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Monday, December 17, 2012

The Hatch-Waxman Act: Over a Quarter Century Later

Wendy H. Schacht
Specialist in Science and Technology Policy

John R. Thomas
Visiting Scholar

Congressional interest in health-related issues has refocused attention on legislative efforts to provide both new as well as lower-cost pharmaceuticals for the marketplace. P.L. 98-417, the Drug Price Competition and Patent Term Restoration Act of 1984 (commonly known as the Hatch-Waxman Act), made significant changes to the patent laws as they apply to pharmaceutical products in an attempt to balance the need for innovative new drugs and the availability of less expensive generic products. The act created several practices intended to facilitate the marketing of generic drugs while permitting brand name companies to recover a portion of their intellectual property rights lost during the pharmaceutical approval process. Twenty-five years later, the impact of the act on the pharmaceutical industry may have implications for current congressional efforts to facilitate the development of new, inventive products while reducing costs to consumers.

Prior to the implementation of the Hatch-Waxman Act, 35% of top-selling drugs had generic competitors after patent expiration; now almost all do. The Generic Pharmaceutical Association points out that of 12,751 drugs listed in the Orange Book, 10,072 have generic substitutes available to consumers. Concurrently, the time to market for these generic products has decreased substantially. According to the Congressional Budget Office, in 1984 the average time between the expiration of a patent on a brand name drug and the availability of a generic was three years. Today, upon FDA approval a generic may be introduced immediately after patents on the innovator drug expire as companies are permitted to undertake clinical testing during the time period associated patents are in force. In cases where the generic manufacturer is the patent holder, a substitute drug may be brought to market before the patent expires. Industry support for pharmaceutical research and development has grown since the passage of the legislation although some recent figures indicate reduced R&D spending by several companies.

In the absence of the research, development, and testing performed by the brand name pharmaceutical companies, generic drugs would not exist. The provisions of the Hatch-Waxman Act permit the generic industry to rely on information generated and financed by the brand name companies to obtain approval for their product by the FDA. However, the pharmaceutical industry today differs significantly from what it was in the early 1980s when the legislation was enacted. The cost of developing a drug has doubled, as has the number of clinical trials necessary to file a new drug application. The number of participants required for these trials has tripled. As the rate of return on investments in a new drug declined 12%, manufacturers often spend R&D dollars on developing improved versions of, or new delivery methods for an existing product.

Many experts agree that the Drug Price Competition and Patent Term Restoration Act has had a significant effect on the availability of generic substitutes for brand name drugs. Yet, congressional concerns remain whether or not the balance inherent in the act remains appropriate over 25 years later.

Date of Report: December 5, 2012
Number of Pages: 20
Order Number: R41114
Price: $29.95

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