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Hatch-Waxman Act

  • February 05, 2021
  • Team Kalkine

What is the Hatch-Waxman Act?

The Drug Price Competition and Patent Term Restoration Act, or the Hatch-Waxman Act, is a legal framework authorized by the Congress in 1984.

The Act came into force to streamline the approval process of generic drugs and preserve innovation incentives and establish a procedure for litigation involving generic pharmaceuticals. The Hatch-Waxman Act established a legal as well as the economic foundation for the US generic drug industry.

The Act offers drug developers some protection while facilitating and giving incentives for companies to file an Abbreviated New Drug Application (ANDA).

Hatch-Waxman balance out between innovation and affordability. The Act also offers incentives to drug manufacturing companies for R&D of innovative medicines. Moreover, Hatch-Waxman offers affordability by developing an abbreviated path for generic drug developers to bring pharmaceuticals to market at a lower cost.

In the US, many top-selling prescription medicines are currently the subject of patent challenges by some generic firms seeking to enter the market under the Hatch-Waxman Act, some of them are-

  • Singulair - Treatment of asthma or allergy.
  • Lovenox - To treat deep vein thrombosis / pulmonary embolism.
  • Abilify - Schizophrenia, bipolar disorder, and depressive disorder drug.

What are the basics of the Hatch-Waxman Act?

The Hatch-Waxman Act regulates the approval procedure, along with the marketing of generic drugs. Under this Act, the marketing authorization procedure for generic drugs is streamlined.

The Act permits generic drug developers to file an ANDA incorporating the safety and effectiveness data submitted by the brand drug manufacturer. Only bioequivalence studies need to be added.  Moreover, generic manufacturers can develop and evaluate the product without any worries of an infringement action by the patent holder.

The Hatch-Waxman Act provisions are exclusively applicable to pharmaceutical patents and are distinct from infringement procedures related to the other patented products and processes.

New drug manufacturers were given protections in two ways:

  • By providing market exclusivity to the drug innovator- With a five-year data exclusivity to a new chemical entity, a new kind of market exclusivity was introduced. During the exclusivity period, the Food and Drug Administration (FDA) cannot authorize a generic version of an innovative drug.
  • Extension in the life of patents- The Act allows an extension in patents life, covering the time a drug is under FDA regulatory review. This makes sure that regulatory review will not consume the life of a patent.

Key components of the Hatch-Waxman Act

Source: Copyright © 2021 Kalkine Media Pty Ltd.

How does the Hatch-Waxman Act work?

Hatch-Waxman Act requires the pharmaceutical company to declare how the activities will relate to Orange Book-listed patents on drug’s marketing, before filing its ANDA.

According to the Act, a company submitting a new drug application (NDA) needs to provide the patent information of that drug in the Orange Book. This document offers generic drug developers an accessible list of approved drugs for which an ANDA could be filed.

Besides, a generic firm must certify its intentions to the FDA about each patent on the Orange Book for the generic drug it seeks to market.

There are four possibilities under the Hatch-Waxman Act:

  • The patent on the drug was never filed.
  • Patents listed in the Orange Book have expired.
  • The company will not market the drug until all the listed patents have expired.
  • The patents listed are invalid or irrelevant.

What are the benefits of the Act?

The Hatch-Waxman Act has promoted innovation, fostered competition, and facilitated the US remains a leader in healthcare sector research and development.

Since Hatch-Waxman’s enactment, the US generic drug industry has witnessed enormous growth. Moreover, biopharmaceutical players have continued to develop innovative treatments for complex indications.

With the Hatch-Waxman Act’s help, the US is the frontrunner in medical innovation, while balancing affordability and innovation, and promoting competition.

Before the Hatch-Waxman Act, the time for a generic drug to enter the market was three to five years, after the expiry of patents for the brand name drugs. However, with the Act’s enactment, generic drugs often enter the market immediately on patent expiration.

Moreover, the Act includes incentives for the manufacturers of both generic as well as branded drugs.

What is an Absolute Advantage? Absolute advantage is one of the key macroeconomic terms, which is based on the principles of Capitalism and is often utilised in international trade-related decisions. Absolute advantage refers to the competence of a company, region or country to produce goods or services in an efficient manner compared to any other economic entity. The efficiency in production can be achieved by: Production of the same quantity of good or services as produced by other entity by utilising fewer amount of resources Production of a higher quantity of good or services as produced by other entity by using the same amount of resources What is the Significance of Absolute Advantage? Different countries or businesses possess a different set of ability owing to their location, soil composition, weather, infrastructure, or human resource skills. When applied in the right direction, various factors may pan out to offer more cost-effectiveness and hence build absolute advantage of the entity in comparison to others.  The absolute advantage remains one of the critical determinants for the choice of the goods or services to be produced. Absolute advantage in a particular area often translates into profitability in the area. The profit margin increases by the achievement of cost efficiency, allowing the entity to ensure higher profitability over the competitors.  For example, let us assume that the US can produce ten high-quality aircrafts utilising a specific amount of resources. China, on the other hand, can build 6 similar quality aircrafts using the same amount of resources. Thus, in the production of an aircraft, the US holds Absolute Advantage Let’s say the US has the ability to manufacture a certain amount of steel using 10 tonnes of iron ore. China, on the other hand, can produce the same quantity of steel using 8 tonnes of iron ore.Here, China here holds Absolute Advantage in the production of steel.  How Countries Build Absolute Advantage? While natural conditions, which include climatic factors, geometry, topography, cannot be altered for achieving absolute advantage, the countries use the underlying factors strategically in their favour. Furthermore, factors of production are focused at by many companies or nations for building absolute advantages.  Some of the strategies for building absolute advantage includes: Development of Technological Competencies- The implementation of innovative or latest technological innovations allows the entities to lower their production cost, facilitating absolute advantage.  Enhancing Skills of Human Resources- The improvement in the cost-efficiency, along with the quality of the products, is targeted through imparting varying skill development programs. Many countries subsidize or aid the apprentice or labour training for enhancing the absolute advantage in trade.  Improving Infrastructure- The infrastructure enhancement in the form of road, telecommunications, ports, etc. can be useful in enhancing the cost-effectiveness across different industries.  What Do We Understand by Comparative Advantage Vs Absolute Advantage? Evaluating the comparative advantage introduces the concept of opportunity cost, which is the deciding factor to determine the production of particular goods or services. Opportunity cost refers to the potential benefits associated with the next best possible alternative which is missed out when one option is chosen over another.  The Absolute advantage simply considers the capability of a business or region to deliver goods or services in the most efficient manner. The Comparative Advantage, however, also takes into account the benefits that are forgone if an entity decides for production of a particular product or services.  Comparative advantage, based on the notion of mutual benefits, is often used in international trade deals. The Comparative advantage has been the major factor driving the outsourcing of services in search of cheap labour.  Understanding through an Example For instance, country A can produce ten televisions with the same amount of resources with which it can make 7 laptops. The opportunity cost per television is 7/10 or 0.7 laptops. Meanwhile, the opportunity cost per laptop is 10/7 or 1.42 television.  It highlights that country A is forsaking the production of 0.7 laptops if it is deciding to manufacture one television. On the other hand, it is missing out the opportunity to manufacture 1.42 televisions for every single laptop manufactured.  Now, say Country B’s opportunity cost for producing a television is 0.5 laptop, and that of producing laptop is 2 televisions. Then, country B will have a comparative advantage in making televisions, and country A will have comparative advantage in producing laptops. It has to be noted that despite country A having absolute advantages in both the products, it would be mutually beneficial for both the countries if country B produces television while country A produces laptops. Do You Know About Absolute Advantage Theory by Adam Smith? The concept of Absolute Advantage was indicated by Adam Smith in his book called ‘Wealth of Nations’ which focusses on International trade theory. Adam Smith, in his book attacked on the previous mercantilism theory, which mainly stressed for economies to maintain trade surplus in order to command power.  The Absolute Advantage theory considered that the countries possess different ability with respect to the production of varying goods or services. It argued that it is not necessary that a state may hold an absolute advantage in the production of all goods, and here the relevance of trade comes into play.  It advocates that countries should produce those goods over which they hold a competitive advantage. It would allow the countries to make the same amount of goods using few resources or in less time. The theory propagates the relevance of trade for economic sustainability.  What Are the Limitations of the Absolute Advantage Theory? The assumptions used in the Absolute Advantage Theory by Adam Smith may limit the application in real bilateral trade. The limitations of the theory by Adam Smith include: Smith assumed that the productive capabilities of a country could not be transferred between the two countries. However, in practical terms, the competitive scenario aids the nations to acquire new capabilities and acquire new resources, especially in the technological and human resource skill aspects.  The two-country trade which was used as a basis for the theory does not consider the trade barriers levied. The present scenario, however, is strikingly dominated by trade wars between economies. Nations impose huge tariffs, import duties and other type of barriers to promote local manufacturers.  Absolute Advantage theory assumes that the trade between the two nations will take place only if each of the two economies holds an absolute advantage in one of the commodities traded. However, in general, countries despite not holding absolute advantage are engrossed in international trade, boosting their economic setup.

Difference between actual and an expected return. For example, if a stock increased by 7% because of some update, but the average market only increased by 3% and the stock has a beta of 1, then the abnormal return was 4% (7% - 3% = 4%)

Net amount after factoring in all debits and credits in a financial repository at a given moment. If an account balance drops below zero, it demonstrates a net debt.

A statement of all the credit and debit activities of an account during a period. The account statements are generally provided on a monthly or quarterly basis.

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