Wrongful "Orange Book" Listing Raises Red Flag with FTC; Leads to Consent Order with Biovail Corp. Concerning its Drug Tiazac

The Federal Trade Commission today announced its first complaint against - and consent order with - a pharmaceutical manufacturer for allegedly illegally acquiring an exclusive patent license and wrongfully listing that patent in the U.S. Food and Drug Administration's (FDA) "Orange Book" for the purpose of blocking generic competition to its branded drug Tiazac.

According to the Commission's complaint, Biovail Corporation (Biovail) unlawfully acquired an exclusive patent license to protect its monopoly in the market for Tiazac and generic versions of Tiazac. Tiazac is a drug used to treat high blood pressure and chronic chest pain. The acquired license was for a patent on a unique formulation of the active ingredient in Tiazac. The complaint also alleges that Biovail maintained its monopoly by wrongfully listing the acquired patent in the Orange Book and by making misleading statements to the FDA.

To resolve these charges, Biovail must divest part of its exclusive rights. The proposed order prohibits any action by Biovail that would cause a statutory stay on generic Tiazac entry into the market. The proposed order also prohibits Biovail from wrongfully listing patents in the Orange Book in the future and requires Biovail to notify the FTC prior to acquiring patents that will be listed in the Orange Book.

"In the past two years, the FTC has taken action against brand-name and generic companies either for entering into agreements or making direct payments to delay entry by competitors into the U.S. pharmaceutical market," said Joseph J. Simons, Director of the Commission's Bureau of Competition. "Today's consent order alleviating Biovail's allegedly anticompetitive behavior illustrates that the FTC is also concerned with the use of questionable Orange Book listings and subsequent patent infringement lawsuits to unfairly delay generic entry, as well as other tactics such as obtaining the exclusive rights to another company's patent for anticompetitive use. This is a strong settlement that will prohibit similar behavior in the future. It is also significant to note that this case involves our challenge to a vertical agreement, the exclusive patent license, which confirms that we remain active in pursuing anticompetitive vertical restraints and mergers."

Background

Biovail is a Canadian manufacturer of branded and generic drugs, including Tiazac, a branded once-a-day diltiazem-based prescription pharmaceutical. Biovail holds an approved New Drug Application (NDA) from the FDA, allowing it to manufacture and sell Tiazac. In 2000, Tiazac's sales reached almost $200 million, accounting for 38 percent of Biovail's gross sales.

Andrx, a Florida-based company that develops generic versions of branded pharmaceuticals, was the first company to submit an application to the FDA to make and sell a generic version of Tiazac. In its application, known as an Abbreviated New Drug Application (ANDA), Andrx included a certification that its generic product would not infringe any patent claiming Tiazac. At that time, the only known patent listed in the Orange Book as claiming Tiazac was U.S. Patent Number 5,529,791 (the '791 patent), which covers the extended-release formulation of Tiazac.

Under the provisions of the Hatch-Waxman Act, a company may obtain approval to make and sell a generic version of a branded drug by filing an ANDA with the FDA. If a company seeks to market a generic version of a branded drug prior to the expiration of one or more of the patents listed in the Orange Book as relating to that drug, the generic applicant must provide a certification to the FDA with respect to each such patent. One type of certification a generic applicant may make to the FDA is a "Paragraph IV certification," in which the applicant claims that the branded-drug company's patent is invalid or will not be infringed by the manufacture, use, or sale of the generic product. The Hatch-Waxman Act allows a branded-drug company to delay the entry of a generic drug for which Paragraph IV certification has been filed by filing a patent infringement suit against the generic drug applicant. If such a suit is filed, the FDA stays final approval of the ANDA until the earliest of: 1) patent expiration; 2) a final determination by a court of non-infringement or patent invalidity; or 3) the expiration of a 30-month period from the time the ANDA filer notifies the patent holder of a Paragraph IV certification. (An ANDA filer must notify each patent owner and branded-drug company listed in the Orange Book when the ANDA filer makes its Paragraph IV certification.)

Andrx submitted an ANDA for a generic version of Tiazac in June 1998, at the same time providing a Paragraph IV certification to the FDA that its patent did not infringe the '791 patent. Within 45 days of this filing, Biovail filed a patent infringement suit against Andrx, triggering a 30-month stay of final regulatory approval of the generic product, which was set to expire in February 2001. On March 6, 2000, a federal district court ruled on the infringement suit, finding that Andrx's generic version of Tiazac did not infringe the '791 patent. Biovail appealed the ruling, but on September 29, 2000, while the appeal was still pending, the FDA tentatively approved Andrx's ANDA, saying that the company would be eligible for final approval upon expiration of the 30-month stay.

The Challenged Conduct

On January 8, 2001, before Andrx could enter the market with its generic Tiazac equivalent, Biovail listed a second patent in the Orange Book as claiming Tiazac. Biovail acquired an exclusive license to this patent, number 6,162,463 (the '463 patent), from DOV, a New Jersey-based drug manufacturer. The licensing arrangement also included plans for the companies to jointly develop new diltiazem products using this patent. As a result of this new listing, Andrx filed a second Paragraph IV certification stating that its generic did not infringe the '463 patent. Biovail filed a patent infringement suit against Andrx, triggering another 30-month stay of the final FDA approval of Andrx's ANDA and further delaying its entry.

Andrx, after learning that DOV was unable to give it a license to the '463 patent due to its exclusive agreement with Biovail, petitioned the FDA to require Biovail to delist the '463 patent from the Orange Book. The FDA sought confirmation from Biovail that the '463 patent was properly listed for Tiazac. Biovail submitted a declaration to the FDA stating that the '463 patent was eligible for Orange Book listing in connection with Biovail's drug product Tiazac. The FDA decided not to de-list it. The FTC alleges that Biovail's declaration to the FDA was misleading because it did not clarify whether the term "Tiazac" as used by Biovail meant FDA-approved Tiazac or Biovail's revised, and unapproved, form of the product which may use the '463 patent.

As a result of Biovail's conduct, first in obtaining the exclusive right to the '463 patent and then listing it in the Orange Book to achieve a second 30-month stay on generic entry, the FTC contends that consumers of Tiazac have been deprived of the benefits of lower-priced generic competition that might have been possible had Andrx been able to enter the market as soon as February 2001. The complaint against Biovail alleges that Biovail's exclusive license to the '463 patent constitutes an unlawful asset acquisition in violation of Section 7 of the Clayton Act and Section 5 of the FTC Act. The complaint also alleges that Biovail violated Section 5 of the FTC Act by engaging in acts to willfully maintain its Tiazac monopoly.

Terms of the Proposed Consent Order

The proposed consent order announced today settles charges that Biovail used both its acquisition of the patent from DOV and its listing in the Orange Book to illegally delay competition for its Tiazac product. Under the terms of the proposed order, Biovail: 1) is required to divest part of the exclusive rights to the DOV patent back to DOV; 2) is prohibited from taking any action that would trigger additional statutory stays on final FDA approval of a generic form of Tiazac; and 3) is prohibited from wrongfully listing any patents in the Orange Book for a product for which the company already has an FDA-approved NDA.

Under the terms of the proposed order, if Biovail fails to complete the divestiture of the '463 patent assets within 90 days of signing the consent agreement, Biovail is required to enter into a trust agreement and transfer these assets to a Commission-appointed trustee. This trustee would then have the exclusive power to divest the assets, subject to approval of the FTC, within a year.

Finally, the proposed order, which would expire in 10 years, contains certain reporting and other standard FTC monitoring provisions to help the Commission ensure that Biovail fully complies with its terms.

The FTC vote to accept the complaint and proposed consent order and place a copy on the public record was 5-0. The Commission is accepting comments on the proposed order until May 23, 2002, after which it will determine whether to make it final. Comments should be sent to: FTC, Office of the Secretary, 600 Pennsylvania Ave., N.W., Washington, D.C. 20580.

The FTC's Bureau of Competition seeks to prevent business practices that restrain competition. The Bureau carries out its mission by investigating alleged law violations and, when appropriate, recommending that the Commission take formal enforcement action. To notify the Bureau concerning particular business practices, call or write the Office of Policy and Evaluation, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, D.C. 20580, Electronic Mail: antitrust@ftc.gov; Telephone (202) 326-3300. For more information on the laws that the Bureau enforces, the Commission has published "Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust Laws," which can be accessed at http://www.ftc.gov/bc/compguide/index.htm.