In Short:

Reviews the Hatch-Waxman Act’s origins and key features, and presents evidence on its effects on competition and innovation.

Abstract

A central policy issue in pharmaceuticals is how to balance the dynamic benefits of new drugs against the static benefits of low prices for existing drugs. In the United States, that balance is set by the Hatch-Waxman Act. We review the Act’s origins and key features, then present evidence on its effects on competition and innovation. On the competition side, we show how the Act creates incentives for brands to accumulate patents and generics to challenge them, with the result being a rough stalemate. We also discuss strategies deployed by brands to delay generic entry. On the innovation side, we show that the Act’s patent extension provisions—which aim to allow branded firms to make up for time lost during clinical trials and regulatory review—are incomplete, resulting in potential distortions. The net result is a convoluted and expensive approach to balancing innovation and competition.

About the author

Bhaven Sampat

Professor, School of Government and Policy and Carey Business School

Bhaven N. Sampat is an economist focusing on the economics, law, history, and political economy of science and technology.