Posted 26 March 2015
By Alexander Gaffney, RAC
A trade group representing trial lawyers is fighting back against a 2014 report by the generic pharmaceutical industry which claimed a rule proposed by the US Food and Drug Administration (FDA) to allow generic drug companies to help update drug labels could cost the industry billions and raise drug costs for consumers.
In November 2013, FDA proposed a rule to allow generic drug manufacturers to temporarily update their labels if they were made aware of new safety issues that might pose a risk for consumers.
At present, generic drug manufacturers may not update their labels, even if they become aware of new (if rare) side effects. Instead, they must either wait until FDA requires an update to the drug's labeling, or wait until the drug's original (i.e. non-generic) manufacturer decides to update its label.
In practice, the process of updating a generic drug's label is complex and controversial. Thanks to several recent court decisions—Mutual v. Bartlett (2013), Pliva v. Mensing (2011) and Wyeth v. Levine (2008)—generic drug companies are almost entirely shielded from lawsuits regarding the labeling on their drugs. In addition, branded drug companies may occasionally refuse to update the reference listed drug's (RLD) label in some cases, such as if they believe the safety issue is unique to the generic drug. Further, some generic drugs may outlast the original drugs they reference, making it all but impossible to update the drug label without FDA help.
Read our extensive regulatory explainer on generic drug labeling here.
FDA's rule, which it began working on in the wake of the Supreme Court's Bartlett decision, was intended to remedy this problem by proposing a new system by which generic drug companies could temporarily update their drug labels.
FDA's proposal would allow generic drug companies to immediately make changes to their drug's label while awaiting feedback from FDA and the RLD holder (if the company still exists) about whether the update is necessary. Differences between drug labels would only exist on a "temporary basis," FDA said.
Read our extensive regulatory explainer on FDA's generic drug labeling rule here.
A Controversial Rule
FDA's proposal has been controversial, to put it lightly. Generic drug companies in particular have criticized the proposed rule, calling it illegal under the Hatch-Waxman Act, difficult to comply with and expensive.
The expense argument was advanced in a Generic Pharmaceutical Association (GPhA)-sponsored paper released in February 2014, which claimed FDA's labeling rule would increase costs on the generic pharmaceutical industry by as much as $4 billion per year.
The report's conclusions rested on two primary arguments:
- That FDA's rule would subject the generic drug industry to new "failure to warn" and product liability lawsuits, similar to those experienced by branded pharmaceutical companies. The industry is almost entirely immune to such lawsuits after the US Supreme Court's Bartlett and Mensing decisions. Companies would face higher insurance premiums and legal costs, the report argued.
- That compliance with the rule would be difficult for generic drug companies, which tend to be smaller and leaner than most branded pharmaceutical companies. One particular concern was that additional staff would be needed to keep track of side effects suffered by consumers. Within the drug industry this is known as "pharmacovigilance."
Ultimately, the GPhA report concluded, these costs would be passed onto health insurers and patients in the form of higher generic drug costs. Other generic drug companies, which already operate on thin profit margins, might exit the industry altogether, the report hypothesized.
Read more about the generic pharmaceutical industry's report here.
Legal Group Pushes Back
But in a new report, the American Association for Justice (AAJ), a group which represents trial lawyers and has been controversially linked to the labeling rule, has taken issue with the generic pharmaceutical industry's analysis, calling it "flimsy."
An AAJ-commissioned report conducted by Synapse Energy Economics, "The True Costs of Generic Drug Regulation," argues three points:
- The GPhA report argues that insurance premiums would rise, which would be passed on to patients. However, the AAJ report argues, insurance premiums are a "transfer payment" which are meant to compensate patients for the costs of harm incurred. In other words, while the original report took costs into account, it did not take into account benefits.
- The liability insurance data relied upon by the GPhA analysis was obtained in the 1980s, and may not be comparable to the rates paid by today's pharmaceutical companies. The AAJ report suggests it could be far lower (.26% of sales) than the number proposed in the GPhA report (.68% of sales). In addition, generic pharmaceutical companies likely already carry some liability insurance, meaning the increased costs of compliance are likely lower than suggested. In addition, because generic pharmaceutical companies sell older, better understood drugs, in theory they should have lesser liability costs than their branded counterparts.
- A 5.4% increase in the cost of generic drugs is, in the grand scheme of things, minor. The AAJ report argues that such cost increases are already "sadly familiar to patients." Many generic drugs have experienced increases in price of several hundred percent in recent years, the report notes. "Whatever the explanation, the facts are clear: prices of both brand-name and generic drugs have frequently changed by much more than 5.4 percent without destroying the industry or ending patients’ access to needed medicines."
What impact the report will have on the debate over FDA's labeling rule is unclear. FDA has reportedly delayed the release of its final generic drug labeling rule, and may be considering alternative options proposed by pharmaceutical groups.
Regulatory Focus has reached out to the author of the GPhA report for comment but did not hear back by the time this article was published.
Costs and Benefits of Generic Drug Regulation