American Journal of Law & Medicine

Repositioning Generics: The Comparative Value of Liability in FDA's Proposed Rule on Labeling


Generic drugs occupy a unique position in the U.S. pharmaceuticals market. On one hand, generics are a product of basic free-market economic reasoning. Congress enacted the Drug Price Competition and Patent Term Restoration Act of 1984 (Hatch-Waxman) (1) based on the uncontroversial assumption that inexpensive generic competition would reduce prescription drug costs. (2) On the other hand, the generic drug industry is primarily a regulatory creation; Hatch-Waxman facilitates generic competition by permitting generic manufacturers to rely heavily on prior expenditures of pioneer drug manufacturers, including those required to convince the Food and Drug Administration (FDA) that a drug is safe and efficacious. (3) Propelled by federal law, generics have evolved from their minority market position as cheap alternatives to a "dominant" market position (4)--today, they fill about 80% of prescriptions nationwide. (5)

The Food, Drug, and Cosmetic Act (FDCA) requires each generic hopeful to submit an Abbreviated New Drug Application (ANDA) to show, among other things, (6) that "the labeling proposed for the new drug is the same as the labeling approved for the listed drug." (7) FDA has traditionally interpreted this language to mean that "a generic drug must maintain the same labeling as the [listed drug] throughout the lifecycle of the generic drug product." (8) Under this scheme, a generic drug manufacturer has little discretion in labeling its product: once a generic drug is on the market, the manufacturer may not unilaterally update the drug's label (e.g., to reflect newly acquired safety information) without prior FDA approval. (9) Therefore, a substantial health risk discovered after a generic drug's market entry may remain unknown to patients until after FDA requires a uniform labeling change. (10) In a recent case, PLIVA, Inc. v. Mensing, the Supreme Court held that a generic manufacturer, lacking requisite independent control over labeling under FDA's current interpretation, could not both comply with FDA regulations and fulfill a state law duty to "attach a safer label" to a drug." Writing for the Court, Justice Thomas reasoned that because of this impossibility, federal law impliedly preempts "failure-to-warn" suits against generic manufacturers at the state level. (12) The Court extended this reasoning in Mutual Pharmaceutical Co., Inc. v. Bartlett, holding that federal law on generics labeling preempts certain state law design-defect claims as well. (13)

In PLIVA, Thomas distinguished Wyeth v. Levine, (14) in which the Court held that federal law does not preempt these same failure-to-warn claims against brand-name manufacturers because brand-name manufacturers are capable of complying with both FDA regulations and their state law duty to supply adequate labeling. (15) Specifically, the Court held in Wyeth that FDA's changes being effected (CBE-0) process, (16) available to brand-name manufacturers, "permitted Wyeth to unilaterally strengthen its warning" and thus to comply with state law. As Justice Sotomayor observed in her PLIVA dissent, this set of cases forms "a critical distinction between brand-name drugs and generic drugs. Consumers of brand-name drugs can sue manufacturers for inadequate warnings; consumers of generic drugs cannot." (17)

Stated differently, the Supreme Court has created a horizontal inequity in legal recourse between similarly situated patients. But the inequity may not persist for long. In November 2013, FDA proposed a rule that would extend the CBE-0 process to generic manufacturers, permitting them to update drug labels "to reflect certain types of newly acquired information" about risks to patient safety. (18) The proposal also seems likely to expose generic manufacturers to state law products liability for inadequate warnings. The rule would give generic manufacturers sufficient flexibility to comply with both federal labeling law and state products liability law, eliminating the preemption defense that was successful in PLIVA.

Commentary predating FDA's proposal focuses largely on the correctness of PLIVA or, more broadly, the application of federal preemption doctrine to suits against drug makers in the first place. Literature about FDA's recent proposal either tries to evaluate the rule holistically or questions FDA's statutory authority to enact the rule. (19) This Note is not about FDA's statutory authority and does not address all of the proposal's potential consequences. Instead, this Note examines the value of state law failure-to-warn liability in the pharmaceutical market. It concludes that, on balance, the imposition of state tort liability on manufacturers of generic drugs is desirable. The analysis should add clarity to the policy debate over FDA's proposal. It is likely that the net benefits of a functional liability system, detailed below, outweigh the proposal's ancillary drawbacks as identified by commentators. (20)

As Justice Sotomayor wrote, a rule exposing generics to failure-to-warn liability is consistent with the concept of "sameness" permeating relevant federal law. (21) This rule is also consistent with FDA's public safety objectives and with generic drugs' current position as a mature market force. Recognizing the success of the generics experiment, FDA's proposed rule assigns generic manufacturers with an important responsibility and thereby puts similarly situated plaintiffs injured by prescription drugs on equal footing with respect to the drugs' manufacturers. Part II traces the evolution of generic competition and relevant federal law, including current labeling requirements and federal preemption doctrine as laid out in Wyeth, PLIVA, and Bartlett. This section also explains how the doctrine would likely apply under FDA's proposed rule. Part III explores the protective and remedial roles of state law products liability. It also argues that equitable reasoning from judicial opinions on state statutes of repose should inform the policy debate over FDA's proposal. Part IV compares the indirect costs with the utility of state law products liability. This Note concludes that extending failure-to-warn liability to generics manufacturers is well worth the costs. Rather than being unjustifiably burdensome, as industry claims, these costs merely reflect the shift from a system that arbitrarily discriminates against patients on generic drugs to a system that properly assigns responsibility between patients and manufacturers.



Speaking to the House Subcommittee on Health in April 2014, Representative Henry Waxman recalled the Drug Price Competition and Patent Term Restoration Act of 1984: "It has been thirty years since enactment of the Waxman-Hatch generic drug law. This law has been a tremendous success. Over 80% of prescriptions in the United States are generic drugs. Consumers and payers have saved over $ 1 trillion over the last decade alone." (22) Save for one self-promoting reordering of the statute's popular name, Representative Waxman's comments ring true.

Congress enacted Hatch-Waxman to balance two important policy goals: (1) promoting new drug innovation, and (2) promoting access to lower priced generic versions of pharmaceuticals. (23) To support innovation, Hatch-Waxman extends patent terms for pioneer drug manufacturers that would have previously lost monopoly time waiting for FDA approval. (24) On the other hand, the law permits generic manufacturers to develop their products while pioneer patents are active and provides generics with an expedited approval process. (25) Section 505(j) of the FDCA--a Hatch-Waxman creation--contains these rules. (26)

An ANDA provides for expedited approval and permits an applicant to rely heavily on prior FDA findings that its brand-name equivalent--also known as the reference listed drug (RLD)--is safe and efficacious. Brand-name drug manufacturers are market innovators. As such, they shoulder research and development costs in exchange for a period of monopoly power over their products. This power depends on two forms of protection: a new drug's patent, which typically expires twenty years from the date of filing, (27) and the market exclusivity period granted by FDA. (28) FDA grants five years of market exclusivity for a new chemical entity, during which time FDA cannot approve a generic drug application. In order to secure FDA's marketing protection, though, brand-name drug manufacturers must submit multiple complex applications: first, an Investigational New Drug Application (INDA) as a precursor to a series of mandatory clinical trials; (29) and second, a New Drug Application (NDA) containing evidence from these trials that the drug is safe and effective. (30) If FDA approves an NDA, the manufacturer may market the product in the United States. (31)

In contrast, a generic manufacturer's ANDA must show only that the relevant drug is the same as a brand-name equivalent in many respects, including the proposed "conditions of use"; (32) the active ingredient(s); (33) and the route of administration, dosage form, and strength. (34) The ANDA must also show that the generic drug is bioequivalent to the listed drug. (35) Most relevantly, an applicant must prove "that the labeling proposed for the new drug is the same as the labeling approved for the listed drug." (36)

The "sameness" concept clearly underlies the ANDA process and the entire generic drug experiment. According to FDA, "[t]he generic program is based on the principle that 'products classified as therapeutically equivalent can be substituted with the full expectation that the substituted product will produce the same clinical effect and safety profile as the brand-name product." (37) And as the data shows, that experiment has been an enormous success. In 1984, the year Congress enacted Hatch-Waxman, generic drugs comprised 19% of the U.S. pharmaceuticals market. (38) Today, they comprise over 80% of the market (39) and fill 94% of prescriptions written for drugs with an available generic version. (40)

Generics have become so prevalent primarily because they are cheaper than their brand-name counterparts. When the first generic competitor enters a market, it is typically priced 5-25% below the brand-name alternative, and the brand-name drug typically loses over 40% of its market share. (41) Where there are ten or more generic competitors, the average generic price is typically less than 50% of the brand name's price during its monopoly period. (42) In opposition to FDA's proposed rule, the Generic Pharmaceutical Association (GPhA) notes that generics saved the U.S. healthcare system about $1.2 trillion between 2003 and 2012, and $217 billion in 2012 alone. (43) From this data, GPhA draws the uncontentious conclusion that "the use of lower cost generic prescription drugs is a vital component to holding down the growth rate of health care spending." (44)

Of course, Hatch-Waxman and the associated federal regulatory framework are largely responsible for elevating generics to their current position. But state policies and private sector practices have contributed to the momentum as well. First, all fifty states plus the District of Columbia have active "generic substitution laws," which encourage or require substitution of generic drugs after brand-name patents expire. (45) States enacted these laws to put downward pressure on Medicaid prescription drug costs. (46) Despite the common stimulus, these laws vary in meaningful ways. Some substitution laws are mandatory (47) while others are more permissive. (48) Some states require patient consent before a pharmacist can substitute a generic, while others do not. (49) And to control costs, some states use "step therapy" (50) while others require approval from a health plan or pharmacy benefits manager before a patient is prescribed a more expensive drug. (51) A 2010 study of state Medicaid activity found that patient consent requirements limit generic substitution, (52) while other variations had no statistically significant effect. (53) Private insurers do their part to encourage generic use as well, often by offering physicians bonuses or shares of anticipated savings for prescribing generics. (54)

While it is evident that Hatch-Waxman and its progeny (55) have created a major market force, questions remain about the future. First, it is unclear whether there is any remaining share of the market available for generics to conquer. As The New York Times put it,

   [t]he use of generic drugs may . … 

Log in to your account to read this article – and millions more.