Authorized Generics Again under Fire in Senate Bill

    By Kevin E. Noonan --

In addition to patent reform, another patent-related idea from Congress's past has been resurrected in this Congress.  Last Wednesday, Senator John D. Rockefeller, IV (D-DE) (at right) introduced S. 373, "The Fair Prescription Drug Competition Act," directed at limiting the right for an innovator drug company to market an "authorized generic" form of a patented drug.  The bill had five co-sponsors:  Senators Patrick Leahy (D-VT), Charles Schumer (D-NY), Daniel Inouye (D-HI), Jeanne Shaheen (D-NH), and Debbie Stabenow (D-MI).

The bill would amend Section 505 of the Food, Drug, and Cosmetic Act (codified at 21 U.S.C. § 355) by adding new subsection (w) as follows:

(w) Prohibition of Authorized Generic Drugs--

(1) IN GENERAL- Notwithstanding any other provision of this Act, no holder of a new drug application approved under subsection (c) shall manufacture, market, sell, or distribute an authorized generic drug, directly or indirectly, or authorize any other person to manufacture, market, sell, or distribute an authorized generic drug.

(2) AUTHORIZED GENERIC DRUG- For purposes of this subsection, the term `authorized generic drug'--

(A) means any version of a listed drug (as such term is used in subsection (j)) that the holder of the new drug application approved under subsection (c) for that listed drug seeks to commence marketing, selling, or distributing, directly or indirectly, after receipt of a notice sent pursuant to subsection (j)(2)(B) with respect to that listed drug; and

(B) does not include any drug to be marketed, sold, or distributed--

(i) by an entity eligible for 180-day exclusivity with respect to such drug under subsection (j)(5)(B)(iv); or

(ii) after expiration or forfeiture of any 180-day exclusivity with respect to such drug under such subsection (j)(5)(B)(iv).

The bill is aimed at preventing an innovator drugmaker from marketing its own generic version of a branded drug.  It seemingly exempts a first ANDA filer from the prohibition (who is entitled to the 180-day exclusivity period under subsection (j)(5)(B)(iv)) or after expiration or forfeiture of the 180-day exclusivity period.  The bill would thus prevent the innovator from pre-emptively entering the marketplace with a generic version of a branded drug prior to entry by a first ANDA filer; such early entry is understood to reduce the incentives for generic drug companies to pursue innovators who produce such authorized generics.  The bill's provisions parallel provisions of bills (S. 501 and H.R. 573) introduced in the last Congress that had bipartisan support in the House (sponsored by Representative Jo Ann Emerson (R-MO) and co-sponsored by Representatives Marion Berry (D-AR), Dennis Moore (D-KS), and Zach Wamp (R-TN)) and in the Senate having as additional sponsors Senators Sherrod Brown (D-OH) and Herb Kohl (D-WI).

When introducing the bill, Senator Rockefeller addressed the perceived need to "close a loophole" under current law that permitted innovators of branded drugs to compete with generic drugmakers during the 180-day exclusivity period.  Despite the evident benefit of an authorized generic in reducing prescription drug prices, the Senator opined that current law also permits a practice that reduces incentives for generic entry into the marketplace.  The practice of innovator drug companies to market authorized generics is "widely undermining" the incentive for generic drugmakers to challenge branded drugs under the Hatch-Waxman Act, by "cutting in half" the expected profits during the 180-day exclusivity period.  "The fact remains that brand-name firms regularly introduce authorized generics on the eve of generic competition, further extending their hold on the market and chilling competition from independent generic drugs," Senator Rockefeller said, and went on to specify the savings consumers garner by using generic rather than branded drugs.

Ironically, there is good evidence that while generic drugs eventually drive down the cost of prescription drugs, this is not a benefit that accrues during the 180-day exclusivity period.  Indeed, during that period generic drug companies maximize their own profits, by pricing their drugs just below the price of the branded drug.  And for what do these generic companies deserve these profits?  The cost of bringing suit against the innovator drug companies, costs that are far less than the cost of bringing a new drug to market (something curiously missing from the Senator's calculus).  The Senator's approval of the ANDA process and the benefits to American consumers stand in stark contrast to reports from several sources that the Hatch-Waxman regime has been characterized by wasted resources in pursuit of such market windfalls by generic drugmakers (see "Academic Study Supports Longer Data Exclusivity Term for Conventional Drugs" and "Maybe Hatch-Waxman Data Exclusivity Isn't So Good For Traditional Drugs After All").  And the Senator evinces his animus for innovator companies by stating that "[t]he fact that the brand-name company can launch an authorized generic even if it loses a patent challenge to a generic company gives it an incentive to pursue multiple additional patents on dubious grounds, just for the sake of extending its market share," without further comment or support.

Senator Rockefeller's interest in the issue of authorized generic drugs is long-standing; as early as 2005, he joined Senators Leahy and Chuck Grassley (R-IA) in sending a letter to the Federal Trade Commission asking the FTC to investigate whether the practice could have a "negative impact" on generic competition.  In addition to S. 373 introduced in this Congress and S. 501 introduced in the last Congress, the Senator introduced the bill as S. 3695 in the 109th and 110th Congresses.

The bill is now under consideration by the Senate Committee on Health, Education, Labor and Pensions.  A companion bill to S. 373 (H.R. 741) has also been introduced in the House.

Comments

[Dan Feigelson]

Kevin, this doesn't sound like a proposal to encourage generic drug development. Given the way in which it would restrict innovators in how they can price and market their products, it sounds more like a proposal to punish innovators for...innovating (gasp)!

The drug business is asymmetrical: the barrier to entry for a new drug is extremely high, to the point that without assurances of the opportunity to recoup the investment make a good profit, a candidate for a new drug won't be developed, period.

In contrast, as you noted, the barrier to generic drug entry is low, which means that sooner or later, generic competition will occur, it's just a question of timing. The 180-day exclusivity period for generic manufacturers - and the potential windfall associated therewith - was meant to provide them with an incentive to knock out invalid patents or to develop design-arounds. Without the promise of that exclusivity, the commencement of generic competition may occur at a later date, as it may not be worth it for a generic drug company to challenge a patent if success means it will be opening the floodgates for other generic drug companies. But inevitably, there will be generic competition. As it is, as you noted, in those cases where there *aren't* authorized generics, the price to the consumer doesn't really drop until after the 180-day exclusivity period.

Have any of these Senators conducted a cost-benefit analysis to see how their proposal stacks up against maintaining the status quo? Despite the "threat" of authorized generics and their potential to "eat into" generic drug companies' profits, I haven't heard about a slowdown in Paragraph IV litigation the last few years, so is the forbidding of authorized generics really necessary?

At the other extreme, have the Senators done a c/b analysis of getting rid of the 180-day exclusivity period altogether? Or forbidding authorized generics, but at the same time shortening the exclusivity period for the successful paragraph IV challenger to 60 days? If at present a successful P-IV challenge (which costs a few million dollars to mount, in addition to the few million dollars it takes to actually develop the generic copy of the original drug) to a blockbuster drug nets the challenger several hundred million dollars, you would think it should still be able to realize a pretty good ROI over a shorter exclusivity period, enough to maintain the incentive to challenge.

Even better, rather than fine-tuning a system that at its core is dysfunctional, the Senators might do well to seriously consider the proposal, advanced independently by Bob Armitage and Sherry Knowles (as you reported in earlier PatentDocs posts) that exclusivity for the innovator be set at 14 years from FDA approval, without ties to patents and patent challenges. That would create predictably for all parties, would guarantee a significant price drop at the end of 14 years, and enable drug companies on both sides of the divide to free up assets currently allocated for the ubiquitous paragraph IV litigation. Might not be so good for those of us who litigate P-IV, but I'm more concerned about new drugs reaching the market. Besides, we lawyers seem to be pretty adept at manufacturing reasons for people and companies to avail themselves of our services.

[6]

"it sounds more like a proposal to punish innovators for...innovating (gasp)!"

While I have to admit I'm all for that, I don't really understand why letting the big drug maker be a generic as well is a bad thing. Sure it discourages others from coming in, but that seems fine to me.

"advanced independently by Bob Armitage and Sherry Knowles (as you reported in earlier PatentDocs posts) that exclusivity for the innovator be set at 14 years from FDA approval, without ties to patents and patent challenges."

Despite that being uttered by Knowles the idea itself, if not the term, isn't so bad. Call it 10 or 12 and you've got a deal if I were in lawmaking.