Schwarz Generic Prilosec Clears FDA After Deal With Andrx, Genpharm

Schwarz is expected to launch generic omeprazole by the end of year after FDA approval Nov. 1.

The agency cleared Schwarz' ANDA for the first generic version of AstraZeneca's proton pump inhibitor Prilosec after Andrx and Genpharm agreed to waive their first-to-file generic exclusivity for the product in exchange for royalties.

Schwarz' Kremers Urban Development Company (Kudco) is cleared to market 10 mg and 20 mg capsules.

The generic omeprazole launch stands to be the most significant commercial introduction of a generic product in history.

It carries a corresponding political significance. Prilosec has been a flashpoint in discussions over prescription drug costs and the recent push for legislative reforms to the generic drug approval process. The availability of generic versions of omeprazole may take some of the heat out of those issues in the new year.

The Bush Administration acknowledged the importance of the generic approval, with HHS taking the unusual step of issuing a press release to mark the occasion.

The approval followed negotiations between the generic firms prompted by a New York City federal court decision that said Andrx' and Genpharm's generics infringe AstraZeneca's formulation patents for Prilosec, but Schwarz' does not (¹ (Also see "Generic Prilosec Launch Awaits Negotiations Between Andrx And Schwarz" - Pink Sheet, 21 Oct, 2002.), p. 17).

Andrx' ANDA for omeprazole was approved by FDA in November 2001 in 10 mg, 20 mg and 40 mg strengths (² (Also see "Andrx Generic Prilosec Clears FDA; Approval Could Expedite Patent Litigation" - Pink Sheet, 19 Nov, 2001.), p. 21). Andrx and Genpharm were granted shared exclusivity for the 10 mg and 20 mg doses because each company was the first to challenge different AstraZeneca patents.

Under the agreement, Kudco will pay a 15% royalty to both Andrx and Genpharm during the first 180 days of marketing.

The profit sharing will drop to 9% each, then to 6.25% over a period of time, in accordance with a complex formula, Schwarz said.

Pharmaceutical Resources will receive 25% of Genpharm's profit under a separate agreement between those two firms.

The deal with Schwarz automatically terminates if either Andrx or Genpharm's generics are deemed non-infringing on appeal.

The Kudco/Genpharm/Andrx agreement has been reviewed by the Federal Trade Commission, Andrx said. The generic firm is obliged to report patent litigation settlements to FTC under a consent agreement signed in 2001 (³ (Also see "Andrx/Aventis Settle With FTC: Agency Says Cardizem CD Generic Not Delayed" - Pink Sheet, 9 Apr, 2001.), p. 4).

Andrx and Genpharm have a separate agreement, intended to resolve the dispute over who was first to file; under that agreement, Andrx was to receive 85% of profits, regardless of which company launched first. However, FTC was taking a close look at that agreement in light of FDA's decision that the two companies could share exclusivity (⁴ , p. 28).

The Schwarz launch will allow Andrx to begin to generate a return on its significant up-front investment in omeprazole. The generic company has built a manufacturing plant for the product and had to write off $41 mil. in inventory in light of the patent ruling (see ⁵ (Also see "Andrx Altocor Sales Force Expands 50%; Generic Prilosec Charge Is $41 Mil." - Pink Sheet, 4 Nov, 2002.) ).

Schwarz is currently amassing launch quantities but does not appear to have the same capacity as Andrx. The company says Kudco's manufacturing capacity is sufficient to satisfy 50% of the current demand for Prilosec. Schwarz added that it may consider expanding capacity.

AstraZeneca has no immediate plans to appeal the court's ruling on Schwarz' generic, though it believes a basis to do so exists, the company said.

Prilosec's U.S. sales were in excess of $2 bil. for the nine-month period ending in October, AstraZeneca's quarterly earnings report says. However, third quarter sales were down from 2001: $798 mil. compared to $970 mil. The company has been focusing on the promotion of Nexium (esomeprazole) as a replacement for Prilosec, and Nexium sales increased to $493 mil. for the third quarter from $138 mil. in 2001. Nine-month sales were $1 bil.