Trump Budget Proposal Would Further Cheapen Generic Drug 180-Day Exclusivity

On Monday, the Trump Administration released a proposed Fiscal Year 2019 Budget.   Tucked into the Proposed Budget are provisions concerning 180-day generic drug exclusivity that garnered quite a bit of discussion earlier this week at the Annual Meeting of the Association for Accessible Medicines in Orlando, Florida.  While the provisions – which certainly were not proposed for inclusion in the Budget by the generic drug industry – are billed as an incentive to increase generic drug competition, if written into legislation and enacted, the Budget proposal may, in fact, have exactly the opposite effect.  But before we get to that item, let’s take a look as what the Proposed Budget provisions say. . . .

Page 51 of the Proposed Budget states:

[T]he Budget proposes to give the Food and Drug Administration (FDA) greater ability to bring generics to market faster by incentivizing more competition among generic manufacturers. This would lead to greater access for consumers to safe, high-quality, and affordable generic drugs and would improve health and quality of life through FDA’s advances in shaping medical practices.  The proposal ensures that first-to-file generic applicants who have been awarded a 180-day exclusivity period do not unreasonably and indefinitely block subsequent generics from entering the market beyond the exclusivity period.  Under this proposal, when a first-to-file generic application is not yet approved due to deficiencies, FDA would be able to tentatively approve a subsequent generic application, which would start the 180-day exclusivity clock, rather than waiting an indefinite period for the first-to-file applicant to fix the deficiencies in its application.  Triggering the start of the 180 day-exclusivity period for first-to-file applicants who “park” their exclusivity would speed delivery of generic drugs and provide substantial cost savings to American consumers.

Page 150 of the Proposed Budget, in a section titled “Major Savings and Reforms,” states:

The Budget proposes to give the Food and Drug Administration greater ability to bring generics to market faster by incentivizing more competition among generic manufacturers. This proposal would result in substantial savings to Medicare. The Budget proposes to ensure that first-to-file generic applicants who have been awarded a 180-day exclusivity period do not unreasonably and indefinitely block subsequent generics from entering the market beyond the exclusivity period. The proposal makes the tentative approval of a subsequent generic drug applicant that is blocked solely by a first applicant’s 180 day exclusivity, where the first applicant has not yet received final approval, a trigger of the first applicant’s 180 day exclusivity. This means the period of exclusivity would immediately begin for the first filer.  This proposal will enhance competition and facilitate more timely access to generic drugs.

Finally, the HHS budget document states on page 15:

The Federal Food, Drug, and Cosmetic Act provides an incentive to generic drug applicants by granting a 180 day period of exclusivity to the applicant that is first to file a substantially complete application to FDA. Increasing the availability of generic drugs helps to create competition in the marketplace, which then helps to make treatment more affordable and increases access to health care for more patients.

Some “first filers” can block subsequent generic competitors from receiving approval under this exclusivity provision. Similarly, first filers that receive tentative approval but then intentionally delay seeking final approval can block subsequent competitors. As a result, first filers can “park” their exclusivity, and consumers are denied access to generic products and must keep paying brand price.

The Budget includes a legislative proposal to address this problem. The proposal makes the tentative approval of a subsequent generic drug applicant that is blocked solely by a first applicant’s 180-day exclusivity, where the first applicant has not yet received final approval, a trigger of the first applicant’s 180-day exclusivity. This means the period of exclusivity would immediately begin for the first filer. This proposal will enhance competition and facilitate more timely access to generic drugs.

This proposal is estimated to create $1.8 billion in Medicare savings over 10 years.

. . . and on pages 68 and 85:

Change Conditions on First Generic Exclusivity to Spur Access and Competition

Effective FY 2019, this proposal makes the tentative approval of a subsequent generic drug applicant that is blocked solely by a first applicant’s 180-day exclusivity, where the first applicant has not yet received final approval, a trigger of the first applicant’s 180-day exclusivity. See the Food and Drug Administration chapter for a proposal description. [$1.8 billion in Medicare savings over 10 years]

Change Conditions on First Generic Exclusivity to Spur Access and Competition

This proposal makes the tentative approval of a subsequent generic drug applicant that is blocked solely by a first applicant’s 180-day exclusivity, where the first applicant has not yet received final approval, a trigger of the first applicant’s 180-day exclusivity. [Budget impact not available]

So, the concern is about so-called “parking” of 180-day exclusivity by a first applicant. And the remedy proposed in the Budget would require a change to the statute that would trigger the running of 180-day exclusivity when FDA tentatively approves a subsequent Paragraph IV ANDA, the fist applicant’s ANDA is not approved, and the only basis for FDA granting tentative approval to a subsequent applicant is a 180-day exclusivity block.

We’ve seen a shade of this proposal before . . . . Back in August 2003, while Congress was debating what would eventually become the Medicare Modernization Act (“MMA”), there was discussion of a similar issue.  Ultimately, however, Congress settled on the current six forfeiture provisions.  Those provisions significantly cheapened the value of 180-day exclusivity by making it possible for multiple (sometimes dozens of) generic drug manufacturers to qualify as first applicants eligible for 180-day exclusivity.  Now, the Trump Administration is seeking to further cheapen 180-day exclusivity by urging passage of a provision under the guise of promoting generic drug competition and savings.  But is the proposal a remedy in search of a problem . . . and a problem itself?

First, it should be noted that the MMA’s forfeiture provisions have worked relatively well over the past 15 year to address alleged “parking” of 180-day exclusivity. One need only look to a recent decision from the United States District Court for the District of Columbia for evidence that 180-day exclusivity can be triggered by a subsequent applicant. Moreover, the scenario contemplated in the Proposed Budget seems to be relatively rare, and is sometimes worked out among generic drug manufacturers so that both parties benefit (see our previous post here).

Second, further cheapening the value of 180-day exclusivity does not promote generic drug competition and savings.  In fact, it may have just the opposite effect.  If generic drug manufacturers have less security that they may benefit from 180-day exclusivity, then they may be less likely to submit ANDAs and challenge Orange Book-listed patents in the first place.

Third, by triggering 180-day exclusivity upon the tentative approval of a subsequent applicant’s ANDA, a first applicant can be caught totally off-guard as it is not possible to know when FDA might tentatively approve a subsequent applicant’s ANDA.  This disrupts launch planning and could significantly affect patent settlement agreements, which can promote earlier generic drug entry.

And fourth, the Trump Administration’s proposal could lead to monkeyshines among ANDA applicants (as first applicants seek to work deals with subsequent applicants or submit citizen petitions to prevent tentative approval) and among NDA holders and ANDA applicants.

If the provision proposed in the Budget has any legs, then it needs to be reworked to be less draconian. For example, instead of automatically triggering 180-day exclusivity, a subsequent applicant’s tentative approval could trigger a 75-day countdown to forfeiture similar to the 75-day period under the current failure-to-market forfeiture provision.  Anything less is untenable and would further erode the incentive Congress contemplated when it passed the Hatch-Waxman Amendments in September 1984.