India needs its Hatch-Waxman Act for healthcare

The Hatch-Waxman Act, a legislation that transformed the American drug industry, completed 25 years last week.

Over those years, the American healthcare system saved a whopping $734 billion due to increased use of generic pharmaceuticals.

While the opening up of the American drug industry to generics did lead to the growth of generic giants like Teva, Sandoz, Mylan and Ranbaxy, large innovators like Pfizer, GSK and Merck have been forced to come out of their safety zones of unending patent protection of blockbuster drugs and see the world differently. Vulnerability grew and so the desire to take unprecedented steps for continuous innovations.

It has been a role reversal of sorts for the generic drug companies and large companies bringing out new compounds. Generic companies had to do the best to beat the intense price competition for a robust topline-driven growth and those tagged as Big Pharma players had to solve their issues of low research productivity and trim excessive manpower.

Ultimately, the final winner in the battle between the two sides was the American patient. Prices of most drugs crashed to 99% of the pre-patent protection years.

When large Indian drug firms started making plans for an entry into the US in the mid-nineties, everyone viewed it as a grand exercise to establish a global footprint that will yield millions in the future, but soon the space started getting crowded and mid-sized players, too, saw an opportunity. Most of those players failed as bigger players survived through innovative strategies and larger product offerings.

Hatch-Waxman could not have been better structured to ensure a system that appreciates innovation but gives a fair chance to make cheap drugs available to patients. Blockbuster drugs like Zocor, Zoloft, Pravachol and Prozac lost their patents and early entry of low-cost alternatives eased the burden of health insurance companies as well as those who were not brought under any such cover.

Today, close to 70% of the American prescriptions are coming from generic drugs. This has been a mark of success in a country where brand loyalties have been extremely established. Unlike in the past, drug stores in the US are happily storing generic products while brands that have lost their patents are seeing nosediving sales.

A release from the Generic Pharmaceutical Association thus said, “In 1984, it was predicted that the Hatch-Waxman Act would save our country $1 billion in the first decade. Now, generic medicines save more than that every three days. The GPhA President and CEO Kathleen Jaeger said, “These savings are truly remarkable and demonstrate the real value of generic medicines for consumers and the entire health care system

The GPhA further states that Hatch-Waxman Act is perhaps the most important piece of pro-consumer legislation enacted over the past 25 years. It established a balance between protecting intellectual property, which provides the incentives to innovate new medicines, and encourages the development of safe, effective and more affordable generic versions of existing drugs.

“Among the flawed arguments during the debate over Hatch-Waxman in 1984 was the claim that generic competition would harm innovation. In fact, since the enactment of Hatch-Waxman generic competition has helped unleash unprecedented investment in new drug research and development, which in turn has led to a period of unparalleled pharmaceutical innovation,” Jaeger said.

It is perhaps time to think about such legislations in developing nations like ours where medical expenses are mostly out-of-pocket and new drugs look to be unaffordable for the masses. Of course, we have a healthy legal system, but years of delay in arriving at decisions on contentious patent cases may still deprive patients of life-saving drugs.

Hospitals too are charging five-star rates irrespective of the affordability of the patients. Besides, legislations like Hatch-Waxman will be a guarantee against patent filings that seek to extend drug monopoly while keeping generics at bay. India has a unique position where most drugs are available at much discounted prices. To continue with that tradition, it is important for policy makers to brainstorm with players and arrive at a formula that is fair to both innovators and generic firms. US had to bring about Hatch-Waxman due to the ballooning healthcare costs. We can do it before we reach that irreversible situation.