Generic Drugs Challenging Brand Drugs
Today, generic drugs account for 63% of all U.S. prescriptions for drugs. Since generic drugs sell at substantially lower prices than their brand-name counterparts, they save consumers and purchasers of prescription drugs tens of billions of dollars per year.
Moreover, their expanded role has been linked to an attenuation of overall price increases for prescription drugs. Between 2007 and 2010, roughly 110 drugs will lose their patent protection — including well-known products such as Norvasc (amlodipine), Imitrex (sumatriptan), Fosamax (alendronate), and Risperdal (risperidone). Estimates suggest that these 110 drugs are currently responsible for $50 billion a year in sales — so competition from generic drugs could generate large additional savings.
Price competition from low-cost imitators threatens the profits of brand-name manufacturers and reduces their returns on innovative activity, spurring them into actions that may blunt the impact of competition. Price competition also limits the profits of generic-drug manufacturers and leads them to seek ways of insulating themselves from intense rivalry. Market participants have responded to the regulatory rules in ways that serve their own interests, so Congress has continually reassessed the regulations and sometimes altered the rules to better achieve the law’s original aims.
Before 1984, generic-drug makers were obliged to conduct the same safety and efficacy tests that had been required of the original brand-name manufacturers to receive Food and Drug Administration (FDA) approval for marketing. These provisions often rendered it non-economical to bring a generic to market. The Hatch–Waxman Act changed all that. It contained three features that affect competition between brand-name and generic drugs.
Most significantly, the law set out an abbreviated process for generic drugs to receive FDA approval. Generic-drug manufacturers must establish bioequivalence to the active ingredients of the original drug and demonstrate adherence to FDA-approved manufacturing processes. This provision obviated the necessity of conducting clinical trials. Second, the law allows generic-drug manufacturers to apply for FDA approval and conduct tests of bioequivalence before the relevant patents expire — without being subject to patent-infringement claims. Finally, it specifies a process for the resolution of patent disputes between generics firms and brand-name firms.
Several aspects of this third provision are especially important. Generics manufacturers are rewarded for successfully challenging a patent: the first firm that files an Abbreviated New Drug Application is granted a 180-day period of exclusive marketing among generic products. Generics firms that challenge a patent are required to claim that their product will not infringe on any existing patents. But if a patent-infringement action is initiated by a brand-name manufacturer within 45 days of the non-infringement claim, the FDA cannot approve a generic product for 30 months or until the litigation is resolved.