Medicare and the New Generic Drug Legislation: Suppositions of Hatch-Waxman

Several assumptions were made regarding the Hatch-Wax-man Act:

Duplicates of generic drugs will be the same as the innovator’s drug in terms of chemical composition. The FDA still uses the plus-or-minus 20% test to determine blood serum bioavailability (i.e., the amount of active ingredient in the blood over a period of time must come within plus-or-minus 20% of that which is observed when the innovator’s drug is ingested). Twenty percent is a fairly good margin, and many medical professionals believe that for drugs with a wide index of tolerance, 20% is not important at all; in such instances, twice as much or half as much of the active ingredient in a generic product would still work.

For example, a drug might have a very narrow therapeutic band for a patient who takes antiseizure medication. In this case, plus-or-minus 20% might not be appropriate, especially if a drug is at that higher end of bioavailability and the patient’s dose is titrated on the higher end (plus 20%) and if a second generic drug is dispensed with the active ingredient at the lower end (minus 20%). Mathematically, this is a 50% swing, which might not be safe or effective.
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It is curious that the FDA did not alter its regulatory approach to this situation. With the advances in modern pharmaceutics, those standards could be tightened. Although such tightening might not be to the advantage of the name-brand companies, it might be to the advantage of patients.

Developing generic products before the patent expires will have minimal effects on name-brand products. In practice, many generic drugs have rapidly affected name-brand sales.

Problems with the Act

The Hatch-Waxman Act was predicated on the desire to enhance the growth of the generic drug industry and to make prescription drugs more affordable while extending and revising patent protection for research-based name-brand drugs. Although the law has established a larger market for generic drugs, many in the name-brand drug industry who have used

patent law loopholes to delay and impede the introduction of less expensive generic alternatives into the market have subverted the law. The loopholes have led to numerous lawsuits that often extended the life of the name-brand drug company patents. During that time, generic drug companies could not bring their drugs to market. Examples of some tactics that the name-brand companies used in such lawsuits include changing the scoring (the grooves on a tablet) and the patenting (the color of the bottle), which protect the drug from losing its potency.
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The Hatch-Waxman Act serves as a disincentive for the development of new targets for therapeutics to treat and to prevent degenerative diseases, the types of therapies that tend to require extended review and clinical trials. Companies and their investors need to know that if these products were developed, a full patent term would be available to enable them to recoup the cost of their development expenses.

The Hatch-Waxman Act should provide the same incentive for the development of all therapeutic agents, not just those that do not—because of the nature of the disease and treatment—require extended reviews and prolonged clinical trials. Patients with these diseases should not be disadvantaged by the discriminatory effect of the terms of the law. This is unsound policy that raises serious ethical dilemmas.

The costs of developing drugs and biological products have skyrocketed. Emerging biotechnology companies and biotechnology-based product divisions of larger pharmaceutical and chemical companies face the same kinds of higher start-up costs and long lead times, and they incur substantial costs before they can commercialize a product and recoup their investments. The emerging biotechnology companies face the added risks and challenges to attract timely sufficient investment capital for extended periods of time in order to sustain their operations until (and if) their products can be commercialized. These factors have rendered the “caps” on patent restoration under the Hatch-Waxman Act obsolete and more obviously arbitrary.

These stalling tactics by the pioneer companies have caused drug prices to soar and have forced the gap between the cost of name-brand drugs and their generic alternatives to grow in the last decade. In 1990, the average cost of each prescription for a name-brand medication was $27.16; the average cost of a generic drug was $10.29. By 2000, the average cost of each prescription had reached $65.29 but the generic price increased to only $19.33. Changes in the provisions of the Hatch-Waxman Act were needed, and legislation (the Schumer-McCain bill and the Gregg-Schumer amendment) was passed in an effort to rein in high prescription costs.


The Greater Access to Affordable Pharmaceuticals Act (GAAP), which significantly overhauled the Hatch-Waxman Act, allows generic drug companies to compete with name-brand manufacturers by eliminating the major obstacles that delay the approval of generic drugs. GAAP was designed to restore competition to the prescription drug market by preventing many of the anticompetitive tactics employed by name-brand drug companies (and some generic drug companies) that were used to keep lower-priced generics from coming to market. The bill stops citizens from filing frivolous petitions with the FDA to delay the approval of generic drugs.

The legislation gives name-brand drug manufacturers only one 30-month patent extension per product. The bill also prevents name-brand companies from paying generic companies to keep competing products off the market and allows generic companies to sue name-brand companies over frivolous patents designed to extend the market exclusivity of their products. The bill prevents name-brand companies from attempting to delay the approval of generic drugs by challenging the “sameness” or “bioequivalence” of generic products. Only patents listed up to 30 days after the time of approval of the name-brand drug would be eligible for the automatic 30-month stay; late-listed patents would not be eligible for this stay.

For example, Bristol-Myers Squibb kept drugs that compete with its antianxiety agent BuSpar® off the market for almost half a year by obtaining a patent on one of the breakdown products (metabolites) created naturally in the body. The company obtained the patent on November 21, 2000, the day before its existing patent on the drug was scheduled to expire and generic competition was set to begin. One of the generic competitors, Mylan Laboratories, was ready to ship its version of BuSpar® that day. As a result of this late-listed patent, Mylan had to cease and desist. This would not have happened had the GAAP been in place.
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Name-brand companies would still be able to defend their late-listed patents, but instead of being given an automatic 30-month stay delaying generic competition, as under the Hatch-Waxman Act, the name-brand company would have to convince a judge to prevent the generic drug from coming to market by issuing a preliminary injunction.

Category: Drugs

Tags: Generic Drug, Medicare

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