In 1998, FDA approved Sanofi’s Arava (leflunomide) for the treatment of rheumatoid arthritis, recognizing at the time that teriflunomide is present in Arava as an “impurity” resulting from the degradation of leflunomide, and setting 3.5% as the maximum acceptable limit of teriflunomide in Arava. In September 2012, FDA granted NCE exclusivity to Sanofi’s multiple sclerosis drug Aubagio (teriflunomide), in which the impurity in Arava is the active ingredient. This exclusivity blocks submission of ANDAs for up to 5 years, or 4 years if the ANDA contains a paragraph IV certification claiming a patent is invalid or not infringed.

In September 2016, Sandoz submitted two ANDAs with paragraph IV certifications, one about five days before expiration of the NCE exclusivity 4-year bar to ANDA submissions, and one on the day the 4-year bar expired — the later submission being on the same day around twenty other ANDAs were submitted. Both Sandoz ANDAs contained a “paragraph IV certification,” challenging Sanofi’s patents on Aubagio. Sandoz submitted its first ANDA prior to the expiration of the NCE exclusivity 4-year bar in an attempt to be the sole recipient of the 180-day exclusivity period provided to the first generic applicant that submits an ANDA with a paragraph IV certification. If Aubagio’s NCE exclusivity was lawfully granted, the first Sandoz ANDA was premature and, based on its second ANDA, Sandoz would have to share the 180-day exclusivity period with about twenty other first applicants. However, if the NCE exclusivity was wrongly granted, the first Sandoz ANDA would result in Sandoz being the only ANDA applicant eligible for 180-day exclusivity.

Under the Hatch-Waxman Act in effect at the time, a drug may receive NCE exclusivity only if no active ingredient in the drug was previously approved. (As reflected in the court’s decision, the statutory language previously referred to “active ingredient.” However, the language was amended to “active moiety” in 2021 to be consistent with FDA’s interpretation of the statute). Sandoz asserted that FDA had approved teriflunomide when it approved Arava in 1998, and thus Aubagio was ineligible for NCE exclusivity in 2016. Specifically, Sandoz argued that some of the leflunomide molecules in Arava break down into Aubagio's active ingredient, teriflunomide, when the drug is made and stored.

In rejecting Sandoz’s first ANDA, FDA had concluded that teriflunomide had not previously been approved because it was “only an impurity” in Arava. The District Court for the District of Columbia upheld FDA’s determination, and the DC Circuit Court of Appeals agreed. Both courts held that NCE exclusivity is available to a new drug that contains as its active ingredient what is a known impurity in a previously approved product, because known impurities have not been “approved” within the meaning of the Federal Food, Drug, and Cosmetic Act (FDCA) — rejecting Sandoz’s argument that FDA’s identification of a permissible upper level of the impurity (in this case, 3.5%) suggested that the impurity was “approved” within the plain meaning of the FDCA.

As the DC Circuit Court explained, “[w]hen the FDA approves a new drug, it does not also ‘approve’ known impurities in that drug for the purpose of new chemical entity exclusivity.” Accordingly, because “FDA did not approve teriflunomide as an active ingredient when it approved Arava,” Aubagio was “entitled to new chemical entity exclusivity, and Sandoz cannot benefit from a solo exclusivity period for its generic equivalent.”

Although the court’s ruling is fairly straightforward, it expressly leaves open an important related question — whether an excipient in a previously approved drug would result in the same holding, i.e., that it is not “approved” within the meaning of the FDCA and, if used as an active ingredient in a subsequent product, would be eligible for NCE exclusivity.

Notably, the district court determined the statutory phrase “no active ingredient . . . of which has been approved” was most naturally read to mean “approved as an active ingredient.” By the district court’s rationale, therefore, NCE exclusivity should be available to a drug product that is first to include a component as an active ingredient, even if that same component had been included as an inactive ingredient in a previously approved drug. The D.C. Circuit took a slightly different approach, however, focusing on whether a component has been previously “approved,” leaving open the question of whether an inactive ingredient contained in a previously approved could preclude an award of NCE exclusivity. Giving this effect to the previous approval of an inactive ingredient would be controversial and complicated for the agency to administer. Nonetheless, the appellate court clearly left that door open. It distinguished active ingredients and excipients from impurities, explaining that “unlike active ingredients and excipients, impurities are not deliberately added to the drug,” and expressly stated, “This opinion does not address the application of new chemical entity exclusivity to drugs that make use of a previously recognized inactive ingredient.” It therefore remains to be seen how this issue will be handled by FDA and the courts.

Authored by Philip Katz, Gary Veron, Jason Conaty, and Bryan Walsh.