Generically Challenged

The Hatch-Waxman Act of 1984 was passed to help bring generic drug competition into the pharmaceutical market, but panelists at a June 23rd Center for American Progress (CAP) discussion argued that the U.S. government should be doing more to regulate pharmaceutical companies. They claim their proposals could save Americans over $35 billion over the next ten years.

The Hatch-Waxman Act encourages generic pharmaceutical companies to challenge brand-name drug patents in court. Once the generic companies win the patents, they are able to sell the medication at reduced rates. Opponents of this act argue that it discourages the innovation of new drugs by preventing brand-name pharmaceutical companies from profiting significantly off of the medication they spent time and money creating. However, there is no doubt that the consumer benefits from the lower prices of generic drugs.

“It is important that we now consider the potential public savings made possible from ensuring access to affordable medicine through increased generic competition,” said Winnie Stachelberg, the Senior Vice President for External Affairs at the Center for American Progress. According to Stachelberg, the savings amount to “over $120 billion a year.”

“Unleashing the potential for growth for generic drugs, while retaining the necessary incentives for innovation, can bring even greater savings,” claimed Stachelberg.

Because pharmaceutical companies have begun to buy off their generic competitors, as in the 2008 case where Cephalon paid off the generic competition for its brand-name drug “Provigil,” the panelists proposed a full or partial ban on these types of settlements.

“One simple step could save consumers and the government billions of dollars annually, and that’s stopping pharmaceutical companies from colluding with competitors to keep low-cost generics off the market. At the FTC (Federal Trade Commission) we call these deals ‘pay for delay’ settlements, and you may also hear people referring to them as exclusion payments or reverse payments. But no matter what you call them, eliminating these deals is one of the Federal Trade Commission’s highest priorities,” said Jon Leibowitz, Chairman of the FTC.

Some panelists disagreed with the full ban on settlements. According to Bernard Sherman, Chief Executive Officer of the generic drug manufacturer Apotex, Inc., the ban on exclusion payments “doesn’t address the fundamental problem.” Sherman believes that the real problem with drug prices stems from the fact that once a generic company challenges a brand-name pharmaceutical patent, that generic company has exclusive rights to the patent, creating what some call a “bottleneck” problem.

Gerald Masoudi, a partner at Covington & Burling, also argued against a full elimination of exclusion payments, saying that there could be other reasons for companies to enter into settlement agreements that aren’t necessarily anti-competitive.

According to a memorandum written by litigation firm Shearling and Sterling, critics of settlement bans think these regulations will discourage pharmaceutical companies from investing in innovation. “Branded drug companies argue that if patent settlements are routinely found to violate the antitrust laws and removed as a meaningful option, then patent protection will be less certain, making them less willing to invest in innovation in the long term,” reads the report. Critics also argue that settlements are a good thing because they “save the courts, and thereby the taxpayers, time and resources” that would otherwise be tied up through litigation.

Alana Goodman is an intern at the American Journalism Center, a training program run by Accuracy in Media and Accuracy in Academia.