At present, marketing of generic drugs is governed by the Drug Price Competition & Patent Term Restoration Act, commonly known as the Hatch-Waxman Act, or simply Hatch-Waxman. Among the loopholes in the current law are the ability of innovator companies to cause automatic multiple delays of Food & Drug Administration approval of generic drugs and the ability of innovator and generic companies to enter into agreements to purposely delay entry of generics.

Passed in 1984, Hatch-Waxman gave rise to a robust generic drug industry. By creating the Abbreviated New Drug Application (ANDA), it allowed approval of generic products through a shorter and less costly route than for innovator drugs. It also allowed development of generic versions even when the reference product is still protected by patents. In all other industries, this activity constitutes patent infringement. In the pharmaceutical industry, it allows generic companies to obtain bioequivalency data required for their drug applications.

Because of Hatch-Waxman, generic versions hit the market as soon as patent protections on the brand-name product expire, in contrast to the case in many other countries. Before Hatch-Waxman, only 35% of pioneer drugs had generic competition after patents expired; now almost all innovator drugs face such competition, according to the Pharmaceutical Research & Manufacturers of America.

ANDA rules offer four routes for marketing of generic drugs. Three routes--called Paragraph I, Paragraph II, and Paragraph III certifications--apply to ANDA filings that do not involve challenges to patents still protecting brand-name products. Through these routes, more than one generic version can hit the market at the same time, creating a very competitive situation. The fourth route, called Paragraph IV certification, applies when patent protection has not expired but the generic drugmaker claims either that the patent is invalid or that its product does not infringe the patent.

Generic drug companies aim to be first to file ANDAs with Paragraph IV certification because the rules make them eligible for a 180-day period of marketing exclusivity. During this period, FDA may not approve other ANDAs for the same product. The 180 days start on the earlier of two dates--that on which the generic product goes on sale or the date of a court decision declaring the patent invalid or not infringed.

The exclusivity period motivates generic drug companies to innovate around patents for brand-name drug products--which are listed in an FDA publication called the Orange Book. During this time, a generic drug can be sold at good margins, at a price only slightly lower than that of the brand-name product. Huge profits can be made.

For example, Barr Laboratories, Pomona, N.Y., launched a generic version of Prozac (fluoxetine hydrochloride) in 20-mg capsules in August 2001 after successfully challenging Eli Lilly's patents. Being first to file, the company gained exclusivity for six months, during which sales of the generic drug reached $311 million. Barr reported earnings per share of $4.63 for its fiscal 2002, compared with $1.66 for fiscal 2001.

So Paragraph IV ANDAs promise the greatest reward, but they also entail the highest cost and risk because of the ensuing litigation.

When a Paragraph IV ANDA is filed, the innovator company almost always sues the generic company for patent infringement. This action automatically triggers a 30-month stay, during which FDA may not act on the application. Through strategic timing of Orange Book listing of later-issued patents on the product under dispute, innovator companies can obtain multiple 30-month stays.

An example is GlaxoSmithKline's effort to protect the antidepressant Paxil (paroxetine hydrochloride) from generic competition. Sales of Paxil in 2001 were $2.67 billion. Apotex, a Canadian-owned pharmaceutical company, filed a Paragraph IV ANDA for a generic version of Paxil in March 1998. GSK sued for infringement, triggering an initial 30-month stay, which expired in November 2000. However, GSK subsequently listed additional patents in the Orange Book and has brought more infringement suits against Apotex. In all, the suits have created an automatic stay on FDA approval of more than five years. The earliest that Apotex can be finally approved to market its generic version is in late 2003, unless the cases are settled first.

The generic industry decries the maneuvers that lead to multiple automatic stays on FDA action. In many cases, pat-ents being added are based on modifications irrelevant to safety and efficacy--such as in a pill's shape or color, according to a spokesman for the Generics Pharmaceutical Association. Sometimes, patents that should not be listed in the Orange Book--such as process patents--are listed anyway. Part of the problem is that FDA has no authority to evaluate patents; it simply lists them. And once a patent is listed, it cannot be unlisted, unless it's done voluntarily by the listing company.

"The big pharma companies have abused the system," Cornel C. Spiegler, chief financial officer of Impax Laboratories, Miami, tells C&EN. "The litigation is crazy, and consumers, employers, states, and various associations end up paying for it."

THE GREATER Access to Affordable Pharmaceuticals Act (GAAP), passed by the Senate in July, limits the number of automatic 30-month stays to one, consistent with a recommendation in a recent Federal Trade Commission (FTC) report (C&EN, Aug. 5, page 11). Innovator drug companies vigorously opposed this provision on the basis that it undermines intellectual property protection. But according to Michael S. Wroblewski, FTC assistant general counsel for policy studies, "The 30-month stay is in addition to the ability of the brand-name company to sue. What we're saying is eliminate the ability to block FDA action so FDA can then approve, for example, generic Paxil. Companies can still litigate."

According to the FTC study, even with approved ANDAs, generic companies usually do not market drugs that are still the subject of lawsuits. A current example is generic Prilosec. Prilosec (omeprazole) is AstraZeneca's blockbuster drug for heartburn, with worldwide sales in 2001 of $5.7 billion. Last November, FDA gave final approval to Andrx Pharmaceuticals, based in Weston, Fla., to market its generic version after the 30-month stay had expired. But the lawsuit between Andrx and AstraZeneca is still unresolved. Even if Andrx wins, AstraZeneca could appeal. The decision to launch the generic version will depend on the strength of the ruling in favor of Andrx and how difficult it would be for AstraZeneca to overturn it, says Gale A. Blackburn, director of investor relations at Andrx.

A notable exception at present is the at-risk launch of amoxicillin clavulanate potassium by Geneva Pharmaceuticals, an affiliate of Novartis Generics. In July, the company began shipping the drug, which is a generic version of the GSK antibiotic Augmentin. Last year, GSK sold $2.03 billion worth of Augmentin worldwide.

Geneva Pharmaceuticals and two other generic companies challenged three U.S. patents protecting Augmentin until 2017. A federal district court ruled that those patents were invalid, leaving Augmentin with patent protection only until December of this year. GSK is now appealing that decision.

"We found no reasons to wait until the appeal is decided because we were confident that the court decisions will be upheld," a spokeswoman for Geneva Pharmaceuticals tells C&EN. Last month, GSK filed another lawsuit claiming that the generic companies are using a stolen strain of bacteria to make their generic versions of Augmentin (C&EN, Sept. 2, page 10). "The most recent allegations of GlaxoSmithKline are unfounded," the spokeswoman says.

In the future, more generic companies might follow Geneva Pharmaceuticals' example. The beauty of the automatic stay is that it is an iron-clad guarantee that generic entry prior to patent expiration is delayed, because without FDA approval, entry is impossible. For this reason, brand companies fiercely protect their current ability to extend stays from 30 months to as long as possible.

The beauty of the automatic stay is that it is an iron-clad guarantee that generic entry prior to patent expiration is delayed, because without FDA approval, entry is impossible.

GENERICS ALSO may be delayed getting to the market when the generic company that first files a Paragraph IV ANDA agrees to "park" its right to 180 days of marketing exclusivity in exchange for compensation from the innovator company.

The FTC study found several cases of settlement agreements in which an innovator company paid a generic company to delay launch of its product for a specified period or until the patents expire. Payments to generic applicants ranged from $1.7 million to $132.5 million. And times between the agreement date and patent expirations ranged from four months to 10 years.

In FTC's view, some of these agreements violate antitrust laws, and in those cases the agency takes legal action against the parties involved. For example, in April 2001, FTC sued Schering-Plough, Upsher-Smith Laboratories (Minneapolis), and American Home Products (AHP, now called Wyeth) for entering into anticompetitive agreements related to K-Dur 20, Schering-Plough's prescription potassium chloride supplement, whose patent protection expires in September 2006.

In August 1995, Upsher-Smith filed a Paragraph IV ANDA for a generic version. In December 1995, AHP also filed a Paragraph IV ANDA. Schering-Plough promptly sued both, but it settled with Upsher-Smith in 1997 and with AHP in 1998. Upsher-Smith agreed to delay launching its generic product until September 2001 in exchange for $60 million. AHP agreed to delay its generic version until January 2004 in exchange for $15 million.

FTC sued, charging that the agreements "are unreasonable restraints of trade and that the companies have conspired to monopolize the market for potassium chloride supplements." The companies responded that the payments were license fees for other products licensed by Schering-Plough from the two companies.

Last February, AHP settled with FTC. The settlement prohibits AHP from entering into agreements that involve payments to generic companies to delay launch of their products, among other things. But last June, an administrative court dismissed the cases against Schering-Plough and Upsher-Smith. FTC is appealing that ruling.

FDA approved Upsher-Smith's drug on Nov. 10, 1998. Per the Schering-Plough agreement, Upsher-Smith parked its 180-day exclusivity--it delayed marketing of the drug, and consequently its use of the exclusivity period, until September 2001.

Schering-Plough's sales of K-Dur 20 were $228 million, $251 million, and $290 million in 1998, 1999, and 2000, respectively. Sales dropped 26%, to $216 million, in 2001 because of generic competition.

FTC's July study recommended, and GAAP requires, that out-of-court settlements of patent litigation with the potential to park an 180-day exclusivity period be filed with the commission. "This provision will make it easier for FTC to monitor antitrust violations," Wroblew-ski says.

WHEN THE SENATE passed GAAP in July, the generics industry claimed a major victory. "An issue for all generics companies has been the ability of the big pharma companies to use multiple 30-month stays to delay generic entries," Andrx CEO Richard J. Lane tells C&EN. "These mea-sures give us the opportunity to get to market sooner and minimize litigation in the process."

"A 30-month clock that is consistently applied to all companies levels the playing field between innovator and generic companies," notes Kenneth G. Howling, vice president of finance at Biovail, in Toronto. With just one 30-month clock, generic companies can predict with some certainty when they can launch their products, and innovator companies can put in place strategies to extend product life cycles before that clock starts, he explains. "Both sides know exactly what the rules are, and they work within that environment."

GAAP was a hard-fought prize won with the help of a coalition of businesses, state governors, and consumer groups. The next battlefield is the House of Representatives. "We hope it gets through the House," says Marvin Samson, president and CEO of Sicor, Irvine, Calif. "It won't be easy."

Indeed. Early this month, the New York Times reported that two corporations, Georgia-Pacific and Verizon Communications, had left the coalition called Business for Affordable Medicine under pressure from Eli Lilly and Wyeth, respectively. The coalition has been lobbying for rapid entry of generics to market.

Nevertheless, flush with the success of GAAP, the generics industry is fired up to push for other changes. A spokesman for the Generics Pharmaceutical Association points out, for example, that in any other industry, patent infringement cases require the plaintiff to post a bond to compensate the defendant for damages in case the plaintiff loses. The requirement deters frivolous lawsuits. But posting a bond is not required in the pharmaceutical industry, he says.

Citizen petitions are another issue. Brand-name companies sometimes use these to delay approval of generic drugs. Most petitions request that FDA require additional bioequivalence studies before approving an ANDA. However, in its study, FTC found that such petitions have usually been quickly resolved by FDA and do not delay the launch of generic drugs based on Paragraph IV ANDAs.

Generic biopharmaceuticals, or biogenerics, are looming as the next major cause for the industry (see page 61). There is at present no route to biogenerics similar to the ANDA for small-molecule drugs. The generic drug industry is looking to Congress for a remedy.

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