AIDS Healthcare Foundation, Inc. v. Gilead Sciences, Inc.

          ORDER GRANTING MOTIONS TO DISMISS

          WILLIAM ALSUP, UNITED STATES DISTRICT JUDGE

         INTRODUCTION

         In this action claiming antitrust violations and patent invalidity involving pharmaceutical treatments for human immunodeficiency virus, defendants move to dismiss. For the reasons stated below, defendants' motions are Granted.

         STATEMENT

         This case concerns the compound tenofovir, which was discovered in 1984 and is useful in treating human immunodeficiency virus ("HIV"). Plaintiff AIDS Healthcare Foundation, Inc., is a non-profit purchaser of drugs that contain "prodrugs" of tenofovir, which are compounds that are converted into their active ingredient once metabolized in the human body. AIDS Healthcare contends that defendant Gilead Sciences, Inc., improperly used the complex regulatory regime of the Food and Drug Administration that governs pharmaceutical drugs to protect its position in the market for prodrugs of tenofovir. This order first explains the applicable regulations.

         1. FDA Regulatory Regime.

         New pharmaceutical drugs, such as those containing tenofovir prodrugs, can only be sold or marketed upon approval by the FDA. A company seeking approval for a new drug must conduct extensive research and clinical testing to establish the safety and efficacy of the drug and submit the results of that research as part of a "new drug application" ("NDA") before winning approval. A manufacturer seeking approval for a drug via an NDA must identify all patents (regardless of the patent owner) that it believes cover the drug in question, which the FDA lists in a publication called the "Orange Book."

         In 1984, the Hatch-Waxman Act introduced a new procedure intended to encourage the entry of safe, effective, and affordable generic versions of drugs. Pursuant to the Hatch-Waxman Act, a manufacturer that wishes to make an identical copy of a drug that has already been approved can avoid duplicating the expense of research and clinical testing required as part of an NDA by filing an "abbreviated new drug application" ("ANDA"), which can be approved based on the clinical data from the original NDA. The filer of an ANDA must assure the FDA that its generic drug will not infringe the patents listed in the Orange Book for that drug. It can do so by stating, for each listed patent, that it will not market the generic version until the patent expires (if it has not already expired) or by stating that the patent is invalid or not infringed by the generic product.

         The latter certification (invalidity/non-infringement) is known as a Paragraph IV certification and constitutes an artificial act of patent infringement. If the patent owner initiates litigation against the ANDA filer within forty-five days, the FDA cannot approve that ANDA's drug for thirty months or until a court issues final judgment invalidating the patent or finding that the ANDA's product will not infringe, whichever is earlier.

         The Hatch-Waxman Act provides incentives to the first generic manufacturer to file a Paragraph IV certification for a given drug. Specifically, it guarantees (subject to limited exceptions) that the first-filing manufacturer will receive 180 days of exclusivity during which the FDA may not approve any other ANDAs covering that drug. In other words, it guarantees a period of duopoly between the brand-name manufacturer and the first generic manufacturer to file an ANDA with a Paragraph IV certification.

         The first-filing generic manufacturer is guaranteed that exclusivity period even if it settles litigation with a patent owner without resolving the invalidity or non-infringement issues. No later-filing manufacturer can obtain that exclusivity right from the FDA. Thus, when a patent owner settles litigation with the first generic manufacturer to file an ANDA with a Paragraph IV certification, the incentive for a later-filing generic manufacturer to press a challenge to the validity or scope of the patents listed in the Orange Book is significantly diminished. This is because, unlike the first filer, later filers will need to wait until the first filer has exhausted its exclusivity period before any later filers' ANDAs can be approved. The later filers would face competition from any other later filers, driving the margins on the generic products toward zero.

         Generic drug manufacturers may alternatively seek approval of a modified generic version of a drug if the original drug has already won FDA approval. (Brand-name manufacturers may also use this process for modifications to their own drugs.) A modification might involve a substitution of certain ingredients, a change in dosage, or approval for a new indication. Although the modifications on the approved drug preclude a generic manufacturer from winning approval with an ANDA, the generic manufacturer may use a special kind of NDA under Section 505(b)(2) of the Hatch-Waxman Act.

         Unlike a regular NDA, a Section 505(b)(2) application does not require an applicant to develop and submit original safety and efficacy data covering the product as a whole. Instead, the Section 505(b)(2) applicant may refer to the safety and efficacy data submitted as part of an NDA for a previously-approved drug. The applicant may then provide additional data that demonstrates the safety and efficacy of the proposed modifications.

         As with an ANDA, a Section 505(b)(2) application requires the applicant to assure the FDA that the proposed product will not infringe the relevant patents in the Orange Book. Upon approval, the applicant for a modified version of a previously-approved drug is entitled to three years during which the FDA will not approve an ANDA that relies on the supplemental safety and efficacy data submitted with the Section 505(b)(2) application (although a manufacturer could win approval with its own NDA supported by new data).

         To offset generic manufacturers' ability to free-ride on the safety and efficacy data developed by the brand-name manufacturers via the ANDA and Section 505(b)(2) procedures, the Hatch-Waxman Act provides an incentive to brand-name manufacturers to encourage them to develop new products that contain ingredients never before approved by the FDA. Specifically, it grants such applicants a five-year period of "new chemical entity" ("NCE") exclusivity, which operates independent of any patent protection. NCE exclusivity bars the FDA from approving any application for a drug containing the covered new chemical entity for five years following approval of the first NDA containing that ingredient. The FDA also cannot receive applications for drugs containing that ingredient until the fourth year following the approval of the first NDA.

         This order now turns to the drugs in question in our case.

         2. Development of Tenofovir Therapies.

         In its initial formulation, tenofovir needed to be injected intravenously. In 1997, defendant Gilead Sciences, Inc., obtained a patent on a "prodrug" of tenofovir, which could be administered orally and converted into its active ingredient once metabolized in the human body. That prodrug was called tenofovir disoproxil fumarate ("TDF").

         In 2001, Gilead received FDA approval to offer TDF as a standalone drug and as part of several fixed-dose combination pills that combined TDF with other active ingredients. Physicians used the fixed-dose combination pills as part of a multi-drug regimen called highly-active antiretroviral therapy. That regimen gave physicians flexibility to prescribe different drug combinations to optimize treatment for patients with various needs (such as differing symptoms).

         TDF had side effects involving bone and kidney toxicity. In 2002, Gilead hired physicians to conduct safety and efficacy research into an alternative formulation of a tenofovir prodrug, called tenofovir alafenamide fumarate ("TAF"). Meanwhile, in 2004, Gilead publicly announced that it had abandoned development of TAF, although it filed seven patent applications relating to the use of TAF between 2004 and 2005. Gilead then resumed its clinical trials in 2011. In 2014, it published a study concluding that TAF had a higher absorption rate than TDF, thereby reducing the bone and kidney toxicity side effects.

         In 2015, two years before the expiration of the patents covering TDF, Gilead sought FDA approval of three new combination drugs, which were new versions of Gilead's marquee drugs that substituted TAF for TDF, while keeping the remaining active ingredients the same. It licensed TAF to defendants Japan Tobacco, Inc., and Janssen Sciences Ireland UC, for use in combination with other ingredients for the manufacture of three new fixed-dose combination drugs.^[1]

         Below is a chart of the ingredients in Gilead's new drugs:

Drug	Licensee	Ingredients
Genvoya	Japan Tobacco	elvitefragir, cobicistat, emtricitabine, and TAF
Descovy	Japan Tobacco	emtricitabine and TAF
Odefsey	Janssen	rilpivirine, emtricitabine, and TAF

         The FDA approved the first drug listed, Genvoya, in November 2015. Because TAF was a new chemical entity, the FDA also granted Gilead a five-year NCE exclusivity period over any product containing TAF, which period began in November 2015. Accordingly, no generic drug containing TAF can be approved by the FDA until November 2020. (The FDA may not receive applications until November 2019.) Additionally, Gilead listed twelve patents in the Orange Book covering Genvoya with expiration dates ranging from 2015 to 2032. Gilead's NCE exclusivity bears no relationship to the exclusive rights conferred by its patents.

         The FDA approved Descovy and Odefsey in 2016. Because those drugs also contained TAF, they also fell within the protection of Gilead's NCE exclusivity period. Thus, the FDA may not ...