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In the race to market a generic drug, speed matters. The generic manufacturer that first sells the drug enjoys a significant advantage that can translate into increased market share and profits. That’s why the Food and Drug Administration rules, promulgated under the Hatch-Waxman Act of 1984, that grant an initial generic manufacturer market exclusivity for 180 days are so important. There are competing ways to think about this 180-day exclusivity period. Is it a statutory right? Or is it merely an incentive without protection from antitrust suits, as the Federal Trade Commission contends? Or could the exclusivity period be even more: a property interest that would merit due-process protections under the Fifth Amendment? The answers to these analytical questions can have real, practical consequences for the companies that manufacture generic drugs and for the consumers who use them. And they have become even more significant after a June decision by the U.S. Court of Appeals for the D.C. Circuit in effect made the 180-day period less exclusive. IN THE ORANGE BOOK To obtain FDA approval to market a new drug, the manufacturer files a New Drug application. The drug company also informs the FDA of any patents that cover the drug; the FDA lists the patents in the so-called Orange Book. To encourage other companies to subsequently produce and sell presumably cheaper generic equivalents of brand-name drugs, the Hatch-Waxman Act simplifies the approval process for a generic drug. The manufacturer need only file an Abbreviated New Drug application, which relies on the studies already performed for the brand-name drug. Where the brand-name drug is still under patent as listed in the Orange Book, the generic manufacturer must make certain certifications in its Abbreviated New Drug application about these patents. The key Paragraph IV certification states that the patents are either unenforceable or not infringed by the generic drug. The generic manufacturer must also give notice of the Paragraph IV filing to the brand-name drug company, which has 45 days to file a patent infringement suit to stop the generic drug. If no suit is filed, the FDA may approve the Abbreviated New Drug application immediately. If the original manufacturer files a patent infringement suit, FDA approval of the generic drug is automatically delayed for 30 months. Either way, any subsequent generic-drug manufacturer making a similar Paragraph IV certification may not immediately receive approval to market another version of the generic drug. FDA approval is delayed to reward the first generic manufacturer for its prompt filing with a 180-day period of exclusive marketing rights. RIGHT OR INCENTIVE? On its face, the 180-day provision in Hatch-Waxman and the FDA’s regulation, 21 C.F.R. §314.107(c), might seem to create the sort of legal right upon which drug manufacturers could confidently rely. Yet the matter has become more complicated because of actions by the FTC. In 1991, Merck filed a New Drug application for the cholesterol medication simvastatin, popularly known as Zocor, which large numbers of Americans use to reduce the risk of heart attack. Merck’s application listed several patents in the Orange Book. In 2000, IVAX, a generic-drug company, filed an Abbreviated New Drug application with a Paragraph IV certification regarding two of Merck’s patents. Although Merck did not sue, IVAX apparently did not begin commercial marketing of its generic version and thus did not trigger the start of its 180-day exclusivity period. In August 2003 the FDA revised its regulations to limit the listing of patents by a New Drug application to those claiming the active ingredient of the drug. It excluded those patents claiming an intermediate version of the active ingredient. Thereafter, the FDA removed the two Merck patents from the Orange Book. The removal of the patents meant that other generic applicants besides IVAX could file Abbreviated New Drug applications without Paragraph IV certifications and possibly receive immediate approval. IVAX then filed a petition with the FDA, arguing that the agency could not delist the Merck patents. To do so, said IVAX, violated the FDA’s own regulation prohibiting delisting and would deprive IVAX of its statutory right to 180 days of exclusive marketing. IVAX argued that the 180-day exclusivity vests when the first Abbreviated New Drug application files its Paragraph IV certification, regardless of whether there is a patent infringement suit. The company requested that the FDA not approve subsequent Abbreviated New Drug applications for 180 days from the date of IVAX’s first commercial marketing and that the agency relist the removed Merck patents in the Orange Book. IVAX’s action triggered a reaction: On April 5, 2005, the FTC, in response to a request from the FDA, filed a response to IVAX’s FDA petition. Concerned that delays in the market entry of generic drugs might impose substantial costs on consumers, the FTC opposed the company’s contention that the FDA could not delist the Merck patents. The FTC argued that the 180-day exclusivity period is merely an “incentive” to induce generic manufacturers to challenge weak patents or design around patents. It rejected the idea that the time period was a legal right. The FTC stated that the applicable regulations do not guarantee that the first company to file an Abbreviated New Drug application will enjoy the benefit of the 180-day exclusivity period once the FDA approves its generic. For example, the FTC said, subsequent abbreviated applications need not make Paragraph IV certifications if the patent has expired. Adopting the IVAX view would, in the opinion of the FTC, mean that a New Drug application holder could no longer delist a patent because of a change in the listing requirements. The FTC has long objected to what the commission views as the listing of questionable patents in the Orange Book, as well as to the use of the 180-day exclusivity period to create a bottleneck blocking further generic entry. Indeed, the FTC has brought several enforcement actions because patent holders allegedly listed questionable patents in the Orange Book and then reached settlements of litigation based on those patents with the first generic filer. In such cases, the patent holder has essentially paid the first filer to stay out of the market for some period of time, thus effectively blocking entry by any generic manufacturer. The FTC’s position is not surprising. Although the 2003 amendments to Hatch-Waxman requiring the filing of such agreements with the FTC — and prohibiting multiple 30-month stays — alleviated some of the FTC’s concerns about anti-competitive behavior, possible abuses of Hatch-Waxman remain at the forefront of the commission’s agenda. Hence, it is not shocking that the FTC opposes the notion that the 180-day exclusivity period is a right. This tension between the FDA’s regulation and the FTC’s position creates complications for drug manufacturers, however. Is using the exclusivity period a legal right under Hatch-Waxman as regulated by the FDA, or is it grounds for an antitrust suit by the FTC? The answer remains unclear yet vitally important for the drug industry. A PROPERTY INTEREST? One issue that has not been addressed by either the IVAX suit or the FTC is whether — regardless of whether it is a right or an incentive — the 180-day exclusivity period is a property interest that triggers the procedural due-process protections of the Fifth Amendment. It is now well established that (to quote the Supreme Court in Perry v. Sinderman (1972)), for purposes of the Fifth Amendment, “property interests subject to procedural due process protections are not limited by a few rigid, technical forms. Rather, property denotes a broad range of interests that are secured by existing rules or understandings.” A property interest exists in a benefit made available by a particular statute if a person has a “legitimate claim of entitlement to it,” according to the Supreme Court in Board of Regents v. Roth (1972). In addition to statutory sources, property interests can arise from duly promulgated regulations. Measured by these standards, the 180-day exclusivity period may well be a property interest sufficient for protection. If it is a property interest, then the Fifth Amendment’s requirement of due process for deprivations of property would presumably require notice and a hearing before the exclusivity is lost. Notably, the constitutional nature of this right would create procedural safeguards for generic manufacturers regardless of the policy wishes of the FDA, the FTC, or even Congress. NOT SO EXCLUSIVE And this legal confusion over the nature of the exclusivity period just became even more complicated. In June the D.C. Circuit held in Teva Pharmaceutical Industries v. Crawford that a brand-name drug manufacturer may market a generic version of its own drug during the 180-day exclusivity period. The court found that no provision of the Hatch-Waxman Act barred such action, even though another generic manufacturer was trying to enjoy the benefits of the exclusivity period. The effect of this ruling is to create an exception to the exclusivity period solely available to the brand-name drug manufacturer, which already enjoys the production expertise, economies of scale, and name recognition gained from marketing the original drug. What happens to the value of the generic maker’s exclusivity period now? At this point, the nature of the 180-day exclusivity period is truly muddled. It’s not only unclear if the period is a legal right, a mere incentive whose exercise might result in antitrust lawsuits, or a constitutionally protected property interest; after Teva Pharmaceutical, it’s now uncertain if the exclusivity period is even really exclusive. Ideally, Congress might amend Hatch-Waxman to clarify these issues. But in the meantime, drug manufacturers will be left to wade through these legal waters.
Mark E. Nagle is a partner in the D.C. office of Troutman Sanders. At the time this article was written, he was a partner in the D.C. office of Sheppard Mullin Richter & Hampton. Anik Banerjee is an associate in the Los Angeles office of Sheppard Mullin. The authors thank Sheppard Mullin summer associate Robert Ziff for his assistance.

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