Eli Lilly 2010 Annual Report Download - page 18

FORM 10-K
Patent Challenges
In the United States, the Drug Price Competition and Patent Term Restoration Act of 1984, commonly known as
“Hatch-Waxman,” made a complex set of changes to both patent and new-drug-approval laws. Before Hatch-
Waxman, no drug could be approved without providing the FDA complete safety and efficacy studies, i.e., a complete
New Drug Application (NDA). Hatch-Waxman authorizes the FDA to approve generic versions of innovative
pharmaceuticals (other than biologics) without such information by filing an Abbreviated New Drug Application
(ANDA). In an ANDA, the generic manufacturer must demonstrate only “bioequivalence” between the generic version
and the NDA-approved drug—not safety and efficacy.
Absent a patent challenge, the FDA cannot approve an ANDA until after the innovator’s patents expire. However,
after the innovator has marketed its product for four years, a generic manufacturer may file an ANDA alleging that
one or more of the patents listed in the innovator’s NDA are invalid or not infringed. This allegation is commonly
known as a “Paragraph IV certification.” The innovator must then file suit against the generic manufacturer to
protect its patents. The FDA is then prohibited from approving the generic company’s application for a 30- to
42-month period (which can be shortened or extended by the trial court judge hearing the patent challenge). If one or
more of the NDA-listed patents are challenged, the first filer of a Paragraph IV certification may be entitled to a
180-day period of market exclusivity over all other generic manufacturers.
In recent years, generic manufacturers have used Paragraph IV certifications extensively to challenge patents on a
wide array of innovative pharmaceuticals, and we expect this trend to continue. In addition, generic companies have
shown an increasing willingness to launch “at risk,” i.e., after receiving ANDA approval but before final resolution of
their patent challenge. We are currently in litigation with numerous generic manufacturers arising from their
Paragraph IV certifications on Alimta, Cymbalta, Gemzar, and Strattera. For more information on this litigation, see
Item 7, “Management’s Discussion and Analysis—Legal and Regulatory Matters.”
Outside the United States, the legal doctrines and processes by which pharmaceutical patents can be challenged
vary widely. In recent years, we have experienced an increase in patent challenges from generic manufacturers in
many countries outside the United States, and we expect this trend to continue. For more information on significant
patent challenges outside the United States, see Item 7, “Management’s Discussion and Analysis—Legal and
Regulatory Matters.”
Government Regulation
Regulation of Our Operations
Our operations are regulated extensively by numerous national, state, and local agencies. The lengthy process of
laboratory and clinical testing, data analysis, manufacturing development, and regulatory review necessary for
governmental approvals is extremely costly and can significantly delay product introductions. Promotion, marketing,
manufacturing, and distribution of pharmaceutical and animal health products are extensively regulated in all major
world markets. We are required to conduct extensive post-marketing surveillance of the safety of the products we
sell. In addition, our operations are subject to complex federal, state, local, and foreign laws and regulations
concerning the environment, occupational health and safety, and privacy. The laws and regulations affecting the
manufacture and sale of current products and the discovery, development, and introduction of new products will
continue to require substantial scientific and technical effort, time, and expense and significant capital investment.
Of particular importance is the FDA in the United States. Pursuant to the Federal Food, Drug, and Cosmetic Act, the
FDA has jurisdiction over all of our products and administers requirements covering the testing, safety,
effectiveness, manufacturing, quality control, distribution, labeling, marketing, advertising, dissemination of
information, and post-marketing surveillance of our pharmaceutical products. The FDA, along with the U.S.
Department of Agriculture (USDA), also regulates our animal health products. The U.S. Environmental Protection
Agency also regulates some animal health products.
The FDA extensively regulates all aspects of manufacturing quality under its current Good Manufacturing Practices
(cGMP) regulations. We make substantial investments of capital and operating expenses to implement
comprehensive, company-wide quality systems in our manufacturing, product development, and process
development operations to ensure sustained cGMP compliance. However, in the event we fail to adhere to cGMP
requirements in the future, we could be subject to interruptions in production, fines and penalties, and delays in new
product approvals.
Outside the United States, our products and operations are subject to similar regulatory requirements, notably by
the European Medicines Agency (EMA) in the European Union and the Ministry of Health, Labor and Welfare (MHLW)
in Japan. Specific regulatory requirements vary from country to country.
The marketing, promotional, and pricing practices of pharmaceutical manufacturers, as well as the manner in which
manufacturers interact with purchasers and prescribers, are subject to various other federal and state laws,
including the federal anti-kickback statute and the False Claims Act and state laws governing kickbacks, false
claims, unfair trade practices, and consumer protection. These laws are administered by, among others, the
Department of Justice, the Office of Inspector General of the Department of Health and Human Services, the Federal
Trade Commission, the Office of Personnel Management and state attorneys general. Over the past several years,
the FDA, the Department of Justice, and many of these other agencies have increased their enforcement activities
with respect to pharmaceutical companies and increased the inter-agency coordination of enforcement activities.
Over this period, several claims brought by these agencies against Lilly and other companies under these and other
laws have resulted in corporate criminal sanctions and very substantial civil settlements. See Item 3, “Legal
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