Lilly, Barr Expect Prozac Generics In August 2001 After Appeals Court Ruling

Lilly and Barr expect generic competition to Prozac to arrive in August 2001 after an Aug. 9 Washington D.C. federal appeals court decision in favor of Barr's challenge of a fluoxetine patent.

The ruling left in place Lilly's patent no. 4,314,081, which expires Feb. 2. Assuming the patent receives a six-month pediatric exclusivity extension, Barr would be able to launch a generic as early as Aug. 3.

The effect of the ruling will be a three-year acceleration in the launch of fluoxetine generics: the invalidated patent (No. 4,626,549) would have expired in June 2004 (assuming a pediatric extension).

Both Lilly and Barr expect a six-month exclusivity extension for the '081 patent. Lilly reported during an Aug. 9 conference call that it will submit pediatric data in response to a written request from FDA later this year.

Barr assumes that Lilly will obtain the six-month extension. CEO Bruce Downey told an Aug. 10 conference call that FDA uses a "low standard" to award extensions.

Although Barr assumes an August launch is likely, Downey said the company would be ready to launch its fluoxetine in February. Barr has "everything in place to bring the raw material in, make the product and be ready for a February 2001 launch," Downey declared.

Lilly intends to appeal the ruling, but Barr indicated that it does not expect an appeal to interfere with its commercialization plans.

Lilly has the option of requesting a rehearing by the three-judge panel that issued the decision, requesting a rehearing by all the judges on the appellate panel, filing a combined petition or appealing to the Supreme Court. The company has 14 days to choose a route to pursue.

The appeals court decision overturns Indianapolis federal court Judge Sarah Barker's January 1999 summary judgement dismissing Barr's claims of obviousness-type double patenting against the '549 patent. The decision upholds Barker's dismissal of Barr's best mode argument against the '081 patent.

After Barker's summary judgement, Lilly paid $4 mil. (to be split between Barr, Geneva and Apotex) to settle the remaining issues of anticipation and inequitable conduct (¹ (Also see "Lilly To Pay $4 Mil. To Delay Public Trial Of Prozac Patent Case" - Pink Sheet, 1 Feb, 1999.)).

The three-judge panel unanimously ruled that Lilly's '549 patent makes claims that are "not patentably distinct" from the claims of an earlier patent (No. 4,018,895), which expired in 1994. Judge Arthur Gajarsa, Judge Daniel Friedman and Chief Judge Haldane Mayer heard oral arguments March 8 (² (Also see "Barr Prozac Appeal Claims Lilly Double Patenting; Seeks Patent Invalidation" - Pink Sheet, 13 Mar, 2000.)).

Claim one of the earlier patent ('895) claims a broad class of compounds (including fluoxetine) for the treatment of depression.

Lilly's defense argument "seeks to use the broad coverage of claim one of the '895 patent as both a sword and a shield," the judges objected. "Throughout the term of the '895 patent, by virtue of its broad coverage, Lilly possessed the right to exclude other parties from administering any of the thousands of claimed compounds...to treat depression."

"With the '895 patent now expired, Lilly cannot hide behind its once advantageous broad coverage" by maintaining that because fluoxetine is only one of thousands of compounds claimed by claim one of the '895 patent, it would not have been obvious to someone of ordinary skill in the art, the decision states.

Downey maintained that the decision could encourage other firms to challenge "add-on patents...that we think artificially preserve marketing exclusivity."

"It is one of the first cases, I think, where the court of appeals has cut back on the patentability of the kind of add-on patents we see routinely now from branded firms when they face patent expiry on a major product," Downey said.

Downey said that the companies had attempted to settle the case, but could not reach an agreement. He pointed to Barr's settlements with Zeneca for tamoxifen, Bayer for ciprofloxacin and DuPont for warfarin. "I think we have proven that we're able to settle cases on sensible terms, and we weren't able to do it in this case, and I don't think the problem lies with us."

Prozac sales as a proportion of Lilly's total sales have been decreasing, from 34% in 1996 to 32% in 1997, 30% in 1998 and 26% in 1999. In the second quarter of 2000, Prozac represented less than 24% of Lilly sales.

The appeals court decision means that Lilly will run out of time to reduce the proportion of its sales represented by Prozac to a level where it can continue to report revenue and profit growth during the transition. The company told investors to expect it to report a decrease in earnings in the second half of 2001 and the first half of 2002, with a return to earnings growth in the second half of 2002.

The projected August date for generic competition will have one symbolic benefit for Lilly: the company maintains that it will be able to report earnings growth for the full year in calendar 2001 and 2002.

The loss of the Prozac patent may not be the only factor in Lilly's revised earnings guidance. One of Lilly's other growth products, the Centocor/J&J thrombolytic ReoPro is falling short of projections for the year (³ (Also see "Lilly/Centocor ReoPro" - Pink Sheet, 31 Jul, 2000.)).

The immediate reaction by investors to the ruling does not augur well for the company's intention to remain independent through the transition period. Lilly shares dropped 30% Aug. 9, representing a $35 bil. loss of market cap. The single day valuation decline is more than 13 times Prozac sales in 1999.

Even after the drop, however, Lilly is still trading above its valuation prior to a June 9 meeting with securities analysts to highlight its pipeline projects, which was followed three weeks later by the announcement of positive results from a trial of the sepsis agent Zovant (⁴ (Also see "Lilly Sepsis Trial Prompts Biotech-Style Jump In Second Quarter" - Pink Sheet, 10 Jul, 2000.)).

Lilly said it intends to continue expanding its sales and marketing resources in part by reallocating the resources currently devoted to Prozac.

The marketing resources will be shifted to support launches over the next two years for the osteoporosis treatment Forteo, the ADHD therapy tomoxetine, the erectile dysfunction treatment Cialis, Zovant, Alimta for mesothilioma and a single isomer Prozac follow-on, R-fluoxetine. The company anticipates its 2003 launches will include duloxetine for both urinary incontinence and depression.

The clarification of the generic entry date for fluoxetine brings into focus the tight deadline Lilly has to establish the Sepracor single-isomer version of fluoxetine.

Lilly said it is considering narrowing its initial filing for R-fluoxetine to focus on depression in an attempt to get the drug to market faster. The drug is currently being studied for major depression and generalized anxiety disorder, with a target filing date of late 2001.

Lilly's licensing agreement with Sepracor was scrutinized by the Federal Trade Commission as part of a broader interest by the agency in evergreening strategies. FTC took no action, but if development delays resulting from the antitrust review cause Lilly to miss the window to establish R-fluoxetine as a viable successor to Prozac, the outcome may be the same as if FTC had blocked the deal.

Lilly said that because R-fluoxetine is a single isomer form of an approved compound, it has the option of submitting one pivotal trial for approval. Lilly framed the decision as a choice between speed of submission versus breadth and depth in preparing the application.

A limited indication for R-fluoxetine at launch could hamper Lilly's efforts to protect the compound from fluoxetine generics by distancing it from Prozac.

Lilly plans to position R-fluoxetine "not as a successor to Prozac or a somewhat better SSRI, but rather a unique, novel chemical entity" that is "a very strong entrant in areas or patient segments where Prozac is currently seen as weak - and in fact the SSRIs as a group," such as in "cases of significant sleep disturbance or anxiety as a component of depression."

Lily is also counting on other patent-protected extensions to the Prozac line. It filed an NDA for the once-weekly fluoxetine Durapac in March and will be launching fluoxetine for premenstrual dysphoric disorder as Sarafem this month.

The real deadline for Lilly to establish potential successor products to Prozac may be February 2002, when Barr's six-month generic exclusivity expires and multiple versions will presumably become available.

Mallinckrodt, Teva, Zenith Goldline, Geneva and Mylan have tentatively approved fluoxetine ANDAs. Barr noted it will split its Prozac profits with fluoxetine-partner Apotex and with Geneva, which had consolidated its patent case with Barr's.

The appellate court decision covers fluoxetine capsules, but should determine the outcome for fluoxetine tablets as well, Downey said.