The 1984 Hatch-Waxman Act revolutionized the U.S. pharmaceutical industry, successfully balancing the interests of pharmaceutical innovation and affordability by creating legal pathways for accelerated generic drug competition while extending patent protections and introducing data exclusivities that preserved incentives for novel pharmaceutical innovation.

The Orrin G. Hatch Foundation celebrated the law’s 40th anniversary in Volume V of its Policy Review, delving into Hatch-Waxman’s origins, its achievements over the past four decades, and the critical steps needed to secure its future success in a rapidly changing policy environment. This article appeared in that volume:

▪ Stephen Ezell and Leah Kann, “A Bipartisan Success: Celebrating 40 Years of the Hatch-Waxman Act,” Hatch Foundation Policy Review, Volume 5, January 2025.

Introduction

September 24, 2024 marked the 40th anniversary of the landmark Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-Waxman Act (HWA).[1] Promoted on a bipartisan basis by Senator Orrin Hatch and Congressman Henry Waxman, the legislation sought to create a more competitive generic pharmaceutical market, using market-based solutions of increasing competition to help drive down the price of drugs while preserving incentives and mechanisms supporting pharmaceutical innovation.[2] The HWA created a comprehensive legal framework that streamlined the process for approval of generic pharmaceutical drugs while also creating effective procedures to manage patent litigation involving generic pharmaceuticals, and it did this all while preserving incentives and rewards for pharmaceutical innovation. Over the past four decades, the Act has played a catalytic role in transforming America from an “also-ran” into the global biopharmaceutical innovation leader.

The facts bear clear testament to the Hatch-Waxman Act’s success. Prior to the passage of the HWA, only 35 percent of top-selling pharmaceutical drugs had generic competition, a number that now exceeds 80 percent.[3] Likewise, prior to the passage of the legislation, only 19 percent of prescriptions were filled with generic drugs, a figure that now exceeds 90 percent.[4]

The increased availability of generic drugs has led to tremendous savings for individual patients and the broader U.S. healthcare system alike. Individually, the average co-pay of generic drugs (drugs that have the same active ingredient as brand-name drugs but can be sold at lower prices) in the United States is $6.16, and 92 percent of all generics have a co-pay of less than $20.[5] Nationally, over the past 10 years alone, generic and biosimilar competition (inspired by the HWA) has saved over $3.1 trillion, and in 2023 alone it saved $445 billion for American consumers.[6] The HWA has also managed to slow increases in drug prices compared to overall healthcare costs, with drug prices increasing 10 percent between 2010 and 2020 while overall healthcare costs increased over 30 percent.[7]

The real genius of the HWA lies in effectively balancing the interests of the innovative and generic drug industries in the United States, as well as balancing additional competition with incentives for companies to continue to undertake the lengthy, expensive, and risky research and development (R&D) efforts that enable creation of the next generation of drugs. The Hatch-Waxman Act’s effectiveness has been borne out in the reality that the United States alone leads the world in innovating new drugs and getting them to patients first, while also sustaining a globally competitive industry and over time making drugs broadly affordable by incentivizing competition and creating generic pathways.

It’s absolutely imperative to emphasize that no other nation can “square the circle” like this. Patients certainly pay less for drugs in Europe than Americans do. However, stringent price controls have contributed to Europe’s loss of its biopharmaceutical industry and the economic and employment opportunities the sector generates. Indeed, European firms’ share of global new drug development has fallen by more than half over the past two decades, whereas U.S. biopharmaceutical enterprises now annually invest almost three times more in R&D than their European counterparts.[8] Likewise, Japan’s share of global value added in the pharmaceutical industry declined by 70 percent from 1995 to 2018, from 18.5 to 5.5 percent, in large part through excessive drug price controls.[9] Similarly, Canadians pay less for their drugs; but the availability of the most-innovative new drugs in Canada is less than half what it is in the United States, while the innovative Canadian biopharmaceutical sector has shriveled over the past decade. In short, the United States is the only country in the world that has figured out how to support the world’s leading innovative biopharmaceutical industry, and a competitive generic one, while creating mechanisms to get innovative drugs to patients first while fostering those medicines’ affordability and availability over time through generic competition.

That the United States has been able to uniquely accomplish this is largely thanks to the Hatch-Waxman Act. However, it’s important to start by turning the page back 40 years, because the state of America’s pharmaceutical industry looked much different then.

▪ Read the article.

▪ Read the Hatch Foundation Policy Review, Volume 5.

Endnotes