This episode is audio from the Goals of the Hatch-Waxman Act as Seen from 2024 panel from the Engelberg Center's Hatch-Waxman at 40 and Beyond Symposium. It was recorded on September 26, 2024.
Bob Armitage, Intellectual Property Consultant
Alfred B. Engelberg
Katherine Strandburg, Engelberg Center on Innovation Law & Policy, NYU School of Law (moderator)
Announcer 0:00
Welcome to engelberg center live, a collection of audio from events held by the engelberg center on innovation Law and Policy at NYU Law. This episode is audio from the goals of the Hatch Waxman act as seen from 2024 panel from the engelberg Center's Hatch Waxman at 40 and beyond symposium. It was recorded on September 26 2024
Katherine Strandburg 0:27
All right, well, I I'm really excited to be up here to moderate this panel, which really won't need much moderation, because really we are starting off with a bang at this symposium, with a panel including two sort of giants in this field, and both of whom probably need no introduction to this particular crowd. And I'm actually not going to spend much time introducing them, because I think it would be much more interesting to hear from them and you have their bios in the program, but just and Al was already somewhat introduced by Scott. So just just to say that it's just fabulous to have them here. Al, as you just heard, is credit has been incredibly generous to NYU by endowing the center. I have to mention also endowing my own chair professorship and serving as a lifetime trustee. But more importantly, for this purposes, he was just a key player in the negotiations leading up to the enactment of the hatch Oxman act. So he has a kind of very special perspective. Similarly, Bob Armitage, who is now an intellectual property consultant, has many, many years of service as a lawyer for various aspects of the brand name pharmaceutical industry, most recently as senior vice president and general counsel for Eli Lilly. So obviously, these are extremely expert people, and so our plan for the panel, and that's all I'm going to say about them, because you all know who they are, okay? So our plan for the panel is they're going to each speak for about five to 10 minutes, and then after that, they may have some conversation dialog with one another, but you should all be thinking of questions you might want to ask them during the time we have available, because hopefully we'll have some time for your questions as well. So that's the plan, and we're going to start off with that.
Alfred B. Engelberg 2:38
Is this on? Yes. Can you hear me? So first I want to say thank you for the introductions. This is actually the first time in the 30 year history of the center that I have appeared, and it was by design, actually for a long period of time, because I felt that my my presence at the beginning, when I was still actively doing patent challenges, would have undermined the credibility of the center as an independent place thinking about how to write laws better, which is something we certainly need so but I'm delighted now enough time has passed and I've gotten old enough that nobody cares what I have to say anyway. So let me just start out by saying because I think it's central to what we're talking about. I got an email yesterday from a reporter who wanted to know why. After 40 years after hatch Waxman was enacted, the drugs were still unaffordable. And the answer is really simple and Central, I think that what we're going to be talking about, which is hatch Waxman was not intended or designed to make drugs more affordable. If anything, it's responsible for making drugs less affordable. Why do I say that? Because basically, how much we spend on drugs depends on how long the legal monopolies last, and the prices charged while they exist. Hatch Waxman was aimed at a completely different issue, which was how to create price competition after the monopolies ended. And I think we've lost sight of that over time, because of all the abuses of the law which arose for entirely different reasons, historically, what what happened, and I think it's important, without getting too far into the weeds of legislative history, is that the 1979 report by the FTC entitled drug product selection, raised the issue that the anti substitution law. 1000 in the states were preventing price competition after patents expired, because you were not allowed to substitute a lower cost generic on a prescription written for a brand name drug. That report proposed a model law, which which led to the adoption of state substitutions law mandating generic substitution and and, and is really the part of it, the thing that's most responsible for the overwhelming success of the generic drug industry and the success of the hatch Waxman act. What happened immediately after the drug price the FTC report was that that pharma jumped into Congress and said, We need longer patents. They saw what was going to happen to their industry and the generic side, which was not very well organized, it didn't actually form a trade association until 1980 but by 1980 there was a patent extension bill before the Senate that granted seven years of extension To any drug patent claiming an approved drug product, and that bill passed the Senate 100 to nothing in a voice vote in 1981 was on its way to passing the house. In fact, they were so confident that it would pass the House that it was on the on the suspense calendar, which requires a two thirds majority for enactment. And along came Al Gore and Henry Waxman in 1982 and became champions of of the idea that we had, to which, which we presented to them as a as a generic trade association. They became champions of the idea that we had to fix the FDA approval process because there were 100 drugs on which patents had expired, which had no approved generic because of the difficulty of getting a generic approved under a standard where you had to independently prove safety and efficacy, the old paper NDA standard. So essentially, Waxman and gore were able, by just two votes, I think, to stop the law, stop the patent extension law. And if they hadn't accomplished that, there never would have been a hatch Waxman act because the pharma companies had no interest in helping the generic side get into business. In 1983 after the election, Henry Waxman became chair of the subcommittee of the house, Subcommittee on Health of the house commerce committee and and came up with the idea of putting, merging the two bills, merging a patent bill with a with an A N D, a Bill, a bill that would create an expedited process, and that was the end of it. As far as everyone was concerned, the deal was done. Henry said last week that nobody involved in the Bill knew anything about patents, and they relied on me to negotiate a deal with pharma related to this seven year patent extension that was on the table. You'll have to read my book to get to the I don't just don't have time to get into all of that. But there was no grand plan. And I would just give you one example that the whole patent certification process, which now so preoccupies us, came into being because in the first and out of the blue to me, the farm of people walked into a room and said, you know, if we identify a patent, the F that patent that exists claiming a drug, the FDA simply shouldn't approve a generic version. And I said, What? More than 50% of patents are declared invalid despite the presumption of validity, and if you can't get an approval, you can't infringe the patent, and if you can't infringe the patent, you can't challenge the patent. So we now will have irrebuttable drug patents. And that discussion led the pharma people down a path that God knows why they ever went down, to what to the patent certification procedure we have. But I want to get back to the first point, which is why I say that that that hatch Waxman made drug prices more expensive. And that is this, the law turned out to be so successful that it completely. Changed the economics of the research based pharmaceutical industry. Substitution became so efficient that within a few weeks to a couple of months after the time a multi billion dollar patent expired, that that revenue for big pharma company went from billions to zero, and they were faced with two choices. They could either invent their way out, or they could do whatever they could to make their monopolies last longer. That's how we got where we are now, because most companies were chose what's come to be called product life cycle management, and they chose that that basically it's an outgrowth of what I call the golden era of of pharmaceuticals, which was the late 1980s and early 1990s When all these blockbuster drugs for chronic diseases, cholesterol, hypertension, Gastro, reflux, all came into being. They were all the first multi billion dollar drugs. The patient populations for those drugs were huge, so that you could sell a pill for $4 and still make billions of dollars a year. And by 2007 2008 we got to the patent cliffs, where there's where those blockbusters started expiring. And how do you replace a multi billion dollar drug when the new drugs are basically specialty drugs with very small markets, and, and? And the answer was, you make the drugs very expensive. But there was another answer, which was, you just raise the price of everything else you've got that's patented between 2000 the 10 year period, between 2007 or eight and seven, 2017 I reviewed the iqvia data, there was roughly $185 billion in revenue losses from patent expiration and surprise, surprise, about $185 billion In price increases and and between that and and letting people go and restructuring their businesses, the pharma companies managed to make it appear that they were growing slightly, but they were growing. Their revenues were growing. So what in effect that robbed the public of the benefit of the lower cost generic drugs, because the savings that should have gone to the public, because, because we were now in a situation where 90% of all prescriptions were being filled with a generic drug, didn't go to the public, because the Other 10% of the market was accounting for 85% of drug costs, and so we ended up with the highest per capita costs in in the world by by multiple factor. At the same time, on the on the research side, you just can't. Drug companies, for the most part, could just not invent enough new drugs on the time schedule that existed. And also, we had a shift to biology and biologic drugs in that same period. And And study after study talks about the fact that most drug companies, not all. I think Bob's company was an exception stop doing basic research, and NIH today is, is the acknowledged engine for the discovery of new drugs. We now have assisted a system where, under Bayh Dole, where we spend $50 billion a year on biomedical innovation, the VCs come in and pick the winners, and the winners get sold to pharma, and it's a very, very expensive system. So I want to, I don't want to, want to leave time for the discussion. And of course, just to say one other thing, hatch Waxman, of course, diminished greatly in importance because in 2010 we got the biologics Act. The industry had learned from the mistakes it made in negotiating hatch Waxman not to go that direction again, and we ended up with an exclusivity system, followed by a complicated patent dance that has encouraged patent tickets, and we now have biologic drugs that have 20 years of market exclusivity, and there's no generic industry after that because. Biosimilars are not substitutable, at least not yet, and it's likely to take a long time to get there in this country. So I think we're going to hear a lot of discussion here in the next couple of days about abuses of hatch Waxman and and and and and what's wrong with the whole product, life cycle management and and lawyers are great telling you you know what's wrong with existing law, but I hope we spend some time thinking about whether or not, even if we fix all these abuses, will drugs be more affordable or less affordable, and and how do we begin to write a law, or set of laws, that that deals with the need for robust innovation and new drugs, the need for Companies in the capitalist system to make a profit and, and I think it's a very complicated issue that that goes way beyond patent law involves a new look at the Bayh Dole Act, a fresh look at at at the biosimilars law And and the creation of a whole new ecosystem for biomedical innovation, I'll stop there.
Bob Armitage 16:28
I have to stand up. I apologize. So you're wondering why I'm wearing a tie I was told to look like I came from big pharma, which I will take the tie off as soon as this talk is over. So if I got to rename the hatch Waxman, I would call it the Al engleberg drug price competition. I urge you to buy Al's book. It's, I've only read a bit of it. It's a story that part of it I didn't know before, even though I was Upjohn, the Upjohn company's chief IP council back in 1983 I got that job in 1984 when hatch Waxman passed. It tells the story of a relatively young patent attorney, former patent examiner, who outmaneuvered and out thought a whole legion of Big Pharma legal and policy advisors. I thought what I would do is take a few minutes going back and talking about how well the patch Waxman Act was designed if you wanted high drug price. And I say that because in 1984 as part of my job, I did a detailed analysis of the hatch Waxman act, starting almost today. I got a copy of the final compromise. And I'm a math physics major, so I started doing the math. I looked at all of up John's existing products. I looked at everything in the pipeline, and I attempted to determine what would happen between 1984 and something like the year 2005 or 2010 and there were five things that I wrote in 1984 I'm going to read you each quote and give you a little idea of what I believe the implications were. It will offer a vast array of challenges in the course of yielding meager and distantly perspective opportunities. It turns out the Upjohn product portfolio was going to be devastated before the end of the 20th century, and the very first benefits of the hatch Waxman Act would come in the 21st century. In other words, it was one of these strange compromises where you wait 1520, years before you get a benefit and you pay all of the costs up front. It ends a regulatory scheme which provided extended and stable markets for branded pharmaceuticals. Long after patent expiration. There was a day, I think it was in 1978 someone came into my office and I said, you know what today is? Today's the day the patent ontolonase expires. That was one of up John's biggest selling products at that moment. Among the 8000 employees at the Upjohn company, there were only two who knew that the talanase patent was expiring that day. That's how relatively unimportant and unpatent centric patents were to the pharmaceutical industry. Point three, the passage of this legislation poses substantial risks to the survival of the innovative industry. In other words, if you did the math, it looked like you faced an existential challenge. Could you really survive a law. Now where there was going to be the type of generic competition that actually materialized. I actually had the opportunity to present this entire presentation. I worked up to the 12 more senior executives at the Upjohn company, and at the end of that presentation, and you can imagine how I might have presented it. At the end of that presentation, was actually one person in the room who believed that hatch Waxman could possibly be that significant. I mean, who was going to buy all these generic drugs instead of the branded products? Four, the innovative industry will henceforth prosper only to the extent its innovations regularly resupply the marketplace with NCD drugs that can be promoted aggressively on the basis of improvements in properties and actions. It turns out, if you're going to have a finite period of exclusivity, you've got to make sure that you get into the marketplace and get market share so that you can make back the cost of that research before that period of exclusivity ends. In other words, we are we were going to see a need for much different marketing every time a new medicine comes on the market. What is the pharmaceutical company need to do? Change the practice of medicine by educating physicians on how the product is to be used. What patients, etc, a much more high risk business model that depended upon not only innovation success, but marketing success. Point five, hopefully, those in the industry who meet these more unforgiving requirements for success will be the ones in the marketplace who lay the careful and steady plans for delivery of innovations to the marketplace. That sentence began with the work, hopefully, because if you'd actually been in the industry, you realized how much serendipity and how much luck it takes to get a successful pharmaceutical product. When you were in the mid 1980s there was what I call the perfect inverse correlation. Nothing ever predicted to be a blockbuster drug during its research, ever became one, and anything that ended up being a blockbuster drug was never predicted to be one. And so we had an environment in which, I think, from a business concern, you headed very high risk industry. There is no such thing as a successful high risk, low reward business. And so what? What was the industry going to be able to do? Well, that compromise said you will henceforth be an entirely patent centric business model. You don't have the patents. You'll be in and off the market with such a short period of time. You'll never pay back the cost of research. A patent centric system, and a patent litigation centric system in particular, is just bad policy. It's not in the interests of innovators. It's not in, it turns out, not, to be completely in the interests of generic companies, and it's certainly not in the interest of patients. Patients are not interested in the medicines with the best patents. They want the best medicines and henceforth, to get in the pipeline, you had to go to the patent department and say, Can we project enough exclusivity to develop this molecule? Now what? What actually happened? Well, I have a little test for each of you. I have on my little cheat sheet here the names of over 30 companies who disappeared in the decades after hatch Waxman via mergers. What actually happened for a long period of time was that pharma companies simply could not meet these more unforgiving requirements for success, and they merged and they merged and they merged. Upjohn became Upjohn and Pharmacia became Pharmacia became something else. Took two or three mergers before they're now this minuscule part of Pfizer on 42nd street here in New York City. There was another thing that happened to try to mitigate these risks, and that is patent centric, patent litigation centric, patent settlements, patent settlements thought to be legal, turned out to foster this minefield of antitrust litigation with billion dollar consequences. So where do we find us 40 years later, if you actually go back to 1984 you discover there's only 119 84 multinational pharmaceutical company that's not the product of mergers of multinational pharmaceutical companies, and that happens to be the only pharmaceutical company that managed to escape this app. A Lange of Pay for delay antitrust litigation. So yeah, it's a high risk, high reward business of a type we've never seen. We went from a pharma business that could survive on the same margins that in 1984 Kodak had for film or crest Procter and Gamble head for toothpaste to a business that could never make money, if indeed that was its gross margin on products. So what did I do? Well, I joined Lilly in 1999 one of the first things I did is put together a team to try to find a way to have an exclusivity system, an IP regulatory interface, interface system that wasn't entirely dependent on patents, and in fact, to figure out if there wasn't some way so that you could have the ability for generic drug entry with no patent litigation. What ultimately resulted from that was a partnership with the National Health Council that resulted in bills being introduced in Congress in 2011 in 2013
that at one point had 95 co sponsors in the House of Representatives, bipartisan, 47 of one party, 48 of the other party. This was called the modern Cures Act. And in a nutshell, what this law would have provided is 15 years of combined patent and data package protection for any new chemical entity, drug, but only if it met an unmet medical need, in return for the innovator being able to waive all patent rights at the end of the 15 year period so generic or biologics could come to market immediately thereafter. In other words, fixed exclusivity, assured generic drug entry, pretty much just that simple. Win, win, win. Innovators focus on the best medicines, not medicines with the best patents. Generics and biosimilar makers come to market without the risks, delays and uncertainties of patent litigation, and patients benefit from both innovative medicines in that 15 year period being fully developed for all their potential indications and uses, and then the benefits economically that come from the ability to have generic competition. So I know much of the program today is and tomorrow is going to be on fixing patch Waxman, but I would hope we spend a little bit of time talking about breaking it and putting in its place something more modern cures, if you're interested in an article on modern cures, I'm not selling a book, go to your nearest web browser and type in Armitage, modern cures, modern spell with two D's. You'll see a law review article that will explain the challenges to the industry and how this might be that win, win, win. Thank you.
Katherine Strandburg 28:27
Okay, so we will take questions, but, but before we do that, I have to, I have to ask them for one more, one more thing, because sometimes you know, when you're moderating a panel, you email the panelists and you say, like, Should we have a call beforehand. So I did that, and I got back an email from them, which was like, Oh, we already did that. We had a call already, and we are all organizers like you are the best panel ever. But one of the things they also said to me, and I want to ask them to both address this, is they said we had more agreement than you might have thought. So that's what I wanted them to say. And then if you have a question, you can start getting your hands up about that. So we don't go over our time. But I just want, like, one or two minutes about that. What did you find in terms of surprising agreement when you guys talk to each other? And I'll let al go first, because Bob just Well,
Alfred B. Engelberg 29:16
I think, clear from what I said and what Bob said, that the situation we have now is one where people are are gaming the law in one way or another to make monopolies longer. And if you look at it objectively, on the hatch Waxman side, we're probably 12 years to 12 to 14 years. And to get there, we have Pay for delay settlements. We have a lot of other things on the on the on the biologic side, the most important drugs have had over 20 years, and they're not copies, and so we don't have price competition afterwards. So I. If I believe that you could fix the patent system, as iMac is arguing for, I might have a different view, but I think some form of one and done system is where we need to go and and I have questions about whether it's modern cures or something else, because I'm there's always kind of a race to the bottom, and I'm concerned that we can end up giving 15 years to a lot of me too drugs, when, in fact, the intention, I think, would be really to make sure that drugs that are very important breakthroughs and require a lot of research. Would be no one would disagree that they 15 years is a better compromise than what we have now. So there are a lot of issues at the margins, but unless someone can actually say that and document that, if we got rid of all the abuses of the current systems, it would help drug affordability. It seems to me that there's a lot to be said for a one and done system of some sort. I
Bob Armitage 31:23
yeah, I think we use different words, but maybe the one thing we agree on, and you didn't use this word, and I'm going to use this word, is access. I think it's a real issue that you have, and it's a moral issue, it's a political issue, it's a public health issue is we haven't designed a system where if you need a drug, you have access to it, and we figure out how to make that possible, and that means working with payers, working with the government, working with industry, and there is no such thing as a Drug Price. I mean, drug price is like the NYU tuition for law school isn't one price. Second. I did something last night. I have to admit, I took a me too drug because it turns out to be the best choice for me. And in fact, what what Al calls me to drugs patients and physicians call choices. And sometimes it's the fifth or sixth drug that comes along that's the best choice for the most patients. And the third thing on abuse I use. I'll put this in an entirely different context. If the only way you could get access to food was to steal it, it would be unsurprising that there were more thieves in the world. If the only way that you can protect your entire business model is securing patents through patent strategies. It ought not to be a surprise that people get more patents and devise more patent strategies to get more exclusivity. So it's actually a design feature of hatch Waxman to see all the quote close, quote abuses, because that's how you get food.
Alfred B. Engelberg 33:28
Yeah, I Okay. We're gonna take some questions.
Katherine Strandburg 33:29
I gotta take some questions because we're gonna run out of time. I know this would be so fascinating. Okay, go ahead. Sorry, I don't know your name, so I have to point at you, and I can't see your name from there generic drug crises,
Speaker 1 33:43
in terms of shortages and those products not being available, I think that's mostly been due to production integrity issues and supply chain issues. So when you talk about wanting to sort of change the system very dramatically, from what it is now may be in favor of more generic drug availability. How does that kind of factor into your vision?
Bob Armitage 34:11
If you read my free article,
Katherine Strandburg 34:15
which, by the way, should be included in the list of the Cle materials,
Bob Armitage 34:21
I believe book is worth every penny of the price. I didn't mean to disparage that. You know, realistically, what you probably need to do is give some agency the authority to set minimum prices for generic medicines when they come on the market, to assure that multiple generic competitors have an incentive to be on the market day one, to assure that the minimum price is the price of the medicine through just normal competition. And you I say a lot about the business model of innovators being high risk, high. Reward, generic companies were given this bizarre Low risk, low reward business model that encourages a lot of behavior that probably is not in the public health interest, that minimum pricing could be at least a step to resolving.
Alfred B. Engelberg 35:18
Yeah, I would. I would add to that, that what we need, you're addressing a different problem. There's been a tremendous amount of consolidation in the market over the last 40 years, and that, combined with with a deliberate lack of price transparency, has caused most of the problems. I mean, people don't realize, you know, that a branded pill that sells for $1 you know, on average, cost a penny or two to make in a small and when you're talking about small molecules, and when they're offered a 20% savings or a 50% savings, they think they're getting a good deal. And in fact, in fact, middlemen have jumped in and make are making more money from the from the sale of generic drug than the manufacturers are. And manufacturers were forced out of business because they had to elevate Make, make capital investments to to elevate their their quality of their production while they were being squeezed by buying organizations on the other side and and wasn't anybody's issue or responsibility in government to do anything about it. Okay?
Katherine Strandburg 36:32
I think I can probably take one more question, but we've got two whole days, so Becky. Nice
Rebecca S. Eisenberg 36:40
to see you all again.
Sorry, the shift towards bio biological products and fewer small molecule products and the you know you both have mentioned that the legal rules are quite different for the entry of biosimilars than for the entry of generic small molecules. It seems to be a very different kind of firm that is getting engaged in development of biosimilars. It looks somewhat like some sort of a hybrid between the branded pharma and the generic industry. And I would like to hear you say how far you think the shift towards small molecules as dominating new approvals is a function of science and how far it's a function of the regulatory regime.
Bob Armitage 37:40
So I can tell you from my experience at Eli Lilly that there's a huge science driver between a lot of the monoclonal antibody drugs and alike. But there's also the reality that you knock out a lot of small molecules, or it's more complicated with small molecules, because you have this different regime,
Katherine Strandburg 38:04
okay, all right, I think we are out of time. I think we are almost exactly on time. So thank you all both so much.
Announcer 38:20
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