The Drug Price Competition and
Patent Term Restoration Act of 1984 is commonly referred to as the
Waxman-Hatch Act, after the law's primary authors, Rep. Henry Waxman (D,
Calif) and Sen. Orrin Hatch (R, Utah). The Waxman-Hatch law is said to have
given birth to the modern generic drug industry in the United States. Since
the law was enacted over 23 years ago, the number of generic manufacturers and
number of generic drug products on the market have expanded exponentially.
Use of lower-cost generic drugs is
an important cost-containment strategy for most third-party payers, such as
Medicaid, Medicare Part D, and commercial third-party payers. According to the
National Association of Chain Drug Stores, while the average retail price for
a brand drug in 2005 was $101.71, the average retail price for a generic was
$29.82. Most recent data indicate that generics now account for 57% of all
prescriptions, and the amount of generic prescriptions increased by 11%
between 2005 and 2006. Much of this progress can be attributed to the increase
in generics on the market as a result of Waxman-Hatch.
If the Waxman-Hatch law has been
successful in bringing generic drugs to market, why are there so many attempts
being made to change the law? Since the Democrats took control of the 110th
Congress earlier this year, several bills have been introduced and multiple
hearings have been held on how to close perceived "loopholes" in this law.
Many believe that some of these loopholes are being used by the brand name
drug industry to delay entry of generic drugs or to limit the number of
generic drugs on the market. Some policy makers believe that this results in
higher prescription drug spending. To understand why changes are being
proposed to this wildly popular law, it is important to understand some basics
In summary, the Waxman-Hatch law
made major changes to the Federal Food, Drug, and Cosmetic Act (FFDCA) by
dramatically changing generic drug approval laws. The Waxman-Hatch Act allows
for approval of a generic copy of a previously approved "pioneer" drug product
without the submission of a full new drug application (NDA). An NDA
traditionally requires a manufacturer to submit data on the safety and
efficacy of a drug by conducting expensive and time-consuming clinical trials.
However, the current generic approval process involves submission of only an
abbreviated new drug application (ANDA) that relies on FDA approval of the
pioneer drug (or patented brand name drug) to demonstrate safety and
effectiveness. The generic drug does not require proof that it is safe and
effective--that has already been proven by the brand name drug manufacturer and
through many years of clinical use in the general population.
Generally, the ANDA has to establish
only that the generic drug is bioequivalent to the pioneer drug (i.e., the
reference-listed drug for which therapeutic equivalence is sought).
Bioequivalence means that the generic drug is expected to be absorbed by the
body at the same rate and extent of absorption as the brand name drug. The law
also created a narrow exemption to allow generic companies to conduct the
required bioequivalence tests on generic versions of the patented brand name
drug before the brand name drug's patent expires.
The FDA's Orange Bookis
considered the "reference bible" for pharmacists in terms of determining which
drugs are considered to be interchangeable. Generic companies file an ANDA for
FDA approval to market a generic drug against a "reference product" that is
listed in the Orange Book, generally the brand name drug, which has
been approved under its NDA.
Each NDA listed in the Orange Book
must include information about all the patents held by the manufacturer of
the drug that are applicable to the drug product. When a generic company files
an ANDA with the FDA to seek approval of a generic drug, it must include one
of four statutory certifications for each patent listed in the pioneer drug's
NDA: (1) that no patent is listed for the pioneer drug; (2) that the patent
has expired; (3) the date on which the patent will expire; or (4) that the
patent is invalid or not infringed. This last certification is referred to as
paragraph IV certification.
In most cases, the generic company
is filing its ANDA to market a generic because the brand name drug's patent
has expired or is about to expire and, by marketing the generic, the generic
company will not be infringing on any of the patents that are held by the
brand name company. However, there are cases where the generic company
believes that a patent held by the brand name company is invalid or would not
be infringed on if the generic company marketed its generic. In other words,
the generic company is "challenging" the validity of the brand name company's
patent before the patent is set to expire.
What changes to Waxman-Hatch are
being discussed to make the law more effective in bringing generic drugs to
Eliminating Authorized Generics
In an increasing
number of cases, brand name drug companies are marketing generic versions of
their own brand name drug products before or near the time that the patent
expires on their brand name drug product. Why would a brand name company want
to market a lower-priced generic version of its higher-price brand name drug?
This would appear to cut into the sales of the higher-priced branded medicine.
These brand name manufacturers'
generics are generally referred to as authorized generics. That is
because the brand name manufacturer in essence "authorizes" that a generic
version of its drug be marketed. The generic is often made by the brand name
manufacturer's own generic drug subsidiary, or the brand name company licenses
the product to a company with which it has a marketing agreement.
Some argue that brand name drug
companies are marketing these authorized generics to discourage true generic
companies from trying to file paragraph IV certifications against the brand
drug's patents. Waxman-Hatch allows 180 days of marketing exclusivity to a
generic company that successfully files a paragraph IV certification against a
brand name product patent. Congress recognized that generic drug companies
assume considerable risks and costs in challenging the patents that protect
brand name drugs from competition. Patent disputes take years and millions of
dollars to litigate and, in the end, there is no guarantee of success. But, as
Congress also recognized, such challenges can help bring generics to market,
and incentives to generic companies are absolutely essential.
To encourage companies to mount
these necessary patent challenges, Congress created a quid pro quo for generic
companies; i.e., they could expend the resources to mount the first patent
challenge in exchange for the right to sell the drug without competition for
180 days. The revenues from the exclusivity period allow the generic drug
company to recoup in investment and, significantly, to develop additional
products and undertake future patent challenges. Because generic companies
sell their products at a small fraction of the brand price, the sales
generated during the exclusivity period are vitally important to many
companies' product pipelines. The authorized generic, it is said, reduces the
value of this exclusivity period and may discourage generic companies from
challenging brand name patents. This has the effect of extending the brand
name drug's patent.
The brand name manufacturers argue
that an authorized generic helps create competition in the marketplace and
forces the other generic to further lower its price. Both sides have done
competing studies--with conflicting conclusions--to try to prove their points.
To try to determine the impact of authorized generics on the marketplace,
Senators Charles Grassley (R, Iowa), Patrick Leahy (D, Vt) and Jay Rockefeller
(D, WVa) asked the Federal Trade Commission (FTC) last year to study the
impact of authorized generics on the marketplace. The study is under way and
is expected to be completed sometime this year.
In this Congress, the Fair
Prescription Drug Competition Act was introduced by Senators Rockefeller,
Leahy, Herb Kohl (D, Wisc), and Charles Schumer (D, NY). The bill (S. 438)
would amend the FFDCA to prohibit brand manufacturers from introducing an
authorized generic to the market during the 180-day exclusivity period awarded
to the first generic drug manufacturer that successfully challenged a brand
drug patent. While these authorized generics may bring about lower prices
during this 180-day period, it is argued that authorized generics devalue this
period of exclusivity for generic manufacturers, reducing the incentive for
them to challenge brand patents.
Reverse Brand Payoffs to Generics
related to the granting of 180 days of market exclusivity to the first generic
to successfully challenge a brand name drug's patent is the issue of "reverse
payments" to keep generics off the market. Only after the first generic's
180-day period of exclusivity expires can other generics come to the market.
If the first generic never launches, then the 180-day clock never starts, and
more generics cannot be marketed. Some brand name companies had been paying
the generic company not to market its product so that the generic competition
to the brand name product could be significantly delayed--perhaps indefinitely.
Some generic companies thought they would realize greater revenues in
accepting these reverse payments from brand name companies, compared to
selling their own generics on the market.
To address this situation, the
Preserve Access to Affordable Generics Act (S. 316) was introduced by Senators
Kohl, Richard Durbin (D, Ill), Grassley, Leahy, Russ Feingold (D, Wisc), Ted
Kennedy (D, Mass), and Schumer. The bill would prohibit brand manufacturers
from compensating generic manufacturers to delay the entry of a generic drug
to the market. It would also require the FTC to study the impact of these
agreements on competition in the pharmaceutical market. This bill is opposed
by the Generic Pharmaceutical Association and Pharmaceutical Research and
Manufacturers of America. Both associations have indicated that these
agreements should be reviewed on a case-by-case basis, rather than banned
Revising Use of 30-Month Stays
and Citizen's Petitions
It is argued that
two other popular tactics used by brand name manufacturers to delay generic
competition--30-month stays (or delays) of generic drug approvals and
"citizen's petitions"--cost consumers and health care plans millions of dollars
in generic drug savings.
Generic drug applicants are required
to obtain FDA approval and state whether they will challenge any brand
manufacturer patents before coming to market. This process often results in a
lawsuit by brand manufacturers, which triggers a 30-month delay before the FDA
can approve the generic drug. This delay is meant to be a time to resolve
issues about whether a generic drug company is infringing on a brand name
drug's patent. During the stay, the FDA cannot approve the generic drug.
In addition, FDA regulations permit
any interested person to file a "citizen's petition," requesting the FDA "to
issue, amend, or revoke a regulation or order, or to take or refrain from
taking any other form of administrative action" (Title 21, Code of Federal
Regulations 10.25 and 10.30). While some citizen's petitions have merit, often
they are filed as a delaying tactic by brand manufacturers to prevent the
legitimate entry of generic drugs to the market. These are sometimes also
referred to as blocking petitions, and they ask the FDA to withhold
ANDA approval unless applicants carry out time-consuming and scientifically
unnecessary tests and studies. Because FDA virtually always withholds ANDA
approval until it deals with even the most frivolous petitions, ANDA approvals
are significantly delayed, as it takes the agency months and even years to
complete its evaluation.
While current law clearly allows
courts to shorten this 30-month delay, this rarely occurs. Access to generic
drugs has sometimes been delayed from four to 44 months when drug companies
have used various methods to get repeated 30-month stays. In the meantime, it
is argued, the public is forced to pay millions of dollars for brand name
products because the FDA has not approved a generic alternative.
To address issues relating to
citizen's petitions and 30-month stays, the Lower PRICED Drugs Act (S. 1088)
was introduced by Senators Debbie Stabenow (D, Mich) and Trent Lott (R, Miss)
in April 2007. The bill would amend the FFDCA to close some of the loopholes
in current law that prevent or delay generic drugs from coming to the market.
The bill clarifies current law regarding the 30-month stay and reforms the
citizen petition process.
The Lower PRICED Drugs Act
would (1) require the generic approval process to move forward while a
petition is being considered; (2) require final action on a petition be taken
within six months of the petition being received; (3) require that petitions
be signed and include a verification that the petitioner has taken reasonable
steps to ensure that all relevant information is included in the petition and
to indicate whether any payments have been made in exchange for filing the
petition; (4) require petitioners to wait 180 days for a response from the FDA
before being able to raise the arguments in the petition in federal court; (5)
ensure transparency surrounding the FDA's decisions on whether to delay
generic drugs on the basis of citizen's petitions; and (6) ensure that generic
applicants do not lose their 180-day exclusivity solely because a citizen's
petition has been filed.
In the drug safety legislation (S.
1082, the FDA Revitalization Act) passed by the Senate in May, Congress
started to address the role of citizen's petitions in delaying the marketing
of generic drugs. In this bill, the secretary of Health and Human Services
would continue to review the application submitted by a generic company to
approve its drug, even though a citizen's petition might have been filed by an
outside entity to delay approval of the application. Traditionally, the FDA
has stopped all action relative to review of the generic drug's application
until the citizen's petition process has been resolved and run its course. The
secretary can delay the generic drug approval only if it is found that such a
delay is necessary to protect public health. As this article is written, the
House of Representatives has not yet considered a drug safety bill, but it is
possible that Congress will address the citizen's petition issue before the
end of the year in a drug safety bill.
When the Waxman-Hatch Act created a
pathway for the approval of generic pharmaceuticals, it failed to include
biopharmaceuticals. As a result, biopharmaceuticals typically face no generic
competition, even when their patents expire. Thus, this year, Congress is
considering whether to enact a law that would establish a regulatory pathway
for the approval of generic biologicals. Major areas of disagreement exist
between the branded biopharmaceutical companies, generic companies, and policy
makers about whether the regulatory pathway for these biopharmaceuticals will
be similar to or different from the one established for traditional drugs. If
Congress is able to meet this goal, it would be largely because the
Waxman-Hatch law has been successful in bringing so many more traditional
generic drugs to the marketplace.
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