The Wacky World of Generics: Trade Secret Misappropriation Edition

Hollywood has been scraping the bottom of the comic-book barrel (excuse me – graphic novels) for blockbuster scripts of late. To stand apart from the crowds, all of you aspiring script writers out there, heed the advice from Jack Moseley in 1992’s The Cutting Edge: “Then you find another barrel.” May we suggest the pharmaceutical industry?

A recent FDA decision on a seemingly routine generic drug approval led far down the rabbit hole, leading us to a case with all of the twists and turns of a great film noir.

But first, background on the agency decision.

On April 11, 2008, FDA approved Spear Pharmaceuticals’ abbreviated new drug application for a generic version of Efudex Cream 5%, Valeant’s topical fluorouracil cream indicated for treatment of (1) multiple actinic or solar keratoses; and (2) superficial basal cell carcinoma when conventional methods are impractical.

The patents for the cream expired decades ago, but nary an ANDA has been filed until Spear submitted theirs in January 2005. Valeant, though, objected to the approval and filed a citizen petition urging the agency to reject the application, claiming that the generic should not be approved based on bioequivalence studies conducted solely for the actinic keratosis indication.

FDA denied the petition on the same day it approved Spear’s ANDA. Center for Drug Evaluation & Research Director Janet Woodcock explained that the single clinical trial was sufficient to demonstrate bioequivalence in both indications.

Valeant filed suit against the agency in U.S. District Court April 25, seeking to overturn the ANDA approval.

A Generic Vanishes

These days, there is no surprise in a brand company suing to block a generic. The surprising move came on May 14, when FDA issued an “Administrative Reconsideration and Stay of Action,” saying it is in fact rethinking approval of the Spear ANDA “because there are outstanding questions regarding this approval that the agency must consider.” The notice formally pushes back a decision on the ANDA until May 30.

In other words, the ANDA isn’t exactly approved after all. At least not yet. (Spear explains the situation a bit differently in a press release issued today. If you scroll down to the bottom you will see that the company has "voluntarily agreed not to ship additional product until the end of May, at which time we fully expect that the FDA will resolve its administrative issues." UPDATE: Despite what we originally noted here, Spear did begin shipping product on April 11, but voluntarily halted thereafter.)

Legal challenges to ANDA approvals are usually short-lived and vigorously fought by the agency – witness GlaxoSmithKline’s attempt to block Roxane’s generic version of GSK’s Flonase, or King’s challenge over its hypothyroid drug Levoxyl. But in this case, the agency seems to be giving more specific consideration to the concerns raised by the brand company over its ANDA approval standards.

And the stakes in this case are potentially quite high. As we explain in an article published in “The Pink Sheet,” FDA’s final decision on how to handle the issues raised by Valeant will have implications for plenty of other generic applicants—and, potentially, for the future development of approval standards for follow-on biologics.

The Jilted Suitor

Interesting and perhaps precedent-setting, yes. The next Martin Scorsese film, no. But the plot thickens.

Spear alleges that Valeant’s citizen petition was an ‘insider job’ that should never have been considered by FDA in the first place. Spear makes those claims in a federal civil suit in December 2007 against Valeant and investment firm William Blair asserting breach of contract, trade secret misappropriation and more.

In court documents, Spear describes a story of betrayal by a financial advisor. You can read all about it here.

In a nutshell, Spear claims that Willaim Blair (and in particular the banker’s VP Brian Scullion) tipped Valeant off to the generic firms’ plans regarding Efudex.

The timing is certainly suspicious. Spear began developing the Efudex generic around February 1999, working out with FDA a plan to ensure their bioequivalence trials would be sufficient for approval for both indications.

Five years later, Spear decided to explore selling one of its other generic product lines (tretinoin, Johnson & Johnson’s Retin-A) and consulted William Blair VP Brian Scullion. After signing a confidentiality agreement, Spear says it disclosed trade secrets (including the continuing development of generic Efudex) to Scullion. Spear also mentioned the plan to file an ANDA for Efudex in November 2004.

One of the potential parties interested in the tretinoin line was Valeant. After looking over the tretinoin deal, the firm declined the opportunity in October 2004. Then, on Dec. 21, 2004, Valeant filed the citizen’s petition requesting that FDA require a generic applicant seeking approval for a version of Efudex conduct trials in both indications. Eight days later, Valeant notified Blair that it was interested in the tretinoin line after all—which Spear says came too late because negotiations were under way with another partner.

On Jan. 3, 2005, Spear filed the Efudex ANDA. When the company called FDA April 19 to check on the application’s status, the agency informed them of Valeant’s citizen petition. The news, Spear said, “was a shock.”

“The timing … was not coincidental,” Spear says. “It was reflective of the confidential information that had been improperly leaked … The specificity of the requested relief reflects that Valeant learned not only of Plaintiffs’ confidential information with respect to Plaintiffs’ plan for filing an ANDA, but also the precise nature of the clinical trial they had conducted.”

The missing link? According to Spear, Brian Scullion. Although he told Spear he was not engaged to advise or represent any interested parties during the initial tretinoin exploration, William Blair had an investment banking relationship with Valeant and held over $1.7 million in Valeant stock as of Sept. 30, 2004.

Then, to really drive the last nail in the coffin, a generic manufacturer named Oceanside Pharmaceuticals launched a a generic of Efudex Cream 5% in December 2006. How did Oceanside beat Spear to market? It launched an “authorized” generic under license from Valeant. Authorized generics are also routine these days, but—as Spears points out—this was an unusual move given that Valeant theoretically had no reason to anticipate any generic competition to Efudex.

Spear is asking for $125 million in compensatory damages plus punitive damages and other relief, to be determined at a trial.

Neither John Malkovich nor Edward Norton have returned our calls for the role of Scullion – maybe if we can cast Scarlett Johansson or Natalie Portman in the part of Woodcock, they’ll call back…

Becky Jungbauer