The Myth of Generic Pharmaceutical Competition Under the Hatch-Waxman Act

Fordham Intellectual Property, Media and Entertainment Law Journal, Dec 2012

Without a doubt, health care costs are on the rise, and how to reduce those costs is of great concern to many. The Hatch-Waxman Act attempts to reduce pharmaceutical costs by encouraging market entry by lower-priced generic pharmaceuticals and without a doubt has been successful in doing so over the last three decades. The question is, at what price? Although designed to balance greater generic market entry with stronger incentives for brand-name pharmaceutical innovators to continue developing new drugs, the Act appears to have fall short of making those incentives nearly strong enough and, indeed, likely weakens them. Perhaps more importantly, however, a closer look at basic beliefs animating the Hatch-Waxman Act suggests that they are simply off the mark. The Act focuses far too much on competition and on removing barriers to market entry and as a result neglects the bigger context of the pharmaceutical market. The pharmaceutical market is not a competitive market for a variety of reasons, and one may doubt whether we should want it to be one. In any event, the Hatch-Waxman Act’s simple focus on generic regulatory burdens and pharmaceutical patents does little or nothing to foster any meaningful, long-term competition and has in the meantime likely weakened the ability of brand-name pharmaceutical innovators to continue to develop new pharmaceuticals. We may therefore wish to reconsider the wisdom of maintaining the Act in its current form, if at all.

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The Myth of Generic Pharmaceutical Competition Under the Hatch-Waxman Act

Fordham Intellectual Property, Media and Entertainment Law Journal Volume 22 Volume XXII Number 2 Volume XXII Book 2 Article 1 2012 The Myth of Generic Pharmaceutical Competition Under the Hatch-Waxman Act Emily Michiko Morris Indiana University - Robert H. McKinney School of Law, Follow this and additional works at: https://ir.lawnet.fordham.edu/iplj Part of the Intellectual Property Law Commons Recommended Citation Emily Michiko Morris, The Myth of Generic Pharmaceutical Competition Under the Hatch-Waxman Act, 22 Fordham Intell. Prop. Media & Ent. L.J. 245 (2012). Available at: https://ir.lawnet.fordham.edu/iplj/vol22/iss2/1 This Article is brought to you for free and open access by FLASH: The Fordham Law Archive of Scholarship and History. It has been accepted for inclusion in Fordham Intellectual Property, Media and Entertainment Law Journal by an authorized editor of FLASH: The Fordham Law Archive of Scholarship and History. For more information, please contact . The Myth of Generic Pharmaceutical Competition Under the Hatch-Waxman Act Cover Page Footnote Associate Professor and Dean‘s Fellow, Indiana University School of Law– Indianapolis. Many thanks to Max Huffman, Rob Katz, Jim Kelley, Andy Klein, David Orentlicher, Mike Pitts, Antony Page, Florence Roisman, Carlton Waterhouse, and to the participants at the Second Asia-Pacific Innovation Conference at the National University of Singapore, and the participants at the 2d Annual Developing Ideas Conference at the University of Kentucky College of Law. Special thanks to Chris Powers, Indiana University School of Law–Indianapolis '10, for his exceptional research assistance. This article is available in Fordham Intellectual Property, Media and Entertainment Law Journal: https://ir.lawnet.fordham.edu/iplj/vol22/iss2/1 MORRIS.FINAL (DO NOT DELETE) 2/21/2012 5:02 PM The Myth of Generic Pharm aceutical Com petition Und er the H atch -Waxm an Act Emily Michiko Morris INTRODUCTION ............................................................................. 245 I. THE PHARMACEUTICAL INDUSTRY: A PRIMER ............. 251 II. THE HATCH-WAXMAN ACT ......................................... 260 III. PHARMACEUTICAL INNOVATION UNDER THE HATCH-WAXMAN ACT................................................. 266 IV. THE MYTH OF GENERIC COMPETITION UNDER THE HATCH-WAXMAN ACT................................................. 276 CONCLUSION................................................................................. 285 INTRODUCTION By all reports, the outlook for the brand-name pharmaceutical industry (―brand name pharma‖) in the United States is surprisingly bleak.1 Brand-name pharmaceutical manufacturers develop innovative new drugs, but recently the pipeline for new Associate Professor and Dean‘s Fellow, Indiana University School of Law– Indianapolis. Many thanks to Max Huffman, Rob Katz, Jim Kelley, Andy Klein, David Orentlicher, Mike Pitts, Antony Page, Florence Roisman, Carlton Waterhouse, and to the participants at the Second Asia-Pacific Innovation Conference at the National University of Singapore, and the participants at the 2d Annual Developing Ideas Conference at the University of Kentucky College of Law. Special thanks to Chris Powers, Indiana University School of Law–Indianapolis ‗10, for his exceptional research assistance. 1 See, e.g., BioJobBlogger, Why Generic Drug Companies Will Dominate Future Pharmaceutical Markets, BIOJOBBLOG (Feb. 1, 2010), http://www.biojobblog.com/20 10/02/articles/biobusiness/why-generic-drug-companies-will-dominate-future-pharma ceutical-markets/; Zacks Equity Research, Pharmaceutical Stock Outlook–Sept. 2011, ZACKS (Sept. 22, 2011), http://www.zacks.com/commentary/18914/Pharmaceutical+ Stock+Outlook. 245 MORRIS.FINAL (DO NOT DELETE) 2/21/2012 5:02 PM 246 [Vol. 22:245 FORDHAM INTELL. PROP. MEDIA & ENT. L.J. pharmaceutical agents has been drying up.2 Brand-name pharma is expected to produce very few new drugs in the near future.3 Indeed, companies like AstraZeneca have completely forgone some areas of drug development such as psychiatric drugs, focusing instead on more profitable areas such as cardiology and oncology.4 Eli Lilly, another giant in the industry, has slashed thousands of jobs, and consolidations and mergers among industry players are an increasingly common occurrence.5 American health care providers face shortages of much needed vaccines and medications because too few manufacturers are able to sustain a presence in those markets.6 The U.S. pharmaceutical industry was known until very recently, however, as one of the most robust and profitable in the world7—what happened to cause this once flourishing industry to become one struggling to survive? A variety of factors account for the rather sudden downturn in the fortunes of pharmaceutical manufacturers, including rapidly rising costs, decreasing profits, and the changing nature of pharmaceutical research.8 One issue seldom addressed, however, is the role of the Drug Price Competition and Patent Term Restoration Act, known informally as the Hatch-Waxman Act after 2 See BIOJOBBLOGGER, supra note 1. Bernard Munos, Lessons from 60 Years of Pharmaceutical Innovation, 8 NATURE REVS. 959, 965 (2009). 4 See Ben Hirschler, RPT-UPDATE 1-AstraZeneca Drops Psychiatric, Other Drug Research, REUTERS (Mar. 2, 2010, 11:05 AM), http://www.reuters.com/article/2010 /03/02/astrazeneca-rd-idUSLDE62019Q20100302. 5 Mike Corbin, Eli Lilly Continues Layoffs Despite Profit, WISHTV8.COM (May 7, 2010, 4:29 PM), http://www.wishtv.com/dpp/news/business/eli-lilly-continues-layoffsdespite-profit-; Preston Henske & Tim van Biesen, Mega Mergers Can‟t Cure the Pharmaceutical Industry, BLOOMBERG BUSINESSWEEK (July 26, 2009, 8:50 PM), http://www.businessweek.com/technology/content/jul2009/tc20090724_243995.htm. 6 Provisional Observations on Drug Product Shortages: Effects, Causes, and Potential Solutions, 59 AM. J. HEALTH-SYS. PHARM. 2173, 2173, 2179 (2002), available at http://www.ashp.org/s_ashp/docs/files/DShort_11b-SF-Witmer.pdf. 7 See Zacks Equity Research, Pharmaceutical Industry Outlook – March 2011, ZACKS (Mar. 2, 2011), http://www.zacks.com/stock/news/48376/Pharmaceutical+Industry+ Outlook. 8 See Global Pharmaceutical R&D Productivity Declining According to Thompson Reuters, CMR International, THOMSON REUTERS (July 1, 2010), http://thomsonreuters .com/content/press_room/science/RandD-Productivity-Declines. 3 MORRIS.FINAL (DO NOT DELETE) 2012] GENERIC PHARMACEUTICAL COMPETITION 2/21/2012 5:02 PM 247 its two leading sponsors,9 in the current decline of brand-name pharma. Enacted in 1984 and amended in 2003,10 this statutory scheme roughly coincides in time with brand-name pharma‘s drastic change in fortune.11 The question is whether anything more than mere coincidence underlies this connection. The Act was designed to balance two countervailing tasks: facilitating greater market entry of lower-priced generic imitations of br (...truncated)


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Emily Michiko Morris. The Myth of Generic Pharmaceutical Competition Under the Hatch-Waxman Act, Fordham Intellectual Property, Media and Entertainment Law Journal, 2012, Volume 22, Issue 2,