A discussion on generic pharmaceutical drugs from an intellectual property perspective

Most know that generic drugs often are a less expensive alternative than their brand name counterparts. Most also know that certain brand name drugs have generic drug counterparts, whereas others do not. What may be less obvious is that the laws governing generic drugs, at least the initial path of these drugs to the marketplace, are closely linked to U.S. patent laws and regulations.

Much of the incentive or disincentive for a company to research and develop a pharmaceutical drug for a particular malady is based on return on investment of capital. Successfully launching a new chemical entity (NCE; ie, a pharmaceutical drug) often requires investment of hundreds of millions of dollars, an appreciable portion of which is related to the preclinical and clinical trials and satisfying other regulatory requirements as mandated by the FDA. The desire for a brand pharmaceutical company to recoup the investment as quickly as reasonably possible and maximize profits contributes to the high prices of brand name drugs. Generic pharmaceutical companies incur fewer costs and are therefore able to achieve profits at lower price points.

Patent protection affords the brand pharmaceutical companies the right to prevent the generic pharmaceutical companies from making or using the claimed inventive compound for a limited period of time, typically 20 years from the date the patent applications is filed. During the mid-20th century, the brand pharmaceutical companies leveraged their patent and other regulatory rights to vigorously prevent generic pharmaceutical companies from filing abbreviated new drug applications (ANDAs) to enter the marketplace. As a result, Congress passed the Drug Price Competition and Patent Term Restoration Act in 1984, commonly referred to as the Hatch-Waxman Act.

The Hatch-Waxman Act provides incentives to encourage generic pharmaceutical companies to file an ANDA. Most importantly, through an ANDA, the generic pharmaceutical company may seek regulatory approval to produce and sell the drug through reliance on the clinical data associated with the brand name counterpart, ie, without incurring the significant expense of performing its own clinical trials and other regulatory aspects of the approval process for NCEs. The generic pharmaceutical company must merely show the proposed generic drug is “bioequivalent” to its brand name counterpart. Moreover, during the period of development of the generic drug, the generic pharmaceutical company cannot be sued for patent infringement.

In exchange for allowing generic pharmaceutical companies to piggyback on the substantial investment of the brand pharmaceutical company in developing the NCE, the Hatch-Waxman provides the brand pharmaceutical company with a period of exclusivity for 5 years regardless of any patent rights. In other words, for at least 5 years, an ANDA directed to a particular brand name drug may be not be approved. Furthermore, should the brand name drug be covered by a patent, the life of the patent may be extended to compensate the patent holder for any delays by the FDA associated with the regulatory approval process — called patent term extension (PTE). With revenues for brand name drugs often in the hundreds of millions to billions per year, the benefit to the brand pharmaceutical company for PTE of as little as, for example, 6 months to 1 year cannot be understated.

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Interestingly, the ANDA process, along with the tremendously high financial stakes, pits the generic pharmaceutical companies against the patents being held by the brand pharmaceutical company. While the generic pharmaceutical company cannot be sued for patent infringement during development of the generic drug, once it files the ANDA (and identifies the patents covering the brand name drug sought to be “genericized”) in most cases, the generic pharmaceutical company has constructively infringed the patents. What typically ensues is patent litigation with the generic pharmaceutical company arguing the patents are invalid. The benefit of the arrangement includes the generic pharmaceutical companies policing the patents covering pharmaceuticals to ensure that no company acquires a limited monopoly to a pharmaceutical to which it should not be entitled; ie, an unduly broad patent.

The generic pharmaceutical company constructively admitting patent infringement and subsequently litigating the patent incurs significant risk and expense. Yet the Hatch-Waxman Act provides for a 6-month period of administrative exclusivity to the first generic pharmaceutical company to file the ANDA once it is approved. For example, early sales estimates of omeprazole, a generic version of the popular ulcer drug Prilosec, were $800 million to $1 billion in the first year. The company first to file the ANDA directed to Prilosec receives a 6-month period of exclusivity to those sales and market goodwill.

The Hatch-Waxman Act sought to strike the appropriate balance between rewarding intellectual property to those who innovate the next generation of pharmaceutical drugs with the need for less costly and more accessible drugs. Of course, there are many reasons that the cost of pharmaceutical drugs remains remarkably higher in the United States relative to other developed countries with comprehensive health care systems.

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Paul S. Mazzola, JD, an intellectual property associate with Howard & Howard Attorneys PLLC, can be reached at pmazzola@howardandhoward.com.

Disclosure: Mazzola reports no relevant financial disclosures. This article is for informational purposes and is not intended to constitute legal advice.