ARTI RAI
I. INTRODUCTION
The Biologics Price Competition and Innovation Act (BPCIA) (Pub. L. No. 111-148, §§ 7001–03, 124 Stat. 119, 804–21 (2010)), enacted by Congress in March 2010 as part of the Patient Protection and Affordable Care Act, sets up a pathway for so-called “follow-on” biologics. This chapter discusses two key features of the BPCIA’s exclusivity regime for branded biologics, in part through a contrast with Hatch-Waxman’s exclusivity regime for branded small molecules.
One widely discussed disparity is that between the BPCIA’s twelve-year statutory exclusivity for originator firms and Hatch-Waxman’s five-year term. Less discussed but also notable is the significant contrast between the regimes’ different mechanisms for addressing questions regarding patent validity and infringement. The BPCIA enunciates a highly complex set of procedures through which originator and follow-on firms exchange information regarding patents and commercial marketing. These “patent dance” procedures are quite different from the Hatch-Waxman regime’s grant to originator patentees of the equivalent of an automatic preliminary injunction.
Both aspects of the BPCIA are justifiably controversial. Even though the correct term of statutory exclusivity may be difficult to ascertain, the large divergence between the BPCIA and Hatch-Waxman terms seems arbitrary. As for patents, the BPCIA’s patent dance may represent an improvement over Hatch-Waxman. Even so, if courts read the relevant case law on standing to allow follow-on manufacturers who have filed marketing applications with FDA to bring declaratory judgment actions challenging the validity and infringement of originator patents, eliminating the dance might be advisable.
Part 1 briefly summarizes the BPCIA pathway and lays out its statutory and patent exclusivities. Part 2 evaluates the BPCIA exclusivities.
II. AN OVERVIEW OF BPCIA EXCLUSIVITIES
A. The Basics of the BPCIA Pathway
While the Hatch-Waxman Act of 1984 established a pathway for generic small molecule drugs, a pathway for “follow-on” biologics did not emerge until 2010. In part, the delay resulted from difficulties associated with applying to most biologics the relatively straightforward analytic processes used for proving bioequivalence between branded and generic small molecules. In contrast to small molecules, biologics are typically large, complex molecules produced by living cells. Slight variations in the manufacturing process can change the quality, safety, or efficacy of the final product. Even for an individual company producing a product, inadvertent changes in processes can lead to product changes from batch to batch. Moreover, these changes may not always be detectable through current techniques for analyzing end products. Thus, at least for some biologics, the “product is the process” (Jeske et al. 2013).
Notably, however, unlike the end products themselves, manufacturing processes are often closely guarded trade secrets. Absent access to this originator trade secret information (an issue the BPCIA does not address), showing similarity to the originator biologic may be a complex, relatively expensive undertaking for which the U.S. Food and Drug Administration (FDA) will require preclinical and clinical studies.
These real-world divergences are reflected in legislative differences. Under Hatch-Waxman’s single pathway, the generic manufacturer needs to demonstrate the same chemical structure and bioavailability as the originator drug. In contrast, the BPCIA sets up two different pathways. A biologic can be approved as “biosimilar” if it is “highly similar to the reference product, notwithstanding minor differences in clinically inactive components” and “there are no clinically meaningful differences between the biological product and the reference product in terms of the safety, purity, and potency of the product” (42 USC § 262(i)(2)). A biologic is deemed “interchangeable” if it meets the standards of biosimilarity and also shows that it “can be expected to produce the same clinical result as the reference product in any given patient” and “the risk in terms of safety or diminished efficacy of alternating or switching between use of the biological product and the reference product is not greater than the risk of using the reference product without such alternation or switch” (42 USC § 262(k)(4)(B)). While a biosimilar product can be marketed, only an interchangeable product can be subject to the automatic generic substitution that is routine with small molecules—that is, supplied by a pharmacy without approval from the prescribing physician (42 USC § 262(i)(3)).
B. BPCIA Exclusivities, and the Comparison to Hatch-Waxman
As with other patented inventions, the patent term for biologics runs for twenty years from the time of filing. Biologics also benefit from a provision similar to that found in the Hatch-Waxman statute, which provides for patent term extension based on any patent term lost while the product is going through during FDA approval. As many as five years of patent life can be restored, up to a maximum of fourteen years of patent life from the product’s FDA approval date.
Additionally, the BPCIA provides a twelve-year statutory exclusivity that begins after FDA approval. In contrast, the Hatch-Waxman statute provides five years of exclusivity. Controversy persists over whether the BPCIA’s twelve-year exclusivity is a market exclusivity or a data exclusivity (Gitter 2013). If it is a data exclusivity (as generally argued by originator firms), then a follow-on competitor cannot rely during the relevant period on the originator firm’s preclinical and clinical data. If it is a market exclusivity, the follow-on firm may rely upon the data during the twelve-year period but may not market it until the twelve years have expired. In either event, the twelve years provided by the BPCIA substantially exceeds the five years of data exclusivity available to small molecules.
The BPCIA’s intricate provisions for exchanging patent information also raise possible barriers to competition. In ongoing litigation discussed further below, one district court has held that before FDA approval, follow-on manufacturers must follow this system in order to secure a judicial determination regarding the validity and scope of originator patents. This court has also held that under the terms of the BPCIA commercial marketing cannot begin until 180 days after FDA approval. If these conclusions are sustained on appeal to the Court of Appeals for the Federal Circuit (which hears all appeals in patent cases), the result will be additional protection against competition even after data exclusivities have expired and FDA approval has been attained.
The patent information exchange system established by the BPCIA, sometimes called the “patent dance,” runs as follows. Within twenty days after the FDA publishes a notice that a follow-on application has been accepted for review, the follow-on applicant must disclose the contents of this application to the originator. Within sixty days, the brand-name patent holder must then identify patents it believes it could assert against the follow-on manufacturer. Next, the follow-on applicant has sixty days to state, with respect to each patent, whether it will wait to market its product until after patent expiry or whether it believes the patent is invalid or would not be infringed. If the follow-on applicant makes arguments regarding validity or infringement, the brand name must respond within sixty days (42 USC § 262(l)(b)(2)-(3)).
Following this exchange of views on patents, the parties are required to engage in good-faith negotiations for up to fifteen days on which patents will be the subject of a patent suit. If the parties reach agreement, the brand name must bring a patent infringement action in thirty days. If there is no agreement, the follow-on applicant must notify the brand name of the number (but not the identity) of the patents it wants to litigate. The parties then have five days to exchange a list of patents to be litigated. The number of patents on each list identified by the brand name may not exceed the number identified by the follow-on, except that if the follow-on application identifies no patents, then the brand name may identify one. The brand-name firm must then commence patent infringement litigation within thirty days (42 USC § 262(b)(l)(4)-(6)).
The BPCIA also requires the follow-on applicant to give the brand name “notice of commercial marketing” at least 180 days before such marketing commences. After receiving this notice, the brand name may seek a preliminary injunction based on any patent that had previously been identified but that was not subject to initial litigation (42 USC § 262(b)(8)(A)(B)). The BPCIA precludes declaratory judgment actions on patents identified as relevant by either party in the “patent dance” after the follow-on application has been filed but before the notice of commercial marketing (42 USC § 262(b)(9)(A)).
For purposes of precluding declaratory judgments, and for determining when a drug can be marketed, the issue of how early “notice of commercial marketing” can occur is critical. Indeed, it is already the subject of litigation. In the 2013 case Sandoz, Inc. v. Amgen, Inc. et al., the district court held that because the BPCIA’s “notice of commercial marketing” provision specifically refers to a follow-on biological product “licensed” by FDA, FDA must have already approved the application before “notice of commercial marketing” can occur. Through this decision, which has been appealed to the Federal Circuit, the district court established an additional 180-day period after FDA approval during which the follow-on cannot market. The district court also interpreted the BPCIA as precluding any declaratory judgment actions before FDA approval, thereby establishing the patent dance, and accompanying infringement action, as the only acceptable procedure for going to court before FDA approval.
III. EVALUATING THE EXCLUSIVITIES
The twelve-year statutory exclusivity period available for biologics is obviously much longer than the five-year statutory period available for small molecules. Supporters of this longer exclusivity have argued that it is justified by the weaker protection that patents purportedly offer. For example, in the run-up to passage of the BPCIA, the Biotechnology Industry Organization (BIO) focused on the allegedly narrower scope afforded to patents on biological macromolecules relative to patents on other products (BIO 2008).
Historically, it did appear that the so-called written description requirement, which regulates patent scope, might apply with greater vigor to the biopharmaceutical industry than to other industries. However, a 2010 en banc decision by the Federal Circuit makes it clear that the written description requirement not only applies to all technologies but also that it is perhaps less stringent than originally estimated (Ariad v. Eli Lilly 2010). Moreover, since at least 2004, it has been clear that the written description requirement applies to both small and large molecules, and thus small molecule patents also have narrow scope (University of Rochester v. Pfizer 2004). Indeed, scope can be so narrow that noninfringing “me-too” products that work by the same biological mechanism as the first-in-class patent are often able to enter a few years after first-in-class entry.
Other arguments about biologics patents also apply equally to small molecule patents. For example, the nonobviousness requirement may not comport well with the reality of how biologics are commercialized. Specifically, the fact that it may be obvious to show that a biological molecule has efficacy in preclinical models may say nothing about whether a patent is nonetheless to spur the further innovation necessary to show safety and efficacy in humans, as required by the FDA (Benjamin and Rai 2007). However, this is hardly a problem unique to macromolecules; it applies as well to small molecules (Roin 2009).
Similarly, both small molecules and biologics are affected by the Supreme Court’s recent jurisprudence on what constitutes subject matter eligible for patenting (Rai 2013). In several cases, the Supreme Court has indicated that molecules claimed by patents must represent more than a mere “product of nature.” Although the Court’s guidance on the level of additional transformation required has been less than clear, the rulings clearly implicate all molecules derived from nature.
Another potential problem with patents is that they guarantee exclusivity from the date the patent is granted, not from the date the biologic is approved. Because firms usually seek their “primary” patent on a biologic when they begin clinical trials, products that spend many years in the FDA approval process may enjoy less patent life than products with shorter clinical trial times. Moreover, although the BPCIA (like Hatch-Waxman before it) provides for patent term extension based upon patent period lost during regulatory review, this extension is capped at five years. Again, however, this argument applies to small molecules as well as biologics.
In support of its argument for longer statutory exclusivity, the biotechnology industry also cited a number of studies that relied on the proposition that biologics development takes longer than small molecule development and is also more costly. For example, using numbers such as a $1.24 billion cost for bringing a biologic to market, a series of studies from Duke University calculated that a brand name biologic needed at least thirteen years of exclusivity to recoup R&D costs (Grabowski 2009, Grabowski et al. 2011). However, the assumptions behind these studies have been contested (FTC 2009).
Moreover, unlike generic manufacturers of small molecules, follow-on biologics manufacturers will, in most cases, have to undertake preclinical and clinical trials to show their product is biosimilar. Trial requirements to show interchangeability are likely to be even more onerous. Some analysts have estimated trial costs, particularly for complex biologics, may escalate to as much $100 or $150 million. Additionally, as the Grabowski and Lietzan contribution to this volume notes, the cost of building or leasing appropriate manufacturing facilities could be even higher. In comparison, the cost of completing bioequivalence studies for a small molecule may be as low as $1–2 million (Grabowski et al. 2011).
Because of this significant barrier to entry, true generic competition in biologics will, at least for the foreseeable future, be difficult to achieve. Instead, as a prominent Federal Trade Commission (FTC) report that analyzed the issue concluded, competition from biosimilars and even interchangeables may resemble competition between branded biologics (FTC 2009). With two or three biosimilar entrants, prices may decrease by 10–30 percent.
Notably, although comparisons across jurisdictions have familiar limitations, data from the European Union do bolster the FTC’s case. The European Medicines Agency started allowing biosimilars in 2006. Since that time, European countries have seen only modest price reductions for biosimilars when compared to the reference product (25–30 percent reduction in price) (Engelberg 2009).
If anything, originator biologics firms are likely to be better situated, and hence need less government-granted exclusivity, than originator small molecule firms. The seven-year difference in exclusivity is likely to further bias firms in favor of biologics development, even where the health benefit from the biologic is not as large as that from the small molecule.
Notably, in the European Union, branded biologics and small molecules are both granted ten years of exclusivity (eight years of data exclusivity and an additional two years of market exclusivity). While perhaps difficult to achieve as a political matter, a rebalancing of U.S. exclusivities along the lines of the European model would be normatively desirable.
As noted, the BPCIA departs substantially from Hatch-Waxman not only in its approach to statutory exclusivity but also in the manner in which it addresses resolution of patent disputes. In the case of Hatch-Waxman, the patent holder is allowed an automatic thirty-month stay of FDA marketing approval merely by asserting in litigation a patent it had previously listed on the FDA’s Orange Book as purportedly claiming its drug (or a method of using the drug). In other words, the originator patent holder secures the equivalent of a preliminary injunction without showing any likelihood of success on the merits with respect to either validity or infringement. Given the well-known limitations faced by the U.S. Patent and Trademark Office (USPTO) in its initial examination of patent applications (Rai 2013), patent validity is by no means clear. Additionally, because FDA disavows evaluating in any manner whether the patents put on the Orange Book are properly listed under the relevant statutory provision (21 USC § 355(c) (2)), and because certain patents can be “invented around,” infringement may also be in doubt. In general, when generic firms do challenge patents other than the “primary” molecule patent, they fare well on questions of invalidity and/or noninfringement (Hemphill and Sampat 2013).
Generic challenges are by no means guaranteed, however. To the contrary, the mechanism Hatch-Waxman sets up for challenging patents placed on the Orange Book creates opportunities for the branded and generic firm to collude. The first generic filer to allege invalidity or noninfringement of an Orange Book patent secures a 180-day exclusivity period. Although this exclusivity is intended to act as an incentive for generics to challenge dubious patents, the generic challenger does not actually have to win the suit to secure exclusivity. Rather, even if the first challenger settles the lawsuit and delays entry, the exclusivity not only fails to transfer to a second challenger but is forfeited by the first challenger only seventy-five days after a second challenger succeeds in showing the patent is invalid or not infringed.
The consequence of this peculiar structure has been so-called “reverse payment” settlements. In these settlements, the originator can often use a single payment to the first, most advantaged, challenger to buy protection against all challengers.
Following a 2013 Supreme Court decision, FTC v. Actavis, these reverse payment settlements will now receive scrutiny as a matter of antitrust law. However, because the Court rejected not only per se rules but also a quick look rule of reason, precisely how different settlements will fare is quite unclear. Given errors in the judicial process, a small reverse payment that is above litigation costs but still represents a high level of confidence in the patent could be seen as legitimate.
More importantly, antitrust is being deployed to address a problem that would be addressed more directly by fixing Hatch-Waxman itself. For example, Congress could establish an administrative apparatus, perhaps involving both the FDA and the PTO, to adjudicate the validity and scope of all Orange Book patents (Rai 2012). Alternatively, if the 180-day exclusivity accrued only to generics that succeeded in challenging patents or otherwise made it to market without securing a reverse payment, reverse payment settlements would be less attractive (Hemphill and Lemley 2011). In that circumstance, the originator could be less likely to buy patent peace simply by settling with the first challenger. Unfortunately, neither Congress nor the relevant agencies appears inclined toward such these changes.
As contrasted with Hatch-Waxman, the BPCIA may set up fewer obvious opportunities for strategic behavior that would delay or otherwise limit follow-on competition. Most obviously, the BPCIA contains no provisions for automatic injunctive relief based on questionable Orange Book listings or for a 180-day exclusivity that can be parked by a settling defendant.
Moreover, contrary to the district court’s decision in Sandoz v. Amgen, nothing in the statute precludes a follow-on manufacturer from filing a declaratory judgment action before it files an FDA application. Although the follow-on manufacturer that seeks declaratory judgment before filing with the FDA may be unable to satisfy Article III standing requirements, standing issues can arise in any declaratory judgment suit. The district court’s view that the follow-on manufacturer cannot provide notice of commercial marketing until it has secured FDA approval, such that it then has to wait another 180 days before it actually begins marketing, also appears misplaced. Nothing in the BPCIA’s structure suggests that Congress wanted an additional half-year of exclusivity even after FDA approval had been secured and all other exclusivities had expired.
That said, the BPCIA is hardly a model of clear drafting. At least in part, the BPCIA’s problems may be a consequence of the fact that the legislation passed as part of the Affordable Care Act (ACA). The Obama administration apparently wanted significant changes to the version of the BPCIA that had passed the Senate in December 2009. However, the threat of a Senate filibuster that emerged after the January 19, 2010, election of Republican Senator Scott Brown to fill the seat left open by Democratic Senator Edward Kennedy’s death in 2009 sharply limited possibilities to amend the ACA, and the December 2009 version was enacted into law (Carver et al. 2010).
The problem of bad drafting is particularly acute with respect to declaratory judgment actions arising after an application for FDA approval has been filed but before approval has been granted. One could persuasively argue that because notice of commercial filing can occur before FDA approval, and because the statutory language does not prohibit declaratory judgment actions after notice of commercial filing, declaratory judgment actions before FDA approval are permissible. However, because the BPCIA does make it clear that originator and follow-on firms must engage in the patent dance after an FDA application has been filed, this interpretation sets up a system in which declaratory judgment filings will occur simultaneously with the patent dance. Such parallel proceedings will exacerbate possibilities for strategic behavior in determining which patents are brought to the dance.
In setting up the patent dance, Congress was attempting to promote patent dispute resolution ex ante so that follow-on manufacturers did not have to launch “at risk” of significant infringement liability. Whether the patent dance is necessary for achieving this goal is unclear, however. The relatively liberal approach toward standing in patent-related declaratory judgment actions that the Supreme Court took in its 2007 Medimmune v. Genentech decision represents a signal that the Court understands the need for competitors to achieve patent clarity without incurring infringement liability. Given the Supreme Court’s approach, it seems entirely possible that follow-on manufacturers who have filed applications for FDA approval will have standing to challenge originator patents.
The BPCIA could also have done more to ensure that patent dances do not become opportunities for collusion. For example, Congress might have required greater supervision of the patent dance by a regulatory authority. Indeed, it might even have required the FDA and PTO to cooperate in making some initial determinations with respect to the validity and scope of asserted patents.
As a practical matter, given the many uncertainties that continue to surround the BPCIA, follow-on manufacturers might seriously consider the new post-grant administrative proceedings now available at the newly created PTO Patent Trial and Appeals Board under the America Invents Act of 2011. Through these new proceedings, which should not be affected by how courts interpret the BPCIA, follow-on manufacturers can secure an expert, trial-type evaluation of patent validity questions. The most relevant proceeding is likely inter partes review, which allows anyone to challenge a patent on grounds of lack of novelty or obviousness and is available throughout the life of the patent (Rai 2013). If this expert valuation cancels relevant claims of a patent, and this cancellation is affirmed by the Court of Appeals for the Federal Circuit, no further litigation with respect to those claims should be necessary.
Additionally, as case law evolves with respect to the Article III standing of follow-on manufacturers to file declaratory judgment actions, Congress should watch this law closely. As noted, a robust standing doctrine would obviate the need for the patent dance.
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