Yet Another Study Suggesting Changes in Hatch-Waxman Regime

Statistics Illustrate Costs of Generic Drugs to Innovation

    By Kevin E. Noonan --

The question of whether the Hatch-Waxman generic drug regime is a net positive for innovation and drug development has been the subject of recent study, particularly in view of the costs attendant on litigation between branded ("innovator") drug makers and their generic counterparts.  See Higgins & Graham, 2009, Intellectual property: balancing innovation and access; patent challenges tip the scales. Science 326: 370–71 (see "Maybe Hatch-Waxman Data Exclusivity Isn't So Good For Traditional Drugs After All").  Recently, the question was addressed again, this time by Professor Henry Grabowski at Duke University and colleagues from the Toulouse School of Economics in France and Analysis Group in Boston.  Grabowski et al., 2011, "Evolving Brand-Name and generic Drug Competition May Warrant a Revision of the Hatch-Waxman Act," Health Affairs 30: 2157-66.  In this study, Professor Grabowski provides evidence of increasing challenge by generic drug makers and the effects of these challenges on pharmaceutical innovation, while acknowledging the beneficial effects of generic alternatives to branded drugs for consumers and drug providers/payors (citing a study by the Generic Pharmaceuticals Association published by IMS Health that generic drugs saved consumers $800 billion from 2000-2009; see "Savings Achieved Through the Use of Generic Pharmaceuticals").

The data was compiled by IMS Health and compared a variety of parameters regarding generic drugs and their effects on their branded counterparts.  The study was based on 332 branded drugs (200 new drugs/132 new formulations) experiencing first generic entry between 1995 and 2008, and included such drugs as Prozac, Imitrex, Zocor, Neurontin, and Ambien.  In particular, the study compared these parameters for all drugs in the dataset and drugs having greater than $100 million (and in some instances, greater than $250 million) in annual sales.  The data showed that the average number of generic entrants within one year of the first generic drug to enter the marketplace has risen for all drugs, but most dramatically for drugs having greater than $100 million in annual sales, increasing from 6 in 1995 to 10.1 in 2008.  There was a smaller reduction during this time period in the average period of data exclusivity, which fell from 13.5 years in 1995 to 12.4 years in 2008 (bearing in mind that for drugs with greater than $100 million in annual sales this represented a revenue loss of greater than $100 million).  The study also noted that 95% of generic drug entrants were for drugs with greater than $100 million in annual sales.  Paragraph IV challenges also rose during the period, with 9% of all drugs (and 17% of drugs with greater than $100 million in annual sales) being challenged in 1995 and 64% of all drugs (75% of drugs with greater than $100 million in annual sales) being challenged under Paragraph IV in 2008.  The time between initial launch of a branded drug and the first challenge under Hatch-Waxman has also greatly reduced, going from 18.7 years in 1995 to 8.7 years in 2008.

The study also looked at the percent of the market retained by the branded drug maker at various times after marketplace entry of the first generic competitor:

• % of market retained by innovator first month after first generic: 68% in 1995, 37% in 2008
• % of market retained by innovator first 12 months after first generic: 44% in 1995, 15% in 2008
• % of market retained by innovator first month after first generic for drugs with greater than 100 million in annual sales: 33% in 2008
• % of market retained by innovator 12 months after first generic for drugs with greater than 100 million in annual sales: 13% in 2008

For drugs with greater than $250 million in annual sales, 92% challenged under Paragraph IV, and the average time from launch to first challenge was 7.7 yrs.

The study also cites evidence that "a disproportionate share of high-revenue drugs" were subject to Paragraph IV challenges, with generic drug companies "winning" "slightly more than half of the 72 district court decisions" studied.  Panattoni, 2011, "The effect of Paragraph IV decisions and generic entry before patent expiration on brand pharmaceutical firms," J. Health Econ. 30: 126–45.  As annual sales of a branded drug increases, there was a greater likelihood that generic challenge subject to "prospecting strategy" by generic drug companies, "because even a low likelihood of success typically yields a large expected return on the investment necessary to challenge a patent."

Citing the longer data exclusivity period for biosimilar drugs under Section 7002 of the Affordable Care Act of 2010 (also known as he Patient Protection and Affordable Care Act (PPACA)), as well as the European system where both biologic and small molecule drugs enjoy 10 years of data exclusivity, Professor Grabowsky suggests that Congress revise (increase) the data exclusivity periods in the Hatch-Waxman Act:

In light of the changing competitive dynamics between innovative and generic drugs, Congress should review whether Hatch-Waxman is achieving its intended balance of cost savings and innovative incentives.  For example, a recent article suggests amending Hatch-Waxman along the lines of the new law governing biosimilars by eliminating the reward for patent challenges and the automatic stay on generic entry, while also harmonizing the data exclusivity periods for new drugs with the twelve-year period that now exists for new biologics.

(And Professor Grabowski cites Goldman et al. for the proposition that such a change "would increase drug innovation and societal welfare over the long run but would also have short-run distributional effects."  Goldman et al., 2011, "The benefits from giving makers of conventional "small-molecule" drugs longer exclusivity over clinical trial data," Health Affairs 30: 84–90; see "Academic Study Supports Longer Data Exclusivity Term for Conventional Drugs")

While the likelihood that these changes will be enacted are small (particularly in view of President Obama's continued opposition to the data exclusivity provisions of the PPACA; see "President's Deficit Reduction Plan Seeks to Reduce Exclusivity Period for Biologics and Prohibit Pay-for-Delay Deals"), this study and others bolster the common-sense sentiment that generic drug challenges to branded drugs increase uncertainty in the development of new drugs and are a cost that squanders resources better spent developing new drugs.  They also provide misplaced incentives for innovator companies to reformulate ("evergreen") established drugs rather than assume the risks of new drug development in the face of heightened uncertainties on the ability to obtain sufficient return on investment.  While these factors are not solely responsible for the apparent decline in new drug development over the past 10-15 years they have not helped, and studies such as this one support the notion that the Hatch-Waxman regime may need serious reconsideration.

Comments

[Skeptical]

I think the comment of:

"this study and others bolster the common-sense sentiment that generic drug challenges to branded drugs increase uncertainty in the development of new drugs and are a cost that squanders resources better spent developing new drugs"

should be juxtaposed next to:

"acknowledging the beneficial effects of generic alternatives to branded drugs for consumers and drug providers/payors (citing a study by the Generic Pharmaceuticals Association published by IMS Health that generic drugs saved consumers $800 billion from 2000-2009"

You bet there are "distributional effects." If the consumers gain $800 billion, that is a, $800 billion loss to the pharma giants.

I still struggle with the idea of data exclusivity ON TOP OF the patent period. What I would rather see is the folding into the patent approval process any other governmental regulation process. If you claim a certain drug, part of the necessary utility that earns you the patent is the fact that the drug actually works as intended. If time is necessary to prove that out, then the patent clock should not be ticking until it is proven. If it does not prove out, then you should not have been granted a patent to begin with. If it does prove out, then you should have full term of your patent right.

[Cranky Old Dude]

Skeptical, thou art too logical.