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Jul 1, 2005 (Vol. 25, No. 13)

Authorized Generics: To Switch Rather than Fight

Do the Compromises of Hatch-Waxman Need a Further Look?

  • In Teva Pharmaceuticals Industries, Ltd. v. Crawford, decided this June, the U.S. Court of Appeals for the District of Columbia, in affirming a lower court decision, has potentially changed the landscape with respect to certain aspects of the 1984 Hatch-Waxman legislation, which first authorized FDA to approve generic drugs.

    The case concerns authorized generics; generic drugs that are essentially the innovator drug packaged and sold as a generic (i.e., not under the brand name and presumably at a lower price) by the innovator manufacturer under its own New Drug Application (NDA), generally either through its own generic subsidiary, or through an independent (generic) company.

    The significance of the case lies in its potential ability to undercut one of the principal incentives thought to have been provided to generic manufacturers in the 1984 law: a 180-day exclusive marketing period for the first generic drug to successfully challenge an innovator patent, and thereby obtain approval of a never-before-marketed generic drug.

    The decision, which supported the FDAs own view of the matter, permits the innovator to introduce and market its own authorized generic product during the 180-day exclusivity period, competing with, and thus undercutting the value of the exclusivity period to, the successful generic product. How this result was achieved, and its possible implications, are discussed below.

  • Background

    The Hatch-Waxman Act, while a poster child for arcane legislation, is actually a combination of several easily understood and quite rational compromises, most of which have stood the test of time without significant controversy.

    In return for permitting generic companies to rely on innovator-developed safety and effectiveness data to obtain FDA approval, and for permitting them to develop (but not market) generics prior to brand patent expiration, the innovator companies received three major benefits:

    patent term restoration, which involves the ability of innovator companies to obtain drug patent extensions using a legislative formula based on the time a drug was subject to FDA review prior to approval, in order to compensate for patent life lost to the FDA approval process;

    market exclusivity apart from patent protection when obtaining FDA approval of new developments, so as to reward innovation (essentially, 5 years for new entities, 3 years for new uses for existing entities); and

    limiting FDA power to approve a generic drug as long as valid patent protection remained for the innovator. Prior to Hatch-Waxman, FDA routinely approved eligible generic drugs irrespective of patent protection.

    The subsequent history of generic drug approvals would most likely have been far less judicially contentious had Congress not also tried to tackle a further, significantly more intractable issueincorporating into the law procedures to deal with the possibility that a generic drug whose approval had been sought, but which was blocked by the existence of a relevant patent, might not actually infringe that patent, or that the patent might be invalid.

    The scope and validity of patents is not necessarily a settled matter without resolution in a subsequent court proceeding, following a challenge to the patent by one who believes its granting was flawed in some respect.

    Congress attempted to deal with this issue in an ambitious and novel way. Generic manufacturers successfully argued that challenging an innovator drug patent was an expensive undertaking which, if successful, would produce a societal benefit: the availability of a new generic.

    Congress responded by authorizing in the statute an 180-day marketing exclusivity for a successful patent challenge during which FDA was precluded from approving another generic drug application for the same drug.

  • Discussion

    Much controversy has arisen surrounding the implementation of this provision over the past two decades, mostly involving generic applicants competing among themselves for the 180-day period.

    Thus, disputes have arisen about which among the involved generic companies should obtain the exclusivity, including but not limited to whether it should be the first to certify that a patent was invalid or did not infringe (the paragraph IV certification), the first to be sued by the innovator, whether a suit was necessary, the first to win such a suit (whether necessary or not), or some combination of the above.

    A myriad of fact patterns has emerged over the years, accompanied by changes in FDA positions and inconsistent court cases, precluding the semblance of a single, understandable rule. But all bear testament to the importance of the 180-exclusivity period to generic drug makers, and the degree to which the availability of that period acts as an incentive to the introduction of new generic drugs.

    What then in the law compelled the FDA, and then the Courts, to permit innovator companies to compete during the 180-day period with their own authorized generics, while precluding such activity by generic products themselves?

    In creating the 180-day exclusivity period, Congress drafted the statutory language so as to prohibit the FDA from approving only additional section 505(j) applications, or ANDAs, the applications routinely filed by generic companies. The statute did not refer in this context to the possibility that additional, identical versions of branded products might be introduced through NDA supplements, which are regulated under different statutory sections, sections 505(a) through (e).

    This is quite easily explainable; it is doubtful Congress even considered plausible the practice of innovator manufacturers introducing their own products as generics to compete immediately with the very first marketed generic. Had Congress thought about it, it is much better than an even bet that such products would have been treated similarly to products approved under ANDAs in order to preserve the incentive to challenge innovator patents.

    Given the rules of construction applicable to statutory language viewed as unambiguous, however, neither the FDA nor the courts were willing to delve into Congress intent but, rather, simply applied the legislative language literally to limit the 180-day exclusivity to only 505(j) (i.e., ANDA) applications.

    Indeed, relying completely on the literal statutory language, neither the FDA nor either of the two courts even spent much time discussing the obvious underlying policy question, or the possibility of an unexpressed intent of Congress. And though the Court of Appeals accepts the common nomenclature of the 180-day period as an exclusivity, it fails to recognize that the term shared exclusivity is an inherent contradiction.

    It is not clear whether this decision is the final word on the subject, but it is likely to be the operating word for at least a significant period of time. While seeking Supreme Court review is a possibility, review must first be granted, and even a different decision will not come soon, while the present policy becomes more entrenched.

    Will the decision change generic product practices in challenging innovator product patents? It is incontrovertible that a one-generic-drug exclusivity provides far more economic benefit to the exclusivity holder than an exclusivity shared with an authorized generic.

    Some have referred to permitting authorized generic competition during the 180 days as crippling. On the other hand, others have pointed out that even a shared exclusivity can provide significant financial rewards for the exclusive real generic.

    When coupled with the satisfaction of demonstrating the invalidity of an innovator patent, it is likely that patent challenges by generic companies will continue to some, though perhaps a lesser, extent, and requiring perhaps more exacting analyses over the prospective benefits.

    That not everyone is convinced that the FDAs action comports with the overall statutory purpose, however, is quietly suggested in a bipartisan request from certain members of Congress (sent after the trial court had ruled, but before the appellate court decision) requesting the Federal Trade Commission to review the competitive effects of authorized generics. Ultimately, if a change is to be made, it is likely to emanate from Congress.

    For some time, there has been debate on whether the compromises of Hatch-Waxman need a further look, an effort that has been largely forestalled by, as some view it, an innovator industry that is concerned over a potential shift in revised legislation against its interests. It will be somewhat ironic, but not entirely unusual, were this case to promote the taking of that further look.



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