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Authorized Generics
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GPhA's Position:

GPhA opposes the practice of authorized generics, which is a brand tactic aimed at discouraging generic competition.

Key Points:

  • Authorized generics are brand products masquerading as generics; they do not have to go through the rigorous generic approval process.
  • These products only appear once the first generic version of a brand product has been approved for market. Often, these products leave the market once other generic versions are approved for sale.
  • In April 2006, the Federal Trade Commission outlined the parameters for a study it is conducting on the competitive effects of the use of authorized generics.
  • In 2005, Congress closed a loophole in federal law that allowed brand companies to charge the federal government a higher price for authorized generics.

Background:

Authorized generics -- brand pharmaceutical products masquerading as generics -- are an increasingly common brand tactic aimed at discouraging generic companies from challenging questionable brand patents. Although the practice might sound relatively benign, these products take advantage of an unintended loophole in federal law that if left unchecked, could result in fewer affordable medicines coming to market.

As an incentive to provide savings to consumers, the generic company that is first to successfully challenge a questionable brand patent, file an abbreviated new drug application (ANDA) with FDA and receive approval to market that drug product is awarded 180-day exclusivity. During the 180-day period, that generic company alone is permitted to compete with the brand company, allowing the generic to recoup costs incurred for undertaking a patent challenge. Because generic companies operate under significantly smaller margins than brand companies, the 180-day period is a critical incentive for a generic company.

Brand companies, determined to maintain their market share at all costs, recognized that by simply changing the label of their product, they could compete directly against the generic during the 180-period while still maintaining the higher price for the brand drug. Authorized generics are considered brand products by FDA, so the authorized generic does not have to go through the rigorous, abbreviated approval process required by a true generic. GPhA is encouraging FDA to reevaluate its treatment of authorized generics, and several generic companies have undertaken court challenges on this issue.

Although brands could lower the prices of their products or launch generic versions at any time, in practice, authorized generics tend not to appear on the market prior to the start of the 180-day period. Some authorized generics are even removed from the market following the 180-day period, when other generic companies are allowed to compete.

Brand companies argue that authorized generics foster competition and lower prices, but the Federal Trade Commission (FTC) believes otherwise. During a speech in May 2005, FTC Commissioner Jon Leibowitz noted that with authorized generics, “[W]e could very well see fewer generic applications for smaller drugs ... this could lead to fewer generic products on the market, which could then result in less competition down the road. That would be bad for consumers.” At the request of Senate Finance Committee Chairman Charles Grassley (R-IA) and Senators Patrick Leahy (D-VT) and John Rockefeller (D-WV), the FTC is now undertaking a study on the competitive effects of the use of authorized generics.

In February 2006, a federal law closed another loophole that brands use to benefit from authorized generics. The new law contains a provision that will require brand pharmaceutical companies to include authorized generics in the “best price” calculation that is provided to the Centers for Medicare and Medicaid Services. Due to an ambiguity in the current law, some brand companies were not required to include authorized generics in their best price calculation, diverting government and taxpayer savings. According to some estimates, the new provision could save taxpayers $150 million over five years, although GPhA anticipates the savings to be greater.

The change went into effect in January 2007.

Related Information

Press Releases:
Apr. 18, 2007 - GPhA Calls PhRMA’s Authorized Generics Study "Disingenuous"
Feb. 6, 2007 - GPhA Praises Bipartisan House Introduction of Bill to Block Authorized Generics During 180-Day Exclusivity Period
Jan. 31, 2007- GPhA Supports Bill to Block Authorized Generics and Restore the Value of the 180-Day Generic Exclusivity Period
Aug. 1, 2006 - GPhA Praises Emerson’s House Companion Version of Rockefeller Authorized Generic Bill
July 31, 2006 - Independent Analysis Reveals that Authorized Generics are Bad for Consumers, Lead to Higher Pharmaceutical Prices
July 20, 2006 - GPhA Says Rockefeller/Schumer/Leahy Bill Will Close Authorized Generics Loophole
June 28, 2006 - GPhA Statement on PhRMA Assessment of Authorized Generics
Feb. 8, 2006 - GPhA: Reconciliation Bill Will Bring Savings to Taxpayers Through Change in Authorized Generics Calculation
Nov. 9, 2005 - GPhA Welcomes FTC's Decision to Study Authorized Generics
May 12, 2005 –  GPhA Welcomes FTC’s Consideration of Authorized Generics Study

Studies:
July 31, 2006 - An Assessment of the Effect of Authorized Generics on Consumer Prices

Testimony and Comments:
July 27, 2006: GPhA Comments to the Senate Aging Committee on Affordable Medicines

Letters:
May 12, 2005 – Letter from Senators Grassley, Leahy and Rockefeller to the FTC
March 18, 2005 – Letter from CMS Administrator McClellan to GPhA regarding authorized generics

Background:
Mar. 29, 2006 - FTC Proposes Study of Competitive Impacts of Authorized Generic Drugs
Mar. 29, 2006 - Federal Register Notice for the FTC Study
May 12, 2005 –
 FTC Commissioner Leibowitz speech before the American Bar Association