A Patent Medicine Called Gatt

It wouldn't be surprising if Robert J. Gunter took a dose of his own medicine. President of generic drugmaker Novopharm USA Inc., he has spent five years gearing up to produce a generic version of Glaxo Holdings PLC's blockbuster ulcer drug, Zantac. He even invested $40 million in a plant in Wilson, N.C., built to pump out the low-cost version as soon as Glaxo's first patent expires in December.

Now, Gunter finds himself in the middle of a stomach-churning patent battle. Glaxo and other brand-name pharmaceutical giants are claiming that the General Agreement on Tariffs & Trade (GATT), signed by President Clinton in December, extends many of their patents, Zantac's among them. More important, they argue, the extended patent term gives them extra months--even years--of protection from competing generics.

While the case relies on complicated legal arguments, it boils down to whether provisions in GATT supersede a 1984 law that prevents the Food & Drug Administration from approving eenerics until the patent on a name brand expires. If the arguments prevail, more than 100 brand-name products will win an average of 12 months each of extra patent protection (table). A new study from the University of Minnesota estimates that the extra protection could give the drugmakers a windfall of $6 billion over the next 20 years. "That's obscene," fumes Senator David H. Pryor (D-Ark.). "American consumers are going to pay the bill."

"EUREKA" MOMENT. Pryor, a handful of other lawmakers, and the generics companies are fighting back. On Apr. 27, Pryor and five other senators asked the FDA to reject the brand-name companies' interpretation of GATT. Vows Novopharm's Gunter: "If the pharmaceutical industry thinks generics will roll over and play dead on this, they have another think coming." The FDA's decision is expected within weeks, but the wrangling won't end then. FDA officials and executives on both sides predict that whatever the FDA decision, the loser will take the issue to court.

The high-stakes controversy wasn't anticipated when GATT was approved late last year. The agreement harmonized U.S. law with the rest of the world's by changing patent terms to 20 years from the initial filing instead of 17 years after being granted. Most companies thought the change applied only to new patents, but soon after passage, Glaxo's lawyers had a "eureka" moment. Poring over the legislation, "we realized that for many of our existing products, patent life would be extended," says associate general counsel Marc Shapiro.

As a result, any patent that took under three years to win approval would have longer protection. Since the U.S. Patent Office took only 17 months to grant the first of two key patents on Zantac, the change would give the company an additional 19 months of protection for its top-selling drug.

But even as GATT changed patent terms, Congress tried to prevent harm to rivals that had been counting on the original expiration dates. Lawmakers inserted a clause permitting a company to introduce a competing product on the original patent expiration date if the company had made significant prior investments and if it paid the patent holder a royalty or some other form of "equitable remuneration." While Jeremiah McIntyre, counsel for generic drugmaker Geneva Pharmaceuticals Inc., calls that "a fair balance," on the theory that it's better to pay a royalty than not be allowed into the market at all, the provision would squeeze generic drugmakers' already thin profit margins.

OVERSIGHT? Meanwhile, Glaxo, Bristol-Myers Squibb Co., and other brand-name companies are arguing that this escape clause shouldn't even apply to the drug industry. The reason, they say, is that it clashes with provisions in a 1984 U.S. generic-drug law that prevents the FDA from approving a generic drug until the brand-name patent expires. Unlike other instances where Congress amended existing laws to conform with GATT, it failed to resolve this conflict--implying an intent to keep existing law intact, says Glaxo's Shapiro. Pryor and others plead simple oversight. But the big drugmakers insist on claiming what they see as theirs.

In the coming fight, generic drugmakers face an uphill struggle. "We have to be better organized, and spend more money to get our message across," says Bruce Downey, CEO of Barr Laboratories Inc., a generic drugmaker in Pomona, N.Y. As policymakers focus once again on rising health-care costs, the generic companies do have one potent message: If the brand-name companies win, Americans will pay billions more for drugs. Faced with the prospect of dramatically higher costs, "I can't believe the [FDA] won't make the right choice," says Lewis A. Engman, president of the Generic Pharmaceutical Industry Assn. Robert Gunter can only hope he's right.

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