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The bottom line is enough to catch anyone’s attention: the stock of Barr Laboratories shot up 68 percent when the U.S. Court of Appeals for the Federal Circuit last September sided with the generic drug maker in its challenge to Eli Lilly & Co.’s patent for Prozac. The same day, Lilly’s stock price plummeted 30 percent. The Prozac litigation, now under consideration for a rare rehearing by the Federal Circuit, is just one example of the flurry of high-stakes litigation between pharmaceutical giants and generic drug manufacturers that was spawned 17 years ago with the enactment of the federal Drug Price Competition and Patent Term Restoration Act. The law, commonly known as the Hatch-Waxman Act, was designed to lower prescription drug prices. It made it easier for makers of less expensive generic drugs to bring them to market without having to undergo the same lengthy testing process of the original, patented brand-name equivalents. But it also created a litigation cottage industry, in which generic-drug companies search for soon-to-expire patents of popular proprietary drugs and challenge vulnerable patents in court. If the generic manufacturer is successful in its challenge, it receives the exclusive right to sell its version for 180 days before other generics enter the market. Several bills were proposed in the last Congress to amend some of the statute’s provisions. None of those bills made it out of committee, but some people think that legislation may be introduced again in the new session. STRATEGIC ADVANTAGE Challenging patents on successful drugs has “become an increasingly important part of business,” says Ronald Schutz, a patent lawyer at Minneapolis’ Robins Kaplan Miller & Ciresi. “If they think they can achieve a strategic advantage they will challenge a patent.” Patent-challenge litigation has been the making of some generic drug manufacturers, notably 29-year-old Barr Laboratories, a Pomona, N.Y., company that is led, appropriately enough, by former Washington, D.C., litigator Bruce Downey. “We’re very open about this,” says Downey, who became Barr’s chief executive officer in 1993. “We challenge patents that we believe are vulnerable patents or patents that were improvidently granted. From our perspective, we have simply reacted and taken advantage of what the law was designed to do.” Lilly spokesman Edward West did not return a telephone call seeking comment. Mounting the challenges is not cheap. Barr is represented by Chicago’s Winston & Strawn and other firms. And Barr spokeswoman Carol Cox estimates that challenging the Prozac patent has cost her company $10 million to $12 million in research and legal fees. But the payoff can be large. If the Federal Circuit refuses to grant Lilly’s petition for reconsideration, Barr could see $200 million in revenues from sales of its version of the antidepressant, which has brought Lilly about $2.6 billion a year in sales. Barr’s current revenues, by comparison, come to just $500 million a year. Barr’s biggest-selling generic is the breast cancer drug Tamoxifen, which it began marketing in 1993 after settling a patent challenge with the original maker, Astra-Zeneca. Barr is involved in a patent challenge in federal court in New Jersey with Johnson & Johnson’s Ortho-McNeil unit over the oral contraceptive Ortho Tri-Cyclen. The company’s only major loss, Cox says, was in its attempt about four years ago to upset the patent and launch a generic version of the AIDS drug AZT. Downey says that Barr’s generic-drug revenue has helped it fund a significant increase in research and development of its own brand of pharmaceuticals. “We have an increasing commitment to our proprietary drug program,” Downey says, adding that capturing 180 days of exclusivity for a generic version of a drug before others move into the market cannot be a long-term strategy. “We’re going to have to get into brand products or medical devices,” he says. BLOCKBUSTER CASES Exactly how much litigation Hatch-Waxman has triggered is difficult to determine. “I’m not sure we’ve seen an increase in patent litigation. Rather, we have seen an increase recently in the number of blockbuster cases,” says Rochelle K. Seide, a partner in the New York office of Baker Botts who specializes in biotechnology law and chairs the biotechnology committee of the American Intellectual Property Law Association. After almost two decades, a half-dozen bills were filed during the last Congress to amend Hatch-Waxman, although none got out of committee. “If there’s enough interest generated among the members, then I think the senator would like to do something,” says a spokesman for U.S. Senator Orrin Hatch, R-Utah, who sponsored the 1984 law with U.S. Representative Henry Waxman, D-Calif. “But it’s not something that’s on anybody’s radar screen right now. I think everyone wants to get through the first 100 days of the Bush administration first.” Much of the interest in the last session was not in restricting the law’s provision allowing generic companies to challenge patents, but in a push by brand-name companies to extend the current 20-year patent life. Predictably, support for patent extensions breaks along industry lines, with the National Association of Pharmaceutical Manufacturers, the industry group for the generics, opposing longer patent periods and the Pharmaceutical Research and Manufacturers Association championing extended patent terms. Brand-name manufacturers complain that more than half a drug’s patent life can be spent waiting for federal government approval of the new drugs. The generic companies, meanwhile, complain that the brand-name pharmaceutical companies have found ways to infringe on the generic exclusivity period by devising secondary uses and reformulations of soon-to-be-off-patent drugs. “There have been some unforeseen problems with the 180-day generic-exclusivity provision, for example, which have been twisted backward and forward by the courts, that I believe will be re-examined,” says one congressional staffer familiar the law. EXPAND THE STATUTE? Barr Laboratories’ Downey says that he’d like to see Hatch-Waxman expanded to cover the so-called biologics — therapeutic drugs made from living tissue or cells, which are on the cutting edge of pharmaceutical research these days. Downey says that biologics were not a factor in 1984, when Hatch-Waxman was enacted, and thus are not covered by the law’s abbreviated approval process, as are chemical drugs such as Prozac. For Barr to produce a generic version of a brand biologic, he added, the company would have to replicate all of the research and testing of the original manufacturer. That duplication was the main reason why Hatch-Waxman was enacted, Downey says. “Before this law we really had a regulated monopoly,” Downey says. This “has enabled a number of people to enter the market. We get something out of it, the brand companies get something and the consumers get the most of all: lower drug prices.”

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