Generics makers fight brand-name competition from "authorized" drugs

September 1, 2006

Washington, D.C.-The battle between pharmaceutical companies and generics makers is heating up, this time over increased moves by brand-name firms to put out their own low-cost "authorized" generic products. While this strategy undercuts the innovator's price, it probably hurts generics firms even more by greatly diminishing the value of the 180-day exclusivity period for the first generic to market.

WASHINGTON, D.C.-The battle between pharmaceutical companies and generics makers is heating up, this time over increased moves by brand-name firms to put out their own low-cost "authorized" generic products. While this strategy undercuts the innovator's price, it probably hurts generics firms even more by greatly diminishing the value of the 180-day exclusivity period for the first generic to market.

Brand-name firms have been making deals for authorized generics more frequently since enactment of the Medicare Modernization Act in 2003, which took steps to make it easier for generics to come to market. PhRMA (Pharmaceutical Research and Manufacturers of America) defends the authorized approach as a way to speed patient access to lower-priced drugs.

But the Generic Pharmaceutical Assn. (GPhA) recently retorted with its own analysis claiming that authorized generics actually raise drug costs. While the economists can debate the numbers endlessly, it's apparent that authorized generics can reduce the payoff for generics firms to seek early market entry. Generics makers have been willing to wage long and costly legal battles challenging innovator patents prior to expiration because of the prospect of a high reward: for 180 days the first firm can set a price slightly below the innovator and reap hefty profits. It usually is not until multiple generics competitors enter the market that innovator prices really tumble.

Sens. Jay Rockefeller (D-W. Va.) and Richard Schumer (D-N.Y.) are sponsoring a bill to ban authorized generics. Meanwhile, Congress has asked the Federal Trade Commission to examine how authorized generics affect prescription drug prices and competition.