On June 12, the United States Supreme Court released a heavily anticipated decision relating to patent disputes between the developers of new biological medicines and the manufacturers of “biosimilar” copies of those medicines.  This was the Court’s first ruling on the patent provisions of the Biologics Price Competition and Innovation Act (BPCIA), enacted in 2010 as part of the Affordable Care Act.

Biologics are typically complex, larger molecules that are derived from animals and microorganisms, in contrast to traditional, smaller-molecule drugs that are usually synthesized from chemicals. Biosimilars are akin to generic versions of traditional drugs, but, as the name implies, they are highly similar to the original medicine rather than identical.

As an earlier Health Affairs Blog post explained, the BPCIA created a pathway for approval of biosimilars and a mechanism for early resolution of patent disputes relating to those biosimilars.  After enactment of the statute, however, the innovative biologic and biosimilar industries disagreed about how the patent mechanism was supposed to work.  In July 2015, the Federal Circuit (which is the court of appeals for patent issues) issued a ruling that left both sides unhappy.  Both companies involved in that litigation—biosimilar applicant Sandoz and innovator Amgen—asked the Supreme Court to review the decision.  Amgen wanted one aspect of the ruling reversed, and Sandoz wanted the other aspect reversed.

Justice Thomas wrote the opinion for a unanimous Court. On one issue, Sandoz emerged the clear victor.  As a result of the court’s ruling on this issue, biosimilar companies will generally be able to launch their products as soon as the data exclusivity on the innovative product expires.  In very simple terms, this translates to cheaper medicines sooner.  On the second issue, however, the outcome was more complex: Amgen lost the immediate battle presented to the Supreme Court, but the litigation is not over yet, and there are still some important questions to be resolved concerning not only federal but also state—specifically California—law.

Background: Premarket Patent Litigation

Like the Hatch-Waxman framework, which applies to generic drugs, the BPCIA contains provisions that make it possible for patent disputes to be resolved before the market launch of products that are thought to infringe the innovative product’s patent.  Under both schemes, the innovator may bring suit in federal court for patent infringement, and the defendant may argue that its product does not infringe the patent or, indeed, that the patent in question is invalid or unenforceable.

Resolving these issues before the generic or biosimilar product enters the market is thought to benefit both parties and arguably also the broader public.  For instance, it gives the biosimilar applicant a chance to obtain a federal court ruling on validity and infringement without being at risk for any money damages.  It also protects the patent owner from the launch and then retraction of infringing products, which innovators argue has a permanent effect on their sales.  And it avoids the churn and confusion in the marketplace that would result if a product were released and then required to be taken off the market.  During the legislative process leading to the BPCIA, for the most part both the innovative companies and the biosimilar companies supported enactment of some sort of mechanism to resolve infringement and validity disputes before market launch.

The BPCIA Patent Resolution Process

The patent resolution process for biological medicines begins when FDA accepts a biosimilar application.  At this point, the biosimilar company is required to provide its application and information about its manufacturing process to the innovator.  This triggers a series of communications back and forth, on a set timetable, while the parties generate a master list of relevant patents. Once the master list is done, a subset of those patents is identified for immediate litigation, and the innovator is expected to bring a patent infringement suit.

The biosimilar company must also provide notice to the innovator at least 180 days before it launches its product.  At this point the innovator may bring a patent infringement suit on the remaining patents.  The biosimilar company may also bring suit itself, asking for a ruling that its product does not infringe the patent or, indeed, that the patent is invalid.

No Injunction for Failure to Provide Biosimilar Application

Beginning with the more complex issue that it would ultimately settle less definitively, the Supreme Court ruled that Amgen was not entitled to a federal court order (an “injunction”) requiring Sandoz to provide its marketing application and manufacturing information.  The statute requires that the biosimilar company provide these materials to the innovator, the Court wrote, but it also specifies a “remedy” for the innovator if the biosimilar company violates that requirement.

Ordinarily, the Court noted, a biosimilar company has a great deal of control over the premarket patent litigation.  The statute gives it control over how many patents are identified for the first wave of litigation, as well as control over the timing of the second wave.  But if the biosimilar company violates the requirement to provide its application, control shifts to the innovator.  In this scenario, the innovator can sue at any time for a court order declaring that the biosimilar product infringes its patent.  But even if it provides notice of market entry at least 180 days prior to launch as required under the statute, the biosimilar company cannot challenge the patent on its own initiative before it launches; it must wait to be sued for patent infringement.

Because Sandoz failed to provide its application, the statute gave Amgen the control over the litigation that Sandoz would have had.  This was Amgen’s remedy under the BPCIA, the Court concluded.  On this first issue, therefore, Sandoz won the battle.

This is where the decision gets interesting, though.

Amgen had actually asked the Court to rule on a two-part question.  The first question was whether a biosimilar applicant is “required” to provide a copy of its application and manufacturing information.  The second question was the remedy question:  Sandoz had not provided its application, so Amgen asked whether it was limited (as the court of appeals had said) to suing Sandoz for patent infringement.

The Court treated the issue as one question: “whether the requirement that an applicant provide its application and manufacturing information to the manufacturer of the biologic is enforceable by injunction.”   The Court effectively assumed the answer to the first question.  Justice Thomas repeatedly refers in the opinion to disclosure of the application as a “requirement” and as “required.”

This raises the question what, exactly, it means to say that providing the application is a “requirement” of the statute.  Pretty clearly the innovator cannot enforce the statute—hence the Court’s denial of Amgen’s request for an order that Sandoz provide its marketing and manufacturing information. This is, incidentally, also true of FDA’s primary statute, the Federal Food, Drug, and Cosmetic Act (FDCA).  If one company fails to do something required by the FDCA (including the Hatch Waxman provisions), another company that is harmed cannot obtain a court order requiring compliance.

But there may be other consequences for the biosimilar company beyond losing control of the patent infringement litigation. For instance, the Court expressly held open the possibility that a trial court might take into account a biosimilar company’s “violation” of the disclosure provision when considering whether to enjoin the company from marketing its product while a patent infringement case unfolds.  To give another example, section 262(f) of the statute makes it a misdemeanor to “violate” any of the provisions of section 262. Although this provision has not received much attention to date in connection with the BPCIA, it may mean the disclosure provision could be enforced by the federal government in a criminal case.

Also, presumably FDA could require biosimilar companies to confirm that they have complied with the disclosure provision.

Potential Relief Under State Law

The first question that must be answered, however, is whether an innovator may obtain relief under state law. The dispute between Amgen and Sandoz raises this issue directly:  Amgen had sought a court order under California’s unfair competition law, and the Court noted that this order might still be available.

Amgen and Sandoz characterized their dispute about the BPCIA as an argument over whether disclosure is “mandatory” (Amgen’s view) or simply a “condition precedent” (the Sandoz view).  Sandoz basically argued that it could withhold its application and take the consequences, meaning loss of control in the litigation.  In this view, providing the application was the “condition” if it wanted to stay in control.  As the earlier Health Affairs Blog entry put it, this struck innovators as “akin to an argument that compliance with criminal laws is optional because they specify consequences, such as imprisonment, for noncompliance.”

The Court declined to adopt this framing of the dispute, which it attributed carefully to the parties alone.  This supposed distinction, the Court explained, is not relevant to federal law.   It is relevant to state law.  If the requirement to provide the application is best characterized as a “condition precedent,” then failure to comply is not “unlawful” under California law.

As a result, the case goes back to the court of appeals.  If the court of appeals decides that noncompliance with the federal requirement is “unlawful” for California law purposes, giving rise to a state remedy, then it will have to decide whether federal law (which does not provide a remedy to the innovator) trumps that state law.  The case is therefore far from over, and it could end up in the Supreme Court again.

Notice of Launch Can Be Provided Before Approval

The Supreme Court’s second ruling was that a biosimilar applicant may provide notice that it plans to launch its product before FDA actually approves its product.  The court of appeals had ruled that it could not provide notice until after approval.  We did not know for certain whether this meant only final effective approval or possibly also “tentative approval,” which FDA might give if a biosimilar application was ready for approval, apart from waiting for exclusivity to expire.  If it meant final approval, though, the court of appeals ruling would have meant that the 12-year data exclusivity period for new biological medicines would have been followed by a 180-day waiting period, while the innovator asked a court to block market entry until patent issues could be resolved.  The Supreme Court’s ruling means that biosimilar companies will be able to give notice even before any tentative approval and thus launch at the end of the 12-year term.

One question that remains is whether an innovator can enforce the requirement to provide notice. The statute says that if the applicant fails to provide notice, it cannot ask for a court order (for instance, that the patent is invalid) until it launches its product.  The Court’s opinion suggests it would offer the same response, that a federal injunction is not available.  Again, though, other remedies might be.

Justice Breyer’s Concurrence

Justice Breyer’s one paragraph concurrence raises some interesting questions about what the future might hold.  He suggests that FDA could, once it has greater experience with the statute, reach a different interpretation of the statutory provisions in question, and he raises the possibility that the new interpretation would withstand scrutiny in court.  A court will generally defer to an agency that has arrived at a reasonable interpretation of its statute, unless the statute clearly compels a different interpretation.  Justice Breyer’s notion—reflected by the case that he chose to cite—seems to be that the BPCIA does not unambiguously require the interpretations in the Supreme Court’s opinion.  Indeed, he leads off by characterizing the Court’s interpretation of the BPCIA merely as “reasonable.”

The impact of Justice Breyer’s concurrence is hard to predict.  FDA may not have occasion any time soon to interpret the patent provisions of the BPCIA that were before the Supreme Court, at least not in the kind of document that would ordinarily receive deference from a court.  Moreover, no one joined his concurrence, which creates at least an inference that the remaining Justices do not agree with his characterization of the ruling. That said, the concurrence arguably signals to FDA that the door is not necessarily closed to a different interpretation in the future.  This, too, means the issues before the Court may not be fully behind us.

Impact of the Ruling

The ruling has proven controversial.  Some believe the Court got it wrong on both issues.  One innovative industry official wrote that the decision had “gutted” the statute, giving biosimilar companies “license to hide the ball.”  Others hail the decision, pointing out that it will “likely lower prescription drug costs and, thereby, expand patient access to life-enhancing drugs.”

Like the Hatch-Waxman Amendments, the BPCIA sought to balance competing policy goals: saving patients and payers money by creating a pathway for approval of cheaper copies of already approved medicines, on the one hand, and ensuring meaningful incentives for innovation by delaying approval of those medicines for some period of time and giving patent owners an opportunity to enforce their property rights, on the other hand.  Put another way, it sought a balance between the desire for lower cost drugs and the desire for more cures for tomorrow’s patients.

This decision clearly nudges the needle towards cheaper copies and away from innovation incentives, which makes it important to pay close attention to how the various stakeholders respond in the years ahead.  A great deal depends on what the Federal Circuit does on remand.

But a great deal also depends on how companies behave under the newly clarified scheme.  For instance, will companies provide their marketing applications?  Perhaps more companies will refuse to provide their applications now.  But the Supreme Court just agreed—also on June 12—to consider the constitutionality of the primary alternative method available for biosimilar companies to challenge the validity of innovator patents prior to market entry.  We may not have a ruling in that case until next spring, but in the meantime perhaps some companies will provide their applications simply because the continued availability of this alternative procedure, “inter partes review” at the Patent Office, is in doubt.

Also, how late will biosimilar companies file their applications, and how early will they provide notice?  Close study of the effectiveness of the patent incentive for biological innovation in the wake of enactment of the BPCIA remains imperative, as does attention to innovation rates.  We will need to ensure that, with this ruling in place, we have indeed struck the right balance between today’s patients and tomorrow’s patients.

Note: The author drafted an amicus brief for a group of law and economics professors who supported Amgen’s position on the statutory provision requiring biosimilar companies to provide their applications and manufacturing information.