Time to Reassess Hatch-Waxman Exclusivity? Interesting Proposal re Hatch-Waxman Data Exclusivity in recent issue of SCIENCE

These days the TV news and published media is abounding with reports of the debate over data exclusivity with regard to biosimilars (follow-on biologic drugs).  The complexity of biologics makes it impossible to analyze them in a laboratory to the degree possible with chemical drugs, and to show without clinical trials that one biologic has the same safety and effectiveness profile as another.  The FDA for decades has taken the position that each biologic is unique and inexorably linked to and inseparable from the manufacturing processes used in its creation.  Complex operational and proprietary details of the manufacturing processes are central to and define the identity and unique molecular safety and effectiveness attributes of each biologic.  Even if it were possible to establish “sameness” of biologics without clinical trials, agency reviewers would be unable to perform the rigorous scientific comparative assessment necessary to reach legitimate conclusions about “sameness” without first examining trade secret data concerning the manufacturing processes of the innovator, which is prohibited by law.  It is not surprising then that the manufacturers of biologic drugs have been pushing for long (and longer) periods of exclusivity to recoup their costs of long years of R&D and because it has been posited that the average biologic drug does not cover its costs until 17 years after it starts selling the product.  With a great deal of legislating going on right now in connection with biosimilars, I was surprised to read about a proposal by two professors in a recent issue of SCIENCE that advocated increasing the duration of Hatch-Waxman exclusivity for convention chemical compound drugs.

In the October 16, 2009 issue of SCIENCE, Matthew J. Higgins (College of Management, Georgia Institute of Technology, Atlanta, GA) and Stuart J. H. Graham (Berkeley Center for Law and Technology, University of California, Berkeley Law School, Berkeley, CA), note that the number of new compounds approved annually by the FDA has fallen from an average of 35 in 1996-2001 to 20 in 2002-07.  According to the authors, this decline stems from several factors; however, the authors assert that one particular U.S. regulation—the Paragraph IV patent challenge—is increasingly stifling new drug innovation.

Many of us who work in the pharmaceutical sector are well aware that a newly approved chemical drug by the FDA is typically awarded 5 years of data exclusivity during which generic versions of the approved drug many not be approved/marketed.  (There is, however, a provision under the Federal Food Drug & Cosmetic Act whereby companies that produce generic drugs can challenge patents on the approved drug after 4 years, thus commencing the process of competing with the brand-name drug before their full exclusivity period ends. 21 USC 355(c)(3)(E)(ii)).

To market a generic version, the law requires a company to file an Abbreviated New Drug Application (ANDA) with the FDA that specifies how the generic version relates to the brand-name drug and its patents.  A Paragraph IV challenge under the Hatch-Waxman Act permits generic-producing companies to challenge each patent associated with the brand-name drug, stating either that (1) the patent is invalid, or (ii) the generic drug in the ANDA does not infringe patent.  After an ANDA is submitted with a Paragraph IV challenge, a lengthy lawsuit typically ensues and though the ANDA approval that involves (one or more) patent challenges generally take from 2-3 years, the first Paragraph IV applicant (if successful in the lawsuit) will receive 180 days during which no other generic producing company may enter the market.  This is a huge incentive to generic drug manufacturers to file Paragraph IV ANDAs.  Providing the first ANDA filer with a 6-month period of exclusivity allows it to reap large dividends by pricing the generic drug just below the brand-name drug.

The authors of the SCIENCE article start by reviewing the economic incentives for generic drug challenges to innovator drug patents.  The biggest factor is the 180-day exclusivity period awarded to the generic challenger that is the first to file an Abbreviated New Drug Application (ANDA).  The authors estimate that the average revenue garnered by a generic during this period is $60 million, which is 12 times the average cost of ANDA litigation ($5 million).  This differential exists because during that 6-month period the first successful generic challenger can price the generic substitute just below the brand-name drug price (representing a “savings” to consumers).  This potential windfall has motivated generic companies to engage in “prospecting” by filing numerous ANDAs with Paragraph IV certifications (that the patent protecting the innovator’s drug is invalid). 

Using Merck’s Fosamax® (for treatment and prevention of osteoporosis in postmenopausal women) as an example, the Professors Higgins and Graham state that Teva’s successful Paragraph IV challenge permitted generic competition 4 years before Merck’s patents were to expire, costing the company about $1.5 billion.  (Teva is reported to have 160 pending ANDA filings and to be involved in 92 Paragraph IV challenges, “putting at risk over $100 billion in sales,” citing Teva’s Securities and Exchange Commission Form 20-F filing in 2007.)   This lost revenue represents the cost of bringing two new drugs to market in the U.S.

As a result, it seems that innovator pharmaceutical companies are motivated to produce new branded drug offerings that bolster their existing franchises subject to generic challenge.  However, Higgins and Graham conclude these are not “new” drugs, but rather are predominantly reformulations representing only “marginal improvements” over existing forms of these drugs.  The rate and number of successful Paragraph IV challenges is also reducing the average effective patent life for innovator drugs, particularly “blockbuster” drugs which remain the most attractive targets for Paragraph IV challenge (and the correspondingly higher value of the 180-day generic exclusivity term).

In response, Higgins and Graham have proposed extending the data exclusivity term under the Hatch-Waxman act from 5 years to 10 years.  The authors assert that extending the period of data exclusivity is necessary to overcome the “market failure” in the pharmaceutical industry caused by the Hatch-Waxman Paragraph IV challenges of patents on innovator drugs.  It seems though that the authors are not advocating the extension of data exclusivity for all drugs, they do push for longer exclusivity for “first-in-class” drugs and high-risk, high-necessity drugs, such as preventative medicine for Alzheimer’s disease and osteoarthritis.  The authors further acknowledge that there are vast policy issues at play here and that there would be a great deal of discussion, negotiation and legislation needed before any sort of changes can be made.   I do wholeheartedly agree with a statement by the authors that the “programs’ complexity and administrative burdens should not outweigh benefits.”

The Hatch-Waxman Act already provides a shorter 3-year period of exclusivity for a drug product that contains an active moiety that has been previously approved, when the application contains reports of new clinical investigations (other than bioavailability studies).  So perhaps there should be different tiers of exclusivity for those first-in-class drugs different from the follow-on formulations, different polymorphs, enantiomers, etc.  The SCIENCE article by Higgins and Graham certainly provided me an opportunity to ponder something I really hadn’t thought about before in the context of small molecule drugs.  With so many people suffering from cancer and other debilitating diseases, it is important that drug innovators have enough of an opportunity to recoup their R&D costs and continue their further work in developing new drugs.  Perhaps its time for some reassessment of the exclusivity provisions in the Hatch-Waxman Act.  Congress is presently deep in the debates over exclusivity with regard to biosimilars but something tells me this will not be the last we hear of Professors Higgins and Graham’s proposal.