- The Hatch-Waxman Act's impact: It increased generic drug availability, competition, and reduced costs.
- Challenges: The pharmaceutical market faces issues like price deflation, slow market entry for generics and biosimilars, and drug shortages.
- Solutions: Proposed actions include policy adjustments, ensuring timely access to generics, and clarifying uncertainties around legislation to safeguard competition and affordability for patients.
In February 2024, the Hatch-Waxman Act hit its 40th anniversary, and to mark the occasion the Association for Accessible Medicines (AAM) created a white paper highlighting the milestone, as well as unprecedented challenges facing the greater pharmaceutical industry, calling into question whether the market is sustainable enough to ensure robust competition for low-cost medicines.1
The landmark policy, formally known as the Drug Price Competition and Patent Term Restoration Act of 1984, ushered in the generics era, encouraging the production of generic drugs by creating a balance between the interests of pharmaceutical companies holding patents on brand name drugs and generic drug manufacturers.
The key provisions of the Hatch-Waxman Act include:
- Patent term extension: It allowed pharmaceutical companies to extend the patent life of their drugs to compensate for time spent in regulatory approval processes, such as clinical trials and FDA review. This extension aimed to provide brand name drug manufacturers with additional time to recoup their investments.
- Abbreviated New Drug Application (ANDA): This provision allowed generic drug manufacturers to apply for FDA approval of generic versions of brand name drugs without having to conduct clinical trials to demonstrate safety and efficacy if they can show that their generic version is bioequivalent to the brand name drug. This significantly reduced the time and cost required to bring generic drugs to market.
- Paragraph IV certification: Generic drug manufacturers submitting an ANDA can challenge the validity of patents held by brand name drug manufacturers. If successful, this could result in the early entry of generic drugs into the market. This provision has led to numerous patent litigations between brand name and generic drug manufacturers.
- Market exclusivity: It provided incentives for drug companies to conduct pediatric studies on their drugs by granting them a period of market exclusivity if they do so. This encouraged the development of pediatric formulations and dosages for drugs already approved for adult use.
“Since the introduction of this law, we have all seen incredible savings,” said David Gaugh, interim president and CEO of AAM in a statement.2 “But even as we celebrate the success of forty years of Hatch-Waxman, those savings, the increased patient access, and a model of generic adoption that leads the world, are at risk. It is incumbent upon us as leaders of this industry to come together with policymakers and other key stakeholders to safeguard and stabilize not only future savings, but future care to America’s patients.”
Overall, the Hatch-Waxman Act has been instrumental in facilitating the development and availability of generic drugs, thereby increasing competition in the pharmaceutical market and leading to cost savings for consumers. It also functioned as the blueprint for the Biologics Price Competition and Innovation Act, the law that created the biosimilar approval pathway. Without it, the US biosimilar market would likely not be what it is today.
Challenges and Causes
The white paper flagged 4 major challenges with Hatch-Waxman:
- Unchecked price deflation
- Fewer new generics and slower market penetration
- Slower than expected biosimilar adoption
- Drug shortages are a symptom of increasing market fragility
Generic competition in the US played a vital role in providing affordable access to medications. Studies revealed that generic drug prices in the US were significantly lower than in other countries, fostering a hyper-competitive market where prices could drop rapidly upon generic entry.
However, despite this competitive landscape, generics faced prolonged and significant price deflation. Over the years, generics represented an increasing percentage of prescriptions but a decreasing share of spending, resulting in substantial losses in the value of generic sales. The FDA acknowledged the need to address the underlying economics of generic pricing. Challenges persisted for new generic and biosimilar launches, with slower market penetration than expected.
Despite delivering on the promise of lower prices, biosimilars experienced slower adoption rates, particularly for biosimilars within the pharmacy-benefit sector like insulin glargine and adalimumab biosimilars. The market fragility was evidenced by a rise in drug shortages, especially in generic drugs, particularly sterile injectables, and low-cost products. Unsustainable pricing practices could lead to market exits and exacerbate conditions vulnerable to shortages, highlighting the need for systemic changes in the pharmaceutical market.
The Hatch-Waxman Act, formally known as the Drug Price Competition and Patent Term Restoration Act of 1984, ushered in the generics era. Image credit: doganmesut - stock.adobe.com
These challenges have several causes. Market consolidation has resulted in 3 hospital or clinic group purchasing organizations controlling 80% of generic medicine purchasing for hospitals and clinics, while 3 purchasing consortiums dominate 90% of the retail prescription market. This consolidation allows these entities to impose below-competitive prices and onerous contract terms on generic drug manufacturers, making production increasingly challenging.
Delayed entry to the market is also a significant issue due to ongoing patent litigation and large patent estates held by brand-name drug manufacturers. For instance, patents on biologics like Humira (reference adalimumab) have been extended through various means, hindering the entry of generic and biosimilar alternatives. Additionally, complex patent disputes and lengthy litigation processes discourage early entry into the market for generic manufacturers.
Slower adoption of generics and biosimilars is partly driven by coverage decisions made by Medicare, commercial health plans, and pharmacy benefit managers, which often prioritize high-priced brand name drugs to maximize rebates. This delays patient access to lower-cost alternatives, leading to higher out-of-pocket costs for patients.
Future investments in generics and biosimilars are further complicated by uncertainty surrounding price negotiation provisions under the Inflation Reduction Act (IRA). The lack of clarity on negotiated prices and the timing of the negotiation process create additional risks and uncertainties for generic and biosimilar manufacturers, impacting their decision-making process and investment strategies.
The paper mentioned several solutions to the aforementioned challenges, including implementing changes to current policies (Medicaid Generic Drug Inflation Program, 340B Drug Pricing Program, state drug pricing initiatives) to address price inflation, ensuring timely access to generic and biosimilar therapies, addressing uncertainty surrounding the IRA, and pushing Congress to enact legislation to ensure rapid adoption.
The white paper recommended 6 actions for congressional and state leaders:
- Amend the Medicaid inflation penalty with the IRA's approach
- Adjust the 340B program to ensure average manufacturer price pricing for generics to covered entities
- State policy makers must prioritize lower-cost generics and biosimilars for spending control.
- Enable swift entry for generics and biosimilars through patent settlement agreements
- Clarify IRA uncertainties, preventing brand delays and ensuring transparent pricing
- Fast-track coverage for affordable generics and biosimilars, curtailing pharmacy benefit manager incentives favoring pricier originator products
The authors concluded, “Generic and biosimilar medicines are the backbone of accessible care for America’s patients. Policymakers have a unique opportunity to preserve and enhance generic and biosimilar competition and sustainability, safeguarding and stabilizing not only future savings, but future care.”
1. Hatch-Waxman turns 40. AAM. February 6, 2024. Accessed February 8, 2024. https://accessiblemeds.org/sites/default/files/2024-02/AAM-Hatch-Waxman-White-Paper.pdf
2. AAM White Paper: Hatch-Waxman Turns 40. Press release. AAM; February 6, 2024. Accessed February 8, 2024.