Bill favoring generic drugs will handicap medical innovation
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In the coming months, Congress will continue the important work of balancing the need for new cures with the need for affordable medicines. New litigation schemes, like the one in the CREATES Act, are not the answer.

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The CREATES Act is based on the suspicion that drug companies are gaming safety rules to prevent generic competition. There is scant actual evidence of this, and the bill’s supporters seem to have forgotten that most of the safety protocols are actually required by FDA.

 

A few dozen drugs have been identified by FDA as useful but also highly dangerous if not handled or used correctly. These drugs cannot be approved unless the drug makers develop protocols for ensuring their safe distribution and use. These "risk evaluation and mitigation strategies with elements to assure safe use" (in industry jargon, these necessary safety strategies are called "REMS with ETASU") are complex, technical, and expensive to administer.

To get FDA approval of a copy (a “generic” or a “biosimilar” drug), a competitor generally needs to run tests comparing its product with the original.

As a general rule, these companies have not had trouble buying product samples for testing. FDA has said in the past that it will work with generic companies that can’t buy the drugs they want to copy. It has also said that biosimilar companies can generally use foreign products for testing.

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If the drug has a REMS with ETASU, the generic drug needs one too, and the company is supposed to see if it can work out a deal to use the innovator’s system. But FDA can allow generics to use their own ETASU, and some generic companies have already done this. Biosimilar companies aren’t even expected to try to negotiate a shared system in the first place.

In short, it is not clear any legislation is needed.

Under the CREATES Act, however, a generic company could sue in federal court if the innovator didn’t provide all of the samples that the generic company needed within 31 days of request. It is unrealistic to think that one month is long enough to negotiate all the terms necessary for sale of a potentially dangerous product under a REMS protocol.

The CREATES Act would also allow a generic company to sue in federal court if the innovator did not allow the generic company to participate in its distribution program, or if the innovator and all of the companies copying its product did not work out a totally new distribution program to all use together, within 120 days of request. It is unreasonable to expect this process to finish in 120 days.

The biggest problem with the CREATES Act, however, is the penalty provisions. The court will order the innovator to sell “sufficient” quantities on “commercially reasonable terms,” which the court will apparently determine for itself.

The court will also order the innovator to agree to a shared system, or use of the innovator’s proprietary system, on “commercially reasonable” terms, again of the court’s own devising.

If the court finds that the innovator lacked a “legitimate” business justification for its initial decision, however the court defines that term, the innovator will pay a penalty directly to the generic company — up to the actual revenue on the product from the deadline until compliance with the court order.

This could be far more money than the generic company could make entering the market with its own product in the first instance. This creates a perverse incentive: Unprincipled companies may enter the process purely in the hope of achieving this financial windfall.

In short, generic companies will have little reason to negotiate in good faith once the CREATES Act litigation scheme is in place. The innovator may feel it has little choice but to agree to almost any terms demanded by a generic company, no matter how unreasonable.

If the CREATES Act is passed, one of two things will happen: Either expensive litigation that we don’t need because there isn’t a problem in the first instance, or innovators getting rushed into private business deals that they have the right to reject and that are plainly unreasonable.

It is not clear that Congress needs to legislate in this area, but if it decides to move forward, it should find a better approach. The CREATES Act is inherently hostile to medical innovation — and it may slow down the race for new cures.

Lietzan is an Associate Professor of Law at the University of Missouri School of Law. Professor Lietzan researches, writes, and teaches primarily in the areas of drug and device regulation, intellectual property, and administrative law. She has also published an extensive analysis of this legislation, which can be found here.


The views expressed by Contributors are their own and are not the views of The Hill.