FTC Testifies on Consumer Access to Generic Pharmaceuticals

Testifying on behalf of the Federal Trade Commission today before the U.S. Senate Judiciary Committee, Chairman Timothy J. Muris provided the FTC’s perspective on current marketplace issues involving consumer access to generic pharmaceuticals. The Chairman also presented results from the Commission’s industry-wide study examining entry of generic products into the marketplace prior to patent expirations.

After providing an overview of the U.S. generic and branded pharmaceutical industry, the Chairman described the regulatory background established by the Hatch-Waxman Amendments that govern the pharmaceutical drug product approval process. One of the purposes of this legislation, he testified, is to “make available more low-cost generic drugs.” This is accomplished by an expedited Food and Drug Administration (FDA) approval process to speed generic entry, balanced by additional intellectual property protections to ensure continued innovation.

The testimony explained that a significant component of Hatch-Waxman is the “180-day period of exclusivity.” This exclusivity period is provided to the first generic manufacturer to file an Abbreviated New Drug Application (ANDA) with the FDA for a drug that will compete with a branded counterpart. This 180-day period, during which the generic manufacturer has exclusive marketing rights following entry, encourages competition among those companies vying to become the ANDA first-filer. The testimony also explained that if a competing branded manufacturer files a patent infringement lawsuit against the generic manufacturer, an automatic stay goes into effect, barring generic entry for up to 30 months.

The testimony then described the FTC’s past and present response to alleged anticompetitive efforts to delay generic entry, including numerous antitrust enforcement actions the Commission has pursued against both generic and brand-name drug manufacturers. These actions have been taken in response to a variety of activities, including settlements between brand-name companies and generic applicants, improper listings in the FDA’s “Orange Book,” settlements between generic manufacturers, and alleged abuse of the government regulatory processes. In each case, the Commission contended that the company’s goal was to reduce competition by using tactics designed either to delay the entry of generics onto the market or unfairly to divide the market itself.

Next, the testimony presented the results of the Commission’s study of generic entry into the U.S. pharmaceutical market prior to patent expiration. This study found that brand-name companies initiated patent infringement lawsuits against the first generic applicant for 72 percent of the drug products examined. In 70 percent of these cases, either there was a court decision, or the parties agreed to a final settlement without a decision on the merits of the patent infringement suit. In the other 30 percent of the cases, a district court had not ruled as of June 1, 2002. Of all patent infringement cases in which the court had ruled, the study found that generic applicants had prevailed in 73 percent of the cases.

In those case in which the brand-name company and the first generic applicant settled, the study found that 14 of these settlement agreements had the potential to delay the start of the generic applicant's 180-day marketing exclusivity and thus to delay all subsequent generic entry. To ensure that generic competition proceeds without impediment, the Commission recommended requiring brand-name companies and first generic applicants to provide copies of certain agreements to the FTC and to the Department of Justice.

According to the testimony, the study also examined the issue of Orange Book listings, finding that since 1998, two new phenomena appear to be emerging in relation to patent listing practices that affect patent litigation: 1) an increase in the number of patents listed in the Orange Book for “blockbuster” drug products, and 2) the listing of patents after an ANDA has been filed for the particular product. Further, the study found that by the timely listing of additional patents in the Orange Book after a generic applicant has filed its ANDA, the brand-name companies can obtain additional 30-month stays of FDA approval of the generic applicant’s ANDA, thereby extending exclusive rights to market the branded formulation of the drug. The Commission identified eight instances in which this has occurred, with the study recommending that only one 30-month stay be permitted to reduce the possibility of abuse of the provision.

Finally, the testimony addressed new FDA regulations regarding the 30-month stay and Orange Book listings. Concluding the testimony, Chairman Muris said, “The Commission looks forward to working closely with the Committee, as it has in the past, to ensure that competition in this critical sector of the economy remains vigorous. The Commission likewise will endeavor to ensure that the careful Hatch-Waxman balance – between innovation and speeding generic entry – is scrupulously maintained.”

The FTC vote to approve the testimony and place a copy on the public record was 5-0. The written statement presented by the Chairman at the hearing represents the views of the full Commission.

The FTC’s Bureau of Competition seeks to prevent business practices that restrain competition.The Bureau carries out its mission by investigating alleged law violations and, when appropriate, recommending that the Commission take formal enforcement action. To notify the Bureau concerning particular business practices, call or write the Office of Policy and Evaluation, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, D.C. 20580, Electronic Mail: antitrust@ftc.gov; Telephone (202) 326-3300. For more information on the laws that the Commission enforces, the Commission has published “Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust Laws,” which can be accessed at http://www.ftc.gov/bc/compguide/index.htm.

(FTC File No. P859900)