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The Waxman-Hatch Generic Drug Law
Vol. No: 32:6 Posted: 6/19/2007
The Waxman-Hatch Generic Drug Law
23 Years Later

John M. Coster, PhD, RPh
Vice President, Policy and Programs,
National Association of Chain Drug Stores (NACDS),
Alexandria, Virginia


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 about it.

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 market?

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
Another issue 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 outright.

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.

To comment on this article, contact editor@uspharmacist.com.

Vol. No: 32:6 Posted: 6/19/2007

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