Hatch-Waxman prevents innovation through the filing of new patents that do not actually change the drug’s effectiveness

Robin, Fall 2023, "Patent Term Extensions and the Last Man Standing, Yale Law and Policy, https://yalelawandpolicy.org/patent-term-extensions-and-last-man-standing

Title I of the Hatch-Waxman Act cuts deeply into brand pharmaceutical companies’ hegemony and profits. Thus, it is unsurprising that the industry had major misgivings about the law, and that pharmaceutical companies sought a major concession from Congress as compensation for Hatch-Waxman’s industry-altering effects. Namely, Congress included Title II, which provided a mechanism allowing innovator companies to extend the lives of their ground-breaking patents.[35] Title II was a conscious compromise: Congress made it significantly easier for generics to enter drug markets, and, in exchange, brand companies had the opportunity to prolong—for a limited, statutorily defined time—their patent-enabled market monopoly. Taken as a whole, the law reveals Congress’s clear expectations of how drug markets would play out over time. Before exploring Title II’s specific provisions, one should note that the brand companies’ position is rational. Patents offer innovators the opportunity to earn enormous value by excluding others from their inventions, but they last only for a limited time. In the case of pharmaceutical products, much of that time is eaten up by the FDA, which may take years to approve a drug before it can be sold. By allowing generics to piggyback on innovators’ safety testing, Congress forced brands to absorb the cost of full-time and expensive testing processes, while providing generics an alternative route. Extending the life of a patent based on the length of the FDA’s regulatory review process was, therefore, a natural and intuitive compromise for brand companies that sought to enjoy the “full lifespan” of their patents, despite the FDA’s time-consuming approval process. The procedure by which an innovator company seeks a patent term extension is fairly straightforward. Following FDA approval, the applicant has sixty days to submit an application to the U.S. Patent and Trademark Office (“Patent Office”).[36] Upon receipt of the application, the Patent Office requests that the FDA state whether the product was subject to a regulatory review period and, if so, the period’s length.[37] The FDA publishes its determination of the regulatory review period in the Federal Register, after which the Patent Office uses several statutorily defined criteria, discussed below, to determine whether the patent is eligible for an extension and, if so, for how long.[38] The process is complete when the Patent Office grants a certificate, visible as part of the patent’s record, officially extending the patent’s expiration date.[39] With that in mind, a close look at how Congress structured the rules for patent term extensions reveals, with remarkable specificity, the timeline that the statute contemplates for new drugs retaining and then losing their market dominance. First, Congress explicitly restricted eligibility for patent term extensions to patents on active ingredients; such patents are referred to herein as core or marker patents. Secondary patents covering, for example, inactive binding agents are excluded from the definition of drug products that may receive a patent term extension.[40] Moreover, only one patent may be extended per regulatory review period that a product was subject to, even if multiple patents cover its active ingredient.[41] A regulatory review period comprises two phases: the testing phase, which runs from when a drug company’s investigational new drug application becomes effective (and the company may thereby begin clinical testing) until submission of the company’s new drug application; and the approval phase, which runs from submission until approval of that new drug application.[42] In general, the length of an extension is equal to the duration of a drug’s approval phase plus one half of the duration of its testing phase.[43] An additional restriction precludes drug makers from seeking patent term extensions for new versions of old drugs. Not only must an extension go to an active ingredient, but it must also go to an active ingredient that has not been previously approved for marketing.[44] Most important, the statute caps extensions at five years.[45] The statute further specifies that no extension may extend a patent’s expiration date beyond fourteen years from the time of the drug’s FDA approval.[46] In other words, in Congress’s eyes, drugs that had more than fourteen years of patent-protected market time did not need additional protection. Anticipating that drug makers would delay seeking their patents in order to maximize market exclusivity, Hatch-Waxman does not count FDA approval time before a patent’s issuance towards an extension of that patent.[47] In other words, Congress, in extending drugs’ monopolies, refused to give a patent credit for an FDA review period that occurred before the patent issued. No matter how long it took the FDA to approve a new drug, Congress said, the product’s monopoly must come to a timely end. Notably, the legislative history indicates congressional intent to prevent patent holders from obtaining multiple extensions of protection beyond the patent term extension on the original, core patent. As explained in the report of the House Judiciary Committee, the Committee rejected a proposed amendment supported by the Patent Office because “the net result of [this proposed] amendment was to permit multiple patent term extensions on what was essentially the same drug product.”[48] Ultimately, what the Patent Office supported was to enable patent holders to extend even their secondary patents through patent term extensions. After considering these arguments, the Committee rejected the amendment, citing a “need to avoid multiple patent term extensions” and concluding that “only the first patent on a drug-type product should be extended” because it is the only patent that “experiences any substantial regulatory delay.”[49] The Committee elaborated on this last point, stating that “subsequent patents on approved drug products are frequently not the same magnitude of innovation as occurs with respect to the initial patent.”[50] In other words, the Committee recognized that secondary patents do not provide the same degree of innovative contribution to society as the original patent on the drug itself. To be clear, the Committee rejected a proposal to grant patent term extensions for secondary patents. Nevertheless, the Committee’s logic pushes against the use of secondary patents at all for the purposes of extending a drug’s monopoly past the extension of the core patent, even if the secondary patents are not themselves extended. The simple takeaway is that core patents are the only patents deserving extension, should receive only one extension, and should be the longest and last-expiring protection on a drug—not other patents on essentially the same drug. As the data presented below will show, however, the exact opposite is playing out. For roughly 75% of the drugs in this study, core patents are not the last-man-standing protection.[51] C. Hatch-Waxman and Follow-on Regulatory Exclusivities In addition to extending patents, Hatch-Waxman provides brand drugs with other, non-patent related methods for protecting their monopoly time. As mentioned briefly in our discussion of Title I, there are two data exclusivities available to certain first movers that block the approval of abbreviated new drug applications for a set amount of time. One of these protections is termed the “New Chemical Entity” exclusivity. As stated, this provision prohibits submission of an abbreviated new drug application that piggybacks on the data from a brand drug that had applied with a never-before-approved active ingredient; the prohibition runs for five years[52] from when the FDA approves the brand drug’s application.[53] Although generic manufacturers could conduct their own safety and efficacy tests to avoid the four- or five-year wait, the costs would be immense.[54] Thus, qualifying brand-name drugs enjoy a peaceful four or five years of money-making before any realistic threat of competition. This period without competition is in addition to the amount of time it would take an abbreviated new drug application submitted after the exclusivity period to be processed and approved. The other non-patent exclusivity baked into Title I of Hatch-Waxman grants brand drugs protection if they present new clinical data that support changes to how a previously approved drug is formulated or used.[55] Termed the New Clinical Investigation exclusivity, the provision operates by prohibiting abbreviated new drug applications that use another company’s safety and efficacy data from gaining FDA approval for any uses or formulations revealed by the new clinical investigation; the prohibition runs for three years from when the other company gets FDA approval.[56] These two limitations that Hatch-Waxman places on approval of abbreviated new drug applications can be viewed as additional concessions to brand companies. In exchange for giving up certain data rights, brand drugs receive guaranteed protection of that data for a period of years, in addition to receiving some time back after FDA delays. That, however, appears to be the extent of the vision of brand company entitlement. Hatch-Waxman’s construction of unique protections for brand drugs, with explicit eligibility criteria and clear time limits for both the exclusivities and patent extensions, indicates a desire for the timely conclusion of market monopolies after the expiration of such unique protections.[57] In statutes other than Hatch-Waxman, Congress authorized three additional exclusivities.[58] Roughly two years before enactment of Hatch-Waxman, Congress introduced the Orphan Drug exclusivity.[59] Passed as part of the Orphan Drug Act of 1983,[60] and amended in 1984,[61] 1985,[62] and 1988,[63] this exclusivity is available to drugs that treat rare conditions.[64] If a drug is approved for Orphan Drug protection, the FDA is unable to approve abbreviated new drug applications—or, for that matter, new drug applications or 505(b)(2) applications—for the same drug and indication for seven years.[65] Intending the Orphan Drug exclusivity to benefit drugs for which the drug-maker had no reasonable expectation of recouping its development costs,[66] Congress in 1984 added a short-cut for measuring lack of ability to recoup costs by making the exclusivity available to any drugs that serve a population of fewer than 200,000 patients.[67] Companies have become adept at dividing a drug’s population into smaller market segments,[68] and the Orphan Drug Act has become associated with highly profitable drugs.[69] For example, in 2015, seven of the ten highest-revenue drugs were associated with an Orphan Drug designation.[70] The Generating Antibiotic Incentives Now, or GAIN, exclusivity became available in 2012 under the Food and Drug Administration Safety and Innovation Act.[71] This protection is applicable to drugs designated as qualified infectious disease products, meaning they treat certain life-threatening infections.[72] Obtaining this designation extends an existing exclusivity, namely the New Chemical Entity, New Clinical Investigations, or Orphan Drug exclusivity, by five years.[73] The third non-Hatch-Waxman exclusivity was introduced as part of the FDA Modernization Act of 1997 and is commonly referred to as the “Pediatric Exclusivity.”[74] To obtain this protection, a company must submit studies to the FDA demonstrating that its drug is beneficial to pediatric populations.[75] If the FDA grants this protection, the designated drug extends its last protection, whether it be a patent or an exclusivity, by six months.[76] These three protections constitute the exclusivities available to small-molecule drugs, besides the two embedded in Hatch-Waxman. In sum, the time limitations expressly set in Hatch-Waxman envisioned well-defined patent term extensions of no more than five years, and for core patents only, and determined that drugs that have enjoyed market monopolies of more than fourteen years need no extension beyond fourteen years, regardless of any amount of FDA delay. These clear textual limitations on patent term extensions, and the secondary patents and exclusivities that are nonetheless used by brand companies to elongate their market monopolies, would appear to be working at cross-purposes.