When Congress passed the Drug Price Competition and Patent Term Restoration Act, known as “Hatch-Waxman,” over 30 years ago, the compromise reached between the two parties was simple: longer and stronger monopolies for the pharmaceutical industry in exchange for a regulatory framework that created a robust generic industry.
Given the tremendous impact that high drug prices can have for patients and families today, all Americans should take note of a key case currently before the Federal Circuit. It is now deciding on whether to rehear a case that, if left to stand, will greatly upset that balance in favor of even longer patents and even weaker generic competition.
The case concerns a compromise within the Hatch-Waxman compromise. When a drug maker discovers a new indication, meaning a new disease that an older drug can treat, that is usually good for patients. These new indications can be rewarded with new patents.
However, if new indication patents were to hold up generic entry, it would delay competition that yields price reductions of 79%, on average, over monopoly period prices. The Hatch-Waxman Act’s solution is to allow generics to seek approval for a “skinny label” that “carves out” all of the patented uses.
The Federal Circuit’s decision in GlaxoSmithKline v. Teva undermines this skinny label framework by holding that a generic manufacturer who uses a skinny label can still be liable for induced infringement merely by accurately describing its product as therapeutically equivalent to the branded drug. This equivalency, a requirement for FDA approval of generic medicines, is essential safety information for doctors and pharmacists treating their patients.
Chief Judge Sharon Prost explained it best in her dissent: “This holding is no small matter: it nullifies Congress’s statutory provision for skinny labels—creating liability for inducement where there should be none. Contrary to Congress’s intent, the Majority thereby allows one patented method to discourage generics from marketing skinny labels—thus, slowing, rather than speeding, the introduction of low-cost generics.”
Federal Circuit’s Repercussion on Generics
The repercussions from this ruling cannot be understated. As a result, Teva has been subjected to a $234 million judgment, including damages for the period of time that it used a template skinny label the FDA itself provided. And Teva made only $74 million in sales during the relevant period.
Generic companies simply cannot use a skinny label with this level of exposure. Indeed, lawsuits are already being filed against other skinny label generics using the theory of induced infringement from this decision.
The environment that this ruling occurred in could not be more dire. The Hatch-Waxman Act is failing due to regulatory abuse by some brand-name drug companies. Ten percent of all prescription drugs sold account for 80% of total drug spending. Brand-name drug companies are deploying monopoly extension strategies on their blockbuster drugs to avoid generic competition and jack up their prices.
A study by I-MAK found that there was an average of 125 patent applications filed on each of the 12 best selling drugs. These strategies push the balance ever in favor of long and strong monopolies and away from needed generic competition.
The result of the GlaxoSmithKline v. Teva decision is that it changes method of treatment patents into blocking patents. This distinction is important. The goal of anti-generic patent thicketing strategies is to establish a cluster of blocking patents around a profitable drug to completely bar generic entry and extend the length of a monopoly.
However, these patents are often filed after a drug has been approved by the FDA and are therefore often weaker because they do not typically represent the type of innovation the patent system seeks to reward. Method of treatment patents are different because they can be helpful. Being able to treat a new disease with an already approved drug with a known safety profile can be a boon to patients.
This is the logic behind rewarding these discoveries with new patents, but Congress obviously did not intend for these patents to be blocking patents because it established a skinny labeling system so that generic drugs could still enter the market on the old uses.
If allowed to stand, the Teva case will further erode the Hatch-Waxman Act, destroy the balance that was reached by Congress after months of deliberation, and cause higher drug prices for patients. The Federal Circuit should grant a rehearing to restore the proper functioning of the skinny label process. If it does not, congressional intervention will likely be necessary.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Matthew Lane is the executive director of the Coalition Against Patent Abuse, a collection of health-care providers, consumer groups, and other advocates that fights abuses of the drug patent system.
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