The National Organization for Rare Disorders (NORD) believes that the Drug Price Competition & Patent Term Restoration Act of 1984 (better known as the “Hatch/Waxman” generic drug law), is one of the most important pieces of federal legislation enacted by Congress during the past 20 years. The law has enabled generic drug manufacturers to submit abbreviated applications to the Food & Drug Administration (FDA) for speedy approval of lower cost generic drugs, after the patent of an innovator drug expires. In exchange for this speedy low cost mechanism that has facilitated development of generic drugs, the brand name industry was granted extensions of exclusive marketing rights for innovator drugs under certain circumstances.
The astounding success of the law provides concrete evidence that free market competition is still the best mechanism available for economic growth. Normally, when a brand name pharmaceutical patent expires, one generic drug company is allowed on the market as the sole competitor for six months. This first generic drug usually appears at a 20 percent price discount (80 percent of the brand name price). After six months all other generic manufacturers are allowed to compete, and within two years the price of the drug usually falls to 20-30 percent of the brand name price. This free market competition has made affordable drugs available to millions of Americans who might otherwise be unable to afford the cost of the branded products. Moreover, it has saved government health programs and private insurance companies billions of dollars.
Hatch/Waxman competition has also been the impetus for other extraordinary economic accomplishments. It spurred development of an entire new industry of generic drug companies, providing thousands of new jobs that didn’t exist before 1984. It has also provided a new source of goods for export. Additionally, it has stimulated innovation by providing a major incentive to brand name manufacturers to improve their old drugs before their patents expire. In an effort to extend the lives of their old products, brand name companies have developed innovations such as changing injectables to oral formulations, developing long acting compounds, patches, nose sprays, etc. Consumers appreciate these advances, and many of these product improvements may not have been developed if the brand name industry did not feel pressured to do so before their patents expire.
The Hatch/Waxman law is not perfect. Loopholes have been identified by both the brand name and generic industries, and it could undoubtedly be improved. However, consumers sense that now is not the appropriate time to open the law for scrutiny. We are primarily concerned that recent inflation in brand name drug prices has been much higher than inflation, there are many more Americans without prescription drug reimbursement benefits today than there were during the 1980’s, and thus availability of lower cost generic drugs is more important now than ever before. We fear, for example, that Congressional discussions about prescription drug Medicare benefits might be jeopardized if Congress senses that Hatch/Waxman reform might increase the cost of pharmaceuticals in the future.
Changes Contemplated
If Congress decides to open the Hatch/Waxman law for reform this year, we hope that elected officials will approach the discussions in terms of which changes would be best for American consumers. It seems that preliminary discussions have focused on which changes would be best for the industries, but consumers will only accept changes that give us enhanced access to lower cost drugs, and eliminate delays in availability of safe and affordable medications.
For example, consumers want and need lower cost biologic products. There is currently no statutory mechanism for the FDA to approve generic biologics. If a company wants to make a copy of a brand name biologic after the innovator’s patent expires, they must perform all of the research and development that the original manufacturer already did. Thus when the competing product reaches the market, it is usually priced approximately same as the original product. Because biologics are extraordinarily expensive (usually costing more than a thousand dollars per month) it is critically important to develop mechanisms that will drive these prices down after patents or exclusivity expire.
Additionally, generic drug companies are often delayed from marketing generic drugs because brand name companies file arbitrary lawsuits to delay generic competition. If Hatch/Waxman is reopened, Congress should change the law to allow generics to get on the market while these lawsuits are going through the courts.
Congress should also consider amending the law to prevent drug companies from cornering the market on raw ingredients, thereby preventing competition. When one company creates a monopoly on a chemical ingredient, it is not in the best interest of the free market. Nor should a generic company be permitted to accept payments from a brand name company in exchange for keeping their generic off the market. Although the Federal Trade Commission (FTC) is dealing with these matters now, consumers have been forced to pay inflated prices for far too long in these instances.
Consumers will oppose any attempt in Hatch/Waxman reform to lengthen the patent term of brand name pharmaceutical products, or to shorten clinical trials and thereby compromise evidence of safety or efficacy. Firstly, recent withdrawals of marketed drugs that harmed people after they reached the United States market, illustrates the need for sufficient pre-market studies of new drugs. Secondly, the American pharmaceutical industry has consistently been among the top five most profitable industries in the United States, and it should not be given special exceptions to international patent standards. The United States is the last free market in the world for pharmaceutical pricing, because unlike other industrialized countries the US government does not control the prices of drugs. Competition is the absolutely essential element necessary for the free market to work, and preventing competition beyond an internationally recognized patent term is not in the best interests of American consumers.
For more information, contact: Diane E. Dorman, Senoir Director for Public Policy at (301) 421-0018 or via e-mail at ddorman@rarediseases.org.
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