Generic Drug 180-Day Exclusivity Reform Proposal Is Cost-Neutral, CBO Says

Sen. Orrin Hatch (R-Utah) is likely to continue to push for changes in the 180-day generic drug exclusivity provisions in Medicare legislation despite a cost-neutral CBO score on the approach already included in the Senate legislation.

The Senate Judiciary Committee chairman requested a Congressional Budget Office score on changes to the Waxman/Hatch 180-day triggering scheme in the Senate Medicare bill (S 1).

Hatch, who believes the exclusivity changes in S 1 will cost consumers money and stifle innovation, asked CBO to assess how the proposed measures "would likely affect the frequency and monetary value of marketing exclusivity awards" (¹ , p. 13).

² CBO's score, released Aug. 27, indicates that S 1's exclusivity provisions, which include elimination of the trial court decision trigger and new exclusivity forfeiture provisions, are cost-neutral.

"CBO expects that the savings resulting from earlier generic competition for some drugs, and the costs resulting from delayed generic competition for other drugs, including delayed competition from multiple generic firms, would be largely offsetting," the budget office said. "Therefore, CBO estimates that there would be little net effect of these provisions on spending."

Hatch supports the "pre-Mova" policy of awarding 180-day exclusivity to the first ANDA applicant who successfully challenges a patent, rather than the first to file. The Senate bill retains the first-filer approach.

CBO's score does not address a first successful litigant exclusivity scheme, and Hatch is likely to focus on such a change as a way to further reduce costs.

The budget office also did not look at a forfeiture provision suggested by Lilly Senior VP & General Counsel Robert Armitage during an Aug. 1 Judiciary Committee hearing.

Armitage proposed that 180-day exclusivity should be forfeited by the first applicant after the basic patents on an innovator's product have expired and one or more competing generic companies have demonstrated they do not infringe any "Orange Book"-listed patents.

Coming at the end of the August Congressional recess, the CBO score arrives in time for renewed Senate and House Medicare conference negotiations, which are expected to resume the week of Sept. 1.

CBO estimates the Waxman/Hatch reform measures in both Senate and House (H 1) bills would lower total drug spending in the U.S. by $7 bil. over 10 years (³ (Also see "FDA Generic Rx Reforms Contribute To Medicare Budget Squeeze" - Pink Sheet, 28 Jul, 2003.), p. 14).

The CBO analysis noted that elimination of the trial court decision as a trigger of generic exclusivity, leaving only the commercial marketing trigger, "would permit the first applicant to more frequently take advantage of the full 180-day exclusivity period."

"This would give generic manufacturers the incentive to file their applications earlier because there would be less risk of losing some or all of the 180 days of marketing exclusivity," CBO said.

"To the extent that the first applicant would enjoy the full 180 days of exclusivity under S 1, but not under current law, competition from multiple generic firms could be delayed."

CBO acknowledges that "because the 180-day exclusivity period could no longer automatically begin with a district court decision, generic entry would be delayed in some cases."

CBO's score also addresses the Senate bill's "failure to market" forfeiture conditions. Under these provisions, a first applicant who fails to market within 75 days of ANDA approval or an appellate court decision on patents that were the subject of the Paragraph IV certification, whichever is later, would surrender exclusivity.

The provision paves the way for first applicants to file ANDAs challenging compound or "strong" patents, as well as later-expiring patents, many years before the compound patent expires without risking loss of some or all of their exclusivity, CBO said.

Brand-name manufacturers "will be forced to defend their strong patents more frequently than under current law," CBO said, although "the number of brand-name drugs facing patent challenges may not increase because of this provision."