Editor: Mr. Reilly, would you tell our readers something about your professional background?
Reilly: I graduated from Seton Hall Law School in 1987. During law school, I joined the summer associate program of Kraft & Hughes, the predecessor to my current firm, St. John & Wayne, and have been with St. John & Wayne ever since. I received my LL.M in taxation from New York University in 1992. Over the last 10 years of my career, my practice has evolved from one focused primarily on corporate securities and merger & acquisition transactions to a blend of corporate, pharmaceuticals and life sciences.
Editor: What attracted you to St. John & Wayne?
Reilly: St. John & Wayne always fostered a culture that encouraged entrepreneurial activity. Even as a young associate, I was encouraged by the partners to develop a client base and to use the firm's resources to build my practice. In addition, the firm places significant emphasis on understanding our clients' business. This allows us to provide not only excellent legal services, but also allows us to help clients navigate the numerous business issues that must be addressed as part of the complex commercial transactions for which clients seek our assistance.
Editor: What changes have you seen over the recent past in your Pharmaceuticals and Life Sciences Practice?
Reilly: Our Pharmaceuticals and Life Sciences Practice has seen a marked increase in partnering transactions, consistent with the recent evolution of these transactions in the pharmaceutical industry in general. Years ago, large multinational companies and their regional counterparts relied solely upon internal development efforts to fill their product pipelines and get products to market. The increasing pressure on such companies from investors to bolster their product pipelines, as well as the low rate of success in developing and obtaining regulatory approval for pharmaceutical products, has resulted in such companies looking to third-party sources for product innovation and development. Multi-national pharmaceutical companies and their smaller regional counterparts now partner with one another as well as with small brand pharma and biotech companies, and even with generic pharma companies, to identify, develop, obtain regulatory approval and market pharmaceutical products. Such partnering transactions take a variety of forms, including, among others, co-development agreements, licensing agreements and joint venture agreements.
Editor: How has your firm been involved in partnering transactions between brand and generic pharmaceutical companies?
Reilly: Branded companies have come to recognize that there are a select group of generic companies that have used their generic drug business to build capabilities in new drug discovery and/or drug delivery technologies. We have assisted a number of our domestic and overseas clients in negotiations with large multinational brand companies involving a variety of co-development transactions and license transactions for new chemical entities as well as new drug delivery technologies.
Editor: Would you provide us with a summary overview of the generic drug approval process and how the patents covering brand products influence the approval and marketing of generic counterparts?
Reilly: Prior to the Drug Price Competition and Patent Term Restoration Act of 1984 (commonly known as the "Hatch-Waxman Act") all drug manufacturers had to conduct clinical studies to determine whether a pharmaceutical product was safe and effective. The Hatch-Waxman Act provided for the acceleration of the entry of generic pharmaceutical products by creating the abbreviated new drug application ("ANDA") process. Provided that a drug manufacturer could show that a generic product was bioequivalent to the brand product (for which brand product a new drug application ("NDA") containing clinical studies was previously filed and approved by the FDA), FDA approval of such generic products could be obtained under the ANDA process without the need to conduct separate clinical studies. When filed with the FDA, the ANDA for a proposed generic product must contain a certification under 21 U.S.C. §355(j)(2) (A)(vii)(I)-(IV). If the brand drug to which the generic product relates is subject to patent protection at the time of the filing of the ANDA with the FDA, the generic manufacture will include a Paragraph III certification (that the generic drug will not go to market until the date of expiration of such patent), or a Paragraph IV certification (that the patent is not infringed or is invalid). The inclusion of a Paragraph IV certification triggers important procedural consequences and is at the heart of the patent infringement lawsuits between brand and generic pharmaceutical companies. Following the filing of an ANDA with a Paragraph IV certification, the applicant must notify the holder of the patent covering the brand product. The patent holder has 45 days from the receipt of such notice to file suit against the ANDA filer for patent infringement. If suit is filed, the approval of the ANDA by the FDA is stayed for a period of thirty (30) months (or such shorter period in the event the patent expires or is determined to be invalid). During the thirty (30) month stay, the ANDA applicant is prevented from selling the generic product and the patent holder can seek to enforce its patent rights in the appropriate court.
Even in the face of the litigation risks surrounding a Paragraph IV certification, generic companies expend significant resources in an effort to be the first to file an ANDA containing a Paragraph IV certification. With first-to-file status comes a 180-day marketing exclusivity (from the date of approval of the ANDA), during which the FDA may not approve another ANDA for such generic product. During this period, the first-to-file generic company can reap huge profits on the sale of the generic drug (which is typically sold at a price ranging from 70%-80% of the brand product price) before other generic equivalents enter the market following the expiration of the 180-day exclusivity period.
Editor: How has the response of brand companies changed over the past few years in response to ANDA filings containing a Paragraph IV certification?
Reilly: Brand companies have employed a variety of practices to maintain market share for their brand products. Recognizing that generic companies must certify as part of their Paragraph IV certification that the proposed generic drug does not infringe any patent listed by the brand company in the FDA's Orange Book (the FDA's official register of approved pharmaceutical products), some brand companies added multiple (and often meritless) patents to the Orange Book. This practice was done largely to require the generic company to file Paragraph IV certifications for such additional patents and thereby provide for multiple 30-month stays. In response to this conduct, new regulations adopted by the FDA, effective August 19, 2003, limit drug companies to only one 30-month stay and require patent holders to have the patents listed in the FDA's Orange Book prior to the ANDA filing.
In addition, some brand companies have elected not to file suit against a generic company seeking ANDA approval to market a generic equivalent of a brand product within the 45-day period provided under the Hatch-Waxman Act. While this strategy will allow a generic company to receive FDA approval of an ANDA for the generic product without the restriction of the 30-month stay, in the absence of infringement litigation commenced by the brand company, the generic company will not have the benefit of a district court decision as to whether the generic product infringes the brand company's patent or whether such patent is invalid. In this case, the generic company must assess whether to launch its generic product "at risk" without having the findings of the district court to consider as part of its product launch analysis. Following the launch of the generic product, the brand company will then file suit for infringement, including claims for injunctive relief to stop the further sale of the generic product and treble damages for lost profits.
Another practice employed by brand companies in response to the filing of a Paragraph IV certification by a generic company is the marketing and sale of their own "in-house generic" or contracting with a third-party generic company for the marketing and sale of an "authorized generic."
Editor: How do "in-house generics" and "authorized generics" differ from standard ANDA generic products?
Reilly: In-house generics and authorized generics are essentially identical to the standard ANDA generic product, except with the respect to the party that is marketing and selling the product. In essence, an authorized generic product is one that originally received FDA approval pursuant to the filing of a NDA, and is now relabeled and marketed under its generic product name. In such case, the brand company licenses to a generic company the patents and regulatory approvals for the marketing and sale of the generic counterpart to the brand product in exchange for a share of operating profits or a royalty on net sales of the authorized generic product. When a brand company sells such generic product itself or through one of its subsidiaries, such generic product is often referred to as an "in-house generic." Like a standard ANDA generic product, the authorized generic and in-house generic are sold at a discount to the brand product price. Since the in-house or authorized generic relies upon the NDA approval for the brand product, no ANDA must be filed or approved and therefore, such products may be sold during the 180-day exclusivity period otherwise reserved under Hatch-Waxman for the first-to-file ANDA filer for such generic product.
Editor: Assuming an increase in generic competition results in a further loss of market share for brand products, why do brand companies sell in-house generics or license authorized generics for marketing and sale?
Reilly: The primary reason appears to be to diminish the value of an "at risk" launch for a generic company. As discussed above, after the 30-month stay and/or pending final appeal of a district court finding of non-infringement or invalidity of a patent covering the brand product, the generic company can launch its generic product subject to the risk of a finding of patent infringement (where the district court decision occurs after the expiry of the 30-month stay) or the risk that a favorable district court decision will be overturned on appeal (where the district court decision occurs during the 30-month stay or prior to the launch of the generic product). If the generic product is launched, the 180-day marketing exclusivity for the product can provide the generic company with large financial rewards and market share from the sale of the product during this period. Such rewards are substantially reduced when an in-house generic or authorized generic is marketed and sold during the 180-day exclusivity period. In such case, the generic company must compete not only with the brand product, but also with the in-house or authorized generic in terms of price and market share. This has the effect of substantially reducing the return to the generic company on the sale of its generic product and may serve as a dis-incentive to generic companies in general to commit the necessary resources to the development of such generic product and to fund the expense of patent infringe litigation associated with a Paragraph IV filing.
Published August 1, 2005.
