I N S I D E T H E M I N D S

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1 I N S I D E T H E M I N D S Food and Drug Law Settlements and Negotiations Leading Lawyers on Complying with Federal Regulations, Negotiating Contracts with Manufacturers and Suppliers, and Defending Clients in Products Liability Litigation

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3 The Role of the Food and Drug Attorney in Hatch-Waxman Lawsuits Robert E. Colletti Partner Frommer Lawrence & Haug LLP

4 Inside the Minds A major aspect of a food and drug lawyer s practice may involve litigating and trying complex pharmaceutical patent lawsuits initiated pursuant to the Drug Price Competition and Patent Term Restoration Act (the Hatch- Waxman Act ). Lawyers handling these lawsuits often negotiate a settlement agreement rather than risk having a judge or jury adversely decide the case. A typical Hatch-Waxman lawsuit pits a brand name pharmaceutical company against a generic pharmaceutical company in a patent infringement action. These Hatch-Waxman lawsuits are long foreseen, and pharmaceutical companies prepare many years in advance of the litigation for these cases. Today, a brand name company filing a new drug application (NDA) with the Food and Drug Administration (FDA) should expect to face direct generic competition within seven and a half years of receiving FDA approval of its application. In fact, Hatch-Waxman lawsuits are initiated as early as four years after approval of an NDA. To protect against the inevitable competition and to recoup costs incurred in bringing a new prescription drug to market, it is imperative for a brand name company to patent its novel drug compounds, formulations, and processes. These patents usually issue long before, but occasionally after, the FDA approves the brand name pharmaceutical drug as safe and effective. The stronger and more comprehensive the patent portfolio protecting the marketed drug, the more likely a brand name company can starve off generic competition. In submitting an NDA, a brand name pharmaceutical company informs the FDA of the U.S. patents that cover its new drug. The brand name company can notify the FDA if additional patents covering its drug product are granted. The FDA lists these patents in its frequently updated publication entitled Approved Drug Products with Therapeutic Equivalence Evaluation, commonly referred to as the FDA s Orange Book. When an abbreviated new drug application (ANDA) is filed to market a generic version of a brand name drug, the generic company certifies against the applicable patents listed in the FDA s Orange Book. There are four types of patent certifications. An ANDA applicant may certify that (1) no patents are listed in the Orange Book; (2) the listed patents have already expired; (3) the listed patents will expire before the drug is marketed; or (4) the listed patents are

5 The Role of the Food and Drug Attorney in Hatch-Waxman Lawsuits not infringed or invalid. It is the fourth certification, commonly referred to as a paragraph IV certification, that results in a Hatch-Waxman lawsuit. Upon FDA acknowledgement that a paragraph IV ANDA is officially filed, a generic company must timely send a letter notifying the NDA holder and patent holders of its patent certification. In other words, the generic company notifies the brand name company that it has challenged the patent(s) listed in the Orange Book against the brand name drug product. Once alerted, the brand name company has forty-five days from receipt of a notice of certification letter to file a patent infringement action against the generic company. If the action is filed within the forty-five-day window of opportunity, the FDA is prohibited from granting final approval of the generic s ANDA for at least thirty months. If the statutory thirty-month stay expires before resolution of the lawsuit, the FDA is allowed to approve the generic company s ANDA, assuming all other aspects of the application are acceptable. If the FDA grants final approval, the generic drug company can commercially launch its drug product. The business decision to commercially launch a generic drug product before a district court decision will typically place the generic company at risk of a damage award three times the amount of brand name lost sales if it eventually loses the lawsuit. On the other hand, an at-risk launch can garner a great reward for the generic company, as it will likely capture a large portion of the brand name drug sales. Hence, the launch of a generic product or even the threat of a launch often provokes a motion for injunctive relief. Moreover, the threat of a generic launch usually invokes serious settlement discussions. If the brand name company does not sue within the forty-five-day period, it is still entitled to file a patent infringement lawsuit, but it will not get the benefit of the thirty-month statutory stay of approval of the generic company s ANDA under the Hatch-Waxman Act. Through this process, food and drug lawyers advise their clients on issues arising from the Hatch-Waxman Act and its subsequent amendments. They help generic clients identify paragraph IV opportunities, file ANDAs, communicate with the FDA, and defend against Hatch-Waxman lawsuits. They help brand name clients file NDAs, correspond with the FDA, and initiate and litigate Hatch-Waxman lawsuits. Regardless of which side is

6 Inside the Minds represented, a food and drug lawyer litigates a Hatch-Waxman case to gain an advantageous position so the client can win at trial or negotiate a favorable settlement. Pre-Lawsuit Investigations Before a Hatch-Waxman lawsuit is filed, attorneys representing generic companies will evaluate a client s process for making a drug and the client s position of invalidity or non-infringement against brand name patent(s). This process involves reviewing the brand name patents listed in the Orange Book and their corresponding prosecution histories from the U.S. Patent Office. It further involves determining if the brand name patent is valid in light of prior art references and whether the patent is infringed by the client s proposed product. This process may also involve extensive consultation from technical experts. Financial Implications The Generic Perspective The filing of an ANDA provides a generic pharmaceutical company with an opportunity to sell a lower-cost version of a brand name drug. Significantly, a generic company that is first to file a paragraph IV patent challenge against a brand name prescription drug has the right to a 180-day marketing exclusivity period pursuant to provisions of the Hatch-Waxman Act. This exclusivity right is in essence a reward for challenging the brand name patent and bearing the costs of that challenge. This exclusivity right can be held by one generic applicant or shared among multiple applicants if each applicant files a paragraph IV ANDA on the first allowable day. A generic applicant owning an ANDA entitled to a sole 180-day exclusivity right has an extremely valuable asset especially if the brand name drug is a billiondollar product. The FDA will not approve other ANDA holders for the same drug until the first-to-file ANDA applicant s 180-day exclusivity period has expired. The following scenarios, regardless of first-to-file status, are examples of how an applicant may receive significant value from an ANDA:

7 The Role of the Food and Drug Attorney in Hatch-Waxman Lawsuits The FDA approves the ANDA and the generic product is launched within the 180-day exclusivity period. (This could happen before or after a court decision on the merits of the action.) The lawsuit is settled and the terms of the settlement agreement allow a non-first-to-file generic company to launch an authorized generic (the brand name product sold as a generic) during the 180- day exclusivity period. The lawsuit is settled on other terms bringing value to the client. (For instance, the generic company does not market the drug at issue in the lawsuit for years to come but sells other brand name products not involved in the lawsuit.) The ANDA is sold to another generic drug manufacturer. Imagine a brand name pharmaceutical company that files an action against a generic pharmaceutical company client pursuant to the Hatch-Waxman Act. The client was not the first to file a paragraph IV ANDA against the particular prescription drug. Hence, the client was not entitled to a 180-day exclusivity period to sell the drug. Regardless, the client aggressively litigated the case and at the appropriate time entered into settlement discussions. The negotiations resulted in the brand name company offering the client an authorized generic deal. The lawsuit was dismissed and the brand name company licensed the client to sell the brand name product under the generic s name, once a first-to-file ANDA applicant launched a product. The first-to-file ANDA applicant unexpectedly launched its product before a judge issued a district court decision. The client successfully distributed the brand name product as an authorized generic. This is a good example of how an authorized generic settlement agreement allowed a client to reap substantial profits during the 180-day exclusivity period even though it was not in the preferred position of a first-to-file ANDA applicant. The Brand Perspective The financial implications for a brand name pharmaceutical company begin as soon as it files a Hatch-Waxman lawsuit. As explained above, once a Hatch- Waxman lawsuit is initiated, the FDA will not approve the generic company s ANDA for thirty months. The automatic stay of FDA approval guarantees the brand name will have no generic competition for at least two and a half years.

8 Inside the Minds While the stay of ANDA approval is comforting, it does not abate the financial risks to the brand name. If a brand name patent listed in the Orange Book does not expire for ten years after the lawsuit is filed, a brand name will expect to avoid generic competition for all ten years. A brand name pharmaceutical company gets the best financial gain from its patents by successfully asserting its patents in a Hatch-Waxman lawsuit and keeping generic competition from reaching the market. Each day without generic competition is worth millions of dollars to a brand name pharmaceutical company. A brand name company with a multibillion-dollar drug that brings and prevails against an ANDA applicant shields a valuable revenue stream from direct competition. A brand name company knowing that generic competition is inevitable will often develop a next-generation drug. If the FDA approves the next-generation drug, it allows the brand name to establish a new market before its old market is filled with generic competition. Trouble Spots During the past ten years, Hatch-Waxman lawsuits have become rather commonplace in the pharmaceutical industry. Both brand and generic pharmaceutical companies, however, must carefully navigate the battlefield in these lawsuits and avoid getting into unnecessary legal trouble. For example, an overly aggressive brand name company can subject itself to antitrust counterclaims if it improperly attempts to keep generic drugs off the market. For example, if a brand name company lacks a credible infringement case against a generic company or improperly asserts patents it knows are invalid, the company can be hit with antitrust counterclaims that could lead to substantial damage awards. A generic company with strong antitrust counterclaims will find itself with considerable leverage in settlement negotiations. In contrast, an overly aggressive generic company may subject itself to willfulness or exceptional case claims if it improperly challenges a brand name patent in an effort to quickly get to market. A generic company must ensure that it has completed its due diligence and properly filed a paragraph IV certification against a brand name patent. An opinion of counsel that the brand

9 The Role of the Food and Drug Attorney in Hatch-Waxman Lawsuits name patent is not infringed, invalid, or unenforceable is recommended before filing an ANDA with a paragraph IV certification. This legal opinion is the basis for the notice letter to the brand name company. A brand name company may seek an exceptional case damage award and attorney fees if it believes the generic company did not have a good faith basis for its certification challenging the Orange Book patents. Another trouble spot for generic companies is ensuring that its notice letter to the brand name is sent in a timely manner. A notification letter that is untimely can cost the generic company valuable first-to-file exclusivity rights. Pursuant to the 2003 amendments to the Hatch-Waxman Act, a paragraph IV ANDA applicant has twenty days from the postmark on its ANDA acceptance letter to notify the brand name of its ANDA and patent challenge. If two generic companies are first to submit paragraph IV ANDAs on the same day for the same drug, they would appear to share the 180-day marketing exclusivity. If, however, one company properly sent its certification letter within the twenty days and the other company did not, it is possible the company failing to timely send its certification letter would not have its exclusivity rights. An even more dangerous scenario is when a brand name company lists a new patent in the Orange Book after the initial ANDAs have been filed. In that scenario, a generic company must amend its ANDA to certify against the new patent and send a letter to the brand name, notifying it of the certification, on the same day. Otherwise, the generic company risks not having first-to-file exclusivity rights. Aiding Clients The most obvious way to bring value to a client is to obtain a favorable court decision or settlement agreement. There are many other ways, however, attorneys bring value to clients during a Hatch-Waxman lawsuit. For example, as noted above, a new patent listing in the Orange Book may provide a paragraph IV first-to-file opportunity for a generic company. An attorney representing a generic company that has filed an ANDA must make certain that his or her client is prepared to certify against newly listed patents in the Orange Book. A brand name company may not have any patents listed in the Orange Book on the first day ANDAs are filed by generic companies. While the

10 Inside the Minds ANDAs are pending, however, a new brand name patent may subsequently issue. The brand name company could list the newly issued patent in the Orange Book. The generic company that is first to amend its ANDA to include a paragraph IV certification and send its notice letter to the brand name that same day should receive first-to-file exclusivity rights. Hence, important due diligence in this situation requires monitoring the potential patent claims of brand name companies. These claims are often disclosed in pending U.S. patent publications and sometimes in foreign patent publications or foreignissued patents. Generic companies want to ensure that the FDA approves the ANDA in a timely manner. An approved ANDA puts pressure on the brand name company to settle the lawsuit. If the generic company chooses to launch its drug product at risk, it may force a judge to hear the merits of a case sooner than expected. Upon a generic launch, the brand name may seek a preliminary injunction. In fact, a brand name company may seek a preliminary injunction after a generic gets FDA approval and the statutory thirty-month stay is about to expire. Brand name companies do not want to lose sales because of an at-risk launch by a generic drug manufacturer. In general, attorneys define success as meeting and exceeding the client s realistic expectations. Winning a case at trial is not necessarily a client s expectation. Success is measured against the particular facts of a case. For example, a generic pharmaceutical company may not have a viable commercial situation, and may just be seeking a favorable settlement. An ANDA owner that is not a first-to-file applicant can play the role of spoiler if it can negotiate a deal whereby it is allowed on the market as an authorized generic at the same time as the first-to-file ANDA applicant. The authorized generic, which will sell the brand product at generic prices, will likely acquire at least half of the expected sales of the first-to-file applicant. Likewise, a brand name company does not necessarily define success as winning its case at trial. The brand name could be testing a novel legal theory. That legal theory may be a long shot, but it will maintain the brand name patent monopoly until a settlement is reached. Attorneys should stay focused on the issues that will be tried in the courtroom and aggressively pursue discovery regarding those issues. During discovery, lawyers can lose track of the proofs that must be demonstrated at trial.

11 The Role of the Food and Drug Attorney in Hatch-Waxman Lawsuits Therefore, it is essential to periodically review the evidence that will support, and hopefully prove, the legal factors necessary to win the case at trial. When it comes to Hatch-Waxman lawsuits, attorneys frequently obtain the best evidence from non-parties that are subpoenaed in connection with the lawsuit. Both brand name and generic drug companies work with independent researchers and consultants regarding their drug products. These individuals usually have important information pertaining to the issues in the lawsuit. In my experience, they often have crucial information that can have severe consequences in the courtroom. I have also found that pursuing electronic discovery usually results in a goldmine of telling evidence. Often the unedited, real story, not the litigation-driven story, is in the s of the relevant witnesses. Keeping Your Edge The area of law involving the Hatch-Waxman Act and its subsequent amendments is constantly evolving. Many of the reported decisions in the Hatch-Waxman realm deal with issues of first impression. Hence, staying current means keeping apprised of the latest legal developments in the Hatch-Waxman area. To effectively advise clients and litigate Hatch- Waxman lawsuits, attorneys must understand the latest developments at both the district court and appellate levels. The subsequent amendments to the Hatch-Waxman Act have opened up potential new ways to bring value to clients. To keep your edge and bring that value to clients, it is a good practice to re-review the legislation on a periodic basis to ensure a solid understanding of the provisions, particularly in light of individual client situations. I have found that a review of the legislation in view of recent court decisions will provide new, perhaps previously unappreciated, opportunities for clients. The Art of Negotiation The art of negotiation requires knowing what you need to get from the other side to satisfy your client s expectations and having a plan that will get you there. The role of the attorney in negotiations is to ensure that the client obtains the best settlement possible given the particular circumstances of each scenario. The client must be kept fully informed of

12 Inside the Minds the legal situation and know the risks involved in going to trial if the settlement negotiations break down. In my experience, leverage is the most important aspect of a settlement negotiation. Naturally, one wants to negotiate from a position of strength. The facts underlying a lawsuit, however, may or may not be favorable. Regardless, the facts need to be addressed head-on. So, my personal negotiation strategy is to ensure that the other side knows we are ready and prepared to try the case in front of a jury if it does not settle. Attorneys must convince their opponent that they have a strong command of the facts, evidence, and legal issues. Perhaps more importantly, they must convince their adversary they will persuasively articulate those facts and issues to the judge or jury. The key players in any negotiation are the executives with decision-making authority and the businesspeople and lawyers advising those executives. It is the lawyer s job to ensure that the client fully understands the strengths and weaknesses of the underlying patent lawsuit. It is the executive s job to ensure that the lawyer fully understands the business situation. Ongoing two-way communication is critical. Preparing for Negotiations In general, attorneys prepare for a negotiation by learning as much as possible about the other side. Not only is it important to know the facts of the case, but it is important to understand your opponent s business. The better the attorney understands the opponent s business costs and commercial situation, the better position the attorney is in to negotiate a good settlement. For instance, knowing the channels through which a brand name company sells its drug is important and can help you devise creative solutions for settling a case. Preparing for a negotiation also means recognizing the strengths and weaknesses of your opponent s legal position. Finally, attorneys must step back and assess the strengths and weaknesses of their own client s business and legal position. Pretending your client s position is stronger than it actually is will not pay dividends in the courtroom. Acknowledging the case weaknesses and playing the strengths of a case is a better approach. If your adversary appreciates that you are

13 The Role of the Food and Drug Attorney in Hatch-Waxman Lawsuits knowledgeable about its business, the facts, and the legal issues of the case and knows your knowledge will come to the courtroom in an articulate and persuasive manner, the opposition is more likely to come to terms and settle the case rather than gamble in the courtroom. Taking the case to trial is always a risk for both the brand name and the generic company, particularly if the generic company has launched its drug product. If the generic company has not launched its drug product before a decision in the lawsuit, it is not at risk for patent damages. The generic company, however, does incur significant legal fees to litigate a Hatch- Waxman lawsuit. In contrast, if the brand name company loses at trial, it risks losing its monopoly on the market for the drug at issue. Depending on the drug, this loss might cost the company profits of hundreds of millions of dollars. Settlement is a good option when the risks of going to court are too high. Many lawsuits filed pursuant to the Hatch-Waxman Act result in settlement. Going to trial, however, is appropriate when negotiations have broken down or the benefit of the settlement does not outweigh the risk of a court decision. Often, setting a firm trial date will provoke serious settlement negotiations. When negotiating a settlement between a brand name and generic drug manufacturer, there are several key points that most often arise. The most important item is typically the launch date of the generic product (time of entry into the brand name market) for the particular drug at issue. If the patent for Drug X does not expire until June 1, 2010, for instance, the brand name seeks to have no competition until June 2, In contrast, a generic applicant wants to commercialize its drug product as soon as possible. Factors to consider in negotiating a launch date include whether the generic company has FDA approval, whether the generic company has sole or shared first-to-file marketing exclusivity, the generic company s likelihood of success at trial, and the expiration date of the patent. If the settlement agreement allows the generic company to sell the brand name drug as an authorized generic, the two sides must negotiate a royalty

14 Inside the Minds rate. For instance, if the brand name is supplying and packaging the authorized generic, it will want a substantial portion of the sales. A third item that is often negotiated is whether the brand name company will make a payment to the generic company. This so-called reverse payment is closely monitored by the Federal Trade Commission (FTC), because it is seen as anti-competitive, a payment by a brand name to keep generic competition from coming to market. Usually, a generic company seeks its legal fees spent as a result of the lawsuit, and this generally passes FTC scrutiny. A Hatch-Waxman deal, like any deal, can be killed by stubborn personalities refusing to compromise or taking issues too personally. If both parties sincerely belief they will win in the courtroom, it often destroys a deal because compromise becomes almost impossible. Hatch-Waxman settlement agreements are subject to FTC review. Hence, an antitrust review can also break a deal. As a result, it is essential to involve an antitrust lawyer to address potential concerns of the FTC and ultimately ensure that the settlement will pass FTC scrutiny. While the negotiations in a Hatch-Waxman agreement proceed like any other, it is notable that the stakes are often particularly high for both sides. Successful Settlements To be a successful negotiator, an attorney must ensure that the client has strong leverage going into the negotiation, the attorney must know the commercial aspects of both the client s and the opponent s business, and the attorney should negotiate in a strong but sincere manner. A successful settlement is one where not only the client is satisfied, but the attorneys handling the case are personally satisfied that, given all the circumstances of the particular scenario, the client got the best deal possible. To achieve this result, attorneys must make certain that their clients are negotiating from a strong legal and business position. If a generic company is prepared to launch a low-cost version of the brand name drug product and has a strong legal case supported by good evidence, it is more

15 The Role of the Food and Drug Attorney in Hatch-Waxman Lawsuits likely the parties will negotiate a settlement agreement. In general, a welllitigated case will place a company in a position to settle a lawsuit when the time is appropriate. If the case does not settle, companies should not be afraid to go to trial. Robert E. Colletti is a partner in the law firm of Frommer Lawrence & Haug LLP. His practice is primarily focused on litigating patent lawsuits. In particular, Mr. Colletti has represented various generic pharmaceutical companies in complex Hatch-Waxman lawsuits involving abbreviated new drug applications for prescription pharmaceutical drugs, including paroxetine, escitalopram, and levetiracetam. Mr. Colletti is admitted to practice before the U.S. Supreme Court, the U.S. Court of Appeals for the Federal Circuit, and the Southern District of New York.

16 Aspatore Books is the largest and most exclusive publisher of C-Level executives (CEO, CFO, CTO, CMO, Partner) from the world's most respected companies and law firms. Aspatore annually publishes a select group of C-Level executives from the Global 1,000, top 250 law firms (Partners & Chairs), and other leading companies of all sizes. C-Level Business Intelligence, as conceptualized and developed by Aspatore Books, provides professionals of all levels with proven business intelligence from industry insiders direct and unfiltered insight from those who know it best as opposed to third-party accounts offered by unknown authors and analysts. Aspatore Books is committed to publishing an innovative line of business and legal books, those which lay forth principles and offer insights that when employed, can have a direct financial impact on the reader's business objectives, whatever they may be. In essence, Aspatore publishes critical tools need-to-read as opposed to nice-to-read books for all business professionals. Inside the Minds The critically acclaimed Inside the Minds series provides readers of all levels with proven business intelligence from C-Level executives (CEO, CFO, CTO, CMO, Partner) from the world's most respected companies. Each chapter is comparable to a white paper or essay and is a futureoriented look at where an industry/profession/topic is heading and the most important issues for future success. Each author has been carefully chosen through an exhaustive selection process by the Inside the Minds editorial board to write a chapter for this book. Inside the Minds was conceived in order to give readers actual insights into the leading minds of business executives worldwide. Because so few books or other publications are actually written by executives in industry, Inside the Minds presents an unprecedented look at various industries and professions never before available.

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