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
This is part one of a two-part series on how brand and generic drug manufacturers battle for market share. See part 2 here.
It’s no question that pharmaceutical manufacturers’ advances in innovative prescription 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-funded employers. Understanding what these drug manufacturers, or “Brand Innovators,” are doing to preserve their market control can help explain how we arrived at this crossroads between innovation and high cost — and what employee benefits consultants and plan sponsors can do about it.
Brand Patents & Exclusivity Protections
Issued by the U.S. Patent and Trademark Office (USPTO), patents protect the drug molecule, its 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 brand drug patent granted by the FDA provides the drug maker with an exclusivity period that helps balance the cost of new drug innovation (i.e. research and development) with generic drug competition on the market. 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 prescription drug’s production time and circumstances, drug patents may expire before or after the exclusivity period. Lawsuits can help protect Brand Innovator interests on the patent 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. This is the battle for marketplace supremacy.
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: How it All Began
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.
Moving Forward: 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 drug manufacturers battle for market share, their competitive tactics come at a cost to self-insured employers. This battle ground works against the employer’s pharmacy benefits plan. It is critical for self-funded payers to have sustainable, long-term pharmacy benefit strategies 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.