Waxman Says Signature Rx Laws Are Being Abused

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By Dana A. Elfin

May 31 — In an interview with Bloomberg BNA, former Rep. Henry Waxman (D-Calif.) says two important laws that he spearheaded in Congress are now being used by the pharmaceutical industry in unintended ways.

Waxman, who retired in 2015 after 40 years in Congress, sat down with Bloomberg BNA to discuss his signature health-care laws, the 1983 Orphan Drug Act and the Drug Price Competition and Patent Term Restoration Act of 1984 (commonly referred to as the Hatch-Waxman Act), how those laws are now being misused and the complex reasons behind the rising costs of pharmaceuticals.

Waxman spearheaded the development of the 1983 Orphan Drug Act, which provided incentives for companies to develop treatments for rare disorders. He also co-authored, with Sen. Orrin Hatch (R-Utah), the Hatch-Waxman Act, the law that essentially created the current generic drug industry.

Waxman served as chairman of the House Committee on Oversight and Government Reform from 2007 to 2009 and was chairman of the House Committee on Energy and Commerce from 2009 to 2011. He was the ranking member of the Energy and Commerce Committee from 2011 until 2015.

Waxman currently is chairman of Waxman Strategies, a communications and lobbying firm based in Washington. He is also a centennial fellow at the Johns Hopkins Bloomberg School of Public Health.

Proud of Legacy

Waxman told Bloomberg BNA that two of his signature achievements in the health-care arena, the Orphan Drug Act and the Hatch-Waxman Act, were the product of bipartisanship and compromise, and stand in stark contrast to the current polarized climate in Congress.

“One of the advantages I always felt as a member of Congress is to be able to hear what the opponents had to say,” Waxman said. “I wanted to work with the Republicans and I wanted to know what PhRMA [the brand-name drug industry's lobbying arm] and others had to say because they often raise good points.”

The Hatch-Waxman Act “was a good example of bipartisanship and compromise and people from different points of the political spectrum working together,” he said. The Hatch-Waxman Act created the current streamlined process for generic drug approval, established certain market and patent exclusivity periods for both branded and generic drug companies and created a specific patent litigation process.

“I was proud of the Hatch-Waxman Act because the thing that I was most interested in was getting some competition in an area where the pharmaceutical manufacturers held a monopoly so that prices would come down,” Waxman said. “I also wanted incentives to invest in developing new drugs.”

“I think that the Hatch-Waxman Act has been a huge boost to many people who need pharmaceuticals,” he said.

Success With Rare Diseases

Waxman is also pleased with the success of the Orphan Drug Act.

Under the Orphan Drug Act of 1983, the Food and Drug Administration can award seven years of marketing exclusivity to reward companies for developing drugs to treat rare conditions and diseases. Rare or “orphan” diseases are defined as those that affect 200,000 or fewer Americans.

“People have hope now that they didn't have before for pharmaceutical therapies to help them and cure the diseases,” he said.

In addition to the seven years of marketing exclusivity upon approval of an orphan drug, the orphan designation also gives special incentives to sponsors, including tax credits, research and development funding and reduced user fees.

Before the act's passage, people who suffered from rare diseases were left out of the effort by the pharmaceutical industry to produce a drug to help them, even when there was a drug already available, because there was too small a population for the companies to profitably manufacture and sell it, he said.

“We tried to give incentives for the private pharmaceutical industry to give some attention to people with rare diseases by giving them extra help with tax breaks and a seven-year exclusivity,” he said. “Seven-year exclusivity turned out to be the magic key.”

“Many orphan drugs have been developed, and it's been a success,” he said.

Are Changes Needed?

However, Waxman said there are provisions in both the Hatch-Waxman Act and the Orphan Drug Act that are “just not justified any more.”

With regard to the Hatch-Waxman Act, Waxman has said the balance that he and Hatch attempted to achieve in the legislation has been upset over time in favor of drug patent holders.

“I think the balance has certainly been upset,” he said. “I don't know that there's anything like what's going on in the pharmaceutical industry where the patents give such a clear advantage to one side.”

“There are always games that are played, and sometimes it's hard to keep up with them,” he said. “There are clearly unintended consequences of the statute when they try to maximize their advantages.”

Some examples of such gamesmanship, he said, include brand-name companies “evergreening” their patents or claiming they're entitled to additional exclusivity for minor product changes.

Evergreening refers to the tactical use of laws and regulations to extend intellectual property rights for longer periods to keep competitors out of the market.

Impossible to Take Benefits Away

However, he said, it's difficult to make changes to the law that would reduce or remove incentives once they've been granted to an industry.

“Almost any change you make upsets somebody because they're used to the rules as they have been,” he said.

For example, there have been proposals to change the patent period and have a variable exclusivity period. That might be viewed as a threat to some other industries, not just the pharmaceutical industry, he said.

“It's hard to ever take anything back from the pharmaceutical industry,” Waxman said, citing as an example efforts to scale back the six-month exclusivity period that was granted to pharmaceutical companies to encourage them to conduct tests on pediatric dosages of their drugs.

“It turned out that some of these companies were getting six months, which could be a huge amount of money, for little investment,” he said. “So we tried to scale it, and say you can get a certain amount of time dependent on how much money you spent,” but he said PhRMA was able to marshal support from pediatric groups and defeat the proposal to scale the incentive.

Unintended Consequences of Orphan Drug Act

He said the same was true of the Orphan Drug Act. Waxman told Bloomberg BNA that some companies are abusing the law and using it for purposes for which it wasn't intended.

For example, he said, some companies are applying for multiple orphan drug approvals for the same drug by narrowing a disease into smaller subsets.

“There are new cancer drugs that are narrowed down to treat people with a form of cancer or form of cancer treatment that affects relatively few people,” he said, affording drug companies an extra period of exclusivity.

In addition, many drugs that received orphan drug designations have become blockbusters and are being used off label in a much broader population of patients than the law intended.

“Orphan drugs are orphans no more; they're very popular,” he observed. “There are pharmaceutical companies that handle their whole business plan to make sure their drug can be categorized as an orphan drug.”

“We thought of orphan drugs for small populations as needing some help because it was not a profitable enterprise and now we see it's extremely profitable,” he said. “You have to ask, ‘Why do we give them extra benefits at the disadvantage of the consumers who have to pay more?' ”

Complex Cost Issue

With regard to pharmaceutical costs, Waxman said the problem of rising drug costs has become increasingly complex as businesses use new strategies to maximize their profits, take advantage of changing market dynamics and employ anti-competitive tactics to game the system.

In the past, high drug costs were “thought of ... almost exclusively in terms of a brand name drug company taking advantage of their monopoly and lack of competition, and driving up their prices. What we're seeing is a lot of new, additional problems,” Waxman said.

For example, some companies are acquiring older, off-patent drugs and then raising their prices. In the case of drugs that are considered low-margin and lacking in profit potential, many drug manufacturers have pulled out of the market, leaving only one or two manufacturers, who then have a free hand raising prices.

In addition, price increases for many generic drugs have outpaced inflation, and the cost of specialty drugs is soaring. Specialty drugs are generally defined as high-cost prescription medications used to treat complex, chronic conditions like cancer, rheumatoid arthritis and multiple sclerosis. These drugs often require special handling and administration.

Tactics such as “pay for delay” patent litigation settlements that result in a generic company agreeing to refrain from marketing its product in return for compensation have also been blamed for higher drug costs.

High prices are now affecting “generic drugs as well as drugs that otherwise don't have competition for one reason or another, sometimes because they're drugs that have additional exclusivity over and above what was given them originally in the Hatch-Waxman Act or before that, their patent,” Waxman said.

Waxman said the high cost of pharmaceuticals needs to be addressed. “Otherwise,” he said, “we're going to find that drugs, particularly biotech drugs, are going to be unaffordable.”

Waxman is particularly upset about the 12 years of exclusivity afforded to biologics under the Biologics Price Competition and Innovation Act (BPCIA) of 2009, part of the Affordable Care Act.

Biologics are complex biopharmaceutical products derived from living cells.

“I thought that 12 years was much too long and I fought against it,” he said.

Generic Rx Industry Has Changed

Another new development is how the generic drug industry has also changed over time, Waxman said.

In the past, there was a clear split between branded and generic drug companies, but that split is no longer well-defined, he observed.

“It definitely has changed; they're combined,” he said. “We envisioned that would happen, but it's certainly taken a clear form now; it's an interesting thing to notice.”

“When I look at the GPhA [the Generic Pharmaceutical Association, the lobbying arm of the generic drug industry],” Waxman said, it's hard to tell “who are the generics and who are the brand companies.”

“How do you get a trade association representing generics when their interests may be aligned with the brand-name pharmaceutical industry?” he asked.

To contact the reporter on this story: Dana A. Elfin in Washington at delfin@bna.com

To contact the editor responsible for this story: Brian Broderick at bbroderick@bna.com