Authorized generics continue to cause controversy

April 3, 2006

The squall over authorized generics continues to swell. Congressmen are squabbling, the Federal Trade Commission is investigating, Congress has legislated, and the Supreme Court may yet get the last word. "The issue has proponents on both sides," said Edward Thwaite of E.W. Thwaite Associates, a generic industry consulting firm in Totowa, N.J. "There are strong feelings everywhere."

The squall over authorized generics continues to swell. Congressmen are squabbling, the Federal Trade Commission is investigating, Congress has legislated, and the Supreme Court may yet get the last word. "The issue has proponents on both sides," said Edward Thwaite of E.W. Thwaite Associates, a generic industry consulting firm in Totowa, N.J. "There are strong feelings everywhere."

Authorized generics are produced under agreements between a brand drugmaker and either an independent generic firm or a subsidiary. The Food & Drug Administration treats the new drug as a brand product and that allows the new manufacturer to market it during another generic firm's 180-day market exclusivity period. The generic firm with the authorized product then splits the profits with the brand firm. Generic manufacturers say the process is a violation of antitrust laws. The loss of the 180-day exclusivity "is like a needle in the back of much of the generic industry," said Thwaite.

Thwaite said the view from the other side is, of course, quite different. "Brand-name manufacturers claim that these drugs bring more generics to the market, lowering price somewhat through greater competition. And they say there's plenty of money to be made here," he said. "The authorized products usually look just like their brand-name counterparts, so dispensing is easier, and pharmacists say they like that."

Whatever their reasoning, brand manufacturers claim they really have no option. More than $121 billion worth of brand patents end over the next five years. According to Jon Hess of the research firm Cutting Edge Information in Research Triangle Park, N.C., brand manufacturers lose 80% of their business immediately after a generic equivalent comes to market. "It's the only way they can win a share of that," said Hess. "Not being able to participate would inhibit trade."

Perhaps, but two recent regulatory and legislative developments are bringing GPhA some joy. Following a request by a bipartisan group of Senators, the Federal Trade Commission agreed last November to study the competitive effects of authorized generics. FTC informed the Senators that it would examine:

That study is ongoing. "Protecting incentives is crucial to the balance undertaken in the Hatch-Waxman Act," said David Balto, an attorney with Robins, Kaplan, Miller & Ciresi in Washington, D.C., and former policy director in the FTC's Bureau of Competition, in explaining the FTC interest. "Without that, what efforts would generic manufacturers be willing to take to challenge patents? Authorized generics can be a long-term disincentive to develop generics, even if they lead to short-term cost savings for consumers."