FTC Issues Report on Authorized Generics

The Federal Trade Commission (FTC) last week issued an interim report that examined the effects of authorized generics on competition in the prescription drug market. An authorized generic exists when a pharmaceutical manufacturer sells a drug under both a brand-name and generic label. The FTC conducted the study in response to requests by Congress, which is addressing the matter through legislative debates and healthcare reform.

The FTC report examined the short-term effects of authorized generics during an initial period of generic competition. In certain circumstances, the first generic competitor of a branded drug is awarded a 180-day period of marketing exclusivity under the Hatch-Waxman Act, according to an FTC press release.

This marketing exclusivity period granted to certain generic “first filers,” however, does not preclude competition from authorized generics. FTC says that it has become increasingly common for brand-name drug makers to begin marketing authorized generics at the same time the generic firm is beginning its 180-day marketing exclusivity period. This practice has created questions about the effects of authorized generics on pharmaceutical competition, according to the FTC release.

The report found that drug prices are lower when authorized generics are marketed against a single generic drug than when they are not. With authorized generic competition during the 180-day marketing exclusivity period, retail drug prices are on average 4.2% lower than the pregeneric branded price, and wholesale drug prices are on average 6.5% lower than the pregeneric branded price, according to FTC.

The report also found that authorized generic entry during this time reduces the revenues of a first-filer generic firm, with declines ranging from 47–51%. “As a result, because a generic can earn greater revenues if an authorized generic does not enter the market, a generic firm may be willing to agree to defer its market entry in return for a brand’s promise not to launch a competing authorized generic during the 180-day marketing exclusivity period,” according to the FTC press release, which says that such agreements appear to be more common now than in the past.

“Because the impact of an authorized generic on first-filer revenue is so sizable, the ability to promise not to launch an AG [authorized generic] is a huge bargaining chip the brand company can use in settlement negotiations with a first-filer generic,” said FTC chairman Jon Leibowitz in a prepared statement.

Between fiscal years 2004­–2008, about 25% of the final patent settlements reviewed by the FTC contained provisions related to authorized generics, according to the FTC release. During the same period, 76 final patent settlements were with first-filer generic firms. About 25% of those settlements involved an agreement by the brand not to launch an authorized generic to compete against the first filer, combined with an agreement by the first filer to defer market entry past the settlement date by an average of 34.7 months.

Industry response is mixed
Industry response to the report was divided between generic-drug manufacturers and innovator-drug companies. “Authorized generics undermine Congressional intent by undercutting the 180-day exclusivity period for generic manufacturers,” said Generic Pharmaceutical Association President and CEO Kathleen Jaeger in a prepared statement. “Congress provided the 180-day incentive as a means to foster investment by generic companies to challenge questionable and weak brand patents with the ultimate goal of providing more timely access to and greater choices of affordable medicines. Simply put, but for the generic challenger, there would be no price competition. Permitting brand companies to undercut the incentive is just not sound public policy.”

“We agree with the Federal Trade Commission’s assessment that authorized generics help to provide value for patients,” said Pharmaceutical Research and Manufacturers of America (PhRMA) Senior Vice President Ken Johnson, in a prepared statement. “As noted in the report, by creating competition early between generic medicines, the presence of authorized generics is associated with lower prices for the generic medicines on the market before the end of the 180-day market exclusivity period. However, it is unfortunate that the FTC used this potentially valuable report on the benefits to patients of authorized generics to further its attack on patent settlements.”