Introduction, Part I, Part II, Part III
This series has described the basis of the intellectual property regime protecting the pharmaceutical industry; various statutes that lengthened the protections granted by the initial statute, and some of the ways the industry games that system to extend its protections even further. This conclusion will consider the possibility that the Hatch-Waxman intellectual property regime is becoming obsolete. Hatch-Waxman was built on a balance between the needs of the innovator companies for what they consider a reasonable period of exclusive marketing rights and regulations and incentives to encourage generic firms to bring competing drugs to market as soon as that protection expired.
Fundamental to that balance is the grant of 180 days of protection from additional generic competition to compensate the first generic company to file an ANDA and bear the cost and risk of challenging the innovator company’s patents. That grant can be made only if the innovator company, which retains marketing rights when competition emerges, does not lower its prices to compete with the generic company. Otherwise the generic company cannot benefit from its exclusivity.
When Hatch-Waxman was enacted in 1984, that was what happened. The innovator company, enjoying brand familiarity, did not reduce its price and found that option financially acceptable. That began to change in 2003. Innovator companies began to sell "authorized generics," made by subsidiaries or licensed manufacturers, to compete with the generic granted exclusivity. To some as yet unknown extent, this practice reduces the profits of the first ANDA filer. For background see
here and here.
Most observers see this tactic as yet another way of gaming the system to discourage early generic competition. And, at least in part, it probably is. Generic companies that cannot count on the profit to be made during the 180 day period of exclusivity may be less willing aggressively to challenge a patent. They might also be more willing to accept a payment from the innovator company to settle patent litigation and delay market entry.
But other factors may also be at work. During the past several years innovator companies have not been able to maintain the pace of new drug discovery. For reasons that are not entirely clear, innovator companies are producing fewer new drugs and fewer of the blockbusters on which their business model has been based for the past several decades. At the same time, insurance plans have become very aggressive in encouraging competition among branded drugs and pushing their enrollees to use generic drugs when available. Innovator companies simply lack the relative marketing muscle and pricing power that they enjoyed in 1984.
These developments suggest that the appearance of "authorized genetics" may be the beginning of a trend in which innovator companies reduce their dependence on blockbusters and move to a different kind of business strategy. Part of it may involve the aggressive marketing of drugs even after patent expiration. Promises of "personalized medicine", drugs tailored to the individual genetic makeup of each patient, also present new kinds of opportunities for innovator companies—opportunities not amenable to the blockbuster strategy.
These changes may lead to a reconsideration of the industry’s business model and a consequent rethinking of the intellectual property regime applied to the pharmaceutical industry.