Top 3 Things You’ll Learn
- How drug manufacturers preserve brand market share in a competitive environment
- How the Hatch-Waxman Act impacts the development of brand and generic drugs
- The rules and processes that guide how new generic drugs to come to market
It’s no question that pharmaceutical manufacturers’ advances in innovative drug development have resulted in patients leading healthier lives. It’s this same drive to initiate, control, and maintain market share in a competitive industry that also ultimately increases prescription drug benefits costs for self-insured employers. Understanding what “Brand Innovators” are doing to preserve their market control can help explain how we arrived at this crossroads between innovation and high cost.
Brand Patents & Exclusivity Protections
Issued by the U.S. Patent and Trademark Office (USPTO), patents protect the drug molecule, manufacturing process, and utilization. Once a drug manufacturer files a patent application, a 20-year protection clock starts ticking. This time may be extended if the patent application or review process is delayed. Typically, by the time the drug is developed and approved by the U.S. Food & Drug Administration (FDA), the patent life remaining is often much less than 20 years because of the long production time.
The patent does provide the drugmaker with an exclusivity period that helps balance new drug innovation with generic drug competition. Various exclusivity periods can be assigned for different circumstances, such as periods of 3, 5, or 7 years. Any new generic products developed must not infringe upon any unexpired patents or exclusivity periods.
Depending on the production time and circumstances, drug patents may expire before or after the period of exclusivity. Lawsuits can help protect Brand Innovator interests when exclusivity cannot. If a drug patent lasts longer than the period of exclusivity, it is common for generic companies to challenge the patent in the generic drug application process. However, when that happens, the brand patent holder may file a lawsuit against the generic applicant to block the FDA from approving the generic application for a period of 30 months.
Under today’s laws, brand drug patent holders can file suit to block the FDA from approving the generic application for a period of 30 months. These drug maker tactics to maintain market share come at a cost to self-insured employers.
The Brands vs. Generics Battle
These regulations that govern drug manufacturer production today were put in place after an infamous court case that started it all. In the 1980s, a court battle between a Brand Innovator and Generic Manufacturer set the stage for the market circumstances we see play out again and again. According to the court case, a Generic Manufacturer started developing their product before the brand patent had expired. The Brand Innovator sued the Generic Manufacturer and ultimately won. The court’s decision granted the Brand Innovator an additional 3-5 years of exclusivity by blocking generic development before the brand patent expired.
Legislators quickly realized this court decision discouraged generic development. In 1984, they attempted to level the playing field by passing “The Drug Price Competition and Patent Term Restoration Act,” also referred to as the “Hatch-Waxman Act” for the lawmakers who created it. The new law allowed generic companies to start development while a brand was still under patent but blocked generic FDA approval for five years if the brand drug was a new entity. The Hatch-Waxman Act also allowed patent extensions while drugs were still under FDA review and granted the first generic manufacturer a 6-month exclusivity period in certain situations.
The Bottom Line for Employers
Within the rules set by the Hatch-Waxman Act, Brand Innovators exhaust regulation-backed methods to maintain market share. However, these tactics come at a cost. Many times, increases in the brand drug prices are used to help the drug makers recoup the investment. Inevitably, the day will come when the generic drug hits the market, forcing the Brand Innovator to take more drastic measures to retain their product market share.
As we watch Brand Innovators and Generic Manufacturers battle for market share, their competitive tactics come at a cost to self-insured employers. This battle ground works against pharmacy benefits plans. It is critical for self-insured employers to have a long-term strategy in place to block against these tactics as much as possible.
Check out our free Clinical Strategies Playbook to learn more about drug manufacturer pricing tactics and key strategies to help your clients combat them.