eliminating the current incentive to patent holders to bring frivolous lawsuits to
gain an extension of exclusivity. Presently, the Hatch-Waxman Act requires the FDA to
perfunctorily stay approval of any ANDA upon the mere filing of a patent infringement
action challenging an application containing a paragraph IV certification. This gives the
FDA extraordinary power to extend the exclusivity granted by a patent. Patent law is not
the expertise of the FDA. Therefore, the agency grants the stay without any
consideration of the merits of a patent challenge or of the validity or enforceability of the
patent in question. In every other industry, a patentee itself must institute an
infringement suit to enforce its patent rights. Only in the pharmaceutical industry is the
patent holder bestowed active assistance from a federal agency in enforcing its patent
rights, by permitting the agency (which is supposed to base approval of the product solely
upon safety and efficacy) to grant de facto patent extensions and preclude market entry
based upon questions of potential infringement. On the other hand, placing this issue in a
judge’s hands where the parties must meet well established standards in order to obtain a
preliminary injunction would significantly reduce the incentive for frivolous litigation
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designed merely to garner an automatic and frequently unwarranted two and a half year
patent term extension.
The 180-day exclusivity
Judicial scrutiny, however, does not address the problem of exclusivity extension
resulting from litigation settlement agreements where the patent holder pays the alleged
infringer to postpone marketing while they retain their 180-day exclusivity. Patent
holders may argue these agreements are justified because they reinforce the presumption
of validity of their patents52, and settling patent infringement lawsuits promotes judicial
efficiency and economy. However, Big Pharma cannot use its patent rights to extend
their monopolies outside of the exclusive rights afforded by the patent laws.53 Allowing
a patent holder to buy off a competitor who is challenging the patent would allow just
such an extension of monopoly power.
It might be contended that these settlement agreements allow the generics to
maintain their 180-day exclusivity grants, since this period would otherwise be triggered
when the generic began marketing its product. The period would continue to run even if
the patent holder successfully obtained a preliminary injunction. Therefore the generic
would lose its incentive to challenge potentially invalid patents or to offer the consuming
52 35 U.S.C. §282. 53 See e.g., United States v. New Wrinkle, Inc., 342 U.S. 371, 378 (1952) (“Patents give no protection from the prohibitions of the Sherman Act to [plans to restrain commerce] when the licenses are used in the scheme to restrain.”); Hartford-Empire Co. v. United States, 323 U.S. 386, 406 (1945) (“Rights conferred by patents are indeed very definite and extensive, but they do not give any more than other rights a universal license against positive prohibitions. The Sherman law is a limitation of rights – rights which may be pushed to evil consequences and therefore restrained.”) (quoting Standard Mfg. Co. v. United States, 226 U.S. 20, 49 (1912)); Morton Salt Co. v. Suppiger Co., 314 U.S. 488, 492 (1942) (“The public policy which includes inventions within the granted monopoly excludes from it all that is not embraced in the invention. It equally forbids the use of the patent to secure an exclusive right or limited monopoly not granted by the Patent Office and which it is contrary to public policy to grant.”)
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public a legitimately non-infringing product. At the 48th Annual Antitrust Conference in
2000 however, it was suggested the courts can prevent this result.54 Under Federal Rule
of Civil Procedure 16(b)(2), courts can require the parties to notify each other of motions
they intend to file, and require that any motion for preliminary relief be filed by a certain
date. The defendant, therefore, can know early in the case whether a preliminary
injunction will be filed, and can go to market immediately if no such motion is scheduled
or immediately upon the expiration of the relevant deadlines with no risk to the
exclusivity period.55 Additionally, branded manufacturers have every incentive to
prevent the running of the 180-day exclusivity period so as to preclude competitors and
entry of others. The McCain-Schumer Amendment is silent on patent litigation
settlement agreements (except in the context of rolling over generic exclusivity grants),
and thus the antitrust scrutiny of governmental agencies and private class action lawsuits
continues to be the only mechanism to combat anti-competitive effects of the agreement.
Generic Manipulations
The bill also does not address the concern that the award of a six-month
exclusivity to paragraph IV ANDA filers encourages generics to intentionally invite
litigation in the hopes of obtaining lucrative financial windfalls. The argument for the
180-day exclusivity grant is that companies need an incentive in order to develop generic
products since otherwise they risk being sued for infringement. This simply is not the
case. Currently, under a provision of the Drug Price Competition and Patent Term
54 George Cary and Steven Kaiser. A Law of Unintended Consequences: The Hatch-Waxman Act and the Potential for Collusive Behavior in Patent Litigation in the Pharmaceutical Industry, 48th Annual Antitrust Spring Meeting, Washington, D.C., April 6, 2000. 55 Id at 15.
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Restoration Act known as the Bolar Exemption, companies are exempt from patent
infringement liability when they manufacture, use, or market a patented pharmaceutical
product during its patent term for the purposes of obtaining FDA pre-market approval for
production of a generic version. 56 Allowing companies to develop generic products and
gain FDA approval without the fear of suit promotes the underlying purpose of the
Hatch-Waxman Act to expedite generic entry into the market upon the expiration of
patent terms for currently approved pharmaceuticals. Generics can develop the drug and
gain FDA approval while the brand name still maintains its monopoly in the marketplace
and conceivably be ready to immediately distribute the generic upon the day the patent
expires.57
Additionally, the six-month exclusivity period was the incentive given by the
FDA to generics to challenge potentially invalid patents, since the act of filing the
paragraph IV certification is an infringing act in and of itself.58 However, if the specter
of patent infringement was removed from the approval process in the FDA, generic
companies would be in no worse a position than any other manufacturer of a product in
any other industry which can potentially face an infringement suit in court if a patent
holder claims their product infringes upon a patented product.
56 35 U.S.C. §271(e) (1984). 57 Prior to the enactment of this statute, the mere use of a patented product to develop a generic component was an act of infringement since patent law allows a patent holder to preclude anyone from even using a patented product, for any reason. 35 U.S.C. §154. It was Congress’s intent to alleviate this concern since a generic could not even begin research and development of a generic until after the term of the patent expired, which resulted in a de facto extension of years to brand name pharmaceutical’s exclusive hold on the market during the time following the patent term while a generic developed the drug and gained approval. 58 21 U.S.C. §355(j).
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The “Full and Complete” Patent Listing Requirement
The additional element in the first prong of the bill requiring patent holders to list
all patents related to an approved drug, and certify to the FDA that the list is complete
and accurate is ambiguous and troublesome. The bill requires that all patents would have
to be submitted for listing in the FDA’s Orange Book prior to final approval of an NDA.
Patent attorneys and scientists alike understand that development of technologies does
not always happen at the exact same time, nor does the United States Patent and
Trademark Office approve and grant patents related to the same or similar products
within identical time frames. If patent law jurisprudence in this country is designed to
promote innovation and the progression of useful arts and science59, and assuming the
Orange Book listings remain a block to FDA approval of new drugs, this provision of the
McCain-Schumer bill would seem to discourage innovation and improvements upon prior
technologies. If a patent holder is required to list any patents she wishes to exercise
against a potential infringer at the outset of gaining FDA approval, at the risk of losing
the right to assert later granted patents, she would never be encouraged to improve upon
her technology or continue research and development of drugs or pursuit of patents upon
new technologies which could benefit the public and the progression of science and
medicine. This seems to undermine the very essence of the underlying public policy
considerations for patent law protection.
This section of the McCain-Schumer bill is also internally inconsistent with the
requirement that the first paragraph IV ANDA filer challenge new patents within sixty
days or else lose their 180-day exclusivity. How might an ANDA filer challenge a new
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patent, when the listing of new patents would be precluded under the first provision? The
occurrence of both within this bill is a practical impossibility.
The Declaratory Judgment
The proposal to allow generic drug manufacturers to automatically seek
declaratory judgments for any patent listed in the Orange Book is equally worrisome, is
directly contradictory to current law60, and would seem to aggravate one of the current
abuses under Hatch-Waxman of encouraging generics to engage in manipulative patent
hunting schemes, such as the kind of activities Barr Laboratories is currently accused of
pursuing. 61
The most immediate and apparent critique of this provision allowing an ANDA
filer to seek a declaratory judgment in reference to any patent listed in the Orange Book
is that it may be unconstitutional. Article III requires a party have standing to seek
judicial determination of a dispute. A patent is presumed valid62; challenges to its
validity require clear and convincing evidence63 to be sustained, and the assertion of
invalidity of a patent is an affirmative defense to a charge of patent infringement, not an
independent cause of action. The ability of any generic manufacturer to challenge a
patent merely because it is listed in the FDA’s Orange Book, without meeting standing
59 U.S. Const. Art. I §8 cl.8 (“Congress shall have the power…to promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries…”). 60 28 U.S.C. §2201. 61 The practice of Barr Laboratories examined earlier in this paper to draw infringement suits to invite settlement agreements has drawn fire. Last April, the FTC announced it was opening an investigation into such practices and three weeks later a coalition of 17 consumer groups called Prescription Access Litigation (PAL) filed suit against Barr and AstraZeneca, charging that they illegally kept generic tamoxifen off the market. 62 35 U.S.C. §282. 63 See American Hoist & Derrick Co. v. Sowa & Sons, 725 F.2d 1350, 1358-59 (Fed. Cir. 1984).
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requirements of 28 U.S.C. §2201, and without there being a case or controversy could
arguably be contrary to law and constitutional requirements.
Even if generics could present a threshold argument that they did meet the Article
III minimum jurisdictional requirements, they still fail to meet the requirements of a
declaratory judgment action. Currently, declaratory judgments are available to a party
only so long as they reasonably believe that they are in imminent threat of being sued ( in
this context, for patent infringement).64 A declaratory judgment action typically
functions in much the same manner as an infringement suit. The party seeking the
declaratory judgment has to have some good faith belief that she is going to be charged
with infringement. For instance, if she is producing and selling a product and draws the
attention of the patent holder who then sends her a cease and desist letter, or she gets a
threat from their counsel, or something concrete happens which leads her to reasonably
believe that she is being threatened with suit, she could then file a motion seeking a
declaratory judgment that she is not infringing. In that action she could demonstrate that
the patent does not cover her products or methods, and could also raise the issue of the
invalidity of the patent, and ask the court to declare there is no infringement on one or
both reasons. A judicial determination of either non- infringement or invalidity of the
patent could thus follow. In this manner, the underlying policy of the patent system to
encourage innovation is buttressed, while still allowing legitimate challenges to the
assertion of patents reasonably believed to be non- infringed, invalid or unenforceable.
Additionally, Congress did contemplate the availability of a declaratory judgment
action in the context of paragraph IV ANDA submissions for parties with legitimate
64 28 U.S.C. §§2201, 2202, the Federal Declaratory Judgment Act.
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standing in subsection (j)(5)(B)(iii) of 21 U.S.C. §355. That subsection states that until
the expiration of forty-five days from the date the notice made under paragraph (2)(B)(i)
is received (by the patent holder), no action may be brought under section 2201 of Title
28, for a declaratory judgment with respect to the patent.65 That language indicates that
while a declaratory judgment action is not available for paragraph IV ANDA filers during
the forty-five day period, it is available after that period.
If generic manufacturers were granted the right under the proposed McCain-
Schumer bill to automatically seek declaratory judgments without reasonable belief of
impending suit, generics could, in essence, file frivolous judgment actions and blackmail
brand name manufacturers to pay them off and force innovators to spend vast amounts of
money and time defending against the same invalidity suits over and over again, barring
any collateral estoppel hurdles.
Rolling Exclusivity
Assuming the 180-day exclusivity award to paragraph IV ANDA filers
was not repealed by legislation, the proposals in the McCain-Schumer bill also give rise
to some concerns. The bill allows for “rolling” exclusivity to subsequent filers under
certain conditions.
Financial Settlements
The first is in the event the first filer and the NDA/patent holder reach a financial
settlement with the brand name to stay out of the market. While it is obviously intended
65 21 U.S.C. §355(j)(5)(B)(iii) (Supp. V 1999).
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to address collusive antitrust settlement agreements, not all settlements are
anticompetitive or contrary to public policy. Penalizing the ANDA filer for settling a
lawsuit undermines policy objectives of encouraging private parties to resolve their
conflicts by themselves, and promotion of judicial economy and efficiency. In some
instances, where anticompetitive motivations for settlement could be shown, such
penalties would be a legitimate disincentive to collusive behavior. There are times
however when an agreement to forgo marketing during certain periods would be
legitimate. Questions of infringement and invalidity of patents are not always so easy to
resolve. In certain cases, as a method of resolving a legitimate and difficult infringement
suit, it might well be advantageous to encourage the parties to construct a settlement of
the suit which includes an agreement by the generic to forgo marketing of their product
during the remainder of the patent term. Conceivably some objective could be achieved
by allowing these settlements without the loss of the exclusivity period so long as the
generic brings their product to market within a set time frame following the expiration of
the patent at issue.
Failure to Market Within 90 Days
The first filer will also lose the exclusivity grant if it fails to go to market
within 90 days of its application becoming effective. In the pharmaceutical industry,
there are often unforeseen impediments to bringing a product to market which have
nothing to do with intentional anticompetitive inspirations. Additionally, there is already
a mechanism in place under the current FDA procedures to trigger the commencement of
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the exclusivity period upon a challenge by a subsequent paragraph IV ANDA filer66,
though currently it is not clear that a subsequent filer would then be afforded the same six
month exclusivity grant.
Requirement to Challenge New Patents Within 60 Days
The requirement that an ANDA applicant challenge any new patent within 60
days is also unrealistic. This does not permit adequate time to conduct an investigation of
the patent and develop a basis for challenging it. As previously discussed, this provision
is also inconsistent with the requirement that all patents be listed prior to final approval of
the NDA. This would appear to indicate that any ANDA applicant who might wish to
challenge any patent in the Orange Book must do so within 60 days of the NDA
approval. This is unrealistic since the method of challenging those patents is by filing an
ANDA for approval of a generic version. In order to receive approval to market a
generic product, the manufacturer is required to have at least a viable generic alternative,
which conceivably takes time to develop. This technology may not be ready for FDA
submission within 60 days of a patent being listed in the Orange Book, and such a
requirement might even cause a generic to abandon its research of a generic product if it
does not believe it can complete the required bioequivalence tests within the mandatory
time frame for ANDA submission. This could have the counterproductive effect of
66 21 C.F.R. §314.107(c) governs subsequent ANDA submissions. (4) states “for purposes of paragraph (c)(1)(i) [“(i) the date the applicant submitting the first application first commences commercial marketing it its drug product;] of this section, the applicant submitting the first application shall notify the FDA of the date that it commences commercial marketing of its drug product. Commercial marketing commences with the first date of introduction or delivery for introduction into interstate commerce outside the control of the manufacturer of a drug product…if an applicant does not promptly notify FDA of such date, the effective date of approval shall be deemed to be the date of the commencement of first marketing.” Therefore, upon submission of a subsequent ANDA, the FDA can presume the triggering event of exclusivity was the date of the ANDA approval, regardless of whether or not the first filer actually ever marketed the drug.
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increasing the costs of even generic drugs, since the manufacturers might feel compelled
to abandon production of drugs that they’ve already spent millions of dollars developing.
Determinations of Anticompetitive Behavior by the HHS Secretary
Finally in this portion of the bill, the suggestion that a paragraph IV ANDA filer
could lose their exclusivity grant if the Health and Human Services (“HHS”) Secretary
determines that the ANDA filer has engaged in anticompetitive activities is problematic.
It is inappropriate to rest authority to determine antitrust violations within the scope of
competency of the Health and Human Services Secretary. Even a requirement that the
HHS secretary work in conjunction with the FTC or DOJ antitrust divisions to make
those determinations does not cure its problems. Those agencies are already currently
investigating these types of cases and behaviors, and investigations take years to
conclude.
III. The Answer: Remove Questions of Patentability From the FDA Approval
Process
In light of the conflicts with existing law, impracticalities, and ambiguities this
bill, if enacted, would create, it does not appear to be the most effective way to address
the problems created by the Hatch-Waxman Act, and still promote the underlying goals
of promoting quicker generic drug entry and fortification of patent law. Rather, a better
approach would be a recommitment to the current laws we already have, rather than an
attempt to create a new and complicated administrative regulatory mechanism that is
outside of the judicial system.
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The charter of the Food and Drug Administration is to certify to the consuming
public that food and drug products are safe for consumption. It is not within the auspices,
or competence, of the FDA to make patent infringement or patentability determinations.
Those determinations are not even relevant to the analysis of safety and efficacy of a drug
product, yet the current structure of the Orange Book listings does exactly that.
Interested parties list patents without any substantive review by the FDA which then
affords them preclusive effect to approval of any other drug product asserted to be
covered by the patents. The mere listing of a patent in the Orange Book currently
prevents the FDA from granting approval to a new drug unless the ANDA holder files a
paragraph IV certification. Even then, if the patent holder initiates infringement litigation
against the filer as a result, the FDA then freezes approval. The FDA is basing ANDA
approval and disapproval on the actions of interested parties, and precluding marketing
which effectively gives a preliminary injunction to the patentee without judicial review
and without having to meet the judicially established requirements for a preliminary
injunction.
If the policy and procedures of the FDA were changed, and all exclusivity grants
pertaining to approvals and prevention of approvals of drug products eliminated, patent
infringement lawsuits would be left where they belong, in a court of law to be adjudicated
by a forum legally and constitutionally authorized to decide such issues, not to mention
obviously more competent to do so than the FDA. The FDA’s charter is to focus on
certifying safety and efficacy of drugs. Patent issues have no relevance to this mandate,
and should not be a consideration. The FDA should make determinations without
reference to patents.
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Allowing generics to continue under the Bolar exemption to R&D new drugs
while brand names still retain patent protection is heavily favorable to the generic
industry. Thus, to appease Big Pharma’s lobbyists, and strike a balance, perhaps the
Orange Book could be used to provide the notice requirement for purposes of 35 U.S.C.
§287 necessary for patent damages a brand name manufacturer could recover in an
infringement suit. The listing of patents could be used as evidence of constructive notice.
The listings could act as an information resource for generics about the existence of
patents held on currently marketed drugs, without being a mechanism to thwart approval
of new products. Consequently, there would not be a need to award generics for
submitting a generic product to the FDA for approval. If both exclusivity periods were
eliminated, the incentive for collusive and anticompetitive behavior could also be
removed, and legitimate patent disputes left to be resolved where they should be, in
competent courts of law.
Conclusion
Determinations and consideration of patent rights should be removed from the
FDA’s process of approval of new pharmaceutical products. Generic competition will
continue to be promoted by allowing generic manufacturers to file ANDAs proving
bioequivalency to already approved drug products without having to duplicate costly
clinical trials, and being allowed to participate in the approval process prior to the
expiration of patents under the Bolar Exemption, thus being prepared to enter the market
immediately upon the termination of patent exclusivity.
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Our laws already have complex and successful mechanisms in place to resolve
legitimate patent infringement suits should the generic commence marketing in an
infringing manner prior to the expiration of the pertinent patent. Patent holders can still
file infringement suits and obtain injunctions against infringing products, and generic
manufacturers can obtain declaratory judgments that their product does not infringe a
patented product if they meet the requirements of The Federal Declaratory Judgment Act.
Orange Book patent listing could function to meet the notice requirement for
monetary damages in infringement litigation, but ending their reign as a preclusion to the
approval of a drug application would eliminate the temptation to manipulate the listings,
require the certifications to the applications, and therefore the need to reward drug
manufacturers with exclusivity periods and de facto patent extensions which get
perverted in anticompetitive manners. And the Food and Drug Administration could
focus on their sole mandate, assuring consumers that new drug products are safe and
effective for their stated use.
Hatch-Waxman reform is a necessary part of the process to overhaul the
pharmaceutical industry in order to promote the entrance of generic pharmaceuticals into
the marketplace quicker while maintaining the integrity of patent protection in the United
States. The major device however for achieving reform currently being considered, the
McCain-Schumer bill, seems to create more ambiguities than it resolves, and will merely
add to the quagmire already frustrating thousands of drug manufacturers, consumers, and
the FDA.