Patent Challenge Could Endanger Lilly's Zyprexa
By LEILA ABBOUD and THOMAS M. BURTON
Staff Reporters of THE WALL STREET JOURNAL
It all comes down to one dead dog.
On Monday, a federal judge in Indianapolis is scheduled to begin hearing one of the biggest pharmaceutical-patent cases in years, involving Eli Lilly & Co.'s top-selling product, Zyprexa. For Lilly, the stakes are enormous, since the $4.3 billion-a-year schizophrenia medication represents about one-third of the Indianapolis drug maker's annual sales.
Two generic drug makers, Ivax Corp. of Miami and Dr. Reddy's Laboratories Ltd. of Hyderabad, India, contend that Lilly never should have received the patent because it was based on flawed research. A major focus of their attack is a clinical study in 40 beagles of the drug's effects, especially on cholesterol, that Lilly submitted to the patent office.
Central to that study is one beagle that suffered from pneumonia -- and whether Lilly properly excluded that dog from the pivotal analysis of blood-cholesterol levels that was the basis of awarding the patent.
In an era of rising health-care costs, the stakes are also immense for the purchasers of Zyprexa, especially state and federal governments. State Medicaid programs spend enormous sums on the drug because many of the poor they cover suffer from mental illness. State mental hospitals also account for a hefty portion of Zyprexa sales. New York state alone spent $205 million on Zyprexa in the first 10 months of 2003, more than for any other drug.
Heightening interest in the suit is the fact that in 2001, Lilly lost a high-profile patent case involving its antidepressant Prozac. Prozac was Lilly's top-selling drug at the time. Despite having a promising new-drug pipeline, Lilly couldn't easily sustain another such loss anytime soon.
But the two patent cases differ in a fundamental way. In the Prozac litigation, Lilly's original patent had expired in August 2001, and Lilly had sought to use an additional patent to extend its sales exclusivity. In the Zyprexa suit, the fight is over the original patent on the chemical compound, issued in 1993 and good until 2011.
Generics companies enjoy a high success rate in patent litigation, winning nearly 75% of cases, according to a study by the Federal Trade Commission last year. But many of those cases turned on patents that didn't cover the drug molecule itself but other characteristics, such as dosage form. The odds are stacked high against the generics makers in the Zyprexa case because the patent being contested covers the drug molecule. Meanwhile, neither has yet won approval for its generic versions of Zyprexa.
For decades, older schizophrenia drugs were used to treat the devastating disease. But many patients stopped taking them because of serious side effects, such as uncontrollable jerky limb motions. Later schizophrenia drugs had more limited side effects and the first one, Novartis AG's Clozaril, was a lifesaver for patients. But it produced a rare and lethal blood disorder called agranulocytosis. Lilly, and other companies, began working on a class of chemical compounds similar to Clozaril but designed to avoid that side effect.
To that end, Lilly researchers eventually developed a class of compounds, which was patented and protected until 1995. One was called compound 222, and another was olanzapine. Lilly eventually chose to pursue olanzapine to market as Zyprexa. In 1991, the company sought to get a patent specifically on Zyprexa and did the dog study in support of the application. After initially being turned down by the patent office, Lilly won the patent in 1993 in large part by convincing a patent examiner that Zyprexa was different from compound 222 in its effects on dogs' cholesterol.
The study consisted of 40 dogs, half male and half female. Some were given the 222 molecule, others a placebo, and still others Zyprexa. Data from only seven female dogs were submitted to government officials to get the Zyprexa patent.
Lilly says the study was done correctly, and that the sick dog's data showing soaring cholesterol were properly excluded from the study's results because it was dying of pneumonia. At trial, Lilly is likely to submit additional studies and data in an attempt to prove that Zyprexa is different from compound 222.
The controversy over the dog study points out a crucial but little-known fact about the high-stakes world of pharmaceutical patents. While the Food and Drug Administration requires extensive and high-quality data for a drug approval, much less evidence is needed to get a patent. Applicants must show the patent office that the drug is useful, new and not obvious, but there are few rules on study design and controls. For example, Lilly could choose what parts of the dog study to submit, and wasn't required to show regulators all of its data.
But once the government awards a patent, it takes a lot of evidence to overturn the presumption that it is valid.
The trial is expected to last three or four weeks. Like many complicated patent cases, there is no jury. The companies present their evidence and submit closing briefs, and up to six months later U.S. District Judge Richard L. Young is expected to issue a verdict.
The case has garnered considerable attention on Wall Street, thanks largely to a report last year by UBS Warburg analyst Steven Valiquette, who described "potentially damaging admissions" by Lilly in court documents about the beagle study. He also noted a potential huge upside for Ivax stock should it win. Ivax shares have climbed 31% since October to $25.53 Thursday on the American Stock Exchange.
Richard Evans, an analyst at research firm Sanford C. Bernstein & Co., concludes that the potential magnitude of a Lilly loss could be a 40% drop in its stock, but adds that "we think the probability [of Lilly losing] is low." |
