Generic drug companies are those that sell versions of a brand name drug that are similar enough so that they can rely on the research and trials of the brand name company. They either have to wait until the patent on the brand name drug expires, or they can proceed through a process at the FDA where they certify that the generic that they want to sell is either not infringing and/or the patent claims obtained by the brand name company are invalid. If they say that they are not infringing and/or that the patent claims are invalid, that allows the brand name drug company to immediately file a patent infringement action, as authorized by Hatch-Waxman.
The way generics make money and the marketplace can sometimes seem byzantine, but there is no doubt that generics can be quite profitable. For example, generic drug maker Actavis plc (NYSE: ACT) recently reported its financial information from the first quarter of 2014. In the announcement, Actavis stated that their net revenue increased 40% to $2.66 billion for the first quarter ended March 31, 2014, compared to $1.90 billion in the first quarter 2013. Cash flow from operations for the first quarter of 2014 was $440 million and cash and marketable securities were $340 million as of March 31, 2014.
But the announcement of exceptional Q1 financial data came at the end of a week that showed just how much of a roller coaster ride it can be for generic drug companies, and just how much of their business model is dominated by litigation, litigation and more litigation.
On April 24, 2014, Actavis announced that it has entered into an agreement with Pfizer, Inc. (NYSE: PFE) to settle all outstanding patent litigation related to Actavis’ generic version of Celebrex® (celecoxib) 50 mg, 100 mg, 200 mg and 400 mg capsules. Under the terms of the agreement, Pfizer will grant Actavis a license to market its generic Celebrex® beginning in December 2014, or earlier under certain circumstances. Other details of the settlement were not disclosed. Celebrex® is indicated for the relief of the signs and symptoms of osteoarthritis, rheumatoid arthritis, and ankylosing spondylitis, and for the management of acute pain in adults.
The launch of Actavis’ product is contingent upon Actavis receiving final approval from the U.S. Food and Drug Administration (FDA) on its Abbreviated New Drug Application (ANDA) for generic Celebrex®.
At the time of the announcement of the settlement of the Celebrex® patent litigation, Actavis said it believed it was the “first applicant” to file an ANDA for the generic version of Celebrex®. This is significant because if Actavis truly was the first applicant to file an ANDA, and if its ANDA is ultimately approved, they would be entitled to 180 days of generic market exclusivity, subject to the FDA’s determination that the product qualifies for an award of exclusivity under the provisions of the Hatch-Waxman Act.
The importance of the 180-day exclusivity cannot be understated. Under Hatch-Waxman, generic manufacturers are encouraged to file paragraph IV certifications in ANDAs and attempt to enter the market. The carrot held out to generic manufacturers is significant — the first generic manufacturer to file a paragraph IV certification receives a 180-day exclusive right to market its generic version of the drug should it prevail. The catch is that only the first filed ANDA with a paragraph IV certification is eligible for the 180-day exclusivity period. Thus, being first really matters.
Unfortunately for Actavis, on April 28, 2014, the FDA awarded sole exclusivity on generic Celebrex® to Teva Pharmaceutical Industries Ltd. This prompted an Actavis subsidiary, Watson Laboratories, Inc., to file suit against the U.S. Food and Drug Administration (FDA) challenging the Agency’s decision regarding Actavis’s entitlement to the 180-day marketing exclusivity for its generic version of Celebrex® (celecoxib) 50 mg, 100 mg, 200 mg and 400 mg capsules. Actavis argues that an earlier ruling from the U.S. Court of Appeals for the Federal Circuit resulted in the triggering and subsequent expiration of Teva’s sole exclusivity on the product.
The life of a generic drug company is litigation, litigation and more litigation. But there can easily be huge pots of money at the end of the rainbow. Sometimes the brand name drug company will offer a reverse payment to keep the generic out of the market, so the generic gets paid for literally doing nothing other than being the first to challenge a patent with a paragraph IV certification. Other times the generic really wants that 180 exclusivity.
For the 12 months ending December 31, 2013, Celebrex® had total U.S. sales of approximately $2.2 billion, according to IMS Health data. Even sharing the marketplace for 180 days with Pfizer means the marketplace is still an oligopoly, which means super-competitive prices can still be charged in what is a $2.2 billion annual U.S. marketplace. That should easily mean hundreds of millions of dollars for the generic that wins the 180 days.
Tags: Actavis, Celebrex, drugs, generic drug companies, generic pharmaceuticals, generics, Hatch-Waxman Litigation, patent, patents, Pfizer
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