Drug Litigation Newsroom

How Has The Hatch-Waxman Compromise Both Promoted Competition And Preserved Incentives For Innovation

Prior to 1984, there were few generic copies of pioneer drugs that had been approved after 1962.  The safety and effectiveness data supporting the approval of a post-1962 drug was considered to be trade-secret information that could not be used to approve generic copies.  Apart from repeating the long, costly clinical studies performed by an innovator company, a generic applicant could obtain approval of a post-1962 drug only by using a literature-based (so-called “paper”) New Drug Application (NDA), which was possible only when published scientific literature demonstrated a drug’s safety and effectiveness.

To permit the approval of generic copies of all post-1962 drugs, the Hatch-Waxman compromise in effect revoked the trade-secret status of innovators’  safety and effectiveness information.  Instead of proving safety and effectiveness, a generic manufacturer was allowed to show only that its copy is “bioequivalent” to a pioneer product and FDA could rely on the pioneer’s safety and efficacy data to approve the copy. 

Bioequivalence means that a copy’s active ingredient is absorbed at the same rate and to the same extent as that of the pioneer medicine.  As a result of the 1984 law, generic manufacturers are able to avoid the huge cost (estimated at $500 million on average) of discovering and developing a new drug.  It costs only a very small fraction of that amount for generic manufacturers to demonstrate bioequivalence – which is why they can market their copies at reduced prices. 

The Hatch-Waxman compromise also helped generic manufacturers by overruling a 1984 Court of Appeals decision in the Bolar case.  The Court had held that it constituted patent infringement for a generic company to manufacture and test a medicine before its patent expired even if its only purpose was to prepare a marketing application.  In a unique exception to patent law, the Hatch-Waxman compromise allows generic manufacturers to use innovator medicines still under patent to obtain bioequivalency data for their FDA applications (a use that ordinarily would be a patent infringement) so they can be ready to market their copies as soon as the pioneer patents expire. 

The 1984 law also sought to increase the number of generic copies by providing an incentive for generic manufacturers to challenge pioneer patents.  The first generic manufacturer to certify to FDA that a patent on an innovator medicine is invalid or is not infringed by its product obtains 180 days of exclusive marketing rights if the copy is approved before the patent expires.  During that 180-day period, FDA cannot approve any other copies. 

To attempt to balance the generic provisions, the Hatch-Waxman compromise provided limited incentives to pioneer companies to help spur  innovation.  The law restores part of the patent life – but not all – lost by innovator products as a result of FDA review:

A pioneer drug receives a half-day in restored patent life for every day the product is in clinical trials prior to FDA review. 

A pioneer drug receives day-for-day restoration of patent life for the time it is under review by FDA.  However, the effective patent life of a drug cannot exceed 14 years, regardless of how much time is lost in clinical testing and review.  And the total time restored is limited to no more than five years (even if more than five years is lost during drug development and review).

Innovator drugs introduced in the 1990s that obtained patent restoration enjoyed an average effective patent life of less than 11.5 years – substantially less than the 18.5 years enjoyed by inventors of other products.  (The full patent term in the U.S., as with all member nations of the World Trade Organization, is 20 years from the date a patent application is filed with the Patent and Trademark Office.)

In addition to partial patent restoration, the Hatch-Waxman law provides that FDA is prohibited from approving generic copies of a pioneer drug for five years after approval of an innovator product in the case of new chemical entities and for three years in the case of other drugs and innovations in existing drugs.  These exclusivity periods are to protect an innovator’s data when there is no patent protection.  The law also creates a procedure for litigating patent disputes before FDA approves an allegedly infringing generic copy.