Senate’s Proposal to Change Exclusivity Rights for First-to-File Generics May Backfire

The Lower Health Care Costs Act, introduced by Senate Health, Education, Labor, and Pensions (HELP) Committee Chairman Lamar Alexander (R-TN) and Ranking Member Patty Murray (D-WA) earlier this summer, is one of the most significant pieces of health legislation introduced in Congress this year. NTU has written about several provisions of the bill, or amendments to it. One aspect of the legislation that has received little attention though, from us and others, is a section that has a considerable impact on generic drugmakers.

Section 205 of the Act would reform the exclusivity rights generic drugmakers have when they are the first to file a so-called paragraph IV certification. This certification comes from the 35-year-old Hatch-Waxman drug patent law, which NTU believes created an “elegant balance in pharmaceutical development … for the ultimate benefit of taxpayers.” The law allows for generic drugmakers to file an abbreviated new drug application (ANDA) certifying “that a patent listed for the reference drug is invalid or not infringed by the generic product,” according to the Congressional Research Service (CRS).

In order to incentivize generic drug development, Hatch-Waxman allows the first generic drugmaker that files a paragraph IV certification to receive 180-day marketing exclusivity after they bring that generic drug to market. After 180 days, FDA can approve other generic drugs, introducing further competition to a particular drug’s market and, hopefully, driving down the price of that drug for consumers and taxpayers.

An unintended consequence of this process is that some generic drugmakers have blocked the market entry of further generics by ‘parking’ their application and slow-walking the process between being first to file and officially marketing the drug (which kicks off the 180-day exclusivity period).

Section 205 of the Lower Health Care Costs Act would, according to the HELP Committee:

“[Trigger] the start of first-to-file generic drug applicants’ 180-day exclusivity when a subsequent applicant has been tentatively approved and no first-to-file applicant has received final approval within 33 months of submission of its application.”

Despite NTU’s long-time, consistent support for policies that increase generic drug competition and utilization, critics of Section 205 are right to raise concerns about the provision as currently written.

Health regulatory analyst Kurk R. Karst wrote in June of the BLOCKING Act (H.R. 938), which is substantially similar to Section 205:

“If enacted as currently drafted, the BLOCKING Act would punish ANDA applicants eligible for 180-day who are diligently pursuing final application approval and would further dilute and cheapen the 180-day exclusivity incentive Congress created in the 1984 Hatch-Waxman Amendments. In particular, the BLOCKING Act, as drafted, could trigger a loss of 180-day exclusivity—even when the generic drug applicant is diligently seeking final approval—based on a failure of FDA to grant final approval to a first applicant within 30 months of application submission for any reason.”

Without a complete understanding of how many generic drugmakers are willfully delaying launch and how many are simply caught in a lengthy FDA approval process, Section 205 risks throwing the baby out with the bathwater. If a generic drugmaker loses their 180-day marketing exclusivity before even receiving final marketing approval from the FDA, then Section 205 would, in some cases, defeat the purpose of marketing exclusivity incentives in the first place.

Former FDA Commissioner Scott Gottlieb raised similar concerns in a May blog piece for Health Affairs:

“It’s true that the profitability from having 180-days of marketing co-exclusivity with a brand drug has, on average, increased along with the rise in drug prices. But so have the costs and complexity of gaining generic approval. The market behavior of generic firms would seem to indicate that the reward for being a first filer to reach the market is, on the whole, not as strong of an incentive as it once was.”

Gottlieb makes a convincing case that “[a]ny provision should protect generic companies from forfeiting the exclusivity if they’re actively seeking final approval.” Such a provision would incentivize generic drugmakers to follow through on marketing approval after becoming “first to file,” and disincentivize arrangements where generics park their applications or block other generic drugmakers from bringing their products to market.

While a competitive generic drug market promises savings for both patients and taxpayers, policy must be designed in a way that does not punish generic drugmakers simply for going through the required process for marketing their products. Lawmakers should amend Section 205 so that it protects the intent of Hatch-Waxman: to foster a robust environment for drug development that encourages both innovation and affordability.