Kaminski_Jeffri_LRJeffri A. Kaminski, Partner, Venable LLP, with Tyler Hale, Associate, Venable LLP.

In 1984, Congress passed the Drug Price Competition and Patent Term Restoration Act, commonly known as the Hatch-Waxman Act, and redrew the legal landscape for intellectual property in the pharmaceutical industry.  The law balanced the need for brand-name drug innovators to profit from their research and development investments with the public good of low-cost generic drugs by creating a pathway for swift FDA approval of generic drugs immediately following the expiration of patent exclusivity.  By all accounts, the law has been a success, creating the drug lifecycle we know and expect today: new drugs enter the market at a high price with a limited period of exclusivity, after which several generic competitors enter the market and drive prices down to a fraction of their original cost. Hatch-Waxman, however, largely only applies to “New Chemical Entities,” or so-called small-molecule drugs, which are synthesized entirely from nonliving chemical materials.  Medical products that are partially or wholly derived from biological material, called “biologics” or “biopharmaceuticals,” do not fall under Hatch-Waxman.  These products, which include many vaccines, gene therapies, blood components, proteins, and other large-molecule entities, are now at the forefront of medical research and constitute the majority of “specialty drugs,” a new designation for such complex treatments.

In 2010, Congress passed the Biologics Price Competition and Innovation Act of 2009 (BPCIA) as part of the suite of laws known as the Affordable Care Act.  The BPCIA attempts to recapture Hatch-Waxman’s lightning in a bottle by emulating the regulatory structure for generic drugs to accommodate “biosimilars,” or follow-on biologics that are as near to identical to the original medical products as biology will allow.  Similar to Hatch-Waxman, the BPCIA allows a streamlined application for both wholly interchangeable biologics and biosimilars, which cannot be automatically substituted without physician approval.  In 2015, FDA approved the first product under the BPCIA—Zarxio, Sandoz’s biosimilar to Amgen’s Neupogen, a drug that stimulates production of certain white blood cells in patients with HIV or those who have undergone chemotherapy.

Amgen sued Sandoz for a host of business torts as well as noncompliance with two particular provisions of the BPCIA:  42 U.S.C. §§ 262(L)(2)(A) and 262(L)(8)(A).  Both clauses are part of Section L, which has come to be informally known as “the patent dance” due to the complicated series of disclosures and trades of confidential information it prescribes.  Subsection (L)(2)(A) requires the biosimilar applicant to provide a copy of the application and “such other information that describes the process or processes used to manufacture the biological product that is the subject of such application” to the reference drug maker within 20 days of the application’s acceptance.  “Such other information” is typically highly confidential and competitively sensitive.  Subsection (L)(8)(A) requires the applicant to give 180-days’ notice before first commercially marketing the biosimilar.  Both sections use the imperative language “shall” as part of their instructions.  The former provision is evidently intended to trigger a designed patent litigation period, wherein both sides disclose any relevant patents and choose which of them to test against each other in district court, while the latter is designed to give the reference drug owner the chance to seek injunctive relief regarding any lingering, unlitigated patent concerns.  Sandoz, having differed on its interpretation of the new statute, had declined to provide either any confidential process information to Amgen or any specific notice of going to market.  The US Court of Appeals for the Federal Circuit eventually ruled for Sandoz, and in January of 2017 the Supreme Court granted review.  Oral argument is scheduled for April 26.

On the one hand, the question presented to the Supreme Court is straightforward: when does the word “shall” mean “shall”?  For the Federal Circuit, the answer is whenever the statute doesn’t provide an alternative.  Regarding Subsection (L)(2)(A), the Federal Circuit observed that a different paragraph, (L)(9)(C), explicitly provides a course of action (here, the institution of a declaratory judgment action) if the new drug applicant “fails to provide the application and information required under paragraph (2)(A).”  Regarding (L)(8)(A), the 180-days’ notice provision, the court found that the lack of any provision contemplating an alternative rendered that section’s “shall” as mandatory, and imposed a 180-day ban on marketing from the date of the last formal notice to Amgen.

On the other hand, larger questions about the BCPIA underlie the Supreme Court’s ultimate decision.  An amicus brief from the United States disagrees with the Federal Circuit’s decision and argues that the notice provision need not be so strict—that is, that applicants can give operative notice before FDA’s final approval of the drug, thus not subjecting themselves to an initial six-month holding pattern after approval.  Such a delay would be a de facto extension of the Act’s exclusivity period and could cost biosimilars billions.  Some commentators have asserted that finding it permissible to play wallflower to the “patent dance” altogether, as Sandoz did, may undermine the BCPIA’s envisioned regulatory scheme by kicking the fight over applicable patents down the road and out of the Act’s designated dispute resolution process.

Especially given the dissent between the federal government and the Federal Circuit, the issue is ripe for Supreme Court review and its decision (expected before this Term’s end in late June) will clarify the multi-billion dollar competitive landscape for biologics going forward.