The Medicare Modernization Act of 2003:The Effect on Entry of Generic Drugs into the Marketplace

The Hatch-Waxman Act, enacted in 1984, first permitted the marketing of generic pharmaceuticals based on a showing of bioequivalence, not safety and efficacy, through the use of an Abbreviated New Drug Application (“ANDA”). By significantly lowering the barrier to entry for generics, this change provided the impetus for rapid growth of the generic pharmaceutical industry in the United States. In exchange for this barrier lowering, Congress provided the holder of the previously approved new drug application (“NDA”) with patent term extensions based on FDA regulatory delay.

Under the Hatch-Waxman Act, the NDA holder must submit information to the FDA regarding patents that cover the drug product or a method of using it. The FDA then lists these patents in the “Orange Book.” A company seeking FDA approval to market a generic version of the product by submitting an ANDA must make at least one of four types of certifications to the FDA regarding patents. One type is a “Paragraph IV certification,” which certifies that a patent listed in the Orange Book for a drug product is invalid or will not be infringed by the ANDA product.

The filing of a Paragraph IV certification is an act that can qualify as patent infringement. An applicant that files a Paragraph IV certification must notify the patent owner and NDA holder, and describe the factual and legal bases for the certification that the patent is invalid or not infringed. If a lawsuit is subsequently filed, FDA approval is stayed for 30 months from receipt of the notice. If the patent owner or NDA holder does not bring an infringement action before the expiration of 45 days from the date notice is received, approval of the application may be effective immediately.

An incentive is provided to generic drug companies to seek market approval for generic products prior to patent expiration, in the form of a 180-day generic “exclusivity.” This exclusivity period allows a generic company to block the approval of other ANDAs for the same drug product for 180 days.

This unique scheme for adjudicating patent disputes prior to generic market entry benefits both the generic and the approval holder drug companies. For the generic companies, exposure to litigation damages is limited; while for the approval holder, market erosion of blockbuster products is delayed.

The last major amendment to the Hatch-Waxman Act occurred with the passage of the Medicare Modernization Act of 2003 (“MMA”) (codified as amended at 21 U.S.C. 355(j)(2) and (5)). Particularly significant provisions of the MMA change the way in which marketing exclusivity periods are awarded, change the way in which 30-month stays of marketing approval are applied, and provide for the forfeiture of generic exclusivity.

Prior to the passage of the MMA, the first applicant to file a Paragraph IV certification on a listed patent was granted a 180-day exclusivity. In the past, the FDA interpreted “first applicant” to mean the one, and only one, applicant that was first in line to file the certification. More recently, the FDA interpreted the term to mean that all applicants that file a Paragraph IV certification on the first date such a certification is filed are a “first applicant.” This allowed two or more applicants to share exclusivity.

Additionally, before the MMA, the FDA applied exclusivity on a patent-by-patent basis. Exclusivity was granted to all applicants who filed on the first date a Paragraph IV certification was filed for a particular listed patent, even if another applicant had already filed a Paragraph IV certification on another listed patent for the same product. In this case, each of the first applicants was granted exclusivity and could block the other from approval. More recently, the FDA had allowed applicants in this situation to share exclusivity.

The MMA applies exclusivity on a product-by-product, as opposed to a patent-by-patent, basis. Exclusivity may be granted to any and all applicants who file a Paragraph IV certification to any listed patent on the date the first Paragraph IV certification is filed for a particular product. After that date, an applicant that is the first to file a Paragraph IV certification to a different patent listed for the same product will not receive any exclusivity.

Before the MMA, the start of exclusivity was triggered by the marketing of the drug, or by a court decision deeming the patent invalid or not infringed by the ANDA. If a non-first Paragraph IV filer received a court decision on the patent earlier than the first filer, then the exclusivity period for the first filer was triggered, even if the first filer was not yet able to market the drug. The MMA ends the practice of a non-first-filer triggering the exclusivity of a first-filer, by stating that exclusivity is only triggered by the first commercial marketing of the drug by any of the first applicants.

Another provision of the MMA has the effect of granting no more than one 30-month stay of approval per ANDA. Previously, it was possible for multiple non-concurrent 30-month stays to be applied to a given ANDA. This could occur, for example, where a new patent issued after both a final determination in a lawsuit and the start of a 30-month stay for an ANDA containing a Paragraph IV certification for an earlier patent. If the new patent was timely listed, the ANDA applicant had to make a certification for the new patent. If the applicant filed a Paragraph IV certification for the patent, and was sued within 45 days of notice of the certification, a second stay applied. In some instances where this occurred, the later patent was issued and listed shortly before the ANDA applicant won the first suit triggering the end of the first stay. Thus, the second stay significantly delayed approval and entry of the generic drug into the market.

Under the MMA, the 30-month stay no longer applies to patents listed in the Orange Book after the ANDA is filed. While this change should significantly reduce the number of products having multiple 30-month stays, there can still be multiple stays under the MMA. For example, if the ANDA applicant files Paragraph IV certifications at different times for previously listed patents, a 30-month stay may be available subsequent to each certification.

The MMA provides new provisions regarding the forfeiture of generic exclusivity if certain events occur, including failure to market the drug by the first applicant within a specified time period. If there is no patent infringement litigation, the first ANDA applicant must market by the earlier of 75 days after FDA approval or 30 months after submitting the ANDA. However, if an infringement suit is filed, the first ANDA applicant must market within 75 days after entry of a final, non-appealable finding of patent invalidity or non-infringement; entry of a final, non-appealable decision of patent invalidity or non-infringement embodied in a settlement order or consent decree; or the delisting of the patent from the Orange Book. Additionally, exclusivity may be forfeited if the ANDA is withdrawn; if the applicant amends or withdraws the certification of all patents that qualified the applicant for exclusivity or if all such patents expire; if the first applicant has failed to obtain tentative approval of the application within 30 months after filing (unless that failure is due to a change in or review of the requirements for approval imposed after the applicant's filing date); or if the first filer enters into an anti-competitive agreement.

If all first applicants forfeit exclusivity, no applicant is eligible for exclusivity and any other applications containing Paragraph IV certifications may be immediately approved.

The foregoing changes have the potential to impact the generic pharmaceutical industry in several ways. The forfeiture of exclusivity provisions may result in generic products getting to the market faster. The limitations to the 30-month stay may result in fewer secondary patents getting listed in the Orange Book, especially after an ANDA litigation has been filed for the product. However, many of these patents will continue to issue. Thus, validity and infringement issues for these patents may be adjudicated after marketing of the generic product, increasing the ANDA applicant's exposure to litigation damages. Finally, by awarding exclusivity on a product-by-product basis, generic exclusivity becomes more elusive but more valuable.

The Hatch-Waxman Act, enacted in 1984, first permitted the marketing of generic pharmaceuticals based on a showing of bioequivalence, not safety and efficacy, through the use of an Abbreviated New Drug Application (“ANDA”). By significantly lowering the barrier to entry for generics, this change provided the impetus for rapid growth of the generic pharmaceutical industry in the United States. In exchange for this barrier lowering, Congress provided the holder of the previously approved new drug application (“NDA”) with patent term extensions based on FDA regulatory delay.

Under the Hatch-Waxman Act, the NDA holder must submit information to the FDA regarding patents that cover the drug product or a method of using it. The FDA then lists these patents in the “Orange Book.” A company seeking FDA approval to market a generic version of the product by submitting an ANDA must make at least one of four types of certifications to the FDA regarding patents. One type is a “Paragraph IV certification,” which certifies that a patent listed in the Orange Book for a drug product is invalid or will not be infringed by the ANDA product.

The filing of a Paragraph IV certification is an act that can qualify as patent infringement. An applicant that files a Paragraph IV certification must notify the patent owner and NDA holder, and describe the factual and legal bases for the certification that the patent is invalid or not infringed. If a lawsuit is subsequently filed, FDA approval is stayed for 30 months from receipt of the notice. If the patent owner or NDA holder does not bring an infringement action before the expiration of 45 days from the date notice is received, approval of the application may be effective immediately.

An incentive is provided to generic drug companies to seek market approval for generic products prior to patent expiration, in the form of a 180-day generic “exclusivity.” This exclusivity period allows a generic company to block the approval of other ANDAs for the same drug product for 180 days.

This unique scheme for adjudicating patent disputes prior to generic market entry benefits both the generic and the approval holder drug companies. For the generic companies, exposure to litigation damages is limited; while for the approval holder, market erosion of blockbuster products is delayed.

The last major amendment to the Hatch-Waxman Act occurred with the passage of the Medicare Modernization Act of 2003 (“MMA”) (codified as amended at 21 U.S.C. 355(j)(2) and (5)). Particularly significant provisions of the MMA change the way in which marketing exclusivity periods are awarded, change the way in which 30-month stays of marketing approval are applied, and provide for the forfeiture of generic exclusivity.

Prior to the passage of the MMA, the first applicant to file a Paragraph IV certification on a listed patent was granted a 180-day exclusivity. In the past, the FDA interpreted “first applicant” to mean the one, and only one, applicant that was first in line to file the certification. More recently, the FDA interpreted the term to mean that all applicants that file a Paragraph IV certification on the first date such a certification is filed are a “first applicant.” This allowed two or more applicants to share exclusivity.

Additionally, before the MMA, the FDA applied exclusivity on a patent-by-patent basis. Exclusivity was granted to all applicants who filed on the first date a Paragraph IV certification was filed for a particular listed patent, even if another applicant had already filed a Paragraph IV certification on another listed patent for the same product. In this case, each of the first applicants was granted exclusivity and could block the other from approval. More recently, the FDA had allowed applicants in this situation to share exclusivity.

The MMA applies exclusivity on a product-by-product, as opposed to a patent-by-patent, basis. Exclusivity may be granted to any and all applicants who file a Paragraph IV certification to any listed patent on the date the first Paragraph IV certification is filed for a particular product. After that date, an applicant that is the first to file a Paragraph IV certification to a different patent listed for the same product will not receive any exclusivity.

Before the MMA, the start of exclusivity was triggered by the marketing of the drug, or by a court decision deeming the patent invalid or not infringed by the ANDA. If a non-first Paragraph IV filer received a court decision on the patent earlier than the first filer, then the exclusivity period for the first filer was triggered, even if the first filer was not yet able to market the drug. The MMA ends the practice of a non-first-filer triggering the exclusivity of a first-filer, by stating that exclusivity is only triggered by the first commercial marketing of the drug by any of the first applicants.

Another provision of the MMA has the effect of granting no more than one 30-month stay of approval per ANDA. Previously, it was possible for multiple non-concurrent 30-month stays to be applied to a given ANDA. This could occur, for example, where a new patent issued after both a final determination in a lawsuit and the start of a 30-month stay for an ANDA containing a Paragraph IV certification for an earlier patent. If the new patent was timely listed, the ANDA applicant had to make a certification for the new patent. If the applicant filed a Paragraph IV certification for the patent, and was sued within 45 days of notice of the certification, a second stay applied. In some instances where this occurred, the later patent was issued and listed shortly before the ANDA applicant won the first suit triggering the end of the first stay. Thus, the second stay significantly delayed approval and entry of the generic drug into the market.

Under the MMA, the 30-month stay no longer applies to patents listed in the Orange Book after the ANDA is filed. While this change should significantly reduce the number of products having multiple 30-month stays, there can still be multiple stays under the MMA. For example, if the ANDA applicant files Paragraph IV certifications at different times for previously listed patents, a 30-month stay may be available subsequent to each certification.

The MMA provides new provisions regarding the forfeiture of generic exclusivity if certain events occur, including failure to market the drug by the first applicant within a specified time period. If there is no patent infringement litigation, the first ANDA applicant must market by the earlier of 75 days after FDA approval or 30 months after submitting the ANDA. However, if an infringement suit is filed, the first ANDA applicant must market within 75 days after entry of a final, non-appealable finding of patent invalidity or non-infringement; entry of a final, non-appealable decision of patent invalidity or non-infringement embodied in a settlement order or consent decree; or the delisting of the patent from the Orange Book. Additionally, exclusivity may be forfeited if the ANDA is withdrawn; if the applicant amends or withdraws the certification of all patents that qualified the applicant for exclusivity or if all such patents expire; if the first applicant has failed to obtain tentative approval of the application within 30 months after filing (unless that failure is due to a change in or review of the requirements for approval imposed after the applicant's filing date); or if the first filer enters into an anti-competitive agreement.

If all first applicants forfeit exclusivity, no applicant is eligible for exclusivity and any other applications containing Paragraph IV certifications may be immediately approved.

The foregoing changes have the potential to impact the generic pharmaceutical industry in several ways. The forfeiture of exclusivity provisions may result in generic products getting to the market faster. The limitations to the 30-month stay may result in fewer secondary patents getting listed in the Orange Book, especially after an ANDA litigation has been filed for the product. However, many of these patents will continue to issue. Thus, validity and infringement issues for these patents may be adjudicated after marketing of the generic product, increasing the ANDA applicant's exposure to litigation damages. Finally, by awarding exclusivity on a product-by-product basis, generic exclusivity becomes more elusive but more valuable.