Cracking the Generics Code: Your Single-Source Success Manual for Winning in Multi-Source Product Markets!

By Subba Rao Chaganti

Cracking the Generics code unravels the mystery of the DNA for success in the international generic drug markets. The key to the generics code is a synthesis of insights gained from a detailed study of twenty leading players. A detailed analysis of these twenty companies reveals the success code of ‘Ten essential elements of a winning strategy.’ The book presents insights gleaned and gained from the game-plans employed by these twenty highly successful companies in a sustained-release capsule form. The game-plans of these companies reflect this spirit of success, optimism, and confidence. The ten essential strategic elements of these winning gameplans are discussed in ten separate chapters. These are: 1. Strategic Vision 2. Reaching the Critical Mass 3. Marketing Mindset 4. Technology Focus 5. Focusing on Research 6. Intellectual Capital 7. Integrating Strategically 8. Internationalizing the Business 9. Attracting Alliances 10. Operational Excellence These twenty companies’ strategies provide invaluable lessons for the discerning reader, whether he is an executive who is shaping his company’s future, or an analyst studying and measuring the corporate performance, or a management student in pursuit of understanding how companies achieve superior sustainable performance. Cracking the Generics Code presents the continuing adventure story of about twenty international generic pharmaceutical companies from different geographies such as the US, Germany, Japan, China, India, and Jordan that are hell-bent on becoming competitive and staying competitive in Pharma’s globalized world. While these players originate from different geographical regions of the world, the principles of their strategy and their business processes towards the adaptation of change are universally applicable and, therefore, replicable. (viii) | Preface Cracking the Generics Code, therefore, offers valuable insights in terms of what needs to be done, and more importantly, how it can be done to achieve a higher degree of competitiveness in the brave new world of globalized Pharma by showing how a bunch of never-say-die companies is doing it successfully in some parts of the globe. In sum, Cracking the Generics Code is your single-source success manual for winning at multi-source (generic drugs) product markets!

• Language: English
• Publisher: BSP BOOKS
• Release date: Feb 2, 2021
• ISBN: 9789390211623

Book preview

Global Pharmaceutical Industry: An Overview

It is easy to complain that pharmaceutical companies place profits over people and apparently care more about hair loss than TB. However, many in the pharmaceutical industry would be glad for the opportunity to reorient their research towards medicines that are truly needed, provided only that such research is financially sustainable.

— Thomas Pogge, German Philosopher

The pharmaceutical industry across the world continues to face political uncertainty, increased pricing pressures, channel consolidation, particularly in developed markets, increased patient empowerment, and a more stringent regulatory environment. Cost containment measures such as price and reimbursement cuts have led to stricter market conditions for drug manufacturers and shrinking profit margins. In response to these pressures, pharmaceutical companies are reassessing their strategies and marketing focus. The industry had to focus on structural changes to meet these challenges. Here are some of the significant ways the industry is dealing with:

A. Increased focus on productivity using leaner and more integrated models

B. Targeting new markets

C. Inorganic capability building

D. Higher adoption and leveraging of new technologies

E. Increased emphasis on differentiation

F. Focusing on unmet needs and

G. Foraying into new and advanced fields of science

The Global Pharma Markets: The Next Five Years

The global pharmaceutical industry crossed the coveted USD one trillion-mark with annual sales of over $1.2 trillion in 2018. It is likely to grow at a compound annual growth (CAGR) rate of 3 to 6 percent in the next five years to reach over the US $1.5 trillion in the next five years, according to IQVIA’s projections.

The IQVIA Institute of Human Data Science’s report, The Global Use of Medicine in 2019 and Outlook for 2023, presents the growth projections for the global pharmaceutical industry by region and countries (Table 1.1).

Table 1.1 Global Pharmaceutical Market 2019 to 2024 (Figures in US $ Billion)

(Source: Global Medicine Spending and Usage Trends Outlook to 2024, IQVIA Institute for Human Data Science)

Here are some major conclusions of global pharmaceutical markets in the next five years from a recent IQVIA Institute of Human Data Science report of January 2019:

A. In the United States, while new products and brand pricing are likely to drive the market growth in the next five years, patent expiries and generic launches will offset it to a certain extent. Additionally, there has been a spurt in cases where price increases by manufacturers on established products have come under greater scrutiny by the public and policymakers in recent times.

B. Also, in the US, payors, insurers, and hospitals are no longer willing to pay simply for a product. They are looking for ValueBased Pricing (VBP), which depends on the success of the products. Although VBP comes with its share of risks and challenges, there is a vast potential to create a win-win situation for multiple healthcare stakeholders, if structured and implemented correctly.

C. The top five markets in Europe (Germany, France, Italy, the United Kingdom, and Spain) will grow from the current (2019) size of $173.7 billion to between $211 and 237 billion in 2024. Government-led cost controls and decelerated growth on new products will reduce the pace from the earlier 4 to 7 percent to 1 to 4 percent during the 2019 - 2024 period.

D. In Japan, the market will grow moderately from the current (2019) $87 billion to $88 to 98 billion by 2024. Increasing generic penetration is the primary reason for slow growth.

E. The Pharmerging Markets (Pharma’s Emerging Markets) include Brazil, China, India, the Russian Federation, and others in the Asia Pacific region, excluding Japan, South Korea, Australia, and New Zealand. These markets will grow at a faster pace of 5 to 8 percent from the current $357.7billion (2019) to between $475 to $505 billion by 2024.

F. China is a vast market among emerging markets. It accounts for close to 40 percent of the total size of Pharmerging markets. The $141.6 billion (2019) sizable Chinese pharmaceutical market will grow between 5 to 8 percent to $165 to $195 billion by 2024.

G. Brazil, a prominent player in the Latin American region, will grow at a faster clip of 6 to 9 percent from the current $33.6 billion to $45 to $49 billion by 2024.

H. Although India is a significant player in the global pharmaceutical market and known as the pharmacy to the world, its domestic market is only a fraction of China’s size. However, India shows a higher CAGR (Compound Average Growth Rate) of 8 to 11 percent in the next five years. Indian pharmaceutical market will expand from the current $22 billion (2019) to anywhere between $31 to $35 billion by 2024.

I. The pharmaceutical market in The Russian Federation will expand at a CAGR of 8 to 11 percent during the next five-year period. It will grow from the current $15.6 billion (2019) to between $23 to $27 billion by 2024.

Outlook for Top Drug Segments

The following table presents the growth trends for the top 15 therapeutic segments over the next five years.

Table 1.2 Top 15 Therapeutic Segments by 2024 (Figures in USD Billions)

Oncology, which was the most significant therapeutic segment by global sales of $107 billion in 2017, will continue to be the leading therapy area with worldwide sales of $233 billion by 2024.

While cancer-treating drugs will be the ones with the most sales, the fastest-growing therapy area is immunosuppressants—a segment of medicines that make a body less likely to reject a transplanted organ such as liver, heart or kidney. Immunosuppressants, growing at 15.7 percent over the next five years, will reach the sixth position among the top therapeutic segments by 2024.

While global pharmaceutical sales will be averaging 6.1 percent in annual growth, two of the top 15 segments that will see a negative yearly growth are antivirals (-0.9 percent) and multiple sclerosis therapies (-0.8 percent).

Growth Drivers

The factors that drive this growth are different for developed and pharmerging markets (Pharma’s emerging markets). New product launches, especially specialty products, will be the growth catalysts in developed markets, whereas multiple factors drive growth in pharmerging markets. Consider these for example:

A. improving percapita income

B. increasing healthcare awareness

C. aging population, and

D. rising incidence of chronic ailments

There are five significant growth enablers of the overall global pharmaceutical market. These are:

A. Growing and Aging Population: Global population is likely to exceed 9.3 billion by 2050, of which about 21 percent will be over 60 years and above.

B. Longer Life Expectancy: As individuals become increasingly health-conscious and medical science continues to advance, life expectancy will increase. The life expectancy in countries like Japan, Singapore, Spain, and Switzerland will be 85 years by 2040. In about 59 countries, including China, life expectancy will be about 80 years during the same period.

C. Improving Purchasing Power: Growing middle-class population and increasing per capita income will drive the demand for pharmaceutical products in Asia in general, and in China and India in particular.

D. Higher Prevalence of Chronic Diseases: The growing population and increase in life expectancy accelerate the demand for healthcare products and services for treating chronic ailments. The higher prevalence of the need for chronic diseases will be more significant in developing nations.

E. Research Focus on Orphan Drugs: The incentivization for orphan drug research has resulted in a growing focus on rare disease therapies leading to more orphan drugs. The United States Food and Drug Administration (US FDA), for example, has approved 80 orphan drugs in 2017-18.

The Next Ten Years: Nine Trends to Watch

Sarah Rickwood, a thought leader at IQVIA, presented a picture of how the pharmaceutical industry will look like in the future in her insightful article, Nine Trends for the Next Ten Years, published on January 4, 2020, in Pharmaphorum.

1. Longer drug development cycles shorten patent-protection years. Prescription drugs used to take about ten years from bench to bedside. It now takes about 13.8 years on average for new active substances launched in 2018.

2. Innovation in the pharmaceutical industry is becoming increasingly diverse. Until 2010, the industry-focused prescription drug research was almost entirely on small molecules or biologicals. The decade after that saw the emergence of newer and different pharmaco-therapies. In 2010, the US FDA approved Blue Star, the first prescription digital therapeutic for type II diabetes. In 2011, the industry moved to cell-based therapies with the approval of Provenge (Dendreon Corporation) for treating prostate cancer. A genebased treatment, Glybera (developed by UniQure and licensed to the South Korean biopharmaceutical firm, Chelsi), got approval for marketing in Europe. Although these early launches failed and Glybera withdrew from the market, the year 2019 proved to be the tipping point for non-conventional pharmaco-therapies. The US FDA approved four fundamental cell and gene therapies:

A. Yescarta for treating non-Hodgkin Lymphoma by Kite, a Gilead Company

B. Kymriah for treating large B-cell Lymphoma by Novartis

C. Spinraza for treating SMA (Spinal Muscular Atrophy) by developed by Ionis Pharmaceuticals and marketed by Biogen

D. Zolgensma for treating SMA (Spinal Muscular Atrophy) in pediatric patients of less than two years of age, by AveXis, a Novartis company

3. The 2010s started with Biosimilars well established in Europe. In the US, however, biosimilars did not enter the market until 2015. The US FDA approved Sandoz’s Zarxio (filgrastim) as the first biosimilar to Amgen Inc’s Neupogen. In 2019, the US FDA approved Coherus BioSciences’ Udenyca, a biosimilar to Amgen’s Neulasta (Peg-filgrastim). Udenyca, launched in January 2019, has generated $271 million in sales during the first nine months and is a commercial success. The growing product pipelines in the developed markets and pharmerging markets show that biosimilars will thrive in the 2020s.

4. China moved to the second position in the global pharmaceutical league table by value in 2019 after the United States. What is even more significant is China’s progress on the pharmaceutical innovation front. The three factors indicating that 2019 might be a tipping point for drug research by Chinese firms are:

• China’s drug regulatory authority approved Oligomannate by Shanghai-based Green Valley Pharmaceuticals. It is the first drug approval for Alzheimer’s Disease anywhere in the past seventeen years. While there was skepticism surrounding the drug’s data in the US, Alzheimer’s patients welcome the drug.

• In November 2019, the US FDA approved Brukinsa (Zanubrutinib), a drug developed by BeiGene, a Chinese biopharmaceutical company for treating lymphoma.

• Approvals are one thing; paying for the products is another. The primary reason to believe that China has reached an inflection point on innovation uptake is the updated drug reimbursement list, which included 218 new medicines in just four months, from August to November 2019.

5. Digital technologies will be the most transformative force for healthcare in the 2020s. Many leading healthcare systems have overt digital health strategies and policies and are creating technical infrastructure to deliver health services. What William Gibson, the famous writer and essayist said, the future is already here—it is just not very evenly distributed is undoubtedly true of digital health systems. The advanced healthcare systems of the US, Europe, and Japan vary significantly in their digital infrastructure progress. Further, the most significant health economies are not always the most advanced. Consider, for example, one very comprehensive analysis of digital health systems covering European countries and Canada places Estonia and Canada as the most and Germany and Poland as the least advanced on a survey of 34 criteria. Also, emerging economies may outpace developed ones by leapfrogging them because of the absence of legacy systems to impede digital infrastructure development.

6. The 2020s will see more consistent maturity in the pharmaceutical industry in their digital engagement with their customers, especially healthcare professionals. Because in the 2020s, the first digital natives turn forty, making up the majority of the senior and experienced healthcare population. As a result, digital natives will inexorably grow their share of the most influential healthcare professional age groups during the 2020s, exiting the decade as the most dominant group. Digital engagement with customers is the way forward. Consider, for example, from the fact that the most commercially successful launches are also the ones with the highest ‘Year One’ digital promotional activity.

7. Pharmaceutical companies will increasingly use Artificial Intelligence (AI) and Machine Learning (ML) in the 2020s to navigate the complex web of stakeholders relevant to today’s highly specialist-oriented promotion and launches. AI and ML will also be extremely useful in recommending the best actions to the customer-facing teams engaging with healthcare professionals belonging to multiple specialties. Additionally, R&D-based biopharmaceutical companies will use AI and ML to optimize their use of best data available to generate insight on patients and their journey to effectively and rapidly identify the candidates for trial.

8. Patient insight data is crucial for understanding the genetic basis of diseases and the ability to treat genetically driven conditions with a range of gene-based therapies. Genomics will be one of the sources of increasingly sophisticated Real-World Evidence (RWE). RWE, which has been developing steadily since the 2010s, will see new relevance and power during the 2020s. The passage of legislation in 2016 by the US Congress requiring the Food and Drug Administration (FDA) to establish a program to evaluate the potential use of the Real World Evidence to support the new indications for approved drugs. The Real World Evidence Program by the FDA will determine the possible use of real-world evidence to recommend changes to the labeling of drug product effectiveness, adding or modifying an indication, change in dose, and administration route, among others. Perhaps the most promising future application of real-world data is integrating randomized clinical trials into conventional health systems to support their effectiveness-determination. Such integrated trials could collect data from Electronic Health Records (EHRs), laboratory or clinical data, or emerging technology (Actigraphy and Mobile Applications) to assess study outcomes, or streamline the trial’s conduct by facilitating recruitment and enrollment.

9. The biopharmaceutical company landscape is changing slowly, but surely. The global top-twenty pharma companies saw significant rearrangement in 2019, with three big acquisitions. If they all go through as planned, offer a new number one by pharma sales (AbbVie/Allergan); a much leaner Pfizer divested its mature Upjohn products, sold to Mylan, and a new giant in oncology (Bristol-Myers Squibb/Celgene). Furthermore, many small specialty biotech companies are developing and launching their assets since the 2010s triggering their move to next level. While the 2010s marked the rise of Specialty Pharma, the 2020s will be known for their diversity. Because the new product launches will increasingly be diverse—small molecule, biologic, cell-therapy, gene therapy, digital therapeutic, and firms from different geographical regions.

A Short History of Generics

I have always stuck up for western medicine. You can chew all the celery you want, but without antibiotics three quarters of us would not be here.

— Hugh Laurie

One of the biggest bugbears of the research-based pharmaceutical industry today is the specter of generic competition. The swarming of generics rapidly after patent expiries reduces the prices. Consequently, the profit margins are down to as low as ten percent of their original price realizations during their patent protection. Things were different about thirty-six years ago. Generic penetration was significantly lower than today’s even after products lost their market exclusivities.

Generics in the United States

Generic drugs are per se nothing new. About a hundred years ago, in 1920, Bayer’s Aspirin, for example, fought vigorously to keep generic versions off the market but lost the case in the court. Also, until forty years go, drug companies could release new products with far less testing than today. The real test of a drug’s safety and efficacy came to light after it went to market. If too many patients had adverse reactions, the regulators could pull the drug off the shelves. The danger of this approach became tragically clear when Thalidomide, a sedative used for treating morning sickness, caused thousands of congenital disabilities across many countries in the early 1960s.

The Thalidomide disaster was a wake-up call to the drug administrators, and the US FDA in 1962 dramatically revamped the Federal Food, Drug, and Cosmetic Act of 1938. It strengthened the drug testing laws, and for the first time, pharmaceutical companies had to prove that a drug was both safe and effective before it reached the marketplace. All new drugs had to go through a lengthy and expensive process of large-scale human clinical trials.

The new regulations applied to both brand-name and generic drugs, slowing down the introduction of new generics to a trickle. Any new generic drug had to go through the same investigational trials as any other drug, even if its active ingredients were identical to an already established brand-name drug. Also, companies had to wait for the brand-name patent to expire before they could even do the testing required to produce the generic. As the processes and procedures for launching a generic drug were so cumbersome, most companies did not bother. Small wonder that only thirty-five percent of the top-selling medicines with expired patents had a generic competitor by 1983, according to the Congressional Budget Office.

The generic competition’s floodgates opened in 1984 with the passage of the Drug Price Competition and Patent Restoration Act, commonly known as the Hatch-Waxman Act. The new law made it much simple and cheaper to bring a new generic drug to the market. Instead of going through lengthy human trials, companies merely had to prove that their drug had the same active ingredients and performed in the body in the same way as the brand-name drug. Additionally, the Hatch-Waxman Act allows the innovator companies to seek and restore some of the patent term lost due to the FDA approval process. Under the Act, the maximum restorable time for an innovator drug is fourteen years, provided the full patent life of that product, including restored time, does not exceed fourteen years.

Milestones of Generics: 58 Years of Advancement

Over the years, generic medicines have benefited millions of Americans and saved trillions of dollars. Accounting for approximately 90 percent of prescriptions in the US, generic medications are essential to increasing patient access to crucial drug therapies. The usp.org website presents the critical milestones in the progress generics made over the last fifty-five years. Here is the timeline:

• 1962: Effective or ineffective: by request of the FDA, the National Academy of Science (NAS) (New Active Substance) begins the process of classifying all drugs approved from 1938 to 1962 as effective, ineffective or needing further study

• 1968: Evaluating generics: The FDA announced it would apply the NAS findings to generic versions of drugs

• 1970: Abbreviated approvals: The FDA creates a pathway for Abbreviated New Drug Applications (ANDAs), allowing permissions based on proof that a drug has the same active pharmaceutical ingredient, identical in strength, dose, and route of administration bioequivalent to an already approved drug.

• 1974 - 1980: Substitutions allowed: 45 States allow drug product substitution or selections by pharmacists when filling prescriptions unless the prescriber designates ‘dispense as written’ replacing their drug anti-substitution laws.

• 1979 - 1983: Slow and steady progress: The FDA approved Only 19 generics under a rule that, for generic versions of most brand-name drugs approved after 1962, requires just the filing of a ‘paper new drug application’ establishing safety and efficacy, in part on citations to published reports.

• 1984: Simplifying generics applications: The US Congress signs The Drug Price Competition and Patent Term Restoration Act (Hatch-Waxman Act) into law. The law allows the FDA to approve generic versions of brand-name drugs released after 1962 through an ANDA without repeating efficacy and safety research. At the same time, brand-name drugs can apply for up to five years of additional patent protection for the new medicines developed to make up for the time lost while their products underwent an FDA approval process.

• 1985: Generics Growth Phase: The US FDA receives approximately 1,050 applications for new generics, with a projected annual savings of $1 billion, in the first year following the enactment of the Hatch-Waxman ANDA approval pathway.

• 1986: Increasing Generic Substitutions: The substitution rate at pharmacies for FDA-approved generic drug jumps from 12 percent to 22 percent by the second year after the HatchWaxman Act.

• 1992: Requiring more quality data: Generic Drug Enforcement Act requires generic drug manufacturers to include more scientific data about quality and bioequivalence and establishes penalties for false information in ANDAs.

• 2003: Improving access by limiting ‘Stays’: The Medicare Modernization Act improves access to generic drugs by limiting brand-name drug companies to a single 30-month stay of ANDA approval, eliminating multiple 30-month ‘Stays.’

• 2007: Tripling generics: The proportion of prescriptions filled with generics grew to 63 percent from 18.6 percent in 1984.

• 2014: Savings Surge: The generic substitution rate at pharmacies reaches 86 percent, with an estimated savings of more than $230 billion.

• 2017: Generics save US consumers more than $265 billion for the year. The FDA also increases focus on the competition by announcing its Drug Competition Plan to encourage generic drug development.

• 2018: New pathways for approvals: The FDA approves the first generic drug under ‘New Competitive Generic Therapy’ (CGT) Pathway aimed at enhancing market competition for sole-source drugs.

The Beginning

Many people think that the Drug Price Competition and Patent term Restoration Act of 1984, also known as the Hatch-Waxman Act, as the beginning of the generic drug industry in the US. But this is not entirely true, according to Dr. Jeremy Greene, renowned historian of medicine and professor at Johns Hopkins University School of Medicine. He calls it more of an inflection point in its growth.

The formation of a group of companies that call themselves the generic drug industry does not explicitly develop until much later, in the 1960s. Even as late as the 1950s, there was no single agreed-upon generic name for many brand name drug products.

By the late 1950s, the research-based pharmaceutical industry was expanding, launching many brand-name antibiotics and other drugs. The prices of the new wonder drugs began to go so precipitously high that many consumer advocates became concerned that the modern medicines’ benefits were increasingly out of reach for patients.

In 1959, one of the most visible consumer advocates in the US Congress, Senator Estes Kefauver, began to focus on the pharmaceutical industry’s monopoly power. Before that time, a single drug might have had multiple brand names and various generic names, making it difficult for prescribers and consumers to compare products. Even physicians did not know that two different brandname drugs contained the same active ingredient. In 1959, the Senate Sub-committee began hearings under the chairmanship of Senator Kefauver on ways to strengthen the drug provisions of the Food, Drug, and Cosmetic (FD&C) Act. Kefauver’s interest at the time was in drug pricing and marketing. He believed that patients were paying too much, and the drug companies were leading, even slightly misleading consumers with their extravagant advertising claims. The hearings brought to light the need for a standard name for universal use, not the brand name, not the chemical name, but something that could capture a sense of the drug’s structure without being so long it would be unpronounceable.

Around the same time, the thalidomide crisis (case 1) was brewing around the world, including the US. Kefauver reintroduced his legislation to include provisions drafted by the Food and Drug Administration (FDA) specifically designed to prevent a disaster like thalidomide. US Representative, Oren Harris was the co-sponsor of the bill in the House of Representatives.

What started as hearings at the Senate became landmark legislation, called Kefauver-Harris Amendments, naming after the sponsors— Kefauver, a Democratic Senator from Tennessee, and Oren Harris, a Democratic Representative from Arkansas. President John F. Kennedy signed the bill into law fifty-eight years ago, in 1962. The legislation established the scientific safeguards used today by the FDA to ensure that consumers will not be the victims of unsafe and ineffective medicines.

CASE

1

Kevadon Triggers a significant Regulatory Reform Resulting in Landmark Legislation!

William S. Merrill Pharmaceuticals (Founded in 1950 and defunct in 1996) wanted to launch Kevadon, a thalidomide brand in the United States in the late 1950s. The company marketed thalidomide for treating morning sickness in various countries across the world. However, Frances Kelsey, PhD., M.D, the FDA medical officer, refused to approve the drug in the United States because of insufficient safety data, which was more anecdotal than clinical. And by 1961, the devastation caused by thalidomide in other countries had become big news in the United States. Thousands of children had bee born with shortened, missing, or flipper-like arms and legs.

The public furor was immediate. Unknown to the FDA, the company had already distributed thalidomide to 1,200 physicians in the United States, including those treating pregnant women. The agency launched a nationwide campaign to recover all supplies of the drug. At a press conference, President Kennedy warned the Americans that they might have a dangerous drug in their medicine cabinets. There were 17 births of deformed infants tied to thalidomide in the United States.

Source: Kefauver-Harris Amendments Revolutionized Drug Development, published in FDA Consumer Health Information, www.fda.gov/consumer in October 2012.

Legislation, The Primary Driver!

Undoubtedly, legislation has been the primary growth driver of generics in the US and globally. The three critical legislative actions that pushed generics to the forefront during the last thirty years are:

1. Kefauver-Harris Amendments of the 1938 Food, Drug, and Cosmetic (FD&C)Act in 1962

2. Drug Price Competition and Patent Term Restoration Act, widely known as the Hatch-Waxman Act of 1984

3. The Generic Drug User Fee Act of 2012

Kefauver-Harris Amendments of 1962

The 1962 Kefauver-Harris Amendments have firmly established the United States Food and Drug Administration (USFDA) as a regulator of the pharmaceutical industry. They gave the FDA the necessary authority to approve new medicines—both innovative and generics for marketing. They also empowered the FDA to establish GMP (Good Manufacturing Practices), control quality, and conduct postmarketing surveillance of severe, adverse side effects.

The Major Changes

The Kefauver-Harris Amendments gave authority to the Food and Drug Administration (FDA) on many counts. Consider these for example:

• Manufacturers have to prove the effectiveness of drug products before they go on the market and report any severe side effects afterward.

• Pharmaceutical companies should submit evidence of effectiveness based on adequate and well-controlled clinical studies. They should also obtain informed consent from the subjects of the clinical trials.

• Gave the FDA 180 days to approve a new drug for marketing in the United States. An approval for marketing a new drug is a must-have.

• Mandated that FDA conduct a retrospective evaluation of the safety of drugs approved between 1938 and 1962, but not the effectiveness.

• Allowed the FDA to set good manufacturing practices for industry and mandated regular inspections of production facilities.

• The new bill transferred the control of prescription drug advertising to the FDA. Advertising should provide accurate information about side effects.

The history of drug development in the United States is one of continued progress punctuated by transformative events, and passage of the Kefauver-Harris Amendments is one of those. As a result, the FDA’s drug development process is considered the gold standard to which other countries aspire, said Douglas Throckmorton, M.D, Deputy Director of FDA’s Center for Drug Evaluation and Research.

Hatch-Waxman Act of 1984

Before introducing the Hatch-Waxman Act, the federal food, drug, and law contained no separate provisions addressing generic versions of the previously approved drugs. The result was that a would-be generic manufacturer had to file its own NDA (New Drug Application) to market its drug.

For over thirty-eight years, the Drug Price Competition and Patent Term Restoration Act, more commonly known as the Hatch-Waxman Act, named after its sponsors— Senator Orrin Hatch of Utah and Representative Henry Waxman of California addressed many imbalances in introducing generic drugs. A quick analysis of the generic drugs scenario in the United States reveals two factors that led to the enactment.

1. The needlessly costly, duplicative, and time-consuming process of generic drug approvals

2. The inability of generic manufacturers to start the development work before the patent of innovator drug expires

Many observers believe that the 1984 judicial decision in Roche Products Inc. vs. Bolar Pharmaceuticals gave impetus for congressional enactment of the Drug Price Competition and Patent Term Restoration Act. Here is the case (Case 2):

CASE

2

Roche Products Inc. Vs. Bolar Pharmaceuticals

Many observers feel that the case of Roche Products Vs. Bolar Pharmaceuticals was at least partially responsible for creating the Hatch-Waxman Act (The Drug Price Competition and Patent Term Restoration Act) in 1984. The case involved a drug called Flurazepam. Roche owned Flurazepam, and Bolar sought to sell a generic version of the drug after Roche’s patents expired. Bolar was hoping to time the approval with the expiration of Roche’s patents and began developing the generic version of the drug while Roche’s patents were still in force. By doing so, Bolar was legally infringing on the intellectual property rights of Roche. Roche sued them for infringement and ultimately won.

When you view the case from a public policy point of view, the judicial decision favoring Roche tantamount to extending the term of its patent. Suppose another manufacturer cannot work on a drug (experimental use) while its patents are still in force. In that case, he could only start working on it after its patents expire—and the approval process for a drug is two to three years; this amounts to extending the life of the patent. The United States Congress quickly decided after Roche won this case to pass the Hatch-Waxman Act.

Source: Andrew Berks, The Hatch-Waxman Act (Simply Explained), Berks IP Laws.

The Act has fostered innovation, spurred competition, and helped the United States remain a leader in biopharmaceutical research and development. The drug discovery process is risky, expensive, and time-consuming. Developing a new medicine takes 10 to 15 years and costs an average of $2.6 billion. The US Congress enacted the Hatch-Waxman Act to balance innovation and affordability. The Act provides biopharmaceutical companies with time and incentives to develop safe and effective medicines to generate revenues to put back into future R&D. The framework of the Act gives innovative companies up to a five-year exclusivity period for new chemical entities, during which generic manufacturers generally cannot submit FDA applications for new generic versions.

At the same time, brand-name drugs can apply for up to five years of additional patent protection for the new medicines developed to make up for the time lost while their products were undergoing an FDA approval process.

Besides fostering biopharmaceutical innovation, the Hatch-Waxman Act increases competition and affordability by creating an abbreviated regulatory approval pathway for generic products. Abbreviated New Drug Applications, commonly referred to as ANDAs, allow generic manufacturers to reference the brand manufacturer’s clinical data instead of funding their trials. The HatchWaxman Act provisions favoring the quick introduction of generic versions of the innovative products include a formal patent litigation framework in which a generic drug firm can challenge the innovator company’s patents on a particular drug during its patency. Further, the Act provides a 180-day exclusivity period incentive to the generic manufacturers to challenge the patents in a Federal Court and improve patient access to generics. Additionally, the Act provides a safe harbor provision that exempts the generic manufacturers from patent infringement liability for development work before the brand drug patent expires.

Before enacting the Hatch-Waxman Act, generics filled only 19 percent of US prescriptions and took an average of three to five years after patent expirations for a generic to enter the market. Since then, the generics industry has seen enormous growth with generics filling nearly 90 percent of prescriptions in 2019. With this increase in brand and generic competition, the Hatch-Waxman Act created a huge savings of $1.67 trillion in drug cost savings from 2007 to 2016.

The Hatch-Waxman Act successfully balanced innovation and affordability by promoting competition and improving medicines access to patients. The following table presents the significant features of the Act for achieving a delicate balance between innovation, affordability, and access to patients.

Table 2.1 Hatch-Waxman Act of 1984 Delicately Balances Innovation and Competition

The Hatch-Waxman Act also provides for the extension of a patent term. Ordinarily, patents may last as long as twenty years from the date of the patent application. More often than not, regulatory procedures take longer than the prescribed time limits and indirectly reduce the active patent life. The Hatch-Waxman Act makes a provision to extend a portion of the term lost during testing for pharmaceutical patents.

Under the Act, the patent holder can restore one-half of the time between the IND (Investigative New Drug) application, the submission of an NDA (New Drug Application), and the entire period spent by the FDA approving. Further, the statute sets some caps in the length of term restoration:

• The patent term restored may not exceed five years.

• Also, the entire life of the revived patent following the NDA’s FDA approval may not exceed fourteen years.

Regulatory Exclusivities

The Hatch-Waxman Act provides powerful regulatory exclusivities in addition to patent rights to the innovator drug manufacturers. Understanding the different exclusivities and pathways to obtain will help shape a pharmaceutical company’s research and development strategy and enhance its competitive advantage. There are five types of FDA regulated exclusivities available for pharmaceutical products, which typically operate alongside patents to block generic competition for some time. The following table presents these exclusiviites at a glance.

Table 2.4 Regulatory Exclusivities

These exclusivities are in place with the passage of the HatchWaxman Act of 1984. Additional legal authorities under various laws update these periodically. Here are the Acts governing regulatory exclusiviites.

1. Orphan Drug Act (ODA) of 1983

2. Food and Drug Administration Modernization Act (FDAMA) of 1997

3. Best Pharmaceuticals for Children (BCPA) of 2002

4. Medicare Prescription Drug Improvement and Modernization Act (MMD) of 2003

5. Biologics Price Competition and Innovation (BPCIA) of 2009

6. Patient Protection and Affordable Care Act (PPACA) of 2010 informally known as Obamacare

7. Food and Drug Administration Safety and Innovation Act (FDASIA) of 2012

8. 21st Century Cures Act of 2016

Generic Drug User Fee Act (GDUFA), 2012

When the Hatch-Waxman Act passed in 1984, there was a massive influx of Abbreviated New Drug Applications (ANDAs). There were more ANDAs than the agency could process every year, resulting in a consistent backlog of around 400 till 2002. Since then, the waiting list began to grow, and by 2006, it became 1,300 ANDAs pending. By September 2012, the backlog grew to just under 3,000. The everincreasing pending list of ANDAs waiting for approval gave the agency the impetus to introduce the drug user fee to generic drugs also.

A similar situation of a growing backlog of NDAs (New Drug Applications) waiting for approval occurred in 1992. The United States Congress passed the Prescription Drug User Fee Act (PDUFA), allowing the FDA to collect fees from drug manufacturers to fund the new drug approval process. The move towards imposing user fees to pay for the regulatory review of new medicines resulted from dissatisfaction among consumers, industry, and the FDA. The drug approvals were taking too long, delaying the drug companies’ ability to recoup their R&D costs. The FDA estimated that a delay of one month in a review’s completion cost its sponsors $10 million. There was no user fee for processing ANDAs under the PDUFA. However, the massive backlog of pending ANDAs overwhelming,and the FDA changed that. The United States Congress passed the Generic Drug User Fees Act into law in 2012 under similar lines to the PDUFA (Prescription