In a 2-1 decision Tuesday, the Court of Appeals for the Federal Circuit affirmed a district court's ruling that extended Eli Lilly's 30-month stay in its patent infringement case against Teva Pharmaceuticals. The decision follows an expedited argument heard on January 14, 2009. The court held that the district court acted within its discretion in extending the stay until the start of trial based on the district court's finding that Teva "recast its product more than eighteen months after it provided the original sample to Lilly and only eight months before trial is set to commence." In a dissenting opinion, Judge Prost emphasized that the district court failed to make any findings that Teva failed to reasonably cooperate in expediting the action as required by statute.

This decision has the potential to make it more common for branded companies to seek an extension of the statutory 30-month stay anytime a generic manufacturer modifies its product during litigation. This case also presents challenging issues regarding the tension between the requirements to extend the 30-month stay and the more rigorous requirements for obtaining a preliminary injunction.

The case stems from Teva's Abbreviated New Drug Application (ANDA) for raloxifene hydrochloride, a generic of Lilly's osteoporosis drug Evista. The primary issue of concern was the rare grant of an extension of the automatic 30-month stay imposed by the Hatch-Waxman Act. In an area where a single day of exclusivity often yields millions of dollars in profits, this is a very important issue. Indeed, Lilly reported over $700 million in U.S. sales for Evista in 2007.

Under the Hatch-Waxman Act, there is a 30-month litigation period during which the Food and Drug Administration ("FDA") is prohibited from approving an ANDA after the generic manufacturer certifies that it believes the patent is invalid and/or not infringed (also known as a Paragraph IV certification). The generic manufacturer must notify the patent holder that it filed an ANDA with a Paragraph IV certification, after which the patent holder has 45 days to file an infringement action. After filing suit, the patent holder obtains a 30-month period of exclusivity (effective from the date notice was given) before FDA can approve the ANDA. Once this stay expires, and FDA has approved the ANDA, the generic manufacturer can enter the market, regardless of whether the patent issues have been resolved.

By statute, the 30-month stay may be shortened or extended by a court if "either party to the action fail[s] to reasonably cooperate in expediting the action." Lilly's 30-month stay was set to expire on November 16, 2008, yet trial was not scheduled to begin until March 9, 2009. Teva informed Lilly of its intention to enter the market "at risk" upon expiration of the 30-month stay. Lilly filed a motion to extend the statutory stay on September 17, 2008, then moved for a Temporary Restraining Order and Preliminary Injunction on October 6, 2008. In an Order dated October 29, 2008, before briefing on the preliminary injunction motion was even completed, the United States District Court for the Southern District of Indiana extended Lilly's period of exclusivity until March 9, 2009, the date trial is set to begin. In that Order, the court also denied Lilly's motion for a preliminary injunction as moot in view of the decision to extend the stay. Absent an extension of the stay pursuant to 35 U.S.C. § 355(j)(5)(B)(iii), Lilly's only recourse to keep Teva off the market, should Teva decide to launch its generic product, would be a preliminary injunction. A decision to grant or deny a preliminary injunction is based on an assessment of several factors, including (1) the likelihood of success on the merits of the underlying litigation; (2) whether irreparable harm is likely to result if the injunction is not granted; (3) the balance of hardships between the parties; and (4) whether the public interest is disserved by an injunction.

The lower court made no explicit findings that Teva failed to reasonably cooperate in expediting the action. Rather, the court relied on the fact that Teva submitted an amended ANDA to FDA on July 10, 2008. The court described the change as an alteration of the particle size manufacturing specification for Teva's product and its method of measuring particle size. Three of the asserted patents (the only patents to which infringement is an issue) have claims that include particle size limitations. The court characterized Teva's ANDA amendment as a recasting of its product. However, Teva referred to the submission as a "Minor Amendment" and stated that it merely modified a quality assurance parameter. While the exact nature of the amendment is not clear from the public record, we do know that Teva submitted the amendment to FDA less than a month after the district court issued its claim construction order construing the particle size limitations. The court adopted Lilly's construction, which provided larger particle-size ranges than those proposed by Teva. For example, the district court construed a mean particle size of "less than about 25 microns" to mean a value of less than 30.1 microns, whereas Teva had proposed a meaning of less than 26.3 microns. Further, the district court construed a mean particle size of "less than about 50 microns" to mean a value of less than 67.4 microns, whereas Teva had proposed that this term mean less than 50.4 microns. Thus, it is likely that Teva amended its particle size manufacturing specification to include a range outside of the court's claim construction.

Teva notified Lilly of the amendment on the same day the amendment was submitted to FDA. Discovery had been scheduled to close on August 11, 2008; however, the court extended the discovery schedule and changed the due date of Lilly's expert report on infringement in view of the amendment. But the court did not disturb the trial date. Within 60 days of the amendment, Teva had produced to Lilly three industrial batch samples of the altered product and approximately 27,000 documents related to the altered product.

Lilly asserted that an extended stay was warranted because of Teva's "last minute alteration of its proposed drug product" and "multiple delays in producing critical discovery." Teva countered that the amended ANDA was "nothing more than a minor alteration of the product" and further asserted that its actions following the amendment—producing multiple product samples and numerous documents—showed that it had reasonably cooperated in advancing the litigation. Teva also argued that ANDA amendments occur with some frequency, and that the 30-month stay should be viewed as having accounted for the possibility of such amendments.

In granting the extension, the district court relied on its previous decision in Eli Lilly & Co. v. Barr Labs, Inc., No. 1:02-cv-1844-SEB-JMS (S.D. Ind. May 27, 2005). In Barr, the court granted Lilly a limited extension of the 30-month stay "but only until such time as Barr has produced a sample of its proposed drug product ... after which time the stay shall continue only through a reasonably expeditious time period for preparing for trial." In that case, Barr had failed to produce even a single sample of its proposed product, whereas in this case Teva produced an original sample in December 2006 and subsequently produced three samples of the altered product.

The district court concluded that a similar extension was warranted to allow Lilly to assess the altered product in preparation for trial. The district court did not state that Teva failed to reasonably cooperate in expediting the action, but based the extension on the fact that Teva altered its product a year and a half after it submitted its original ANDA and eight months before trial was set to begin. Interestingly, while noting that Lilly needed a sufficient opportunity to test and analyze the altered product in preparation for trial, the court did not extend the trial date.

Teva filed an emergency appeal to the Federal Circuit on November 24, 2008 requesting that the court vacate the order extending the 30-month stay. First, Teva asserted that the district court based its decision solely on Teva's legitimate conduct before the FDA without making any explicit findings relating to the parties' litigation conduct, and the statute does not permit an extension of the stay based on conduct before FDA or to permit a party adequate time to prepare for trial. Second, Teva reasoned that it could not have "failed to reasonably cooperate in expediting the action" because Teva's conduct did not result in a delay in the previously scheduled trial date. Third, Teva argued that the 30-month stay does not apply to the "particle-size patents," the only patents affected by the ANDA amendment, because those patents were not asserted until more than six months after Lilly initially filed suit.

Under the Medicare Prescription Drug Improvement, & Modernization Act of 2003 (MMA), brand name companies are limited to a single, automatic 30-month stay per ANDA and are prohibited from obtaining a 30-month stay for patents that are listed in the Orange Book after the date the ANDA is filed. According to Teva, the particle-size patents are not subject to the 30-month stay because they were not asserted within the required 45-day period after notice was received. Thus, the extension of an automatic stay based on a change to an existing ANDA that does not impact the patents covered by the stay would, conceivably, be in violation of the MMA amendments.

Teva also argued that the trial court's order had the practical effect of a preliminary injunction, yet provided no bond or other mechanism to protect Teva from harm that may be caused if Teva is wrongfully prevented from entering the market.

In response, Lilly argued that (1) the court did not have jurisdiction to hear the appeal; (2) the trial court did not abuse its discretion in extending the statutory stay; and (3) the 30-month stay applies to entire actions, not certain patents involved in those actions. On the jurisdictional issue, Lilly took the position that the order was interlocutory and not final, and the order was not injunctive in nature. Rather, Lilly asserted that the order pertained to the management and progress of the case. In other words, the district court's authority to adjust the length of the stay served as a time-management device that allowed the court to control the timing of the suit.

Lilly also asserted that the order would not cause Teva irreparable or immediate harm. Lilly noted that the record was absent of any evidence that Teva had made any actual preparations for launch, for example by stockpiling finished inventory or contacting distributors. Lilly further argued that the lower court did not abuse it's discretion in extending the stay because Teva failed to reasonably cooperate with discovery and there was more than sufficient evidence in the record to support the court's decision. Lilly also asserted that the district court did not need to extend the trial date in order to extend the stay.

The Federal Circuit sided with Lilly and affirmed the district court's extension of the 30-month stay. The court stated that an abuse of discretion standard applies and held that "the record contained sufficient evidence, not based on clearly erroneous factual findings, upon which the district court rationally based its decision." While the court did not point to any specific findings of a failure to reasonably cooperate, the court noted that the findings relied upon by the district court included the fact that Teva altered its particle size manufacturing specification of its active ingredient late in the litigation and produced samples after the original deadline for discovery had expired. The court concluded that the district court did not abuse its discretion because the order was "based on its findings of Teva's lack of cooperation in expediting the patent litigation" and were not based on Teva's filing with the FDA. The court did not address Teva's argument that the 30-month stay does not apply to the "particle-size patents."

In her dissent, Judge Prost asserted that the question is one of statutory construction, thus the standard of review is de novo. Under either standard, however, she argued that the district court's decision should not stand because the court never made any finding related to the statutory standard. She noted that "not once in this order did the court indicate, much less unambiguously state, that it found Teva had failed to reasonably cooperate in expediting the action." She further emphasized the importance of the decision due to the fact that Congress set forth a clear statutory timeframe with one narrow exception. In her view, since this court never previously provided any guidance as to what qualifies as a failure to reasonably cooperate in expediting the action, the majority's decision effectively eliminates the statutorily required finding and ends the development of appropriate standards for modifying the length of the statutory stay.