A generic drug is a lower-cost copy of a brand-name chemical drug. Marketing of the generic drug becomes possible only when the brand-name--also called innovator--drug is no longer protected from market competition by patent and other protections, called regulatory exclusivity. Food and Drug Administration (FDA) approved generic drugs "have the same high quality, strength, purity and stability as brand-name drugs," and have met the same FDA standards regarding manufacturing, packaging, and testing as brand-name drugs. Generic drugs are required to have the same active pharmaceutical ingredient (API) as the brand-name product, but need not have the same inactive ingredients. Prior to marketing, the sponsor of a brand-name drug must submit to FDA clinical data in a new drug application (NDA) to support the claim that the drug is safe and effective for its intended use. The FDA uses the information in the NDA as a basis for approving or denying the sponsor's application. The Drug Price Competition and Patent Term Restoration Act of 1984 ( P.L. 98-417 )--also called the Hatch-Waxman Act--amended the Federal Food, Drug, and Cosmetic Act (FFDCA) allowing a generic drug manufacturer to submit an abbreviated NDA (ANDA) to the FDA for premarket review. In the ANDA, the generic company establishes that its drug product is chemically the same as the already approved drug and thereby relies on the FDA's previous finding of safety and effectiveness for the approved drug. The generic drug must also be bioequivalent to the brand-name drug, meaning it delivers "the same amount of active ingredients in the same amount of time as the brand-name drug." Because the generic sponsor does not perform costly animal and clinical research --and usually does not pay for expensive advertising, marketing, and promotion--the generic drug company is able to sell its generic drug product at a lower price compared with the brand drug product. FDA states that on average, "the cost of a generic drug is 80 to 85 percent lower than the brand name product." According to a 2016 report sponsored by the Generic Pharmaceutical Association (GPhA, now called the Association for Accessible Medicines), "generics are 89% of prescriptions dispensed but only 27% of total drug costs. Put another way, brand drugs are only 11% of prescriptions but are responsible for 73% of drug spending." The 2016 GPhA report estimates the 10-year (2006-2015) savings from the use of generic drugs at $1.46 trillion. Once a drug is approved, the brand-name manufacturer sets the drug price based on a number of factors. Patent and regulatory exclusivity allow the company to recoup its research and development expenses, allow further R&D investment, and provide a profit to stockholders. The branded drug is protected from market competition by (1) patents issued by the U.S. Patent Office and (2) regulatory exclusivity granted by the FDA following enactment of the Hatch-Waxman Act. These incentives allow the brand-name company to charge a much higher price for the drug product than the cost of manufacture. For example, the cancer drug Gleevec (imatinib) "can be sustainably and profitably produced at a price between $128 and $216 per person-year, which are far lower than the current prices of around $30,000 in EU and $107,799 per person-year in the USA." The price of a drug is strongly correlated with the number of different manufacturers marketing the drug. According to an FDA analysis, "the first generic competitor prices its product only slightly lower than the brand-name manufacturer. However, the appearance of a second generic manufacturer reduces the average generic price to nearly half the brand-name price. As additional generic manufacturers market the product, the prices continue to fall, but more slowly. For products that attract a large number of generic manufacturers, the average generic price falls to 20% of the branded price and lower." The 2016 GPhA report provides the following two illustrative examples: Zocor (simvastatin) treats high cholesterol and reduces risk of heart attacks and related health problems. The brand price pre-patent expiry for this medicine was $2.62 per pill. The generic version currently sells for three cents per pill--a 99% savings. In 2015, more than 65 million prescriptions for this medicine were dispensed. Depression affects 19 million Americans across age, race, and gender. Generic versions of the popular brand-name drug Zoloft became available in 2006. Last year [2015] there were 45 million prescriptions dispensed for generic versions of Zoloft (sertraline) at a price of six cents per pill. This is a 97% price reduction from the brand pre-expiry price of $2.18 per pill. Recently media attention has focused on price increases for certain generic drugs. For example, between July 1, 2013, and June 30, 2014, the cost of the antibiotic tetracycline increased 17,714% and the heart drug digoxin increased 828%. However, a review of the generic drug market by the Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation (ASPE), found that "about two-thirds of generic products appear to have experienced price declines in 2014." For the segments of the generic drug market that have experienced large price increases, ASPE provides the following explanations: "small markets with limited entry; the impact of mergers, acquisitions, and market exits; the ability to obtain new market exclusivities; and distribution activities." ASPE states that "these problems apply to relatively small segments of the market and, while they lead to increased costs in certain therapeutic areas, they have little influence on overall spending increases." Funding for the premarket review of ANDAs submitted to FDA by generic drug sponsors is provided by direct appropriations from Congress and user fees paid by the generic drug industry. The following section of this report discusses the anticipated reauthorization by Congress of the Generic Drug User Fee Amendments of 2012 (GDUFA). FDA first gained the authority to collect user fees from the manufacturers of brand-name prescription drugs and biological products in 1992, when Congress passed the Prescription Drug User Fee Act (PDUFA). With PDUFA, FDA, industry, and Congress reached an agreement on two concepts: 1. performance goals--FDA would negotiate with industry on target completion times for various review processes; and 2. use of fees--the revenue from prescription drug user fees would be used for activities to support the review of new product applications and would supplement--rather than supplant--congressional appropriations to FDA. The added resources from user fees allowed FDA to increase staff available to review applications and to reduce the median review time for standard applications. Over the years, Congress has added similar user fee authority regarding medical devices, animal drugs, and biosimilars. User fees constitute 41% of the FY2017 FDA budget. According to FDA, the Hatch-Waxman Act led to "a significant regulatory challenge" for the agency. That is because FDA's resources did not keep pace with the increasing number of ANDAs and other submissions related to generic drugs. This resulted in delayed approvals of generic drugs, "a major concern for the generics industry, FDA, consumers, and payers alike." In March 2012, median review time for generic drug applications was approximately 31 months and FDA had a backlog of over 2,500 ANDAs. At that time, FDA was receiving about 100 NDAs and 800-900 ANDAs each year. In addition, FDA had to conduct more inspections as the number of manufacturing facilities grew, "with the greatest increase coming from foreign facilities." In March 2012, the number of foreign Finished Dosage Form (FDF) manufacturers exceeded the number found in the United States. Moreover, the generic industry was experiencing "significant growth in India and China," a trend that was expected to continue. According to FDA, foreign inspections "represent a significant challenge and require significant resources." The agency's website states: Prior to GDUFA, FDA was required to inspect domestic human generic drug manufacturers every 2 years, but no such requirement existed for foreign manufacturers. This disparity between domestic and foreign manufacturing facilities, combined with insufficient resources, created significant vulnerabilities in the global prescription drug supply chain. Approximately 80% of active ingredients used in human generic medicines and marketed in the United States are manufactured in foreign countries, and more than half of finished products are manufactured overseas. In order to expedite ANDA reviews and bring parity to domestic and foreign inspection schedules, FDA had proposed generic drug user fees in each annual budget request to Congress beginning with the FY2008 request. Such fees became possible when the Food and Drug Administration Safety and Innovation Act (FDASIA, P.L. 112-144 ) became law in July 2012. Title III of FDASIA, the Generic Drug User Fee Amendments (GDUFA), authorized FDA to collect fees from industry for agency activities associated with generic drugs. Under what is now called GDUFA I, such fees are allowed to be collected from October 2012 through September 2017. GDUFA I set the total amount of generic drug fees collected for FY2013 at $299 million. It established the types of fees to be paid by the manufacturer. The first two fees listed below are paid at the time of filing or application submission; the facility fees are annual fees for each establishment: application fee for an ANDA, application fee for a prior approval supplement (PAS) to an ANDA, Drug Master File fee, facility fee for the facility making the API, and facility fee for the facility producing the FDF. The law also specified the proportion that each type of fee contributes to the total collected and provided a methodology for the calculation of an annual inflation adjustment for the remaining four fiscal years under GDUFA I, FY2014 through FY2017. Like PDUFA, the first GDUFA agreement included limitations, often referred to as triggers, designed to ensure that user fees supplement, rather than replace, congressional appropriations. The limitations require that budget authority (appropriations minus fees) go no lower than the FY2009 amounts, adjusted for inflation, for (1) FDA salaries and expenses overall and (2) human generic drug activities. Again similar to PDUFA, but different from the narrower medical device (MDUFA) and biosimilar (BsUFA) definitions, GDUFA defined human generic drug activities to include the review of submissions and drug master files, approval letters and complete response letters, letters regarding deficiencies, inspections, monitoring or research, postmarket safety activities, and regulatory science. Other provisions under the original GDUFA agreement include risk-based biennial inspections, parity of domestic and foreign inspection schedules by FY2017, a $15,000-$30,000 higher inspection fee for a foreign facility than for a domestic facility to reflect cost differences, streamlined hiring authority, and required annual performance and financial reports. The FY2017 fee rates under GDUFA are shown in Table 1 . The FDA provides information on the amount of GDUFA fees collected each fiscal year and how the fees are spent in the annual financial reports. Annual performance reports provide data on FDA's progress in meeting GDUFA performance goals and commitments. FDA has made a number of changes to its generic drug program following the enactment of GDUFA I, according to a May 2017 analysis by the Government Accountability Office (GAO). In December 2013, FDA reorganized the Office of Generic Drugs (OGD) within the Center for Drug Evaluation and Research (CDER), creating four subordinate offices within OGD. In January 2015, FDA also established a new Office of Pharmaceutical Quality "to provide better alignment among all drug quality review functions, including application reviews, inspections and research." In addition, FDA surpassed its GDUFA goal of hiring 923 new staff by the end of FY2015: the agency hired 1,176 staff over the first three fiscal years (FY2013 through FY2015) and 346 new staff in FY2016. In the area of information technology, FDA established a new informatics platform to track the applications review process as well as facility inspection decisions. FDA changed how it communicated with generic drug applicants by "consolidating all application deficiencies in one letter to the applicant, called a complete response letter." The agency also issued 31 new and revised guidance documents about the generic drug application review process, and "issued almost 600 new or revised product-specific recommendations to assist the applicants with identifying the most appropriate methodology for developing generic drugs and generating evidence needed to support application approval." In response to generic drug applicant concerns over these and other program changes, FDA has made additional refinements to its generic drug application review program. The May 2017 GAO analysis found that "the average time for FDA to complete the first review cycle decreased from 26 months for ANDAs submitted in fiscal year 2013 to about 14 months for those submitted in fiscal year 2015.... As of December 31, 2016, FDA had also acted on 89 percent of all ANDAs submitted in fiscal year 2015 within 15 months of receipt, exceeding its GDUFA goal of acting on 60 percent of ANDAs received in fiscal year 2015 within 15 months." For the first year of the GDUFA program, Congress had specified that $50 million of the $299 million would come from a one-time backlog fee to be paid by sponsors of generic drug applications that were pending at the time of enactment. Under GDUFA I, FDA committed to reviewing and taking regulatory action on 90% of the ANDA backlog by September 30, 2017. The May 2017 GAO report stated that "as of December 31, 2016, FDA had acted on 92 percent of the 4,743 applications in the backlog pending review as of October 1, 2012, exceeding its GDUFA goal of acting on 90 percent of such applications before the end of fiscal year 2017. Fifty-eight percent of these applications were approved; approximately 20 percent were withdrawn by the applicant; and the applicants for the remaining 12 percent received a complete response letter." A complete response letter (CRL) describes all of the deficiencies that FDA has identified in an ANDA that must be satisfactorily addressed before the ANDA can be evaluated for approval. According to FDA OGD Director Kathleen Uhl, "these are not on the agency clock, we have no idea when they're coming back or if they're coming back to the FDA for another review cycle." If the ANDA submitted by the generic drug sponsor lacks "crucial information--about their research, when the original drug will lose patent protection, or relevant court cases," then the review process can slow down. As is the case with several other FDA user fee authorities, the five-year generic drug user fee authority is scheduled to sunset on September 30, 2017. The reauthorization process is outlined in the FFDCA as amended by GDUFA. The process began on June 15, 2015, when FDA held a public meeting on the reauthorization of the GDUFA program. From October 2015 through August 2016, the agency held negotiation sessions with the generic drug industry on the reauthorization agreement; minutes of these meetings are posted on the FDA website. In addition, the law directs FDA to hold monthly discussions with representatives of patient and consumer advocacy groups; minutes of these stakeholder meetings are also found on the FDA website. In October 2016, the agency posted on its website the draft GDUFA agreement--GDUFA II--setting FDA performance goals and procedures for FY2018 through FY2022. Another public meeting was held on October 21, 2016, followed by a 30-day comment period. After receiving the GDUFA II recommendations (both statutory and the agreement), Senate and House committees favorably reported bills for floor consideration ( S. 934 , H.R. 2430 ). FDA and industry agreed that under GDUFA II user fees should total $493.6 million annually, adjusted each year for inflation, in order to maintain current productivity and implement proposed GDUFA II improvements. According to FDA, ANDA reviews are the primary workload driver of the GDUFA program. Under GDUFA I, the agency projected that it would receive approximately 750 ANDAs per year and planned and budgeted according to that projection. However, FDA actually received approximately 1,000 ANDAs per year. To address the increased workload, FDA hired additional staff and is projected to spend about $430 million in user fee funds in the fifth year of GDUFA I. Under the GDUFA II performance goal agreement between FDA and industry, the agency, as proposed, would review and act on 90% of standard original ANDAs within 10 months of the date of ANDA submission. This would continue the goal that GDUFA I set for the year 5 cohort in FY2017, the final year of the GDUFA I agreement. By way of comparison, under GDUFA I the goal was for FDA to review and act on 60% of ANDAs within 15 months of submission date for the year 3 cohort, and 75% of original ANDA submissions within 15 months of submission date for the year 4 cohort. Similarly, GDUFA II would continue another goal from the final year of GDUFA I (FY2017): FDA would review and act on 90% of standard PASs within 6 months of the date of PAS submission if preapproval inspection is not required and within 10 months of the date of PAS submission if preapproval inspection is required. Under GDUFA I, for PASs not requiring inspection, the goal was for FDA to review and act on 60% of PASs within six months from the date of submission for receipts in FY2015 and 75% of PASs within six months from the date of submission for receipts in FY2016. For PASs requiring inspection, the goal under GDUFA I was for FDA to review and act on each of the three cohorts within 10 months. GDUFA II would add two new features: a priority ANDA and a priority PAS. FDA would review and act on 90% of priority ANDAs within eight months of the date of ANDA submission, if the sponsor has submitted a complete and accurate facilities data package, called a Pre-Facility Communication (PFC), two months prior to the date of ANDA submission. For the priority PAS, FDA would review and act on 90% of priority PASs within four months of the date of PAS submission if preapproval inspection is not required. If preapproval inspection is required, FDA would review and act on 90% of priority PASs within eight months of the date of PAS submission, provided the applicant submits a complete and accurate PFC two months prior to the date of PAS submission. FDA representatives at an October 2016 GPhA conference indicated that in total the agency has approved more than 16,000 ANDAs. "However, that number drops down to approximately 10,000 when you look at currently approved ANDAs that have not been withdrawn. Of the 10,000 currently approved ANDAs, more than 20% have been approved since GDUFA" was implemented but "many of those ANDAs don't even go to market.... Innovator drugs for which there are no approved competitors, but for which ANDAs are pending, account for less than 2% of all drugs." Therefore, "if there's a lack of generic competition to branded products for off patent drugs, the answer may lie with industry," not with FDA. An industry analyst states, "the issue of a lack of generic competition isn't so much of an issue of FDA's speed in bringing this competition to market, but in industry submitting applications that would create this competition. For instance, there are only 23 innovator drugs with ANDAs pending and no patent or exclusivity protection ... and nothing else stopping the generic drug makers from bringing competition to the market except for FDA. But there are another 125 innovator drugs with no approved generics and no ANDAs submitted." On June 21, 2017, Scott Gottlieb, Commissioner of Food and Drugs, indicated FDA is working on a Drug Competition Action Plan to increase the development of lower-cost generic drugs and is scheduled to hold a public meeting on July 18, 2017, to obtain additional input. On June 27, 2017, FDA announced a new policy to "expedite the review of generic drug applications until there are three approved generics for a given drug product" and published "a list of off-patent, off-exclusivity branded drugs without approved generics."

Summary:
A generic drug is a lower-cost copy of a brand-name chemical drug. Marketing of the generic drug becomes possible only when the brand-name--also called innovator--drug is no longer protected from market competition by patent and other protections, called regulatory exclusivity. Prior to marketing, the sponsor of a brand-name drug must submit to the Food and Drug Administration (FDA) clinical data in a new drug application (NDA) to support the claim that the drug is safe and effective for its intended use. The FDA uses the information in the NDA as a basis for approving or denying the sponsor's application. Once a drug is approved, the brand-name manufacturer has free rein in setting the drug price due to a government-sanctioned monopoly for a defined period of time. This is designed to enable the company to recoup its r esearch and development expenses, allow further R&D investment, and provide a profit to stockholders. The branded drug is protected from market competition by (1) patents issued by the U.S. Patent Office and (2) regulatory exclusivity granted by the FDA following enactment of the Drug Price Competition and Patent Term Restoration Act of 1984 ( P.L. 98-417 ), also called the Hatch-Waxman Act. These congressionally established incentives allow the brand-name company to charge a much higher price for the drug product than the cost of manufacture. In one extreme example, as calculated by researchers in the United Kingdom and the United States, the annual cost to produce the cancer drug Gleevec--including a 50% profit--could be $216 per patient; the current annual price for a U.S patient is $107,799. The Hatch-Waxman Act amended the Federal Food, Drug, and Cosmetic Act (FFDCA) allowing a generic drug manufacturer to submit an abbreviated NDA (ANDA) to the FDA for premarket review. In the ANDA, the generic company establishes that its drug product is chemically the same as the already approved drug and thereby relies on the FDA's previous finding of safety and effectiveness for the approved drug. Because the generic sponsor does not perform costly animal and clinical research--and usually does not pay for expensive advertising, marketing, and promotion--the generic drug company is able to sell its drug product at a lower price compared with the branded drug product. The cost of a generic drug is, on average, about 85% lower than the brand-name product. According to FDA, the success of the Hatch-Waxman Act led to significant regulatory challenges for the agency. FDA's resources did not keep pace with the increasing number of ANDAs, resulting in delayed approvals of generic drugs, "a major concern for the generics industry, FDA, consumers, and payers alike." In March 2012, median review time for generic drug applications was approximately 31 months and FDA had a backlog of over 2,500 ANDAs. In addition, FDA had to conduct more inspections as the number of manufacturing facilities grew, "with the greatest increase coming from foreign facilities." To eliminate the backlog, expedite ANDA reviews, and provide resources for more inspections, FDA proposed generic drug user fees in each annual budget request to Congress beginning with the FY2008 request. Such fees became possible in July 2012 when the Food and Drug Administration Safety and Innovation Act (FDASIA, P.L. 112-144 ) became law. Title III of FDASIA, the Generic Drug User Fee Amendments (GDUFA), authorized FDA to collect fees from industry for agency activities associated with generic drugs. What is now called GDUFA I allowed the collection of such fees from October 2012 through September 2017. Between October 2015 and August 2016, FDA held negotiation sessions with industry on GDUFA reauthorization. In October 2016, FDA posted on its website the draft agreement--GDUFA II--setting fees and FDA performance goals for FY2018 through FY2022. After receiving the GDUFA II recommendations (both statutory and the agreement), Senate and House committees favorably reported bills for floor consideration.