The Lever - The New War Over Generic Drugs

Why is the generic drug industry suddenly fighting an initiative to allow for more lower-priced generic drugs? As Helen Santoro reveals in today’s featured story, generic drugmakers say the initiative threatens their own monopoly rights — which they use to inflate their profits and keep even generic drug prices artificially high.

Rock the boat.

(AP Photo/Matt Rourke)

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As the price of prescription medications rises, generic drugs offer a way for consumers to save money. Although generics have the same active ingredients as brand-name drugs and result in the same clinical effect, they typically cost up to 85 percent less. 

But now, the generic drug industry is pushing back against a government effort to lower the cost of lifesaving medications, even though the plan is built around letting them make more generic drugs. In government filings reviewed by The Lever, generic drugmakers insist the initiative threatens their own monopoly rights — which allow them to inflate their profits and keep even generic drug prices artificially high.  

The industry also fears the initiative is a step toward allowing the federal government to manufacture medicines on its own — as has been proposed in Congress, and undertaken in California as well as in other countries.  

The industry’s pushback comes after the Biden administration set its sights on taxpayer-funded medications last year in an attempt to lower high prescription drug prices. Using authority granted by a long-standing federal law called the Bayh-Dole Act, government agencies can “march in” and authorize generic manufacturers to sell patented medications at lower prices if the original patent holder doesn’t make such publically funded drugs available on “reasonable terms.”

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In response to the draft framework for using this power, the Association of Accessible Medicines, which represents manufacturers and distributors of generic prescription drugs, commented that the proposal “jeopardizes the vital role that generics and biosimilars play in ensuring the affordability and availability of medicine.” 

In their Feb. 6 comment letter, the generics lobbying group echoed the claims of big pharmaceutical corporations and venture capital firms that using march-in rights to reduce drug prices will stifle innovation, thereby hurting patients and leading to “delayed access to lower-cost medicines.”

Fred Ledley, professor of natural and applied sciences at Bentley University and expert on drug pricing, sees these arguments as red herrings that are distracting from the generic drug industry’s real goal: To protect their profits. 

“In this context, I would guess the real motivation for the major generic drug companies to oppose march-in rights (no matter what they actually claim) has little to do with the [Bayh-Dole Act] itself but the potential threat to their market,” Ledley wrote in an email to The Lever. 

In response to a request for comment, a spokesperson for the Association of Accessible Medicines wrote in an email, “Injecting march-in unpredictability into the market at a time when generic manufacturers are struggling to stay in business is bad for American patients and generics alike… March-in rights would usher in an uncertain future.”

A New Opponent To March-In Rights

The premise behind march-in rights is this: Since American taxpayers invested money into the creation of prescription drugs, they should be able to buy the drug at a reasonable price. 

According to the Federal Trade Commission, which enforces antitrust and consumer protection laws, “pharmaceutical firms enjoy hundreds of billions of dollars of taxpayer investment in R&D… March-in rights are an essential check to ensure that taxpayer-funded inventions are affordable and accessible to the public.”

Between 2017 and 2021, the National Institutes of Health (NIH) — the primary U.S. agency responsible for biomedical and public health research — invested $97 billion in basic research and $28 billion in clinical trials and related activities, all of which are crucial steps in drug development. 

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The government also shelled out $11.7 billion on research for all 10 drugs currently up for first-of-its-kind Medicare price negotiations.

Now, for the first time since they were granted the authority 44 years ago, regulators are considering using march-in rights to make drugs more affordable. However, the plan has faced a wall of opposition from industries making billions on overpriced life-saving medicines, including pharmaceutical giants, major business interests, and Wall Street firms. 

The generic drug industry is the newest addition to this pushback. The purpose of generic drugs is to reduce health care costs while still providing millions of people with necessary medications. According to estimates by the U.S. Food and Drug Administration (FDA), 91 percent of all prescriptions nationwide are filled as generic drugs, with more than 32,000 generic medications approved by the FDA to date. 

Although cheaper than brand-name drugs, generics still bring in a hefty profit to manufacturers. In 2022, generics’ global market size was valued at $412 billion. By 2030, the industry is expected to reach $613 billion. 

Thanks to pharmaceutical middlemen who reap benefits from higher drug prices, even generic retail prices are inflated, causing American consumers to overpay. 

Manufacturers also have a history of price fixing various generic drugs — an anticompetitive practice where drugmakers agree to sell their product for a specific amount — resulting in higher costs for federal health care programs and beneficiaries. In 2021, three generic drugmakers agreed to pay $447 million for this practice, and last year, two more manufacturers faced penalties for price fixing a widely used cholesterol medicine, among other drugs. 

One alleged generic price-fixing conspiracy, involving at least 16 companies and 300 drugs between 2016 and 2018, led an investigator to call it “most likely the largest cartel in the history of the United States.” 

“Weakening Incentives For Generic Manufacturers”

Considering their profit motives, it may seem counterintuitive that the generics industry opposes efforts to let them license more brand-name drug patents. But generic drugmakers could be fighting march-in efforts because they may jeopardize the industry’s use of a government rule that allows the first manufacturer of a generic drug six months of market exclusivity before facing competition. 

According to the Association of Accessible Medicines’ comment letter on the march-in framework, this 180-day exclusivity period is the “single most important incentive for generic developers to challenge brand-name patents.”

“Undermining exclusivity — whether for one drug or dozens — will likely delay access to the lower-priced generic medicines that are the single proven solution to high drug prices,” wrote the lobbying group’s spokesperson in its email to The Lever.

In 1984, the Hatch-Waxman Act streamlined the generic drug development process to encourage the production of additional lower-cost medicines. It also awarded the first manufacturer of a generic version of a drug a 180-day exclusivity period before other generic drugmakers could enter the market.

This exclusivity period can be lucrative for drugmakers: During the six-month time frame, generic manufacturers are not pressured by competition to lower their drug prices and therefore may offer their product at only a 10 to 15 percent discount compared to the original brand-name drug. Once competition is introduced, drug prices drop significantly, according to FDA estimates. 

“The generic drug industry is a fierce defender of the 180-day exclusivity period, during which generics manufacturers make much larger revenues than when there is more robust competition,” said Steve Knievel, an expert in policy matters affecting drug pricing and medicine access at Public Citizen, a consumer advocacy organization that has been vocal in supporting march-in rights. 

Normally, generic drugmakers jockey to score this exclusivity period by being the first to request the FDA to manufacture and market a generic drug by certifying that the brand-name drug patent is “invalid, unenforceable, or will not be infringed by the generic product.” Generic pharmaceuticals typically file such a challenge when a patent protection period is about to expire.

However, the government’s march-in authority allows it to license a drug patent to generic manufacturers of its choosing. By doing so, the Association of Accessible Medicines argues drugmakers will be disincentivized from undertaking challenges to brand-name drug patents, if the government is going to release licenses to multiple manufacturers at the same time, thereby wiping away any potential exclusivity benefits.

“Those first filers will have expended a substantial amount of time and effort challenging the subject patents, all to lose their exclusivity,” the lobbying group wrote in their comment. “By weakening incentives for generic manufacturers, march-in could lead to fewer patent challenges, resulting in delayed access to lower-cost medicines.”

However, according to Knievel, generic drugmakers’ fears of losing their lucrative exclusivity window for most drugs are vastly overblown.

Because of how the regulations around march-in rights are written, said Knievel, the chances of the government licensing a patent to a generic drugmaker are incredibly rare. Manufacturers will still be granted six-month exclusivity for the vast majority of generic drugs, meaning it would be a poor business decision for them to stop challenging brand-name patents across the board. 

Only drugs developed with public funding can be targeted by march-in efforts. While nearly all U.S. drugs fit this definition, government regulators are still only able to force generic versions of a drug if they find that the original manufacturer is failing to accomplish at least one of four things:

• It is not doing enough to “achieve practical application” of the drug, meaning the drug is not available to the public on reasonable terms.
• It is failing to alleviate health or safety needs.
• It is not abiding by additional regulations designed to ensure the drug is available to everyone who requires it.
• It is not doing enough to ensure that the drug is being manufactured in the U.S.

Using the provisions of the Bayh-Dole Act, Ledley of Bentley University analyzed all drugs approved by the FDA from 2010 to 2019 and found that more than 99 percent of medications would not be subject to march-in rights. 

Fear Of Government Manufacturing

Another argument by the Association of Accessible Medicines is that march-in rights are “opening the door to government-led manufacturing.” This, in turn, would “severely disincentivize” generic manufacturers from bringing new drugs to market, which “could ultimately lead to drug shortages if, for example, the government cannot effectively supply the market” with generic drugs, according to their comment. 

The idea of government-run drug manufacturing has been broached before.

In 2018, Sen. Elizabeth Warren (D-Ma.) introduced legislation that aimed to authorize the public manufacturing of low-cost drugs in response to generic drugmakers allegedly engaging in widespread price fixing. 

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Three years later, the Department of Defense awarded a multimillion-dollar contract to a pharmaceutical manufacturer to produce three COVID-19 medicines. And last year, California entered into a 10-year contract with a drugmaker to create the state’s own line of insulin to lower the cost of the drug — making them the first state to do so. 

Other countries including China, India, and Sweden also have public pharmaceutical companies that produce essential medications. 

But Knievel doesn’t think the government is about to use its march-in authority to engage in widespread public drug production.

“The suggestion that the government would take over drug manufacturing, frankly, is absurd,” he said. “Public pharmaceutical production has an important role to play in ensuring a reliable supply of important medicines, but that’s not what calls for exercising march-in rights are about.” 

Ledley concurred. 

“There is no reason at all to believe government can manufacture products any more efficiently than industry, and the last thing patients need is for their drug supply to be caught up in politics over government spending,” he wrote in his email to The Lever. “While the idea that drug production by government would prevent some individuals in society from profiting off the maladies of others is attractive, in practice government outsources essentially all production.” 

Despite the government’s limited ability to force cheaper generic versions of drugs, Knievel said the current plan to use march-in rights to lower some medication prices is still vitally important.

“We don’t want to oversell the reach. But nonetheless, these rights are really important,” said Knievel. “There are thousands of patients and billions of dollars at stake, even though these rights are relatively narrowly applicable.”  

He pointed to the prostate cancer drug Xtandi, which was developed by public university researchers with government funding, yet had a wholesale price of $189,900 per year, as of January 2022. 

While it is unknown whether pushback by the generic drug industry will hurt the fight for the government to use march-in rights, Knievel is holding out hope. 

“I’m hopeful that opposition from industry groups… and so on wouldn’t prevent the administration from using these rights when they think it’s necessary and appropriate to remedy an abuse related to a government-funded invention,” he said.

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