There is tension between drug innovation and affordability. Patients need new drugs. They need them to treat cancer, AIDS, Alzheimer’s disease, diabetes, hypertension, inflammation, gastrointestinal disease, and countless other ailments. And, they depend on drug companies to meet this need—to innovate. Drug innovation is a feat accomplished only at great cost and risk. For an innovator company, the reward for doing so must justify the risk. A company will develop a drug if, and only if, it believes it can recoup its development costs and earn a profit. Earning a profit in this way is hard under the best of circumstances. It would be even harder absent a block of time during which to sell its new drug at a high price before generic competition forces that price to drop. So, patients need new drugs, and they rely on the innovative—and costly—feats of drug companies to meet that need. These same patients, meanwhile, also need their drugs to be affordable as soon as possible.
Therein lies the tension: between the innovator company’s need for an economically sound way to combat disease and the patient’s need for affordable drugs.
This chapter describes the generic drug industry, the Hatch–Waxman Act that helped create it, and the key ways in which the act addresses the tension between the need for affordable drugs and the realities of their innovation in the first place.
Generic drugs and biosimilars address the same tension between drug innovation and cost. Despite this common purpose, and as noted in chapter 14, the generic and biosimilar regimes stem from different laws, and they operate differently to yield different outcomes. Biosimilar drugs are therefore the subject of the next chapter.
To generalize, there have been two generic drug eras in this country. One ended, and the other began, with the Hatch–Waxman Act’s passage in 1984.
The first era saw developments vital to drug approval in the United States. For example, before 1962, a new innovator drug merely had to be safe. Starting that year, though, it had to be both safe and effective. In 1978, the “paper NDA” became a way to introduce generic versions of innovator drugs that were approved after 1962. Still, paper-NDA approval of a generic depended on the availability of scientific publications showing that the corresponding innovator drug was safe and effective.
So, between 1962 and 1984, a company wishing to market an innovator drug had to test it for safety and efficacy. Importantly, this testing included any clinical trials that the FDA deemed necessary at the time. Ensuring the safety and efficacy of a new drug in this way was considered fair and appropriate, as it is today.
During that period, though, generic competitors faced many obstacles. For instance, absent scientific publications showing the safety and efficacy of an innovator drug approved after 1962, a generic competitor had to perform its own safety and efficacy tests, and even its own clinical tests when warranted. This burden existed even though the generic and innovator drugs shared the same active ingredient, strength, administration route, and dosage form and even though they were bioequivalent. This experimental hurdle frustrated generic drug development.
There were two more problems: one affecting innovator companies and the other affecting generic companies.
As we learned in chapter 14, developing an innovator drug consumes an inordinate amount of time. It is not uncommon for the FDA to approve a drug more than a decade after it has been patented. A drug’s development and approval process therefore consumes patent term. This was true before 1984, and it is today. Back then, though, there was no way to lengthen a drug patent’s term to compensate for time consumed by drug development and approval. With only limited exception, there was no available nonpatent exclusivity to remedy this situation. Consequently, innovator companies with newly approved drugs were often left with patents the remaining terms of which were eroded and thus woefully inadequate.
Even with its term eroded, though, an innovator drug patent could still block a generic drug company from timely competing with the innovator company. For economic reasons, it was prudent, and still is, for a generic competitor to market its product immediately upon expiry of the corresponding innovator drug patents. For that to happen, the generic company needs to prepare well in advance. For example, it would need to prepare sufficient amounts of the drug, test its quality, and perform any required safety and efficacy tests. Before 1984, these activities—which constituted making and using a patented drug—infringed the corresponding innovator drug patents. This left the generic competitor without a noninfringing way to produce and test its product, even though no generic drug sale prior to patent expiry was contemplated. This, in turn, meant that a generic competitor had to wait until patent expiry before even preparing to market its product. It also meant that in this scenario, an innovator drug patent provided de facto exclusivity lasting beyond its expiration date.
By the end of this first generic drug era, patent-term erosion hobbled the ability of innovator companies to recoup development costs and enjoy the fruits of their labor. Meanwhile, generic competitors could not launch their products immediately upon innovator drug patent expiry. Innovator and generic companies suffered. Patients did too.
Congress took a quantum step toward easing this suffering by passing the Drug Price Competition and Patent Term Restoration Act, informally known as the Hatch–Waxman Act, Waxman–Hatch Act, or Hatch–Waxman Amendments. The act ushered in a new and thriving era for generic drugs; that is, drugs that are essentially replicas of their brand-name counterparts. In it, a generic drug’s price can be a mere 10 percent of what its counterpart’s price was before generic entry, while drug innovation is duly rewarded and proceeds apace.
The Hatch–Waxman Act was designed to balance the need for drug innovation with the need for drug affordability. In essence, the act does two things. It rewards innovator companies through regulatory exclusivity and patent-term extension. It also rewards generic companies through abbreviated drug approval pathways, a mechanism to challenge an innovator’s blocking patents, an incentive to use this mechanism, and exemption from infringement liability while preparing to market generic products. These rewards for generic companies also benefit competing innovator companies, as will be discussed.
To be sure, the Hatch–Waxman Act is complex. It is also a work in progress. Congress has already amended it, and federal litigation at every level continues to shape its contours. Yet, the act has saved billions of dollars for consumers, health care providers, and the government.
We discuss the act’s key provisions next, along with related laws and strategies.
Developing a new drug is a Herculean achievement. A new drug is the fruit of time, money, skill, and sweat, all expended at risk to the innovator. When the FDA approves an NDA, it grants the drug maker the right to market the approved drug. This right, by itself, can be worth billions of dollars.
Thanks to the Hatch–Waxman Act, the U.S. government—acting through the FDA and Patent Office—does even more to reward the successful NDA applicant.
First, the act mitigates innovator patent-term erosion by allowing patent-term extension. As we learned in chapter 6, the Patent Office can extend the term of a patent claiming an innovator drug or a method of making or using it. This patent-term extension can be up to five years, provided that the extended term does not exceed fourteen years from the FDA approval date. Calculating the extension employs a complex formula that accounts for time consumed by the regulatory approval process.
The Hatch–Waxman Act also grants new regulatory exclusivities to innovators. These exclusivities do two related things. First, they assure a successful NDA applicant that the FDA will not approve a competing generic drug product until after a fixed period of time has passed. This is known as market exclusivity. Second, they assure the NDA holder that the FDA will not accept a generic competitor’s approval application or otherwise let a generic competitor rely on the innovator’s drug data (or reference listed drug data) until after a fixed period. This is known as data exclusivity. We use the terms exclusivity, regulatory exclusivity, and market exclusivity synonymously here, unless stated otherwise.
A regulatory exclusivity is a legal monopoly. As such, it gives its holder a powerful economic advantage. A regulatory exclusivity functions differently from a patent right. Importantly, the grant and duration of a regulatory exclusivity for an innovator drug do not depend on the presence or absence of patent protection for that drug. There is interplay, though, between these two protections, and we discuss that interplay later in this chapter.
Depending on the facts, an NDA holder may be eligible for one or more types of market exclusivity.
The first type of market exclusivity is new chemical entity (NCE) exclusivity, a product of the Hatch–Waxman Act. NCE exclusivity rewards the developer of a new therapeutic molecule not already approved by the FDA. NCE exclusivity lasts five years. This five-year market exclusivity means that the FDA will not approve a competing generic product for sale in the United States during the first five years after NDA approval. The first four years of NCE exclusivity provide data exclusivity for the NDA holder. This means that during the first four years after NDA approval, the FDA will not accept a generic competitor’s approval application or otherwise let a generic competitor rely on the reference drug data. Again, NCE exclusivity functions independently of whether the NDA holder also has patent protection for the approved drug or its use.
Company X makes and sells small-molecule drugs for treating diabetes.
The company’s type 2 diabetes drug candidate, CX1, is a small-molecule dipeptidyl peptidase-4 inhibitor. Company X wishes to market CX1 in the United States. Toward that end, it files with the FDA an NDA for a once-daily 25 mg CX1 tablet formulation for treating type 2 diabetes.
The FDA approves Company X’s NDA. Since CX1 is a new molecule and the FDA has not previously approved it, NCE exclusivity attaches. This means that during the first five years after NDA approval, and independent of Company X’s patent protection for CX1, the FDA will not approve any generic product containing CX1—regardless of indication, strength, or dosage form.
For instance, assume that the FDA approves Company X’s NDA on June 1, 2023, and NCE exclusivity attaches. This exclusivity will last until June 1, 2028.
Before June 1, 2028, the FDA will not approve any competing generic product containing CX1. This exclusivity of course precludes FDA marketing approval for all generic once-daily 25 mg CX1 tablet formulations for treating type 2 diabetes. It also encompasses generic CX1 products for treating diseases other than type 2 diabetes. It further encompasses all CX1 dosage forms, such as intravenous and topical formulations, and all CX1 strengths, such as 50 mg and 100 mg.
Again, NCE exclusivity will expire June 1, 2028. Absent other applicable regulatory and patent exclusivities, the FDA will thereafter be free to approve all generic CX1-containing products, independent of indication, dosage form, and strength. (Note: NCE exclusivity has no effect against competing innovator products. So, Company X’s NCE exclusivity would not block the FDA from approving a competitor’s §505(b)(1) NDA for a CX1-containing product, even one identical to Company X’s product.)
The second exclusivity is known as clinical investigation (CI) exclusivity, other significant changes exclusivity, or simply other exclusivity. Also a product of the Hatch–Waxman Act, CI exclusivity lasts three years. Instead of rewarding the development of a new active molecule, it rewards the development of a drug product that contains an already-approved active but that differs in a material way. CI exclusivity rewards the developer of a new indication or dosage form, for example, arrived at via new clinical tests. Like NCE exclusivity, CI exclusivity is independent of whether the NDA holder also has patent protection for the approved drug or its use.
EXAMPLE 15.2
Company X also develops a once-weekly 100 mg CX1 tablet formulation for treating type 2 diabetes. After clinically testing this new formulation, Company X files an NDA for it.
The FDA approves the NDA. Thus, Company X may now sell its 100 mg CX1 tablet in the United States for treating type 2 diabetes, as it may for its already approved 25 mg CX1 tablet. Since the FDA has already approved CX1, and CX1 is the sole active in the newly approved tablet, CI exclusivity attaches. During the first three years after NDA approval, the FDA will not approve a generic once-weekly 100 mg CX1 tablet formulation. This exclusivity will remain in force for three years, whether or not the preceding NCE exclusivity expires first. Unlike NCE exclusivity, however, CI exclusivity does not preclude the FDA from approving a generic product for treating a different indication or having a different strength or dosage form.
For instance, assume that the FDA approves Company X’s second NDA on June 1, 2027, four years after granting the company its first NDA. CI exclusivity attaches. This exclusivity will expire on June 1, 2030, two years after NCE exclusivity expires.
Before June 1, 2030, the FDA will not approve any competing generic once-weekly 100 mg CX1 tablet formulation for treating type 2 diabetes. However, once NCE exclusivity expires on June 1, 2028, the FDA may approve generic CX1 products for other indications, strengths, or dosage forms.
Again, CI exclusivity will expire June 1, 2030. Absent other applicable regulatory and patent exclusivities, the FDA will thereafter be free to approve all generic CX1-containing products, independent of indication, dosage form, and strength. (Note: As with NCE exclusivity, CI exclusivity is also of no effect against competing innovator products.)
The Orphan Drug Act predates the Hatch–Waxman Act by one year. It created orphan drug exclusivity, which lasts seven years. This exclusivity rewards the development of a drug to treat an orphan, or rare, disorder such as one afflicting fewer than two hundred thousand people in the United States. It provides incentive to aid patient populations that might otherwise be underserved owing to low profit motive among innovator companies. Like NCE and CI exclusivities, orphan drug exclusivity is independent of whether the NDA holder also has patent protection for the approved drug or its use.
EXAMPLE 15.3
As in example 15.1, Company X wishes to market a once-daily 25 mg CX1 tablet formulation in the United States.
Unfortunately, preliminary clinical tests show that CX1 is not effective for treating type 2 diabetes. So, instead, Company X clinically tests its CX1 tablet on patients with diabetes Form X, which afflicts fewer than fifty thousand Americans. The FDA designates diabetes Form X an orphan disease. After showing that the tablet is safe and effective for treating diabetes Form X, the company files an NDA under the §505(b)(1) pathway.
The FDA approves the NDA. Company X may now sell its CX1 tablet in the United States for treating diabetes Form X.
Even though CX1 is a new active molecule and would be entitled to NCE exclusivity independent of orphan drug status, orphan drug exclusivity still attaches. For the next seven years, and barring certain exceptions, the FDA will not approve any generic or innovator application for a CX1 product to treat diabetes Form X. (Note: The §505(b)(2) pathway is also important for the orphan drug market. It can provide relatively quick and cost-effective approval for a drug already approved for another indication.)
Finally, pediatric exclusivity rewards additional clinical testing of a drug on children. The Food and Drug Administration Modernization Act of 1997 created this exclusivity, which lasts six months.
Pediatric exclusivity is unlike NCE, CI, and orphan drug exclusivity. For example, pediatric exclusivity is an add-on to existing regulatory and patent exclusivity. This means that it adds six months to an existing regulatory exclusivity and to an existing patent term. Pediatric exclusivity is not a stand-alone exclusivity like the other three. In addition, it is a written request by the FDA that triggers the supporting pediatric studies.
EXAMPLE 15.4
That is, Company X files an NDA for a once-daily 25 mg CX1 tablet formulation for treating type 2 diabetes.
Before approving the NDA, however, the FDA determines that information relating to pediatric CX1 use may produce health benefits for pediatric patients with type 2 diabetes. Accordingly, the FDA issues a written request to Company X for pediatric studies of its CX1 product and provides an appropriate time frame for completing them. In response, Company X timely completes the studies and submits a report to the FDA satisfying all relevant requirements.
The FDA approves Company X’s NDA. Since CX1 is a new molecule and the FDA has not previously approved it, NCE exclusivity attaches. Now, though, pediatric exclusivity also attaches. This means that during the first five years and six months after NDA approval, the FDA will not approve any generic product containing CX1—regardless of indication, strength, or dosage form. Company X’s pediatric exclusivity has lengthened its NCE exclusivity by six months.
Regulatory exclusivity can protect a drug. So can a patent. Yet, these two forms of protection differ radically, especially regarding duration. A patent’s term far exceeds even the longest regulatory exclusivity. A patent expires twenty years from its earliest-claimed nonprovisional priority date, and later if its term has been extended or adjusted. Even at seven years’ duration, the term of orphan drug exclusivity pales in comparison. Still, patent protection and regulatory exclusivities often overlap owing to the sequence of events typical of innovator drug development and approval. Sometimes, regulatory exclusivity ends first. Other times not.
EXAMPLE 15.5
On June 1, 2015, scientists at Company X invent a small molecule, CXA, having potential as an anticancer agent. Ten months later, these scientists discover that CXA has anti-osteosarcoma activity as measured in cell-based assays. Company X begins preclinical testing of CXA.
Meanwhile, on June 1, 2016, Company X files a U.S. provisional patent application claiming CXA and related therapeutic compositions and methods. Company X then files a PCT application on June 1, 2017, claiming priority of the provisional application. On December 1, 2018, Company X enters the PCT national stage in the United States, among other countries, where substantive examination begins.
A U.S. patent claiming CXA issues on June 1, 2021. As we know, since the earliest claimed nonprovisional priority date for the U.S. patent is June 1, 2017, the patent will expire twenty years after that date, on June 1, 2037, absent lengthening or shortening of its term.
After a hiatus in Company X’s osteosarcoma drug development efforts, the company finishes preclinically testing CXA. On June 1, 2025, it files an IND for an intravenous CXA formulation for treating osteosarcoma in adult patients. Company X begins clinical testing shortly thereafter.
On December 1, 2031, Company X files an NDA for its CXA formulation. Before approving the NDA, however, the FDA issues a written request to Company X for pediatric studies of its CXA product. In response, Company X timely completes the studies and submits a report to the FDA satisfying all relevant requirements.
The FDA approves Company X’s NDA on December 1, 2032. Since CXA is a new molecule and the FDA has not previously approved it, NCE exclusivity attaches. Pediatric exclusivity also attaches. Without pediatric exclusivity, NCE exclusivity would expire five years after NDA approval, on December 1, 2037, six months after patent expiry. Pediatric exclusivity effectively extends NCE exclusivity by six months to June 1, 2038. Of course, with pediatric exclusivity, Company X’s patent now expires on December 1, 2037.
EXAMPLE 15.6
Now, however, Company X obtains a five-year patent-term extension based on the specific facts of CXA’s regulatory approval process. It does so on January 15, 2033, shortly after NDA approval. Without factoring in pediatric exclusivity, the patent would expire on June 1, 2042, rather than June 1, 2037.
Again, pediatric exclusivity attaches to both regulatory exclusivity and patent term. So, factoring in that exclusivity, Company X’s patent now expires on December 1, 2042—well after NCE exclusivity ends, as would have been the case anyway.
EXAMPLE 15.7
Assume the same facts as in example 15.5. Again, Company X’s NCE exclusivity expires on June 1, 2038, because of the added six months of pediatric exclusivity. And its patent expires on December 1, 2037, also due to pediatric exclusivity.
While its patent is still in force, Company X sues Company Y, a chemical company, for patent infringement. In its suit, Company X asserts that Company Y is selling CXA in the United States as a synthetic reagent. Company Y successfully raises an invalidity defense during litigation. On June 1, 2036, the court invalidates the claims of Company X’s patent. From that date onward, Company X cannot assert the patent in court or otherwise use it. In effect, Company X loses the last year of rights its patent would have otherwise provided.
Meanwhile, this invalidity ruling has no effect on Company X’s regulatory exclusivity, which still expires on June 1, 2038.
Every FDA-approved drug product is listed in a public FDA database called “Approved Drug Products with Therapeutic Equivalence Evaluations.” For historical reasons, it is commonly known as the Orange Book. An innovator drug product listed in the Orange Book is known as a reference listed drug (RLD) or an Orange Book–listed drug.
The Orange Book provides key information about RLDs. In relevant part, for each RLD, the Orange Book lists all U.S. patents to the drug per se, its formulations, and its methods for use, as well as each patent’s expiration date. It does not, however, list patents to methods for manufacturing drug products. The Orange Book also lists any unexpired regulatory exclusivity attached to drug products.
The Orange Book is important to the following discussion of abbreviated drug approval pathways.
Creating a robust generic drug industry requires removing obstacles to generic competition. The Hatch–Waxman Act did this, in large part, by creating the Abbreviated New Drug Application (ANDA) approval pathway.
The act also created another widely used abbreviated approval pathway—the §505(b)(2) application already mentioned—to bring new drug products to market without the need for ab initio clinical testing. Although not “generic,” drug products approved under the §505(b)(2) pathway go far in expanding the range of available therapeutics.
The ANDA is a vehicle for quickly bringing to market a generic drug product—again, one that is essentially a replica of an RLD. A generic drug product must share with its RLD the same active ingredient, dosage form, strength, administration route, and labeling. It must also be bioequivalent to the RLD. That is, there must be no significant difference between the generic product and the RLD in terms of the active ingredient’s rate and extent of absorption. A generic drug may differ from the RLD, though, in color, shape, inactive ingredients, and other features that do not affect its therapeutic properties.
In short, a generic drug must be interchangeable with its brand-name counterpart. The two may not differ in safety or efficacy.
Despite this stringent requirement, an ANDA requires no clinical data regarding safety or efficacy. This feature, more than any other, permits generic drugs to reach the market faster, more affordably, and in greater numbers than innovator drugs. An ANDA applicant is able to omit the clinical-testing step because it may instead rely on the corresponding clinical data already submitted to the FDA in support of the RLD’s NDA.
EXAMPLE 15.8
Assume the same facts as in example 15.5. Again, Company X markets its CXA product in the United States under an NDA with NCE exclusivity and patent protection.
Here, it sells its CXA product as a 50 mg dose of lyophilized powder for intravenous administration, in combination with 250 mg of lactose and 5 mg of methylparaben.
Company Y wishes to market a generic version of Company X’s CXA product. Toward that end, scientists at Company Y produce one. It has in it 50 mg of CXA, 250 mg of lactose, and 5 mg of methylparaben, all in the form of a lyophilized powder for intravenous administration.
Upon expiry of Company X’s patent and NCE exclusivity, Company Y files an ANDA for its generic CXA product. In connection with its ANDA, Company Y submits a proposed label identical to that for Company X’s CXA product. It also submits data showing that its product is bioequivalent to Company X’s, as well as other required information. Company Y need not submit its own clinical or preclinical data showing that its generic product is safe and effective. It relies instead on the corresponding clinical data that Company X submitted in support of its NDA. Company Y may do this even though it does not in fact have access to those data.
After reviewing Company Y’s ANDA, the FDA approves it. Company Y may now sell its generic CXA product in the United States. (Note: In this example, Company X’s patent and regulatory exclusivity expire prior to ANDA submission. Later in the chapter, we explore the frequent and important scenario in which a generic competitor submits an ANDA, or a §505(b)(2) application, with the intent of marketing its product before the relevant RLD patents expire.)
At first blush, a discussion of the §505(b)(2) pathway might seem misplaced in a section devoted to rewards for generic competitors. In part, it is. A §505(b)(2) application does not bring a generic drug product to market, in that its subject is not a copy of an approved drug. In larger part, though, it is not. Like the ANDA, the §505(b)(2) application is a creation of the Hatch–Waxman Act and serves its purpose of streamlining the drug approval process. While the ANDA pathway lowers the cost of expensive drugs, the §505(b)(2) pathway broadens the array of available drugs.
The §505(b)(2) application is a hybrid of sorts between an ANDA and a §505(b)(1) application. It is used for a drug product typically having the same active ingredient as an RLD but differing in a material way. For example, a drug company would use the §505(b)(2) pathway for a product differing from the RLD as to form of active ingredient (e.g., a different salt or ester of the approved active), strength or dosing regimen (e.g., a daily 50 mg dose instead of an approved 25 mg twice-daily dose), indication (e.g., Crohn’s disease instead of the approved rheumatoid arthritis indication), or administration route (e.g., an oral route instead of the approved intravenous route). A drug company might also use this pathway for a product that combines two separately approved active ingredients.
A §505(b)(2) filer must submit enough new clinical data to establish the new product’s safety and efficacy. However, the filer may still rely on data supporting the FDA’s findings of safety and efficacy for the RLD. This reliance on existing data dramatically reduces the time required to bring a new product to market.
Depending on the facts, a §505(b)(2) filer may qualify for regulatory exclusivity, which rewards the clinical testing and incremental innovation required for approval. The type of exclusivity available depends on the differences between the new drug product and the RLD. For example, a §505(b)(2) filer might receive three-year CI exclusivity for a new once-daily capsule formulation of an active ingredient already approved in a twice-daily capsule. A filer might also receive five-year NCE exclusivity for a new product containing a non-ester, covalently modified prodrug version of an approved active ingredient. Once again, any regulatory exclusivity for which a §505(b)(2) filer qualifies would be independent of whatever patent protection the filer may hold regarding the new drug product.
EXAMPLE 15.9
Company Y now wishes to market an improved version of Company X’s CXA product. Toward that end, scientists at Company Y develop a tablet formulation for orally administering CXA in doses of 10–20 mg daily for a five-day course, to be repeated three to five times as required.
After expiry of Company X’s patent and NCE exclusivity, Company Y files a §505(b)(2) application for its CXA tablet. In connection with its application, Company Y submits its clinical data showing the tablet’s safety and efficacy for treating osteosarcoma in humans. It also submits other required information. Importantly, Company Y relies on the clinical data that Company X submitted in support of its NDA for the approved intravenous CXA formulation. Company Y may do this even if it lacks access to those data.
The FDA approves Company Y’s §505(b)(2) application. Company Y may now sell its CXA tablet in the United States.
As we know, if an RLD is protected by regulatory exclusivity, the FDA will not approve a competitor’s ANDA or §505(b)(2) application. The competitor must simply wait for the exclusivity to expire before approval can happen.
Not so with patents.
If an RLD is protected only by a patent to the drug per se or to its methods of use, an ANDA or §505(b)(2) applicant has two options. The first is to wait until the patent expires before entering the market. The second and more colorful option is to challenge the patent before it expires in order to enter the market sooner.
In addition to listing each RLD, the Orange Book also lists each patent to the drug per se and its methods of use. Regardless of whether an ANDA or §505(b)(2) applicant wants to challenge an RLD’s patents, it must make a patent certification. Specifically, the applicant must make a certification under one of four statutory paragraphs: Paragraph I, Paragraph II, Paragraph III, or Paragraph IV.
A Paragraph I certification is appropriate when the Orange Book lists no relevant patents for the RLD. A Paragraph II certification is appropriate when the Orange Book lists only patents for the RLD that have already expired. If the Orange Book lists any unexpired patents for the RLD, and the applicant does not seek to market its product before the patents expire, then it must file a Paragraph III certification stating the dates on which the patents will expire. A certification under any of Paragraphs I–III is a mere formality without substance or contest.
A Paragraph IV certification is another matter. It is this certification that the ANDA or §505(b)(2) applicant must make if it wishes to enter the market before expiry of an Orange Book–listed patent for the RLD. Here, the applicant must attack the patent, evade it, or both. For each Orange Book–listed patent to which neither Paragraph II nor III applies, the applicant must certify at least one of three things. Namely, the applicant must certify that the patent is invalid, unenforceable, or would not be infringed by the new drug’s manufacture, use, or sale. This cannot be a bald assertion. A detailed statement of fact and law must support a Paragraph IV certification.
Filing a Paragraph IV certification is an act of patent infringement. This is so even though the ANDA or §505(b)(2) applicant has not actually made, used, or sold the RLD. Accordingly, this certification can trigger what is known as Hatch–Waxman litigation or ANDA litigation.
EXAMPLE 15.10
Assume the same facts as in example 15.9. Again, Company Y wishes to market a CXA tablet formulation that it has developed and clinically tested.
The Orange Book lists Company X’s CXA product. In this example, however, it also lists Company X’s two unexpired U.S. patents: Patent A and Patent B. Patent A, the term of which was extended by five years, claims CXA per se. Patent B claims a method for treating osteosarcoma in humans by intravenously administering CXA. All regulatory exclusivity for Company X’s RLD has expired, as the Orange Book states.
Company Y files a §505(b)(2) application for its CXA tablet. It submits its clinical data showing the tablet’s safety and efficacy and submits other required information.
Company Y does not wish to wait for Patents A and B to expire before marketing its CXA tablet. As it must, then, Company Y files a Paragraph IV certification for both patents.
It first certifies that each claim of Patent A is invalid as obvious over the prior art. In support, Company Y makes a legal and factual showing that CXA would have been obvious over the combination of prior-art references 1 and 2. Company Y also certifies that the making, use, and sale of its CXA tablet would not infringe any claim of Patent B, either literally or under the doctrine of equivalents. Company Y provides documents showing the legal and factual bases for its noninfringement position.
Company Y’s Paragraph IV certification is an act of infringement. As such, it can trigger Hatch–Waxman litigation between Companies X and Y. (Note: Later in the chapter, we discuss what can happen after a Paragraph IV certification is filed.)
Let us briefly review two points before discussing this topic. First, we know that for a patent-protected RLD, a generic competitor may enter the market once the RLD’s regulatory exclusivity expires, so long as it can successfully challenge the patents via Paragraph IV certification. A successful challenge can yield considerable profits for the generic company. It can also cost millions of dollars and consume years of time. For some generic companies, the potential profits from a Paragraph IV victory simply don’t justify the necessary cost and commitment. Second, we know that once an RLD’s regulatory exclusivity expires, and patent protection expires or will soon expire, an ANDA applicant can simply certify as much under Paragraph II or III and proceed to market its product without having to litigate the matter.
What, then, of the following common scenario? The FDA approves an innovator drug for a first indication. NCE exclusivity attaches, and patents to the drug per se and methods for using it for the approved indication are in force. The Orange Book lists these accordingly. In due course, the NCE exclusivity and patents expire. The FDA then approves a second indication for the drug. CI exclusivity attaches. Patents covering the second indication are also in force. CI exclusivity expires, but patents to the second indication remain in force. A generic competitor wishes to market the drug for the first indication, since neither the drug nor its first indication is still protected. However, the competitor is averse to litigation and has no desire to seek FDA approval to market the drug for the second, patent-protected indication.
There is a way forward for the ANDA applicant in this situation. The applicant may file what is known as a Section viii statement. In it, the applicant carves out from the ANDA any indication still protected by patent. This results in what is known as a skinny label. The skinny label approach avoids Hatch–Waxman litigation and frees the generic competitor to sell its product for nonpatented uses.
EXAMPLE 15.11
Company X markets its small-molecule drug X1B in the United States under an NDA. The company markets X1B for two indications: pancreatic cancer and liver cancer.
As the Orange Book states, all regulatory exclusivity and patent protection have expired for X1B per se and its use for treating pancreatic cancer. However, Company X holds unexpired patents to methods for treating liver cancer using X1B.
Company Y, a competitor, wishes to market generic X1B for treating pancreatic cancer, but not liver cancer.
Toward this end, Company Y files an ANDA. It does not file a Paragraph IV certification. Rather, in its ANDA, the company carves out the protected liver cancer indication from its proposed label and thus avoids having to litigate the invalidity or noninfringement of Company X’s liver cancer patents.
The FDA approves Company Y’s ANDA. With its skinny label, the company may now market generic X1B in the United States for treating pancreatic cancer, but not for treating liver cancer.
There are two related problems with skinny labels worth noting here. First, entry of a skinny-labeled generic drug into the market can sometimes result in its off-label use. As the name suggests, off-label use occurs when a physician prescribes a drug for an indication not recited on the drug’s label. This, in turn, can result in the use of a skinny-labeled generic drug for the patent-protected indication carved out of that product’s label. Second, courts have found some skinny-labeled generic products to induce infringement of the NDA holder’s patents claiming methods of using the RLD for the carved-out indication. (We learned about inducement to infringe in chapter 9.) The extent to which a skinny label will lead to off-label use, and the chances it will be found to induce infringement, depend on various factors.
As we know, before 1984, an innovator drug company could use its patents to unduly delay generic market entry. It did this by blocking a competitor’s ability to perform FDA-required tests on the competing product until patent expiry. This post-expiry de facto exclusivity was incompatible with a well-functioning generic drug industry.
The Hatch–Waxman Act changed this. It did so by creating a sweeping exemption from infringement. Under the act, and in relevant part, any activity by a generic or other competitor “reasonably related” to developing and submitting information to the FDA is not an act of patent infringement. This means that a competitor’s making and using an innovator’s patented drug to perform testing required for ANDA or §505(b)(2) approval, or §505(b)(1) approval for that matter, is not patent infringement. This exemption is commonly known as the safe harbor provision. The exact scope of safe harbor immunity is still in flux. Yet, courts have construed it to include not only clinical trials but also certain preclinical and post-approval testing.
Once again, filing an ANDA with a Paragraph IV certification is an act of patent infringement. So is filing a Paragraph IV certification with a §505(b)(2) application. As such, under the Hatch–Waxman Act, each of these acts permits the patent holder to sue the applicant.
This is Hatch–Waxman litigation, and it is unlike a typical patent infringement suit. Instead, it is a special amalgam of patent law, regulatory law, and civil procedure. It benefits the innovator company, of course, in that it forces each generic competitor to address patent conflicts before market entry. In cases in which the patents at issue are not infringed or are invalid, it also helps the generic competitor by allowing it to enter the market with this patent fight already behind it.
The following discussion of Hatch–Waxman litigation applies to ANDA and §505(b)(2) application filers alike. However, we refer only to ANDA filers in this subsection for the sake of convenience, and since they constitute the majority of abbreviated filings under the act. Similarly, this discussion of Hatch–Waxman litigation relates both to patentees and NDA holders regarding infringement suits. Since they are commonly the same party, and again for the sake of convenience, we refer to NDA holders and patentees collectively as NDA holders in this subsection.
Once an ANDA applicant files a Paragraph IV certification and notifies the NDA holder, the NDA holder has a choice. It may choose to do nothing while the ANDA filer seeks FDA approval. Or, it may sue the ANDA filer for patent infringement within a brief window of time.
When No Timely Suit Is Filed
If the NDA holder does not timely bring suit, the ANDA filer is free to proceed with its application. Upon FDA approval, it may lawfully sell its generic drug in the United States, at least with the FDA’s blessing.
This is not the end of the story for either party. If the NDA holder does not sue the ANDA filer at this juncture, the NDA holder does not waive its right to sue the ANDA filer for patent infringement later on. It only waives the right to do so prior to market entry of the approved generic drug. The NDA holder remains free to sue the successful ANDA applicant for patent infringement once the generic drug enters the market in the United States. So, in this scenario, the ANDA filer has the option of launching its product at risk of an infringement suit by the NDA holder. Meanwhile, under certain circumstances, the ANDA filer can also bring a declaratory judgment action (covered in chapter 10) against the NDA holder to preemptively assert noninfringement, invalidity, and/or unenforceability against any patents not timely asserted. Since launching at risk exposes the ANDA filer to potential liability for willful infringement, bringing a declaratory judgment action to challenge unasserted patents can be a more palatable option.
When a Timely Suit Is Filed
If, instead, the NDA holder decides to sue, it must do so in federal court within forty-five days after the ANDA filer notifies the NDA holder of its Paragraph IV certification. When this happens, Hatch–Waxman litigation begins. So that the court can resolve the substantive patent issues before the FDA must take further steps, the NDA holder receives a thirty-month stay. This stay prevents the FDA from approving the ANDA until the earlier of thirty months or a successful litigation outcome by the ANDA filer. If Hatch–Waxman litigation begins before NCE exclusivity expires, the thirty-month stay expires seven and a half years after NDA approval.
If the ANDA filer wins the litigation and the relevant patents are held invalid or not infringed, the FDA may approve the ANDA, even though the thirty-month stay has not yet expired. The same is true if the parties settle the litigation. If litigation has not concluded when the thirty-month stay expires, the FDA may also approve the ANDA, subject to a host of exceptions. If the NDA holder prevails in court, however, the FDA will not approve the ANDA until the relevant patents expire and, of course, any regulatory exclusivity also expires. Regardless of how the Hatch–Waxman litigation ends, the thirty-month stay provides a lucrative window of time to the NDA holder.
Filing a Paragraph IV certification with the FDA is risky for the ANDA applicant. It opens the door to Hatch–Waxman litigation—a costly and time-consuming ordeal that may or may not end well for the filer.
The Hatch–Waxman Act rewards and encourages those who take on this daunting task. The act does so by granting exclusivity to the first ANDA applicant to file a Paragraph IV certification for an RLD. Like all regulatory exclusivities, this ANDA exclusivity provides an economic advantage that can be worth millions of dollars to its holder. ANDA exclusivity lasts 180 days. During that period, the FDA will not approve a subsequently filed ANDA for the same RLD. ANDA exclusivity begins on the trigger date, namely, the date of the generic drug’s first commercial marketing. So, for 180 days after the trigger date, the FDA will not approve a subsequent ANDA for the same RLD. This 180-day exclusivity period is a duopoly involving the NDA holder and the first ANDA applicant to file a Paragraph IV certification. Concomitant with this scenario are prices higher than if there were multiple competing generic products on the market. Depending on the facts, this exclusivity can apply to a successful ANDA applicant whether or not its Paragraph IV submission triggers Hatch–Waxman litigation.
Often, there are several first ANDA filers for an RLD, not just one. That is, on the day any one applicant first files a substantially complete ANDA with a Paragraph IV certification, all applicants doing so on that same day are first filers. When this happens, the ANDA exclusivity period is an oligopoly involving the NDA holder and multiple first filers, with prices lower than those in a duopoly.
ANDA exclusivity can be forfeited in several ways, such as failing to timely market the generic drug after ANDA approval.
Company X markets its small-molecule drug X1C in the United States under an NDA. Specifically, the company markets a single X1C product for treating pancreatic cancer. Neither Company X nor any other party markets another X1C product.
As the Orange Book states, NCE exclusivity will expire on June 1, 2025. Also listed in the Orange Book is Company X’s patent to methods for treating pancreatic cancer using X1C. The patent will expire on June 1, 2030.
Company Y, a competitor, wishes to market generic X1C. Toward that end, Company Y files an ANDA on June 1, 2024. It concurrently files a Paragraph IV certification in connection with the patent. In it, Company Y certifies that each claim of the patent is invalid as obvious over the prior art and supports its position with a legal and factual showing in that regard. (Note: For an RLD having NCE exclusivity, a challenger may file an ANDA with a Paragraph IV certification as early as four years after NDA approval.)
Company Y’s Paragraph IV certification is an act of infringement. However, Company X does not timely sue Company Y for infringement.
The FDA is now free to approve Company Y’s ANDA. It does so, and Company Y begins marketing generic X1C in the United States after June 1, 2025 (i.e., once Company X’s NCE exclusivity has expired). Moreover, as the first filer of an ANDA with a Paragraph IV certification, Company Y has ANDA exclusivity as of the trigger date; that is, the date of commercial launch for generic X1C. For 180 days thereafter—until November 28, 2025—the FDA will not approve any subsequent ANDA for the same RLD.
Importantly, Company Y launches its generic product at risk. That is, Company X may still bring a regular (i.e., non-Hatch–Waxman) patent infringement suit against Company Y for making and selling Company X’s drug for the patented use of treating pancreatic cancer. Company Y’s risk of suit under this patent will last until the patent expires or a court holds it invalid or unenforceable, whichever occurs first. (Note: Given the potential liability for willful infringement if it launches at risk, Company Y might instead choose to bring a declaratory judgment action to challenge Company X’s unasserted patent.)
Here, though, Company X sues Company Y for infringement on July 15, 2024 (i.e., within the forty-five-day limit), in response to its Paragraph IV certification, and Hatch–Waxman litigation begins. A thirty-month stay attaches. Since litigation began before the June 1, 2025, expiry of NCE exclusivity, the thirty-month stay expires seven and a half years after NDA approval. That is, the stay will expire on December 1, 2027. Thus, the FDA may not approve Company Y’s ANDA before December 1, 2027, or Company Y’s victory in the litigation (i.e., the court’s ruling that Company X’s patent is invalid), whichever occurs first.
On July 15, 2026, Company X prevails in litigation, with the court holding that each claim of its patent is not invalid. (Note: As we know from chapter 10, a patent claim is presumed valid, and a court can hold it invalid or not invalid. A court cannot properly hold a claim valid, as the claim is already presumed to be so.)
Since Company X prevailed in litigation and its patent remains valid, the FDA may not approve Company Y’s ANDA at this time. Instead, to market generic X1C in the United States, Company Y must wait until June 1, 2030, when Company X’s patent expires, unless, beforehand, a court finds it invalid or unenforceable in a different litigation.
EXAMPLE 15.14
Here, though, on July 15, 2026, Company Y prevails in litigation, with the court holding each claim of Company X’s patent invalid.
The FDA immediately approves Company Y’s ANDA. Since Company X’s NCE exclusivity has already expired, Company Y is now free to market its generic X1C product in the United States. It begins doing so on August 1, 2026.
Moreover, as the first filer of an ANDA with a Paragraph IV certification, Company Y has ANDA exclusivity as of the trigger date; that is, the date of commercial launch for the generic product. For 180 days thereafter—until January 28, 2027—the FDA will not approve any subsequent ANDA for the same RLD. (Note: Had Company Z, another generic competitor, filed its own Paragraph IV certification concurrently with Company Y, Companies Y and Z would both enjoy ANDA exclusivity.)
The Hatch–Waxman Act goes far in balancing drug innovation and affordability. Under it, an innovator company can recoup development costs and earn a profit for a new drug. Meanwhile, once regulatory and patent protections are gone, generic entry can decimate the price of a brand-name drug. When this abrupt drop in innovator revenue results from patent expiry, it is aptly called the patent cliff.
To an innovator company, a patent cliff can mean the loss of millions, and even billions, of dollars annually. Unsurprisingly, innovator companies do not go gently into the night when faced with this prospect.
Instead, they employ a range of protective strategies starting well before the patent cliff arrives. Some strategies protect what remains of revenue from products no longer under patent or regulatory protection. Others create revenue by using the same active ingredient to develop incrementally innovative products. These strategies vary as to their origins, with some predating the Hatch–Waxman Act and others emerging more recently. They also vary as to the laws they employ. And they often generate controversy owing to perceived ethical shortcomings and—in extreme cases like “product hopping”—questions of illegality.
I discuss two widely used strategies below: “evergreening” and trademark protection.
Let us assume that the FDA approves an NDA for a new and patented active ingredient in an oral tablet form at a given strength for a given indication. On the day of approval, the NDA holder knows precisely when its regulatory exclusivity will end. It also knows precisely when its existing patent protection will end, notwithstanding patent-term extension and barring successful Paragraph IV challenges. The date on which neither protection will remain serves as a deadline of sorts by which the NDA holder would be well advised to introduce an improved and presumably more marketable product.
An improved product can be the result of incremental innovation. Examples include pure enantiomers and active metabolites of the approved active ingredient, reformulations for different absorption rates and administration routes, new strengths, new indications, and combinations with other approved actives. Ideally for the NDA holder, only minimal cost and clinical testing are needed to develop each improved product. It is also ideal for the NDA holder to ensure that additional regulatory exclusivity and patents cover each such product.
These efforts can go far in protecting an innovator company’s competitive edge long after original protection for its active ingredient is gone.
EXAMPLE 15.15
On June 1, 2022, the FDA approves Company X’s pain relief drug product X1D. The product is a 20 mg tablet for twice-daily oral administration.
Company X’s NCE exclusivity expires on June 1, 2027. Its Orange Book–listed patent protection expires on June 1, 2032, factoring in available patent-term extension. Thus, there is a five-year window during which Company X is vulnerable to Paragraph IV challengers. In this example, however, the last-to-expire patent claims the active ingredient per se, and Company X’s counsel believes that it would prevail against a Paragraph IV challenger. Accordingly, Company X treats its June 1, 2032, patent cliff as the date before which it needs to introduce an improved version of X1D.
Over the next several years, Company X develops and clinically tests a 30 mg extended-release X1D tablet for once-daily oral administration (X1D-XR). The FDA approves Company X’s NDA for X1D-XR on June 1, 2031, one year before its patent cliff on X1D. For its new product, Company X is entitled to CI exclusivity, which expires on June 1, 2034. The last of Company X’s Orange Book–listed patents to the X1D-XR tablet expires on June 1, 2045.
During the year preceding its patent cliff, Company X aggressively markets its newly approved X1D-XR tablet. As Company X had intended, most X1D users switch to X1D-XR before generic X1D enters the market.
Company X is now guaranteed three years during which it can sell its X1D-XR tablet without generic X1D-XR competition and may also have eleven additional years without generic X1D-XR competition if there are no successful challenges to its Orange Book–listed patents during that time.
A trademark identifies and distinguishes a product of one source from another. It can be federally registered. It can also remain registered indefinitely if periodically renewed.
Trademark protection differs fundamentally from patent protection and regulatory exclusivity. Relevant here is that a trademark can provide an innovator drug with a competitive advantage against generic competition long after its regulatory exclusivity and patent protection have expired.
EXAMPLE 15.16
Assume the same facts as in example 15.15. That is, for Company X’s approved X1D product, NCE exclusivity expires on June 1, 2027, and patent protection expires on June 1, 2032.
In addition to developing and marketing its X1D-XR product, Company X continues to rely on trademark protection for its X1D product. Specifically, Company X has marketed X1D in the United States under the federally registered trademark Analges-X since its FDA approval, gaining brand recognition in the process. Company X continues to do so after its June 1, 2032, patent cliff.
Because of generic competition, Company X must now charge far less for its Analges-X product. Yet, thanks to brand recognition, Company X can still charge at least 50 percent more for its X1D product than its generic competitors can charge for theirs. And, because its trademark is renewable, Company X can use it indefinitely to maintain a commercial advantage over generic competitors.