Antitrust Treatment of the Introduction of New Drug Products: the Tension Between Hatch-waxman's Dual Goals of Cheaper Drugs and Better Drugs
| Publication year | 2018 |
| Author | by Rosanna K. McCalips |
by Rosanna K. McCalips1
Much has been said about the cost savings generated by generic drugs made more widely available by the Drug Price Competition and Patent Term Restoration Act (commonly known as the Hatch-Waxman Act or the Hatch-Waxman Amendments). The Association for Accessible Medicines (formerly known as the Generic Pharmaceutical Association) reported that generic drug use saved the U.S. healthcare system $253 billion in 2016.2 But consumer welfare also has risen tremendously from the innovation the Hatch-Waxman Act spurred. Indeed, studies show that the use of new outpatient prescription drugs lengthened life expectancy in the United States by more than a year from 1991 to 2004.3 In addition to extending life, innovations in prescription drugs have also enhanced the quality of life for many Americans. New and improved drugs have enabled the elderly to perform daily functions such as eating, dressing, and bathing with greater ease.4 And new drugs have decreased the percentage of Americans receiving Social Security Disability.5
These benefits are not due entirely, or even mostly, to new "blockbuster" drugs, but rather result in large part from incremental improvements of existing therapies. One study in the peer-reviewed journal PharmacoEconomics found that "innovation that takes the form of improved formulations, delivery methods and dosing protocols may also generate substantial benefits associated with improved patient compliance, greater efficacy as a result of improved pharmacokinetics, reduced adverse effects or the ability to effectively treat new patient populations."6
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Congress, through the Hatch-Waxman Act, intended both to "incentivize drug manufacturers to invest in new research and development" as well as to "encourage generic entry into the marketplace."7 The potential tension between these two goals is apparent in antitrust cases alleging a brand-name pharmaceutical company made "trivial" changes to its product to thwart generic competition—a practice called "product hopping." This article examines how the two Circuit Court opinions issued to date in product-hopping cases have reconciled the dual goals of the Hatch-Waxman Act—both of which enhance consumer welfare but in different ways—in assessing product-hopping claims.
To put product-hopping cases in context, one must understand how drug approval in the United States works. Under the Federal Food, Drug, and Cosmetic Act (FDCA),8 before a drug may be lawfully sold in the United States, the sponsor of the drug must demonstrate to the Food and Drug Administration (FDA) that the drug is safe and effective for the intended use and that the benefits of the drug exceed its risks.9 The Hatch-Waxman Act is a federal law that became effective in 1984 and amended the FDCA.10 The Hatch-Waxman Act has been described as "a compromise between two competing sets of interests: (1) those of innovative drug manufacturers, who had seen their effective patent terms shortened by the testing and regulatory processes; and (2) those of generic drug manufacturers, whose entry into the market upon expiration of the innovator's patents had been delayed by similar regulatory requirements."11 The dual purposes of the Hatch-Waxman Act were "to make available more low cost generic drugs by establishing a generic drug approval procedure for pioneer drugs first approved after 1962" and "to create a new incentive for increased expenditures for research and development of certain products which are subject to premarket government approval."12
The goal of expediting generic entry is achieved by providing an abbreviated pathway for approval of generic drugs. Rather than having to perform the "long, comprehensive, and costly testing process" necessary in the first instance to prove a drug is safe and effective for its intended use, generic drug companies can submit Abbreviated New Drug Applications (ANDAs) that "piggy-back" on the safety and efficacy studies contained in the approved New Drug Application (NDA) submitted by the innovator company.13The generic company must demonstrate that its generic product contains the same active ingredient as the innovator product and is bioequivalent to the innovator product, meaning "the rate and extent of absorption" of the active ingredient in the body is the same as that of the brand drug.14 In addition to providing for a shortened pathway to approval, the Hatch-Waxman Act further incentivizes generic entry by making available a period of 180 days of exclusivity (during which no other generic will be approved) to the first generic company to submit an ANDA that challenges the validity or infringement of the brand company's patents on the drug.15 This 180-day exclusivity can be extremely lucrative for generic companies.16
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State laws also provide an additional benefit to generic drug companies in the form of automatic substitution of therapeutically equivalent generic drugs in place of prescribed brand-name drugs. Specifically, if the generic drug is therapeutically equivalent to the innovator product—meaning it has the same active ingredient, dosage form, strength, and route of administration as the brand drug—the FDA will designate the generic drug as "AB-rated" in an FDA publication commonly known as the "Orange Book."17 All 50 states and the District of Columbia have enacted laws that permit or require pharmacists to substitute generic drugs that are listed in the Orange Book as AB-rated to the brand (or meet other criteria for therapeutic equivalency as specified in the statute) when filling prescriptions written for the brand-name drug unless the doctor writes on the prescription "dispense as written" (known as "automatic substitution").18 The AB-rating "carries a considerable corollary benefit for generics under state law"19 because it allows the drug to be automatically substituted when a prescription is written for a brand-name drug, thereby providing generic drug companies access to an established source of demand without any marketing efforts. Importantly for product-hopping cases, generic copies of the old version of a drug will not be AB-rated to the new version (due, for example, to differences in strength or dosage form). Thus, a pharmacist presented with a prescription for the new drug cannot automatically substitute a generic version of the old drug. Importantly, however, ordinarily a pharmacist is permitted (and in some states is required) to automatically substitute an available generic version of the old drug if the prescription is written for the brand-name version of the old drug even if the brand-name version of the old drug is no longer available.
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The Hatch-Waxman Act achieves its second goal of incentivizing the development of new drugs by extending the length of patent protection to compensate for the length of time it took to obtain FDA approval for the drug (known as "patent-term restoration").20 In addition, the Hatch-Waxman Act provides periods of regulatory exclusivity (meaning the FDA cannot approve a generic drug) of five years for a drug whose active ingredient is a new chemical entity not previously approved for use in the United States.21 And, of particular relevance to the product-hopping issue, Congress expressly amended the proposed legislation to provide three years of regulatory exclusivity for existing drugs containing "nonnew chemical entities . . . which have undergone new clinical studies essential to FDA approval."22 This exclusivity is available for newly filed NDAs as well as supplements to previously approved NDAs.23 The Hatch-Waxman Act also provides an additional six months of patent exclusivity in exchange for performance of pediatric studies requested by the FDA.24 In addition, Congress passed the Orphan Drug Act of 1983 to provide a greater incentive to develop so-called "Orphan Drugs" that treat (a) rare conditions affecting fewer than 200,000 people in the United States each year; or (b) conditions affecting more than 200,000 people in the United States each year but for which there is no reasonable expectation that the cost of developing the drug will be recovered from commercial sales.25 The Orphan Drug Act provides seven years of regulatory exclusivity during which generic versions will not be approved.26
Antitrust cases based on the introduction of a new drug product and (typically) the cessation of sales of the old version of the drug (called "product-hopping cases") pit the two goals of the Hatch-Waxman Act against each other. They also require courts to balance various goals of the antitrust laws because the antitrust laws recognize that consumer welfare is enhanced not only through cheaper prices but also through better quality products:
Today it seems clear that the general goal of the antitrust laws is to promote "competition" as the economist understands that term. Thus we say that the principal objective of antitrust policy is to maximize consumer welfare by encouraging firms to behave competitively while yet permitting them to take advantage of every available economy that comes from internal or jointly created production efficiencies, or from innovation producing new processes or new or improved products.27
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The Supreme Court has recognized that exclusivities like those provided by the Hatch-Waxman Act incentivize innovation: "The opportunity to charge monopoly prices—at least for a short period—is what attracts 'business acumen' in the first place; it induces risk taking that produces innovation and economic growth."28 Moreover, "[a]ntitrust scholars have long recognized the undesirability of having courts oversee product design, and any dampening of technological innovation...
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