Supreme Court Holds That Generic Drug Manufacturers Can Challenge the Validity of a Reference Drug’s “Use Code”

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This week, the Supreme Court made it easier for a generic drug maker to challenge the way in which brand-name drug manufacturers describe patents to the FDA. In Caraco Pharmaceutical Laboratories, Ltd. v. Novo Nordisk A/S, the Court reversed the Federal Circuit and held—in a unanimous opinion written by Justice Kagan—that a generic manufacturer may counterclaim in a patent infringement suit to force a brand manufacturer to correct a “use code”—an FDA-mandated description of the scope of any method-of-use patent—in its New Drug Application (NDA) that too broadly describes a patent. The decision is a key victory for generic manufacturers in that it removes one procedural obstacle to obtaining FDA approval. Nevertheless, Caraco may have other, more indirect consequences that will take time to develop.

Very simply, Caraco boils down to these facts: Novo Nordisk manufactures (in three formulations) the brand-name prescription drug Prandin®, a medicine used to treat type 2 diabetes. In 2005, Caraco Pharmaceutical sought FDA approval to market to formulations of repaglinide, the generic version of Prandin®. At the time that Caraco submitted its Abbreviated New Drug Application (ANDA), Novo Nordisk owned two patents associated with Prandin®. One—covering the repaglinide compound itself—was set to expire in 2009. The other—“patent ‘358,” a method-of-use patent that covers repaglinide in combination with metformin—does not expire until 2018. Importantly, Novo Nordisk described patent ‘358 in its NDA (i.e., provided FDA with a “use code”) as covering the “[u]se of repaglinide in combination with metformin to lower blood glucose.” Caraco certified in its ANDA that it would not market either of its proposed generic formulations of repaglinide until Novo Nordisk’s patent on the drug compound expired in 2009. Caraco also filed a “paragraph IV certification” with FDA in which it certified that its proposed formulations would not violate the ‘358 patent because they would not use metformin. As it was authorized to do under the relevant statutes, Novo Nordisk treated this paragraph IV certification as an act of infringement and filed suit against Caraco.

In the meantime, FDA responded to Caraco and advised that, so long as Caraco did not market repaglinide for use with metformin, it could file a “section viii statement” proposing labeling to “carve out” its generic formulations from Novo Nordisk’s remaining patented use. Caraco filed its section viii statement with the proposed carve-out labeling. At the same time, Novo Nordisk had itself been engaged in dialogue with FDA over a labeling change for Prandin®. Once that new labeling took effect, Novo Nordisk—reading FDA’s regulations to allow a drug’s indication to serve as its use code—amended the patent ‘358 use code in its NDA. That amended use code more broadly defined the patent’s use as “[a] method for improving glycemic control in adults with type 2 diabetes.” The upshot: FDA interpreted the new use code to encompass all three formulations of Prandin® and informed Caraco that it could not market its generic formulations using the proposed carve-out labeling.

Caraco filed a counterclaim in Novo Nordisk’s pending patent infringement action pursuant to a 2003 amendment to the Hatch-Waxman Act that allows generic drug companies to counterclaim to correct or delete “patent information” submitted by the brand. A successful counterclaim would allow the FDA to approve Caraco’s ANDA. The district court granted Caraco summary judgment and enjoined Novo Nordisk to “reinstate its former use code.” But the Federal Circuit reversed, holding that Caraco had no statutory basis to bring the counterclaim because the use code was not “patent information submitted by” Novo Nordisk.

In reversing the Federal Circuit, the Court principally relied on its interpretation of two phrases in the statute. First, Congress authorized generic manufacturers to assert counterclaims when the brand manufacturer’s “patent does not claim ... an approved method of using [a] drug.” Caraco argued that Congress authorized counterclaims “whenever the patent does not claim a method of use for which the ANDA applicant seeks to market the drug.” The Court agreed that such a reading of the text best fit the context of Hatch-Waxman, which “contemplates that one patented use will not foreclose marketing a generic drug for other unpatented ones.” The Court reasoned that adopting Novo Nordisk’s reading of the law—that counterclaims are permitted only when the patent does not claim any approved method of use—would mean that Caraco’s counterclaim “disappears” simply because Novo Nordisk “has a patent for a method of use in which neither Caraco nor the FDA is interested at all.”

Second, the Court held that use codes fall within the definition of “patent information submitted by” brand manufacturers and are thus subject to counterclaim. The Court reasoned that use codes had to be “patent information” because they “describe the method of use claimed in a patent” and they cannot “sweep more broadly than the patent.” Moreover, the Court held that the relevant provision “most naturally refers to patent information provided as part of the comprehensive regulatory scheme of regulation,” which includes the submission of use codes.

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Caraco’s holding changes the patent landscape for pharmaceutical drugs in a number of ways. First, generic manufacturers now are able to challenge the scope of brand manufacturers’ descriptions of their patents as counterclaims in patent infringement suits. Second, the Supreme Court was clear that use codes can no longer “sweep more broadly than the patent.” In these ways, Caraco certainly provides a measure of relief for generic manufacturers hoping for more efficient approval of their ANDAs.

But questions still linger. For example, brand manufacturers could be sued for antitrust violations if they utilize the Hatch-Waxman process inappropriately to delay generic entry, such as filing “baseless” Citizen Petitions or an overbroad use code. Indeed, the amendment at issue here was designed specifically to curb such activity. Now that a generic drug company can litigate the validity of the use code within an infringement suit, it will be interesting to see if use codes go away as a potential violation. If the brand manufacturer wins the counterclaim, presumably that would deter any subsequent antitrust action. Of course, if the brand manufacturer loses the counterclaim, then it could expect plaintiffs to use that decision as a basis for an antitrust action, assuming the use code contributed to a delay of the generic and was not simply cumulative.

Besides a concern over subsequent antitrust litigation, the Caraco decision has still another effect. A brand manufacturer should now consider the risk of a counterclaim to challenge its use codes when it is deciding whether to bring a patent infringement suit against a generic manufacturer. Justice Sotomayor observed this more nuanced point in a concurring opinion—Caraco highlights the reality that generic manufacturers can challenge allegedly overbroad use codes only by filing counterclaims in a patent infringement suit. Because FDA serves only a “ministerial” role with regard to use codes, generic manufacturers have no other outlet for their overbreadth argument than a patent infringement suit. And only brand manufacturers can institute such a suit in the first instance.

Thus, the use code may still delay generic entry, and the only recourse for a would-be plaintiff to remedy an overbroad code is an antitrust suit, which is time-consuming and expensive. Although FDA could approve an ANDA “without prejudice to infringement claims the patent owner might assert when the ANDA applicant produces or markets the generic drug,” as Justice Sotomayor pointed out, that requires a generic manufacturer to go to market with a facially infringing label and bear the risk of a later infringement action. Thus, time will tell, but this nuance may mean that Caraco’s hope for generic manufacturers is elusive.