The unexpected decision of Judge Barbara Jones of New York district court in the Prilosec (omeprazole) patents case has increased the risk profile of paragraph IV filings in the US for generic companies, according to an analyst.

A paragraph IV certification alleges that the patent is invalid or not infringed, and allows the patent holder to sue the generic applicant for patent infringement, triggering the automatic 30-month approval delay while the case is litigated.

The judgement has come as a severe blow to all the generic companies as they were all expecting that the verdict would not be in favour of AstraZeneca.

Omeprazole (Prilosec/ Losec of AstraZeneca) is the biggest drug globally with US sales of $4.6 billion last year.

"As happened with Dr Reddy's Laboratories Ltd's DRF 2725 failure, which brought forth the increasing risk levels with basic research, the loss of omeprazole litigation by generic companies indicates that just a para IV filing is not sufficient," says the analyst.

The generic company that challenges the patent holder via the para IV filing has to have a strong case and has to fight it out in the courts. Thus while the first-to-file para IV status is important, it is not sufficent for making large profits.

This issue clearly brings forth the risks associated with para IV filings. While all the generic companies - Andrx, Genpharm, Dr Reddy's and KUDCO - lost their battles to prove that AstraZeneca's patents were invalid, only the last could prove that its product didn't infringe upon the patent-holders, the analyst says.

If Andrx with a strong legal team, a deep understanding of the US pharma markets and a huge leverage on this case (it had set up a dedicated facility to product omeprazole formulations at a cost of $ 100 million and had built up an inventory of $ 65 million of this formulation already) could lose its case, smaller and less experienced companies stand little chance.

While Dr Reddy's had already lost the 180-day exclusivity on 40 mg omeprazole to Andrx in the past, it had refiled its ANDA with the US FDA for the 10 and 20 mg dosages (which account for nearly 90 per cent of the sales of the product) in March 2002.

Analysts were expecting DRL to get the final approvals from the US FDA for all the dosages by the time the 180-day generic exclusivity gets over. As this was a big product, even the generic upside to DRL post the end of the generic exclusivity was expected to be significant.

Cipla was the predominant supplier of bulk to Andrx, one of the key contestants for the generic omeprazole. The profit estimate for the upside scenario on sale of bulk omeprazole to Andrx by Cipla was also significant.

The provisions of the Drug Price Competition and Patent Term Restoration Act of 1984 (Hatch-Waxman Amendments), which govern the generic drug approval process give 180 days of marketing exclusivity to certain generic drug applicants. The 180-day generic drug exclusivity provision is one component of the complex patent listing and certification process, which also provides for a 30-month stay on generic drug approvals while certain patent infringement issues are litigated.

A paragraph IV certification begins a process in which the question of whether the listed patent is valid or will be infringed by the proposed generic product may be answered by the courts prior to the expiration of the patent. The ANDA applicant who files a paragraph IV certification to a listed patent must notify the patent owner and the NDA holder for the listed drug that it has filed an ANDA containing a patent challenge.

The notice must include a detailed statement of the factual and legal basis for the ANDA applicant's opinion that the patent is not valid or will not be infringed. The submission of an ANDA for a drug product claimed in a patent is an infringing act if the generic product is intended to be marketed before expiration of the patent, and therefore, the ANDA applicant who submits an application containing a paragraph IV certification may be sued for patent infringement.

If the NDA sponsor or patent owner files a patent infringement suit against the ANDA applicant within 45 days of the receipt of notice, FDA may not give final approval to the ANDA for at least 30 months from the date of the notice. This 30-month stay will apply unless the court reaches a decision earlier in the patent infringement case or otherwise orders a longer or shorter period for the stay.

The statute provides an incentive of 180 days of market exclusivity to the "first" generic applicant who challenges a listed patent by filing a paragraph IV certification and running the risk of having to defend a patent infringement suit.

In the omeprazole case, patents of AstraZeneca (AZN, the patent holder) are held valid and only KUDCO's product is found to be non-infringing. This has been a surprise partial victory to AZN, victory for KUDCO and a surprise loss to all the other generics (Andrx, Genpharm, DRL etc).

Omeprazole is used to treat certain conditions in which there is too much acid in the stomach. It is used to treat gastric and duodenal ulcers and gastroesophageal reflux disease, a condition in which the acid in the stomach washes back up into the esophagus.

At least 40 million Americans suffer from chronic digestive conditions, and more Americans are hospitalized for digestive diseases than for any other type of illness. In fact, more than 60 million American adults experience gastroesophageal reflux disease and heartburn at least once a month, and about 25 million adults suffer daily from heartburn. Healthcare costs for the treatment of peptic ulcers are estimated at $6 billion annually.