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© 2017 Nature America, Inc., part of Springer Nature. All rights reserved.
Angst about exclusivity:
The potential cost of incentivizing makers of generic drugs
By Shraddha Chakradhar and Roxanne Khamsi
A new provision aimed at enticing
companies to produce generic alternatives to
brand-name drugs could prove ineffective,
and potentially, even backfire in rare
instances to raise costs. The US law, which
went into effect this month, awards eligible
drugmakers 180 days of exclusive rights to
market a generic version of one of a list of
267 medicines for which no such version
exists. But it also allows for a scenario in
which some pharmaceutical firms might
exploit that right and place generic versions
on the market at a high cost, especially in
the uncommon cases in which a brand-
name drug counterpart is not available.
The new provision takes inspiration
from an older, ongoing system intended to
incentivize the production of generic drugs
in the United States that was instituted in
1984 as part of the Hatch–Waxman Act.
Under Hatch–Waxman, the first generics
company to file and receive approval for
what’s known as an ‘Abbreviated New Drug
Application’ (ANDA) for the generic version
of a patented brand-name drug receives six
months of market exclusivity. During this
period of market exclusivity, other generics
companies cannot sell their version of the
product. This has bred a culture of fierce
competition among drugmakers who
wish to make generic versions of certain
medications. Generics companies have
1114 VOLUME 23 | NUMBER 10 | OCTOBER 2017 NATURE MEDICINE
even been known to challenge the US Food
and Drug Administration (FDA) when
they feel that this market exclusivity has
been wrongly granted to a competitor.
An analysis by Nature Medicine has found
that more than 40 such lawsuits were filed
against the FDA over a ten-year span.
Market data collected over the past several
decades underscore how much the Hatch–
Waxman Act has encouraged the production
of generics. In 1983, prior to the passing of
the law, generics made up only 19% of the
overall market share. By 1994, that number
had risen to 36%1, and in 2015, 87% of all
prescribed drugs were generics2.
However, industry analyses suggest that
the price of a generic drug compared to its
brand-name cost might not substantially
decline until there are several drugmakers
producing the generic form, which usually
happens only after exclusivity periods
expire.
The dependency of cost savings on
competition is one reason that some people
worry about the new 180-day marketing
exclusivity, which passed into law as part
of the Food and Drug Administration
Reauthorization Act (FDARA) in mid-
August. The provision is specifically
designed for companies that submit ANDAs
for drugs that are already off-patent and
have never received market exclusivity
protection as a generic and for which there
are currently no approved generic versions.
Some experts worry, however, that if the
new provision is intended to introduce
competition from generics and prevent
high drug pricing when there is only a single
branded version available, it might fail to
do so.
“I’m concerned that it would not solve
the problem it seeks to address,” says
Steven Knievel, an organizer in the Access
to Medicines Program at Public Citizen, an
advocacy group based in Washington, DC.
Others are also concerned that the new
law could actually produce an undesirable
market dynamic in cases where not enough
versions of a drug exist. One of the people
who urged caution to lawmakers was David
Gaugh, senior vice-president for sciences
and regulatory affairs at the Association
for Accessible Medicines, a US trade
association formerly known as the Generic
Pharmaceutical Association. “What we tried
to tell the people on the Hill for the longest
time is you’re actually potentially creating
a market that you don’t even want,” Gaugh
says.
The cost of generics
A US Government Accountability Office
report released in August 2016 concluded
that generic-drug prices declined overall
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by 59% between early 2010 and the 2014 paper by researchers from the US drug companies in litigation regarding
second quarter of 2015 (ref. 3). However, Federal Trade Commission (FTC)4. the market exclusivity granted by Hatch–
the analysis looked only at drugs that are Under the Hatch–Waxman Act, for a Waxman, the heyday of cases against the
covered by a government program known six-month period after a generic version FDA when it came to this provision really
as Medicare Part D, most of which are taken is first granted market exclusivity, it faces began around 2000, and lasted about a
orally (such as tablets). competition from only decade. Part of the subsequent drop off
“What we think is that the branded version. in litigation has had to do with updates to
there are extraordinary “I’m concerned that As such, generics the original law. Whereas companies used
price increases among it would not solve the companies granted this to have to be the first to file an ANDA to
nonoral generic drugs,” exclusivity are able in gain exclusivity for a branded product—and
says Rena Conti, a problem it seeks to some cases to enjoy would sometimes even pitch tents in the
health-policy economist address.” duopolies and set the FDA parking lot to beat other contenders
at the University of cost of their generic to filing the paperwork—the rule was
© 2017 Nature America, Inc., part of Springer Nature. All rights reserved.

Chicago. These drugs, product closer to the updated in recent years so that this market
which include some diabetes medications, branded drug’s price. “It’s incredibly ‘exclusivity’ is shared by however many
are generic in their molecular form, but valuable,” says Erika Lietzan, a professor companies file a successful ANDA on the
have some kind of patent protection on their of law at the University of Missouri in earliest eligible date for FDA review.
oral mode of administration; this constraint Columbia, of this 180-day marketing Whereas there is a dearth of generic
makes generic drugmakers seek out nonoral exclusivity. For example, if the annual versions for some drugs, a slew of companies
forms of administration, such as injection. market demand for an $8-billion-a-year will chase after the ability to market generic
The same report suggests that prices for brand-name drug is split between its versions of certain pricey medications.
nonoral drugs might be increasing: 315 of producer and a generic counterpart that For example, no fewer than 27 different
the 1,441 drugs it examined experienced has received the six-month exclusivity, that companies reportedly filed ANDAs this
“extraordinary price hikes” over this time could theoretically translate into $2 billion March to market generic versions of Biogen’s
period that could not be explained by in sales for the generics company for those multiple-sclerosis drug Tecfidera (dimethyl
inflation. Of these 315 drugs, 18% of the 180 days alone. fumarate), which earns a hefty $9,412, on
price increases affected ophthalmic drugs, average, per 60-pill packet, according to the
such as eye drops, and 46% involved topical Legal wrangling website GoodRx.com.
drugs, such as creams and ointments. The degree of litigation initiated by
Meanwhile, a white paper published this companies seeking to make generic Checking the list
year by the National Bureau of Economic versions of lucrative brand-name drugs Shumsky says that he fully expects a
Research (NBER), a private nonprofit, demonstrates their interest in entering resurgence of lawsuits against the FDA as
found a statistically significant average the market with exclusive rights to sell the a result of the new law offering 180-day
yearly price increase of 1.06% for generics generic versions. According to publicly marketing exclusivity for generic versions
drugs sold in the United States between available court records examined by Nature of the 267 drugs now made eligible by
2004 and 2016 (ref. 2). Conti, one of the Medicine, out of more than 330 court cases the government. “Whenever there’s a lot
authors of the NBER paper, attributes this brought against the FDA between 2005 and of money on the line, there’s going to
increase to the passage of two major laws. 2015, at least 60 were brought by generics be litigation,” he says. Likely to further
The Affordable Care Act of 2010 required companies. Of these more than 60 cases, compound the problem is the backlog of
that generics manufacturers offer deeper about two-thirds revolved around the 180- ANDAs currently at the FDA, according
discounts to states that purchased their day market-exclusivity rule granted by the to multiple industry sources, and so it
drugs. And under the Generic Drug User Hatch–Waxman Act. remains unclear how
Fee Act of 2012, the FDA now collects fees In many of these cases, the added workload
from generics companies to process their generics companies “There isn’t a drug will affect the agency’s
ANDAs. For a single drug, these fees can often argued that the on this list that our processing times.
be upwards of $400,000, depending on how FDA had granted market As of July, the FDA’s
many approved ANDAs a given company exclusivity to another companies don’t workload exceeded
has already received (the more ANDAs company that was not, in know about. This 4,100 as-yet unapproved
they have, the higher the fees). Both of the plaintiff company’s ANDAs. The FDA told
these laws increased costs for generics view, the first to file an isn’t a surprise list.” Nature Medicine that
companies, according to NBER report ANDA and challenge regulations put in place
co-author and Massachusetts Institute of the corresponding in tandem with the new
Technology professor of applied economics brand-name drug patent. In other cases, the exclusivity provisions will “help manage the
Ernst Berndt, so the companies might have plaintiff company argued about the official workload by providing shorter review goals
compensated for this change by pushing dates that defined another company’s six for public-health priorities.”
some of these added costs on to consumers. months of exclusivity; in these cases, the Shumsky notes that many of his generics-
In the past, generic drugs that entered challenging company was often looking to company clients are already looking into
the market with exclusivities have been, sell its product earlier than the awarded six taking advantage of the new incentive. The
on average, about 30% more expensive months were up. exclusivity, according to Shumsky, makes
than generic drugs that entered the market According to Michael Shumsky, a partner some drugs that weren’t lucrative before
without any exclusivities, according to a at Kirkland & Ellis LLP who often represents now worth pursuing. “The statute has

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 N E W S F E AT U R E

created an incentive to look back over the vial. The FTC sued Ovation on the basis manufacturers, according to the NBER
generic drug candidates and say, ‘Look, it that it was trying to eliminate competition report. The report’s authors found that
will be profitable.’” by acquiring a rival company that made a approximately 40% of all generic drugs
However, many of the brand-name similar drug. The government ultimately are supplied by only one manufacturer.
versions of 267 medicines on the list lost its case against Ovation. But more When it comes to injectable drugs, which
do not themselves have a huge market. recently, Martin Shkreli, the former chief are often specialty drugs and therefore
According to Gaugh, 144 of these drugs executive of Turing Pharmaceuticals who more expensive, the authors found that
have annual sales of less than $15 million was convicted in August of securities fraud these drugs are usually produced by two or
each, for example. A further 83 are specialty for mismanaging two investment funds, fewer manufacturers. For oral drugs such
products—such as contrast agents injected gained notoriety when he bought exclusive as tablets, however, the market is populated
into patients to make MRI scans more US rights to the drug Daraprim, which is by more manufacturers, with an average of
readable—that require so much investment sometimes given to individuals with AIDS, around five companies.
in manufacturing infrastructure, and so and jacked up the price from $13.50 to $750 For their part, some major generics
© 2017 Nature America, Inc., part of Springer Nature. All rights reserved.

much expertise to develop generic versions per tablet. companies seem optimistic about the new
of, that the economic incentive to do so If the new rule was intended to protect law that went into effect this month, while
is vastly diminished. Gaugh adds that against price spikes by encouraging acknowledging that it’s just a step toward
only 36 eligible medicines individually competition from generics, Knievel doesn’t incentivizing further drug development. “It’s
grossing more than $15 million a year are see this as likely. “I don’t think the incentive a well-intended provision and we hope it
not specialty-market products. And even makes a whole lot of sense to prevent achieves its objective,” says Steve Giuli, vice-
for the medicines with the best sales, he Shkreli-style abuse, because for drugs that president for government affairs and trade
notes, generics-makers have known about have a small market and no exclusivities, relations at the Ontario-based company
them for some time and still not found them they would already be receiving exclusivity Apotex, the largest generic drugmaker in
enticing enough to produce in competition de facto by virtue of other competitors not Canada.
with the brand-name version. “There isn’t being interested in getting on the market,” Terri Stewart, vice-president of global
a drug on this list that our companies don’t he says. regulatory intelligence and compliance
know about,” he says. “This isn’t a surprise for the Israel-based generics company
list.” The value of competition Teva Pharmaceutical Industries, says that
“There were products on this list of 267 A 2013 working paper from the FTC although there are still questions about
that have not had any sales in the last three concluded that the average price of how the FDA plans to implement this new
years,” Gaugh adds. “There are reasons generic drugs during exclusivity periods provision, “we’re hopeful that the regulatory
people don’t go after those products.” He tended to be roughly 74% of their branded agreements introduced in this package
says that there are 33 products on the list counterpart’s price 5. In a further, more can spur market competition in positive,
that had zero US sales recent analysis of this productive ways.”
last year, including the data, the researchers However, many still consider the
discontinued arthritis
“I would expect some behind this report found repercussions of the new 180-day exclusivity
medication Aristospan. interesting issues that when two or three law as something to keep an eye on. The
The demand for the generics companies previous exclusivity rules generated a lot
267 products on the
to arise as this gets were granted exclusivity of controversy, and Lietzan says that she
FDA’s list may vary from unpacked.” rights, this lowered expects nothing less of the new law: “I
one to the next, but it is the average price of a would expect some interesting issues to
possible that generics generic drug during that arise as this gets unpacked by the agency
companies might use the new market- exclusivity period by a further 13% or 40%, and courts.”
exclusivity rule to take advantage of the rare respectively.
cases for which there are no versions of a Competition doesn’t always guarantee Shraddha Chakradhar is Nature
drug available on the market, even if only a decline in drug prices, according to a Medicine’s associate news editor in
for a short period. As it happens, as Nature 2016 analysis of National Average Drug Boston. Roxanne Khamsi is Nature
Medicine went to press, a thyroid-disorder Acquisition Cost information—the Medicine’s chief news editor in New York.
treatment called liotrix (sometimes sold mechanism used by Medicaid to keep track
under the brand name Thyrolar-3) that is of drug prices—conducted by data journalist 1. Berndt, E.R. & Aitken, M.L. Int. J. Econ. Bus. 18,
on the list of 267 drugs eligible for market Llewellyn Hinkes-Jones for Bloomberg BNA. 177–201 (2011).
2. Berndt, E.R., Conti, R.M., Murphy, S. J. The land-
exclusivity is also listed on the FDA’s list of There are many nuanced market forces that scape of US generic prescription drug markets,
drug shortages. The same is true for a sterile can influence drug pricing. With this in 2004-2016. (Working paper no. 23640) (National
talc powder sold as Sclerosol, used in lung mind, and expanding on his earlier analysis, Bureau of Economics, Cambridge, 2017).
3. US Government Accountability Office. Generic
treatments. Hinkes-Jones notes that only about 21% of Drugs Under Medicare: Part D Generic Drug Prices
History is no stranger to situations in 254 drugs with no competitors between Declined Overall, but Some Had Extraordinary Price
which drug prices have spiked as a result January 2013 and January 2016 decreased Increases (US GAO, Washington, DC, 2016)
4. Tenn, S. & Wendling, B.W. Rev. Econ. Stat. 96,
of a lack of competition: the company in price over that period, whereas 54% of 214–228 (2014).
Ovation Pharmaceuticals made headlines the 4,643 drugs with competitors decreased 5. Olson, L.M. & Wendling, B.W. The effect of generic
a decade ago when it increased the price in price. drug competition on generic drug prices during
the Hatch-Waxman 180-day exclusivity period
of an old drug used to treat heart defects Most branded drugs have generic (Working paper no. 317) (FTC Bureau of Economics,
in babies from $36 a vial to almost $500 a counterparts produced by only one or two Washington DC, 2013).

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