Generic Prilosec Launch Awaits Negotiations Between Andrx And Schwarz

Andrx is considering licensing its 180-day exclusivity for generic omeprazole to Schwarz Pharma following an Oct. 11 federal court ruling that Andrx' product infringes AstraZeneca's Prilosec patents, but Schwarz' does not.

Among the post-ruling options Andrx is considering is "allowing our exclusivity rights to be used by others for the immediate benefit of our shareholders and consumers nationwide," the company said Oct. 14.

New York City federal court Judge Barbara Jones upheld the validity of AstraZeneca's formulation patents for Prilosec (Nos. 4,786,505 and 4,853,230) and ruled that generics manufactured by three of the four companies involved in the omeprazole patent litigation - Andrx, Dr. Reddy's and Genpharm - infringe those patents.

Schwarz Pharma's product, however, does not infringe the patents, Jones ruled.

The ruling creates the situation of having one product that is fully approved by FDA for marketing (Andrx') but blocked by a patent infringement ruling, while another product has the court's nod of approval but lacks final regulatory clearance.

FDA approved Andrx' omeprazole in November. Schwarz' product is tentatively approved; final approval will only come after Andrx loses or surrenders its first-to-file generic exclusivity.

Schwarz has anticipated the potential for the unusual outcome since at least June, when the company told a UBS Warburg conference it was considering legal, regulatory and business options should Schwarz win and Andrx lose (¹ (Also see "Prilosec Mixed Verdict Would Complicate Generic Marketing Exclusivity" - Pink Sheet, 10 Jun, 2002.), p. 27).

Schwarz said Oct. 12 that the ruling has "opened for [U.S. generic subsidiary] Kudco a unique set of opportunities. Kudco is currently evaluating how to make its product available to patients in the most expeditious manner."

Andrx appears to have every incentive to reach an agreement with Schwarz. While the company said it is confident of winning on appeal, Andrx would have to forfeit exclusivity if it lost.

A settlement could also work in Andrx' favor even if it ends up winning. Schwarz' omeprazole would likely be the only generic available (with Andrx earning royalties) until another manufacturer can win a non-infringement ruling. However, if Andrx waits until a favorable appellate ruling to exercise its exclusivity, it would have only six months alone on the market before competing generics would be eligible to enter.

Andrx is also under pressure to generate a return on its investment in omeprazole. The company has already begun production of generic Prilosec and has $65 mil. in inventories and related purchase commitments for the product. The company said it will "record a liability for losses related to such purchase commitments in the third quarter of 2002 in light of this decision."

One drawback to an immediate launch is the possibility of an appeal by AstraZeneca. If Schwarz launches before an appellate ruling, it could be liable for treble damages.

Schwarz' calculations will presumably involve an assessment of the likelihood of a reversal on an appeal - and an analysis of the avenues of support that may be available outside of the court system in the event that occurs.

Forcing the withdrawal of an established generic for Prilosec may not be feasible from a public relations or political point of view. In one recent case, Bristol did not interrupt the supply of generic BuSpar despite an appellate decision that FDA erred in granting the approval (² , p. 33).

Although Prilosec has surrendered its title as the top-selling prescription drug worldwide to Pfizer's Lipitor , it remains one of the most frequently cited cost-drivers in policy debates over prescription drug spending.

Licensing generic exclusivity to a competitor is not without precedent. One previous instance involved the product that held the title of top-selling pharmaceutical before Prilosec, Glaxo's ulcer drug Zantac (ranitidine).

In 1997, Genpharm licensed generic exclusivity for ranitidine to Novopharm, because Genpharm was still involved in patent litigation but Novopharm had won its case (³ (Also see "NOVOPHARM MARKETING GENERIC RANITIDINE THROUGH AGREEMENT WITH GENPHARM; THREE-WEEK DELAY BRINGS GLAXO $100 MIL. IN ADDITIONAL ZANTAC SALES" - Pink Sheet, 4 Aug, 1997.), p. 3).

Genpharm shares exclusivity for omeprazole with Andrx, so any agreement between Andrx and Schwarz would also likely need to be approved by the Merck KGaA Canadian affiliate. The companies have a profit-sharing agreement under which Andrx would get 85% of profits regardless of whether Genpharm or Andrx launches omeprazole first.

Another potential hurdle could arise if the Federal Trade Commission decided it needed to review a licensing agreement. FTC scrutinized the Andrx/ Genpharm deal, but never offered an opinion on it, perhaps because of the status of the patent case (⁴ , p. 28).

The Andrx/Schwarz licensing agreements may have broader ramifications for FDA regulations and the legislative environment for Waxman/Hatch reform.

If Andrx and Schwarz cannot agree on a license, Schwarz may force FDA to revisit its generic exclusivity policy. Schwarz told the UBS Warburg conference that one of its options is to sue FDA.

FDA's original policy awarded exclusivity to the first company to successfully defend a patent suit. That policy changed in 1998 after a federal appeals court upheld a ruling in Mova v. FDA that the law intended exclusivity to go to the first to file an ANDA with paragraph IV certification.

A continued delay in the launch of generic omeprazole would also fuel interest in returning to the Waxman/Hatch reform debate next year.

The Senate passed reform legislation this year (S 812) which would have changed the 180-day exclusivity policy, among other provisions. However, if S 812's "rolling exclusivity" approach were in effect, it would not allow Schwarz to launch.

The Pharmaceutical Research & Manufacturers of America was successful in keeping S 812 from moving through the House this year. Both AstraZeneca and Schwarz are PhRMA members.

Judge Jones based the non-infringement decision on her determination that Schwarz' product does not contain an alkaline reacting compound to keep omeprazole stable. Schwarz' microtablet manufacturing process provides improved stability without using an ARC, the document explains.

"Astra argues that the [hydroxypropyl methylcellulose phthalate] found in Kudco's ANDA products either is itself an ARC or contains an ARC, possibly in the form of an impurity," the ruling states. However, "the court finds that Astra has not proven by a preponderance of the evidence that Kudco's ANDA products contain an ARC as required by subpart '(a)' of claims 1 of the '505 and '230 patents, either literally or under the doctrine of equivalents."

"Because all of the independent claims of the '505 and '230 patents asserted against Kudco require an ARC, the court holds that Kudco's ANDA products do not infringe any of the independent claims of those patents," the ruling states.

Andrx' and Genpharm's arguments relied primarily on their definitions of the "core" and "subcoat" of the omeprazole capsule, both of which are described in the Prozac patents (⁵ (Also see "AstraZeneca Prilosec Patent Trial Hinges On Definition Of “Subcoating”" - Pink Sheet, 3 Jun, 2002.), p. 14). The court found, however, that both companies' products contain a core and subcoat serving the same purpose as in Prilosec and therefore violate the patents.

"The simple fact is that the [subcoat] layer is present" in Andrx' product, the ruling says, "and by proving its existence Astra has proven that Andrx infringes."

One line of argument Andrx may explore in an appeal is the evidence the court required of AstraZeneca to prove the existence of the subcoat. "One of our concerns about the decision is that we believe the court inappropriately put too much of the burden on us as opposed to on Astra to establish that there really was a subcoat and how that subcoat exists," Astra Exec VP Scott Lodin told an Oct. 14 teleconference.

The company is confident of its chances on appeal. "Just as Barr Laboratories lost in the lower court in its effort to market a generic version of Prozac , but prevailed on appeal, we remain optimistic that an Andrx generic version of Prilosec will ultimately be marketed," the company said.

Dr. Reddy's also intends to appeal the decision. The company's defense relied on claims that its product does not contain a subcoat or an ARC. Genpharm said it is likely to appeal as well.

The appeal process likely will not begin until Jones has ruled on a Prilosec process patent (No. 6,013,281) pending before the court. AstraZeneca has challenged only Andrx on the '281 patent.

AstraZeneca may also appeal previous decisions that its '794, '305 and '342 patents are invalid and that its '499 patent is not infringed.