In patent litigations between branded pharmaceutical companies and generic manufacturers, where the generic company files an Abbreviated New Drug Application (ANDA) and is attempting to sell a product that is equivalent to the branded company’s product, much of the litigation focus and drama revolves around the so-called “30-month” FDA stay date. Under the Hatch-Waxman Act,1 once the branded pharmaceutical company files a timely complaint, the FDA will not grant the generic company final approval of its product for “30-months,” absent a court decision that the patent is not infringed, invalid or unenforceable.2 Thus, the expiration of the 30-month stay date is important to the branded company because it demarks a potential date of generic competition, and correspondingly, that date is important to the generic company because it is likely the first opportunity the generic company will have to launch its product.

In principle, the 30-month FDA stay period is designed to provide the court enough time to resolve the branded pharmaceutical company’s patent issues, and the FDA sufficient time to review the generic company’s ANDA. Recognizing that delay in the litigation by either party could have serious implications, the Hatch-Waxman Act states that a court may either shorten or lengthen the 30-month period if “either party to the action failed to reasonably cooperate in expediting the action.”3 Because the generic company would like to enter the market sooner than the 30-month FDA stay period, it must invoke the statute to try to shorten the stay period, alleging that the branded company has improperly delayed the litigation.

Delay by the generic company, however, is just as serious an issue, and indeed, recently it was the branded pharmaceutical company that invoked the statute to extend the 30-month stay period to provide it a fair opportunity to analyze the generic company’s product. In Eli Lilly & Co. v. Teva Pharmaceuticals USA, Inc.,4 Teva’s belated change in product and eleventh-hour production of documents formed the bases by which the district court extended the 30-month stay. In addressing the applicable standard for an extended stay period for the first time, the Federal Circuit affirmed the district court, recognizing that whether to shorten or extend the FDA stay is within the district court’s sound discretion.

The Hatch-Waxman Statutory Framework

The Lilly case arose under the Hatch-Waxman Act, which was enacted to provide a balance between the public policy interests of encouraging research and development of new drugs and the interest of providing low-cost generic copies of those drugs. Under the Hatch-Waxman Act, a generic manufacturer seeks FDA approval of its proposed product based on the safety and efficacy data submitted by the branded pharmaceutical company, provided that the generic company demonstrates its proposed product is equivalent to the branded drug.5

The Hatch-Waxman Act requires that the branded pharmaceutical company notify the FDA as to all patents that cover their approved drugs, and to list the patents in the FDA “Orange Book” (formally, the “Approved Drug Products with Therapeutic Equivalence Evaluations”). When filing an ANDA, a generic manufacturer must make one of four certifications for the Orange Book-listed patents. If a generic manufacturer files a “paragraph IV” certification, alleging a listed patent is invalid, unenforceable or is not infringed by the manufacture or use of the generic product, the branded company must sue 45 days from the notice of certification to automatically trigger a 30-month stay of final approval by the FDA of the ANDA. The length of the FDA stay period, however, may be modified “as the court may order because either party to the action failed to reasonably cooperate in expediting the action ….”6

Hatch-Waxman Statutory Framework Lilly Obtained an Exension of the 30-Month FDA Stay

Lilly holds an approved New Drug Application (NDA) for the use of raloxifene hydrochloride for the treatment and prevention of post-menopausal osteoporosis, and markets the drug under the trade name Evista®. Teva filed an ANDA for generic raloxifene hydrochloride tablets. On May 16, 2006, Teva provided Lilly a paragraph IV certification, alleging that Lilly’s patents were not infringed, invalid or unenforceable. Lilly sued Teva on June 29, 2006, automatically triggering a 30-month stay of FDA’s final approval of Teva’s ANDA.

A Markman7 Hearing was held to construe several claim terms of the patents in suit that related to the particle size of the claimed invention. On June 11, 2008, the Court adopted several of Lilly’s proposed claim constructions.8 Less than a month later, on July 8, 2008, Teva amended its ANDA, altering its proposed product and including a new method for measuring the particle size of its generic raloxifene hydrochloride. Two days later, Teva notified Lilly of its amendment to its ANDA, and subsequently provided Lilly with samples of its altered raloxifene hydrochloride, two samples of which were provided after August 18, 2008, the discovery deadline. 9

The 30-month stay was set to expire on November 16, 2008. On September 17, 2008, Lilly moved, pursuant to 21 U.S.C. § 355(j)(5)(B)(iii), to extend the stay for six months, until March 9, 2009, when trial was to begin.10

Relying, in large part, on Eli Lilly & Co. v. Barr Laboratories, Inc.,11 Lilly moved for an extension of the 30-month stay because of Teva’s alleged failure to “reasonably cooperate in expediting the action.” Lilly complained that Teva’s “eleventh hour” change to its raloxifene hydrochloride product—including changes to the particle size manufacturing specification and the methodology used to measure particle size (which were likely made in an effort to avoid infringing the claims of the particle size patents)— more than two years after filing its ANDA, and Teva’s delay in producing critical discovery relating to its altered product, adversely affected Lilly’s infringement case and prejudiced its trial preparation.12

Teva countered that the changes to its proposed drug product were merely minor alterations, and that it had reasonably cooperated in advancing the litigation. Teva maintained it promptly notified Lilly of its ANDA amendment and produced 27,000 documents relating to that amendment and its altered samples. Teva argued an extension of the stay would not be appropriate because Lilly could not show Teva failed to reasonably cooperate in advancing the litigation. Finally, Teva contended that Lilly raised regulatory issues that should be left to the FDA, instead of addressing substantive patent issues.13

The district court granted Lilly’s motion, stating that an extension of the 30-month FDA stay was justified because “Teva has 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” and “Lilly is entitled to have a sufficient opportunity to identify the nature and composition of the raloxifene product at Teva intends for it to be sold.”14 The Court granted the extension “to allow [Lilly’s] expert to test and report on the altered raloxifene samples provided by Teva, and for Lilly to assess and utilize that information and analysis in its preparation for trial.”15

The Federal Circuit Affirms

In a split decision, the Federal Circuit affirmed the district court’s ruling because there was no abuse of discretion.16 The Federal Circuit found that the district court based its ruling on the evidence that Teva altered its proposed generic product late in the litigation by changing the particle size manufacturing specification and the method of measuring particle size, and then delivered samples and documents to Lilly past the close of discovery. In affirming the district court, the Federal Circuit concluded that the district court acted within—and did not abuse—its discretion.

The Federal Circuit stated that 21 U.S.C. §355(j)(5)(B)(iii) allows the district court to adjust the 30- month stay period if “either party to the action failed to reasonably cooperate in expediting the action.” Under that standard, the Court concluded that the stay period may be shorten or lengthened “based on the parties’ uncooperative discovery practices.”17 Thus, by virtue of the fact that Teva “altered” its product shortly before trial, it was within the district court’s discretion to extend the stay to allow Lilly time to analyze that change and to prepare for trial.

The Federal Circuit rejected Teva’s argument that the Federal Circuit’s decision in Andrx Pharms., Inc. v. Biovail Corp.,18 showed the district court erred. In Andrx, the district court granted Andrx’s motion to shorten the 30-month stay of final FDA approval of Andrx’s proposed generic product, finding that Biovail had intentionally delayed the resolution of the actions between the parties, based on Biovail’s conduct before the FDA. On appeal, the Federal Circuit vacated the decision, stating the district court’s reading of the statute was overbroad, and erred in shortening the stay based on Biovail’s conduct before the FDA.19 In Lilly, the Federal Circuit ruled that the district court based its decision on Teva’s lack of cooperation in expediting patent litigation in its court, not on Teva’s filing with the FDA.20

The Dissent

Dissenting, Judge Prost argued the majority’s application of the abuse of discretion standard was the wrong legal standard. Judge Prost stated that when a stay is tied to a statutory standard, the construction of the standard is to be reviewed de novo.21 According to Judge Prost, the majority not only erred in applying the abuse of discretion standard; it further erred in its analysis under that standard.

Judge Prost took issue with what the district court “found”—or rather, what it did not find. Judge Prost maintained the district court never made any finding under the statutory standard—whether Teva “reasonably cooperated in expediting the action.” Judge Prost argued that the district court provided just two justifications for extending the stay: “to provide Lilly ‘a sufficient opportunity to identify the nature and composition of the raloxifene product as Teva intends for it to be sold,’” and “to give Lilly ‘a reasonable amount of time to allow its expert to test and report on the altered raloxifene samples provided by Teva and for Lilly to assess and utilize that information and analysis in preparation for trial.’”22

Judge Prost further argued that a district court opinion “must contain sufficient findings and reasoning to permit meaningful appellate scrutiny.”23 Here, Judge Prost argued, the district court did not do so. Instead, Judge Prost cautioned that the 30-month stay—a “hard won compromise” between brand name manufacturers and generic manufacturers—“will cease to have meaning when district courts are able to modify the stay without articulating why the narrow circumstances described in the statute are present.”24

Ramifications of Extending the 30-Month Stay

Extension of a 30-month stay is akin to the grant of a preliminary injunction: both postpone final FDA approval and launch of the generic drug product. However, in considering whether to reduce or extend the FDA stay period, the inquiry centers on the acts of the litigants in discovery. By contrast, a preliminary injunction motion focuses on the substantive merits of the litigation. Thus, the Hatch- Waxman Act allows the court to increase the stay period under particular circumstances without having to meet the preliminary injunction standard. But of course, the parties control their own actions in discovery, and thus control their own destiny as to whether there is any basis for shortening or lengthening the stay period.

While there may be more motions for modifications of the 30-month stay after Lilly, the potential availability of such a motion is mostly focused on the acts of the party that typically wants the stay to end, namely the generic company, and whether the remedy of lengthening the stay will be granted will typically depend on whether the generic company timely provides critical information relevant to its proposed product.