Hatch-Waxman Act Keeps Generic Drugs Off the Market

Hagop Kantarjian, MD

The Hatch Waxman Act, established in 1984 to promote lower cost generics production, is deeply flawed and has contributed to the maintenance of high drug prices, a group of researchers contend in a report published in Blood, the journal of the American Society of Hematology (ASH).

Generics manufacturers are cutting deals with brand-name drug producers to not produce certain drugs, or else they are deciding not to enter the market at all, and these trends are the direct result of loopholes in Hatch-Waxman that allow brand-name drug manufacturers to hold up the introduction of lower-cost drugs and thereby extend marketing exclusivity, the paper, co-authored by Hagop Kantarjian, MD, of The University of Texas MD Anderson Cancer Center, stated.¹

Hatch-Waxman is formally known as the Drug Price Competition and Patent Term Restoration Act. One provision in the law that is blamed for discouraging low-cost competition is an allowance for patent-term extensions in cases where manufacturers augment original products with new ingredients that only slightly alter the character of the original drug, the report stated.

Manufacturers may discontinue selling the original drug and heavily promote the “newer” one, thereby making it seem as though the older drug is inferior and discouraging generic imitations.

Another disincentive may come in the form of an FDA 30-month stay of approval for generic drug approvals, which may be imposed if a brand-name manufacturer decides to sue a generic manufacturer, according to the report.

Generic producers have been settling with original product manufacturers in numerous high profile cases involving payments of hundreds of millions of dollars to forgo production of certain generics. These deals are acceptable to generic producers because they afford guaranteed income that they find preferable to undertaking production and marketing that may yield a less satisfactory revenue stream, the report said.

Marketing strategies contributing to higher drug costs also include “pay for delay” settlements to keep generics off the market so that manufacturers can extend the exclusivity of marketing and enjoy the higher prices brand name products can command when unchallenged by generics.

“Both [brand-name and generic] companies profit in revenues, but those revenues are lost to our healthcare system, force higher patient out-of-pocket expenses, and push the patented drug out of reach for many patients who cannot afford it and thus would die from cancer progression,” the report said.

The report’s authors cited a Federal Trade Commission statistic that pay-for-delay strategies are costing the American public approximately $3.5 billion a year.

The report, produced by researchers from The University of Texas MD Anderson Cancer Center, Rutgers Law School, and Weill Cornell Medical Center, described these practices as contrary to the principals of a free-market system.

A white paper by Elsevier Clinical Solutions said that, for many years, the Hatch-Waxman Act had the desired effect of reducing drug prices and encouraging generics, but then prices of generics began to rise dramatically.²

It stated that nearly 8 in 10 prescriptions filled in the United States are for generic drugs, citing that the Generic Pharmaceutical Association in stating that generic drugs saved the US health system $217 billion in 2012, 15% more than the $188 billion saved in 2011. “Even to those who believe these numbers are overstated, it is clear that generic drugs have a huge impact on the cost of prescription drugs,” the Elsevier paper said.

It said that from November 2013 to November 2014 generic prices increased 8.6% as a whole, but that hundreds of individual drug groups saw price increases of 100% to 1000% during that time.

“One drug price that increased was tetracycline. A commonly prescribed drug used in the treatment of bacterial infections, tetracycline was $0.0345 per tablet November 13, 2013, and increased $2.33 cents to $2.3632 per tablet by November 13, 2014,” Elsevier said.

Another tactic described is the use of “authorized generics” (AGs) to cut into the profits of generic companies that try to enter the market after a drug’s patent has expired.

Hatch-Waxman allows a period of exclusive marketing for the first generic manufacturers who enter the market after patent expiration on the brand drug. However, it also allows brand manufacturers to share that period of exclusivity by marketing an AG simultaneously, thereby competing with the generic manufacturer and lowering generic manufacturers’ revenues by an average of 40% to 52% during the 180-day exclusivity period. This is another tactic that persuades generic producers to accept pay-for-delay agreements, the report said.

Of course, drug manufacturers often buy their competitors lock, stock, and barrel or obtain rights to market a drug and, in doing so, sometimes raise the prices of drugs, which happened in the now infamous case of Turing Pharmaceuticals and its acquisition of Daraprim, a 62-year-old drug for the treatment of toxoplasmosis. Turing bumped the price of a tablet up from $13.50 to $750 before backing down to public outrage.

“The pharmaceutical industry takes advantage of the complexity presented by the intersection of the patent laws, the antitrust laws, the Hatch-Waxman Act, and state drug product selection laws,” Kantarjian’s report said. “Patients, physicians, and healthcare experts should be vigilant and cognizant of these prevailing measures that delay the availability of affordable generic drugs, and should advocate for measures to lower drug prices.”

References

1. Jones GH, Carrier MA, Silver RT, Kantarjian H. Strategies that delay or prevent the timely availability of affordable generic drugs in the United States. Blood. 2016. DOI 10.1182/blood-2015-11-680058.
2. Elsevier Clinical Solutions. Generic drug price increases: causes and impact. 2015. http://www.ncpa.co/pdf/elsevier_wp_genericdrug.pdf. Accessed February 19, 2016.