FTC Recommends Legislative Changes to Hatch-Waxman Act

Recommendations Seek to Maintain Incentives to Innovate and Facilitate Entry of Generic Drugs

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In a Federal Trade Commission report released today titled "Generic Drug Entry Prior to Patent Expiration: An FTC Study," the Commission recommends legislative action designed to ensure that two provisions of the Hatch-Waxman Amendments do not delay generic drug entry to market. The Commission's recommendations would permit only one 30-month stay on the entry of a generic drug during pending patent-infringement litigation, and would support new legislation that would require brand-name companies and first generic applicants to provide copies of certain agreements to the FTC and the Department of Justice (DOJ) for review.

"Both pharmaceutical innovation and cheaper generic drugs bring enormous benefits to American consumers," said FTC Chairman Timothy J. Muris. "The Commission's recommendations today are designed to accomplish two goals: to facilitate generic entry and to maintain appropriate incentives for the development of new drug products."

Major Legislative Recommendations

The recommendations in the report suggest changes to existing law commonly known as the Hatch-Waxman Amendments (Hatch-Waxman). The report states that "beyond any doubt, Hatch-Waxman has increased generic drug entry," but goes on to say that "two of the provisions governing generic drug approval (the 180-day exclusivity and the 30-month stay provisions) are susceptible to strategies that, in some cases, may have prevented the availability of more generic drugs... [and] ... have the potential for abuse."

Accordingly, the report recommends that Hatch-Waxman be amended to permit only one automatic 30-month stay per drug product, per generic entry application, and only resolve infringement disputes over patents listed in the "Orange Book" prior to the filing of the generic's entry application. If the generic applicant seeks entry prior to patent expiration, Hatch-Waxman requires the applicant to state either that the patents for the brand-name drug products are invalid or not infringed by the generic product - technically, a Paragraph IV certification.

The report points out that in certain circumstances, the FDA can be prevented from approving the application for a generic drug - thus delaying its entry into the marketplace - beyond the end of the initial 30-month stay. For example, under current law, if a brand-name lists an additional patent in the Orange Book after the generic has filed its application, the generic firm would be required to re-certify to this later-listed patent. If the branded firm then sued the generic manufacturer within 45 days claiming patent infringement, generic entry would be stayed for an additional 30 months. The Commission's study found that the history of multiple 30-month stays so far appears problematic. By limiting the availability of 30-month stays to one per drug product, per generic application, the report concludes generic entry would be facilitated.

Second, the Commission supports S.754, The Drug Competition Act, introduced by Senator Patrick Leahy (D-VT), to require brand-name companies and first generic applicants to provide copies of certain agreements to the FTC and the DOJ. According to the report, although the 180-day marketing exclusivity period provided by Hatch-Waxman to first-filing generics "was intended to increase the economic incentives for a generic company," this provision also has enabled generic and branded companies, in some instances, to enter into agreements that had the potential to "park" the 180-day period for some time. In these circumstances, the first generic applicant does not trigger the running of the 180 days, so the FDA is prevented from approving any other generic applicants to enter the market. During the time period covered by the study (1992-2000), the report states, there were 20 settlements of patent litigation related to generic entry prior to patent expiration. Of these settlements, at the time they were executed, 14 of the 20 had the potential to delay the start of the generic applicant's 180-day marketing exclusivity and thus to delay all subsequent generic entry.

Report Methodology and Scope

The Commission embarked on the industry-wide study in April 2001, following a request by Representative Henry Waxman (D-CA), a co-sponsor of the Amendments, to "investigate and produce a study on the use of agreements between and among pharmaceutical companies and potential generic competitors and any other strategies that may delay generic drug competition throughout the U.S." The study also was motivated by the Commission's enforcement actions in this area, and by the prospect of a substantial sales volume of brand-name drug products coming off patent in the next several years, which represents both opportunity for the generic drug industry and a potential threat to the brand-name pharmaceutical manufacturers. The study focuses solely on the procedures used to facilitate generic drug market entry prior to expiration of the patent(s) that protect the brand-name drug product. The study does not address other procedures for generic entry, and it does not address the patent restoration features of Hatch-Waxman. In total, 28 brand-name companies and more than 50 generic drug companies responded to the Commission's questions.

The report notes that pharmaceutical drug products have become increasingly important to providing consumers with a myriad of treatments and cures that increase life expectancy and enhance lives. It is critical to maintain appropriate incentives for the development of new drug products, because the necessary research and development is risky and costly. At the same time, expenditures on pharmaceutical products continue to grow and often outpace expenditures for other consumer products. Pharmaceutical expenditures concern not only consumers, but government payers, private health plans, and employers as well. Generic drugs offer opportunities for significant cost savings over brand-name drug products.

The Commission vote to issue the report was 5-0. Copies of the report can be found on the FTC's Web site as a link to this release.

The FTC's Bureau of Competition seeks to prevent business practices that restrain competition. The Bureau carries out its mission by investigating alleged law violations and, when appropriate, recommending that the Commission take formal enforcement action. To notify the Bureau concerning particular business practices, call or write the Office of Policy and Evaluation, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, D.C. 20580, Electronic Mail: antitrust@ftc.gov. Telephone (202) 326-3300. For more information on the laws that the Bureau enforces, the Commission has published "Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust Laws," which can be accessed at http://www.ftc.gov/bc/compguide/index.htm

(FTC File No. V000014)

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