GPhA Waxman/Hatch Plan Would Use Bonds To Protect 180-Day Exclusivity

The Generic Pharmaceutical Association is proposing to change the Waxman/Hatch patent challenge process to use bonds posted by brand name companies as a substitute for market exclusivity to provide an incentive for generic companies.

GPhA has not settled on a precise formula for determining the appropriate value of a bond. One possibility would be to link the size of the bond to the profits a brand name company makes on a product during patent litigation.

GPhA is also considering basing the size of the bond on the profits that the generic firm would have earned had it been able to launch, but believes that amount may be insufficient to deter frivolous patent lawsuits.

The proposal is designed to create an economic incentive for brand name firms to expedite patent litigation.

GPhA envisions a system in which the ANDA approval process is independent of patent challenge procedures.

In cases where a generic applicant receives FDA approval but cannot come to market because of pending litigation, GphA would use bonds posted by the brand name firm to potentially compensate for the loss of market exclusivity.

If a generic company ultimately prevails in patent litigation, it would receive the bond, creating a form of "economic exclusivity" to replace the 180-day market exclusivity under the current system.

Recent court rulings have led to a host of complexities with the 180-day exclusivity incentive, including cases where a generic firm has mounted a successful patent challenge but has been unable to launch because a prior applicant owns the exclusivity rights but has not yet completed litigation.

GPhA's proposal would divorce the ANDA approval process from patent challenges by eliminating the statutory 30-month stay of approval following certification to a patent listed in the "Orange Book."

The patent certification process would remain under GPhA's proposal, allowing brand name firms to list patents and litigation to begin before ANDA approval.

However, FDA would no longer consider pending litigation as part of the review process, and ANDAs would be granted full approval (rather than "tentative" approval) even if litigation is pending.

Upon full ANDA approval, brand name companies would be able to seek an injunction to prevent launch.

If the generic launch is stayed, the brand name firm would post a bond to compensate the generic company for lost exclusivity in the event that the generic challenge is ultimately successful.

If no stay is issued following ANDA approval, the generic company would be entitled to 180-days of exclusivity as under current law.

GPhA would rely on exclusivity triggers similar to those in an FDA proposed rule to ensure that subsequent applicants are not indefinitely delayed by the exclusivity (¹ (Also see "ANDA 30-Month Stay Of Approval Does Not Apply If Patent Case Is Settled" - Pink Sheet, 16 Aug, 1999.)).

The generic association characterizes the injunction/bond approach as more in line with patent challenge procedures for other industries.

The GPhA proposal would also include a limit on potential damages for generic launches that occur during pending litigation. The proposed cap would be equal to the generic company's profits from the launch.

Without a cap, generic companies would be exposed to the potentially "catastrophic" treble damages standard for patent litigation.

GPhA expects that 95% of ANDA filers certifying against a patent will continue to be sued. In cases where a generic applicant is not sued, the proposal would clarify that generic firms are entitled to pursue a declaratory judgment proceeding.

Applicants that succeed in a declaratory judgment action would be able to come to market with the same exclusivity and damage caps as if they had been sued by the brand name firm. Generic applicants that are not sued and do not pursue a declaratory judgment would be exposed to treble damages.

The overhaul to the 180-day exclusivity rules would allow multiple generic launches earlier in the process, since subsequent generics would not be delayed by the first filer's 180-day exclusivity, GPhA says.

GPhA is stressing the potential for multiple generic launches as one of the significant public policy benefits of the proposal, since price erosion is much more rapid once several generics are on the market.

By requiring generic firms to win a court case before receiving an incentive, the GPhA proposal returns to the award criteria used before the 1998 Mova decision, which held that FDA policy of awarding exclusivity only after a "successful defense" violated the language of the statute.

Since switching to the "first to file" criteria, FDA has awarded considerably more exclusivities (² (Also see ""First To File" Policy Increases Generics Qualifying For 180-Day Exclusivity" - Pink Sheet, 26 Mar, 2001.)).

The primary purpose of removing the 30-month stay from the review process is to address what GPhA sees as abuse of the system through multiple patent listings by brand name manufacturers.

In several recent cases, brand name companies have listed new patents in the Orange Book shortly before the potential introduction of generic competition, triggering a new 30-month stay of approval.

In one high-profile case, Bristol-Myers Squibb listed a new patent for BuSpar the day before expected generic launches. The 30-month stay was abbreviated by a court order, but generic introduction was delayed by four months, until the end of March (³ (Also see "Par 7.5 Mg Buspirone Aims To Capture Portion of 15 Mg Split-Tablet Market" - Pink Sheet, 2 Apr, 2001.)).

The most recent litigation surrounding that issue involves four newly listed patents for AstraZeneca's Prilosec (⁴ )

A side benefit from the GPhA perspective might be a faster review for generic products. GPhA believes that eliminating the patent tracking tasks would allow FDA to devote more resources to the review and approval of generic applications. The agency's Office of Generic Drugs is supposed to review ANDAs within six months, but often takes somewhat longer.

Another potential benefit, in GPhA's view, is the elimination of incentives for brand and generic firms to enter into settlements that delay generic introductions.

The Federal Trade Commission has filed several complaints alleging antitrust violations from patent settlements with first-to-file generic companies. The most recent case involves Schering-Plough, ESI Lederle and Upsher-Smith regarding payments related to K-Dur (⁵ (Also see "FTC K-Dur Suit Would Allow Andrx Generic Launch; FDA Could Act First" - Pink Sheet, 9 Apr, 2001.)).

The GPhA proposal would also clarify that the 180-day exclusivity incentive cannot be canceled out by a brand name manufacturer's pediatric exclusivity.

In the case of Barr's patent challenge to Lilly's Prozac (fluoxetine), FDA is taking the position that Barr's 180-day exclusivity will begin running once the court decision is final, even if Lilly's pediatric exclusivity continues to block Barr's entry into the market (⁶ (Also see "Barr Fluoxetine Will Have Two Months Exclusivity Under "Worst Case"" - Pink Sheet, 12 Mar, 2001.)).

In addition to patent challenge procedure revisions, GPhA is also seeking creation of an approval pathway for generic biologics as part of Waxman/Hatch reform.

GPhA hopes that its proposals to reform the Waxman/Hatch process will be considered in the context of the Medicare prescription drug benefit debate, in which cost-containment benefits will come to the fore.

The brand name industry is correspondingly wary of linking Waxman/Hatch reform and Medicare, and the biotech industry is mobilized to block any legislation that would create a generic biologics process.

The GPhA patent challenge overhaul proposal could also be germane to legislation to reauthorize the Prescription Drug User Fee Act or the pediatric research incentives. In the context of those bills, the GPhA proposal could be positioned as correcting some of the unintended consequences of the 1984 Waxman/Hatch amendments.

GPhA is working with several Congressional offices to develop the proposal into a bill. Sen. Hatch's (R-Utah) approach to reforming the 1984 legislation has been to try to broker compromises in negotiations with both the brand and generic sectors.

The association is also working with Sens. Schumer (D-N.Y.) and McCain (R-Ariz.), who introduced patent challenge reform legislation last session. The bill, which would limit the kind of patents that could be listed in the Orange Book, is being revised and could be reintroduced in May.