On December 8, 2003, President George W. Bush signed into law the Medicare Prescription Drug, Improvement and Modernization Act of 2003, characterized as providing the most sweeping changes to Medicare since 1965. As has been widely publicized by the media, this law provides for the first time in the program’s history a prescription drug benefit for over 40 million Medicare beneficiaries. The press also has dangled a politically pleasing sound bite that drug costs will be contained thanks to “faster entry of generic drugs” into the marketplace. What does this have to do with intellectual property? If you blinked, you might have missed it.
The sound bite originates from a brief section of the vast Medicare Act that amended the Federal Food, Drug and Cosmetic Act (the Act).1 While short, these amendments have powerful implications. Contrary to the sound bite, these amendments may actually slow the approval of generic drugs. This article reviews the amendments to the Act and related FDA rule revisions and the implications for future patenting and litigation strategies for pharmaceutical companies. This article also explores possible legal challenges to a revised rule because of the new law.
Only months before the 2003 Medicare act was approved, the FDA was implementing its own rule revisions to address delays in generic drug approvals. Together, the new legislation and revised rules are sure to affect all drug manufacturers, innovator and generic alike, at their interface with the FDA and with each other. The intent of the 2003 rules and legislation was to expedite the approval and entry of generic drugs into the marketplace. For the most part, the amended statute and revised rules work in concert to close loopholes arising out the framework created under the Hatch-Waxman Amendments of 1984. However, in one significant aspect concerning the provisions for delaying drug approval, the rule and statute give rise to drastically different outcomes. Specifically, these provisions determine whether a generic drug application is subject to a single 30-month stay in approval or to multiple, consecutive 30-month stays. The automatic 30-month stay has proven to be a major obstacle to market entry for applicants seeking approval of a generic drug.
The FDA’s most significant rule revision, which affects the 30-month stay in approval for generic drugs, was implemented late last year.2 The revision was based on a new interpretation of the old statute that is inapposite to that exercised by the FDA for nearly two decades. The changes in the Act (codified at 21 U.S.C. § 355) have been touted as providing explicit statutory authority in concordance with the FDA’s new interpretation and rule. Close inspection of the modified statutes calls into question whether the statute supports or is now more clearly in conflict with the FDA’s interpretation and new rule.
Framework for Understanding the Effect of the Amended Statute and New Rules
The Hatch-Waxman Amendments sought to provide incentives to both innovator drug companies (“Big Pharma”) and generic drug manufacturers, while protecting legitimate patent rights. The goal of getting generic drugs to market has clearly been frustrated by Big Pharma’s exploitation of listing patents in the FDA’s Orange Book as a means to preclude the FDA from approving generic drug applications.
The Origin of Orange Book Listed Patents
Both before and after approval of a New Drug Application (NDA) of a sponsor (company) by the FDA, the sponsor is required to identify patents pertinent to that application. The FDA then lists each identified patent in the Orange Book3 within 30 days. In addition to providing generic drug manufacturers with notice of patent rights relating to the drug that is the subject of the NDA, the “listed” patent (as opposed to the patent rights themselves) independently serves as a roadblock for companies seeking approval of a generic drug application who certify under certain provisions of the rules.
Abbreviated New Drug Applications and Requirements for “Paragraph IV Certification”
Generic drug manufacturers gain FDA approval to market a generic drug by filing an Abbreviated New Drug Application (ANDA). The rules and regulations governing ANDA approval require that an applicant make certain representations with respect to issued patents. These “certifications” occur in four flavors. For example, in the event that the ANDA applicant is seeking approval for a generic version of an approved drug that is covered by a patent that has expired, the applicant would file a Paragraph I certification and the FDA could immediately approve the application, assuming all other requirements are met. Germane to the new law is the case where the ANDA applicant seeks approval for a generic version of an approved drug that is covered by a listed patent and certifies under Paragraph IV that the listed patent is either invalid or will not be infringed by the manufacture, use, or sale of the generic drug.4
Automatic 30-Month Stays
The applicant is also required to notify the NDA holder and patent owner of the Paragraph IV certification.5 The notification starts a 45-day time period during which the patent owner or NDA holder may commence an infringement suit against the applicant. Such action results in an automatic 30-month stay, during which time the FDA cannot approve the ANDA absent a final decision of non-infringement or invalidity in that period. Prior to the 2003 rulemaking, the FDA had interpreted the statute as permitting multiple 30-month stays, one for each notice of Paragraph IV certification resulting in an infringement action. Clearly, the resulting multiple stays can forestall the approval of generic drugs for a period of time approaching permanence.
Taking Advantage of the System
The obvious lesson for an NDA holder has been to list not only a myriad of patents, but to time the issuance of additional patents to keep a 30-month stay in place for as long as possible. This has been accomplished, in part, by patenting strategies including the filing of numerous continuation and divisional patent applications in order to claim subsets of subject matter related to the NDA. Many patents issuing out of this approach must disclaim the terminal portion of the patent term so that they expire on the same date. This is of no moment, however, when each patent can serve as a vehicle for triggering additional 30-month stays. Both the FDA and the FTC have recognized the increase in listed patents, including many late “popping” patents issued just prior to the expiration of a listed patent and contemporaneous with the gear up of generic drug companies preparing for market entry. Generic drug manufacturers have complained to the FDA about the “improper” listing of patents, such as those claiming a drug’s metabolites6 or the intermediary compounds used to manufacture the drug. But the FDA steadfastly maintains that its role in patent listing is purely ministerial and that it is without authority to evaluate or delist patents. Nonetheless, all listed patents, whether properly or improperly listed, benefit from Paragraph IV certification requirements and the automatic 30-month stay in approval in the event a non-infringement suit is timely filed.
Why Change Now?
Why has the 30-month stay received so much attention of late? At least one reason may be that more than 500 drug patents will expire between 2003 and 2009. Twenty-six of these drugs account for more than $38 billion dollars in sales annually (based on 2001 sales), including seven of the top 10 best-selling drugs.7 Patents on these seven drugs expire between 2003 and 2005.8
Closing Loopholes to Restore the Failed Goals of the Hatch-Waxman Amendments
The goal of the 2003 rulemaking, at least according to the FDA, is that an applicant can only be subjected to a single 30-month stay per ANDA, regardless of the number of Paragraph IV certifications made.9 The current rule provides for this significant result by requiring the ANDA applicant to provide notice to the NDA holder and patent owner only of initial Paragraph IV certifications but not of any subsequent Paragraph IV certifications that may be required. Because it is the notice that sets in motion the opportunity for a 30-month stay, under the current rule the NDA holder and the patent owner get a single opportunity to take the actions that will trigger a 30-month stay in approval.
After Implementation of the Final Rule, the Law Changed
On its face, the new “notification” rule seems to have solved several of the problems that we have discussed. Specifically, the new rule no longer hog-ties generic companies with endless 30-month stays and curtails the motivation for NDA holders to flood the Orange Book or “late-listed” patents. However, the subsequent amendments to the Act are certain to raise questions as to the apparent conflict with the new rule. In part, the amended statute provides that a notice of Paragraph IV certification is required “(i) if the certification is in the application... or (ii) if the certification is in an amendment or supplement to the application... , regardless of whether the applicant has already given notice with respect to another such certification contained in the application or in an amendment or supplement to the application.” (Emphasis added.) The plain language of this provision contradicts the FDA’s new interpretation that only one notification per ANDA is required. Whether Big Pharma will challenge the new rule remains to be seen. The original interpretation of the statute reflected in the rule prior to amendment was tied to language that seems to persist in the amended statute. Therefore, it may well be that in an appropriate case, an NDA/patent holder may challenge the FDA’s new rule--filing a new (second) lawsuit and moving preliminarily for relief that the court direct the FDA to issue a new 30-month stay, arguing that the rule is not supported by, and is in conflict with, the statute. As this is an issue that would be fundamentally unrelated to the patents or the merits of the infringement case, it offers an attractive “end around” to new preliminary relief.
The new law also clarifies that the FDA may approve an ANDA earlier than the end of 30 months based on the date a decision of noninfringement or invalidity is entered, noting that this provision not longer specifies a final decision. This permits a generic drug to enter the market even if the NDA holder or patent owner appeals the decision.
Whether or not the contradiction is challenged, the immediate question remains: Will a single 30-month stay facilitate the availability of generic drugs? It appears that at best this would be unlikely; at worst, market entry could be further delayed. What a single 30-month stay will do is almost certainly alter the patent prosecution strategies of Big Pharma. If the rule survives scrutiny, the scope and strength of the patents listed becomes much more of an issue than before. Previously, a patent’s mere existence provided a 30-month delay on assertion, independent of its strength and scope. Broader protection, timed to issue later in the lifetime of a drug’s development, is a likely shift in prosecution strategy.
Effects of Other Provisions Under the Revised Rules and Amended Statute
Independent of the 30-month stay, other rule revisions should facilitate proper patent listing for NDA applicants and holders by clarifying which patents must and must not be listed. In addition, the current rules have expanded the required information certifications submitted by patent owners.10 This more detailed declaration from patent owners has the potential to raise significant estoppel issues for patent applications pending before the United States Patent and Trademark Office and noninfringement and invalidity actions.
Consider, for example, that under the revised rule the declaration for a method of use patent must identify the individual claims that cover a use approved in the NDA, as well as identifying the corresponding section of the NDA. Careless certification to the FDA that “claim X is to a method of use Y” could be interpreted later as an admission against interest that the scope of claim X is confined to use Y. Similar problems may arise for polymorph patents, which are those patents claiming variations of the approved drug or active ingredient that are certified to function “the same as” the NDA approved drug. The FDA’s “sameness” standard is intended to parallel those requirements imposed on generic drugs (to function the same as the approved drug). The potential for misinterpretation of sameness assertions made before the FDA could surface in the context of sameness and unpatentability or invalidity based on obviousness, anticipation, and statutory double patenting.
The statute also extends new rights to ANDA applicants sued consequent to certification, including the right to bring a counterclaim to delist a patent, although no damages are provided for, and to commence civil action for a declaratory judgment of invalidity or noninfringement.
The counterclaim provision seems, at first blush, to be a trivial amendment, as it offers no independent right to sue to delist a patent, a right many have sought and several have pursued in the courts, all without success. Bear in mind, however, that a delisting action may circumvent the need to confront the presumption of validity that a patent enjoys. Presumably the counterclaim may be made the subject of a motion for summary judgment, and if so, success on that motion should effectively terminate the 30-month stay, independent of the questions of validity and infringement. It appears Congress also amended the law to end the numerous lawsuits and actions to delist Orange Book patents. By the same token, the right to file a declaratory judgment action, while trivial, allows the ANDA applicant to trigger certain events, including the automatic stay, rather than having to wait for the patent holder.
Certain ANDA applications may further benefit from amendments modifying the “180-day exclusivity” that can be granted to the “first” ANDA applicant where infringement litigation ensued. This exclusivity period is, after all, a primary incentive original to the Hatch-Waxman Amendments intended to promote ANDA filing and balance the risk of ensuing litigation. Of interest is that if more than one applicant files a substantially complete ANDA on the same day, each applicant may be granted “exclusivity.” The statute also provides that the period of exclusivity, absent an earlier entry of a court decision, begins on the first day of marketing (as opposed to the approval date), allowing companies gear-up time without loss of exclusivity. Additional provisions specify a number of new forfeiture events,11 each of which can result in the loss of the exclusivity benefit, including the failure to commence marketing by day 75 after initiation of the exclusivity period. It is interesting to note that, collectively, the new law can foster situations where two ANDA applicants are granted exclusivity and one ANDA holder begins marketing on day one, whereas the second ANDA holder begins marketing on day 75, which may provide the first ANDA holder 255 days of exclusivity because the exclusivity period itself is defined in terms of when later-filed ANDAs may gain FDA approval. Because the two ANDA holders both have approval, there does not seem to be a basis for revoking the approval of the first ANDA holder, who marketed on day one, to permit expiration of the full 180 days granted to the second ANDA holder. This economic benefit may prove great enough to foster cooperative efforts by generic companies to file ANDAs on the same day while similarly motivating other applicants to challenge the prolonged exclusivity period resulting from sharing.
Historically, one does not have to look very far in the patent world to recognize that Final Rules accompanying statutory initiatives intended to simplify things may in fact complicate them unduly. As briefly noted, there are a variety of loophole closings that may themselves create broader loopholes, inconsistent with the goals of the statute embedded in the 2003 Medicare Act and Rule. It is also clear that these changes and potential new loopholes will alter the patent prosecution strategies of Big Pharma and Generics alike.
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