Drug Litigation Newsroom

The Issue Of Escalating Drug Expenditures, And To Ensure That The Benefits Of Pharmaceutical Innovation Would Continue

Congress passed the Hatch-Waxman Amendments ("Hatch-Waxman" or "the Amendments") to the Food, Drug and Cosmetic Act ("FDC Act"). Hatch-Waxman established a regulatory framework that sought to balance incentives for continued innovation by research-based pharmaceutical companies and opportunities for market entry by generic drug manufacturers. Without question, Hatch-Waxman has increased generic drug entry. The Congressional Budget Office estimates that, by purchasing generic equivalents of brand-name drugs, consumers saved $8-10 billion on retail purchases of prescription drugs in 1994 alone. With patents set to expire within the next four years on brand-name drugs having combined U.S. sales of almost $20 billion, the already substantial savings are likely to increase dramatically.

Yet, in spite of this remarkable record of success, the Amendments have also been subject to some abuse. Although many drug manufacturers – including both brand-name companies and generics – have acted in good faith, others have attempted to "game" the system, securing greater profits for themselves without providing a corresponding benefit to consumers. This testimony will describe the Commission’s past and present response to these anticompetitive efforts.

The Commission has pursued numerous antitrust enforcement actions affecting both brand-name and generic drug manufacturers. In addition, the Commission recently released a study entitled "Generic Drug Entry Prior to Patent Expiration" ("FTC Study"). That study examines whether the conduct that the FTC has challenged represented isolated instances or is more typical of business practices in the pharmaceutical industry, and whether certain provisions of Hatch-Waxman are susceptible to strategies to delay or deter consumer access to generic alternatives to brand-name drug products. The Commission has gained expertise regarding competition in the pharmaceutical industry through other means as well. The Commission staff has conducted empirical analyses of competition in the pharmaceutical industry, including in-depth studies by the staff of the Bureau of Economics. The Commission’s efforts have included filing comments with the Food and Drug Administration ("FDA") regarding the competitive aspects of Hatch-Waxman implementation, as well as previous testimony before Congress. Furthermore, individual Commissioners have addressed the subject of pharmaceutical competition before a variety of audiences, both to solicit input from affected parties and to promote discussion about practical solutions.

After reviewing the relevant Hatch-Waxman provisions, this testimony will address the

Commission’s vigorous enforcement of the antitrust laws with respect to generic drug competition. These efforts have entailed several types of conduct relating to certain Hatch-Waxman provisions. One type of conduct involves allegedly anticompetitive settlements between brand-name companies and generics. Because the Commission became aware of and challenged such settlements first, this testimony refers to those matters as "first-generation litigation." Other, more recent types of conduct, such as allegedly improper Orange Book listings and potentially anticompetitive settlements between generic manufacturers themselves, are the subject of the Commission’s "second-generation actions."

Next, the testimony will address the Commission’s industry-wide study of generic drug entry prior to patent expiration. An understanding of the Commission’s cases in this area will provide the framework for the issues that the Commission examined in this study.