Solving the ‘parking’ problem in the drug monopoly game

Drug prices are too high. One reason is that brand-name drug firms delay generic entry. Another is that generic companies themselves delay entering the market. And they delay not only their entry but those of other generics as well. Congress is considering addressing this “parking” of generic exclusivity. One proposal, the BLOCKING Act of 2019, would not solve the problem. Another, the recently-introduced Expanding Access to Low-Cost Generics Act, would.

The BLOCKING Act has received significant attention. Supported by the White House and included in legislation approved overwhelmingly by the Senate HELP Committee and House Energy & Commerce Committee, the Act provides that a generic that does not quickly enough receive FDA approval will lose exclusivity.

It promises to address the “parking” of exclusivity. But it would not. Why? Because there’s no guarantee, a later generic will enter the market just because the first filer has lost exclusivity. These later generics might not be ready to launch or might be unwilling to challenge the first filer’s patents or launch “at-risk” (before a court decision).

In addition to the BLOCKING Act not introducing competition, the first filer could lose exclusivity through no fault of its own. As FDA lawyer Kurt Karst has explained, the FDA, on average, takes 37 months to review a generic application.

This is longer than the 30 months under the Act that would result in a generic’s losing exclusivity. In other words, even if the first-filing generic is diligently pursuing approval, it still could lose.

Finally, there’s not even a need for the legislation since FDA regulations already provide that the agency can “immediately approve” a later generic’s application if a first filer “is not actively pursuing approval.”

The FDA has had this authority for decades. If the FDA already has this power, but there is still a parking problem, then passing new legislation giving the agency redundant authority would not make a difference.

If the BLOCKING Act doesn’t adequately address the parking problem, what does? The recently-introduced Expanding Access to Low-Cost Generics Act, co-sponsored by Senators Smith and Braun. This bill would increase competition by encouraging generic companies to challenge weak patents.

Currently, there’s little incentive. Congress’s landmark Hatch-Waxman Act provides a valuable 180-day exclusivity period in which generics typically make the vast majority of their profits. But this period is reserved for the first generic to challenge the brand firm’s patent, claiming that it’s invalid or not infringed.

This generic gets to keep the exclusivity even if it settles litigation with the brand by agreeing to delay entering the market for years. And in parking its exclusivity, other generics — which cannot begin until the first filer does years later — lack an incentive to pursue patent challenges.

The Smith/Braun bill would reward generics that fulfill the purposes of the Hatch-Waxman Act, actually challenging (rather than agreeing not to test) weak patents. This is not a hypothetical problem. Eighty-nine percent of patents in settled litigation are secondary patents (covering an aspect other than the active ingredient, the most innovative point of the drug). The patentee wins only 32 percent of these cases.

Since the Supreme Court in 2013 held in FTC v. Actavis that pay-for-delay settlements could violate the antitrust laws, the number of pay-for-delay settlements has fallen.

But the vast majority still involve delayed entry. Based on FY11-FY16 FTC reports, 848 of 1003 settlements (85 percent) involved delay. A generic settling with a brand has nothing to lose by keeping its 180-day period while agreeing to late entry date.

The Expanding Access to Low-Cost Generics Act opens up the 180-day period to not just the first filer (who agrees to a delayed entry date) but also the first generic to win a court decision that the patent is invalid or not infringed.

In other words, it reintroduces the incentive (sought by the Hatch-Waxman drafters) of overturning weak patents so that generic competition is rightfully introduced. Unlike the BLOCKING Act, the Smith/Braun bill focuses on later filers that are ready to enter and have won litigation that the patent is invalid or not infringed.

There is a severe parking problem that blocks access to life-saving generics. The 180-day exclusivity period has been hijacked by generics that do not even enter the market for years.

Although well-intentioned, the BLOCKING Act would not solve the parking problem. It is time to address the issue. The Smith/Braun bill is the way to do that. With drug prices sky high because of delayed generic competition, there is no time to waste.

Michael A. Carrier is a distinguished professor at Rutgers Law School. Professor Carrier has testified in Congress on the issues in this piece.