In the span of less than a month, both the Food and Drug Administration and Federal Trade Commission examined the circumstances which trigger the forfeiture of 180-day exclusivity and the potential consequences when companies act to avoid forfeiture and “park” 180-day exclusivity rights. On January 23, 2008, FDA ruled that Teva Parenteral Medicines (“Teva”) was entitled to 180- day exclusivity for granisetron hydrochloride injection, 1mg/mL (“granisetron”) because the second part of the forfeiture test – the “court decision trigger” which occurs upon entry of a final court decision or settlement order that a challenged patent is invalid or not infringed – had not occurred. Just a few weeks later, on February 13, 2008, FTC brought suit against Cephalon Inc. for entering into litigation settlements with four firstfilers on modafinil, which, according to FTC, were structured to avoid the “court decision trigger.” FTC alleges that Cephalon, by avoiding the trigger, was able to park the 180-day exclusivity rights of the first-filers and, therefore, block subsequent ANDA filers.

FDA Rules That Both Triggering Events Must Occur To Give Rise To Forfeiture

FDA’s ruling came in response to a request by Teva to confirm that Teva had not forfeited its exclusivity right for granisetron. Teva was the first to file an ANDA for granisetron. Teva’s ANDA contained certifications for 3 patents: a Paragraph III certification for the ‘808 patent due to expire on December 29, 2007, a Paragraph IV certification for the ‘548 patent due to expire in May 2019, and a Section viii statement to the ‘340 method-of-use patent due to expire in September 2016. Neither Teva nor any subsequent ANDA filer was sued by the patent holder, Roche, on a Paragraph IV certification. None of the ANDA filers chose to bring a declaratory judgment action against Roche challenging the ‘548 patent.

The Food, Drug and Cosmetic Act contains a two-part test under which a first applicant forfeits its right to a 180-day exclusivity period if that applicant fails to market the drug by the later of:

(aa) the earlier of the date that is –

(AA) 75 days after the date on which the approval of the application of the first applicant is made effective under subparagraph (B)(iii); or

(BB) 30 months after the date of submission of the application of the first applicant;

or

(bb) with respect to the first applicant or any other applicant (which other applicant has received tentative approval), the date that is 75 days after the date as of which, as to each of the patents with respect to which the first applicant submitted and lawfully maintained a certification qualifying the first applicant for the 180-day exclusivity period under subparagraph (B)(iv), at least 1 of the following has occurred:

(AA) In an infringement action brought against that applicant with respect to the patent or in a declaratory judgment action brought by that applicant with respect to the patent, a court enters a final decision from which no appeal (other than a petition to the Supreme Court for a writ of certiorari) has been or can be taken that the patent is invalid or not infringed.

(BB) In an infringement action or a declaratory judgment action described in subitem (AA), a court signs a settlement order or consent decree that enters a final judgment that includes a finding that the patent is invalid or not infringed.

(CC) The patent information submitted under subsection (b) or (c) is withdrawn by the holder of the application approved under subsection (b).

21 U.S.C. § 355(j)(5)(D)(i)(I) (emphasis added).

FDA accepted Teva’s ANDA for filing on June 1, 2004. FDA tentatively approved Teva’s ANDA on August 16, 2005. FDA was precluded from granting final approval to the ANDA, however, until December 29, 2007 – the date on which the ‘808 patent expired. See 21 U.S.C. § 355(j)(5)(B)(ii) (precluding FDA from granting final approval until “the date certified under [Paragraph] (III)”). As a result, Teva did not commence marketing of granisetron within 30 months after the submission of its ANDA (i.e., by December 1, 2006), which is one of the triggering events under subpart (aa).

Teva requested a decision from FDA confirming that it had not forfeited its 180- day exclusivity for failing to market granisetron prior to its approval because no triggering event occurred under subpart (bb).

The question presented to FDA was whether, when no triggering event under subpart (bb) has occurred at the time FDA makes its exclusivity determination, forfeiture of the 180-day exclusivity period occurs when the applicant fails to market the drug within the applicable time period under subpart (aa).

FDA determined that under the plain language of the statute, 180-day exclusivity is not forfeited for failure to market when a triggering event under subpart (aa) has occurred, but none of the triggering events under subpart (bb) have occurred. FDA stressed that it was not impossible for an event under subpart (bb) to occur because the patent holder could still file an infringement action or any of the ANDA filers could file a declaratory judgment action which could then result in a final decision or settlement order that the patent was invalid or not infringed, or the patent holder could withdraw the patent.

FDA’s Interpretation Of The 180-Day Exclusivity Forfeiture Provision

In the course of reaching its decision, FDA stressed that Teva had not parked its exclusivity, but rather was waiting out expiration of the first patent (which was subject to a Paragraph III certification) before Teva could obtain final approval of its ANDA and begin to market its generic. In its ruling, FDA commented on the possibility that a first filer could park its 180-day exclusivity period without triggering a forfeiture:

Inherent in the structure of the “failure to market” forfeiture provisions is the possibility that a first applicant would be able to enter into a settlement agreement with the NDA holder or patent owner in which a court does not enter a final judgment of invalidity or noninfringement (i.e., without a forfeiture event under subpart (bb) occurring), and that subsequent applicants would be unable to initiate a forfeiture with a declaratory judgment action. This inability to force a forfeiture of 180-day exclusivity could result in delays in the approval of otherwise approvable ANDAs owned by applicants that would market their generic drugs if they could not obtain approval. This potential scenario is not one for which the statute currently provides a remedy.

The ability of a subsequent ANDA applicant to initiate a forfeiture with a declaratory judgment action turns on the ability of the applicant to establish a “case or controversy,” which has been the subject of much recent analysis. See generally MedImmune, Inc. v. Genentech, Inc., 127 S.Ct. 764, 774 (2007) (holding that declaratory judgment standard in patent cases is the “all circumstances test”); Teva Pharmaceuticals USA, Inc. v. Novartis Pharmaceuticals Corp., 482 F.3d 1330, 1343-43 (Fed. Cir. 2007) (allowing declaratory judgment action brought by ANDA applicant); see also Client Alert, “Federal Circuit Loosens Reins on ‘Case or Controversy’ Requirement for Declaratory- Judgment Suits,” (April 3, 2007).

FTC Brings Suit Against Cephalon, Alleging That Settlement Agreements That Avoid “Court Decision” Trigger Are Unfair Method Of Competition

Less than one month after FDA’s ruling on the Teva request, the Federal Trade Commission filed suit against Cephalon, Inc., alleging that Cephalon entered into anticompetitive settlement agreements that resulted in the “parking” of the first-filers’ shared 180-day exclusivity period. Federal Trade Commission v. Cephalon, Inc., Civil Action No. 1:08-cv-00244 (United States District Court for the District of Columbia).

Cephalon has a formulation patent for modafinil (Provigil®) that is set to expire in October 2014. Four generic companies earned shared 180-day exclusivity rights by filing their ANDAs with Paragraph IV certifcations on first day FDA could accept an ANDA for modafinil. Cephalon then sued each of the four first-filers in March 2003, triggering a thirty-month stay of final FDA approval of the ANDAs until June 2006. Cephalon then settled with each of the four first-filers before the expiration of the stay. Cephalon agreed to pay significant compensation to each of the first-filers -- more than $200 million collectively. The first-filers, in turn, agreed to refrain from marketing modafinil until April 2012. FTC alleges that Cephalon plans to switch sales to a sucessor product, Nuvigil, prior to the entry of modafinil in April 2012.

FTC brought suit against Cephalon for allegedly engaging in an unfair method of competition in violation of Section 5(a) of the Federal Trade Commission Act, 15 U.S.C. 45(a). In its complaint, FTC alleged that Cephalon structured the settlement to park the first-filers’ exclusivity rights and block the entry of subsequent ANDA filers:

Cephalon’s settlement agreements with the first-filers have prevented generic competition not only from those companies but from any other source as well. Under the Hatch-Waxman Act, the first-filers collectively hold rights to 180-day exclusivity for modafinil. The FDA is prevented by law from approving any other generic version of Provigil until the 180-day exclusivity period has been triggered and run. Only (1) the commercial marketing of modafinil by at least one of the first-filers, or (2) an appeals court decision declaring Cephalon’s Particle Size Patent invalid or not infringed would trigger the 180-day exclusivity period.

Because of Cephalon’s anticompetitive agreements with the first-filers, their 180-day exclusivity will not be triggered by the commercial marketing of modafinil until April 2012, the entry date the first-filers agreed to with Cephalon.

Cephalon’s settlements ensure that there will not be a court decision in the patent litigation with the first-filers to trigger the 180- day exclusivity period.

Cephalon has taken further steps to ensure that no court decision will trigger the 180-day exclusivity period, including settling or refusing to litigate with other generic companies that could trigger the exclusivity period.

Complaint for Injunctive Relief, ¶¶ 85 – 88.

Although FTC chose not to bring suit against any of the four generic companies which entered into the agreements with Cephalon, FTC Commissioner Jon Leibowitz expressed his view that the generic companies which settled with Cephalon also violated the law:

I also would have named as a defendant any generic company that took these payoffs and now refuses to relinquish their 180-day exclusivity, thus blocking generic entry into the Provigil market that otherwise could occur in 2008. In the context of this case, I would not sue any company that, to its credit, offered to relinquish – because eliminating that exclusivity would open the door to imminent generic entry for Provigil.

Currently, Barr, Ranbaxy, Teva and Mylan share the 180-day exclusivity for modafinil (the active ingredient in Provigil). Under the Hatch-Waxman Act, the FDA cannot approve any other modafinil product until 180 days after one of those first-filers has marketed its product. Because the settlements prevent entry by any of these firms until April 2012, no other generic – even it its product does not infringe or Cephalon’s patent is invalid – can enter the market until six month later. So Cephalon – without ever having to test its patent – is guaranteed protection from competition until 2012. Here, the 180-day exclusivity, which Congress created to reward generics for entering early, does precisely the opposite: it extends the brand’s monopoly, forcing consumers to pay excessive prices for Provigil throughout the span of these illegal deals.

Statement of Commissioner Jon Leibowitz, Concurring in Part and Dissenting in Part in the Matter of Cephalon, Inc., Matter No. 061-0182 (emphasis original).

Conclusion

FDA’s decision on Teva’s granisetron exclusivity and FTC’s Complaint against Cephalon present starkly different approaches to the avoidance of forfeiture under the failure-to-market provision. FDA characterized Teva’s failure to market as benign; FTC characterized Cephalon’s agreements as anti-competitive. It remains to be seen how courts and regulatory authorities will view conduct that may fall within these polar opposites. Recent developments in the law governing declaratory judgment actions add further potential uncertainty, as first-filers seek to avoid triggering a forfeiture event and subsequent filers seek to enter the marketplace.