Name-Brand Drug Makers Find Profitable Loophole in Hatch-Waxman Act

The Hatch-Waxman Act was originally designed to ultimately help consumers with hefty prescription medication costs by encouraging generic drug companies to challenge existing patents on name-brand medications. In this way, the cheaper generic drugs could enter the market before a name-brand medication patent expired. The act was named after its two sponsors–representative Henry Waxman and representative Orrin Hatch and became federal law in 1984.

Hatch and Waxman amended the Federal Food, Drug, and Cosmetic Act so that would-be marketers of generic drugs could file abbreviated new drug applications to seek FDA approval of their drug. An abbreviated new drug application allows for generic drug makers to bypass the preclinical (animal) and clinical (human) trials of a drug, which are usually requirements for FDA approval. However, if a generic drug maker can prove that their drug is bioequivalent to the original brand-name drug, then the generic drug is usually approved by the FDA before the brand-name patent expires. Thus, the generic drug is allowed to enter the market, and helps consumers save money on their prescription medications.

Sadly, since the act’s inception, brand-name drug makers have become wiser. By paying generic drug makers not to file abbreviated new drug applications, brand-name drug makers are able to monopolize the market and keep prices higher. The Federal Trade Commission and members of Congress are now calling for legislation to end the "pay-for-delay" deals. In June, the FTC found that pay-for-delay deals cost consumers $3.5 billion per year, with $1.2 of that cost paid by the fedearl government. It’s not wonder that name-brand drug makers favor the pay-for-delay deals, though. It is much more profitable for generic drug-makers to take the payoff since generic drugs, on average, sell for 90% less than their name-brand counterparts.