Authorized generics vs. the competition: Who wins?

"Authorized generics effectively turn a monopoly into a duopoly such that the market share for each competitor is lower but prices are only slightly impacted," said Tim van Biesen, healthcare practice partner for Bain & Co. "Hatch-Waxman created the 180-day exclusivity period as an incentive for generic players to challenge granted drug patents-and that incentive will not go away with authorized generics," he said.

In 2002, Wachovia Securities found that about 80% of paragraph IV challenges are eventually successful, with innovator patents overturned and the generic challenger given 180 days as the sole generic supplier.

That 80% failure record encouraged brand-name makers to search for other ways to defend their products and revenues. Authorized generics have emerged as one of the more successful defenses. According to the Generic Pharmaceutical Association, nearly every successful patent challenge since 2003 has been met with an authorized generic counterattack.

Nothing in Hatch-Waxman prohibits a branded drugmaker from selling its own generics. These authorized generics are identical to the branded product except in name. "Identical" appeals to consumers who prefer originator products, said Kimberly Carroll, VP of communications and marketing services for Prasco Laboratories, an authorized generic firm based in Cincinnati.

Authorized generics also carry regulatory advantages. Because authorized generics are the already-approved brand product under a different label, they do not require marketing approval from the Food & Drug Administration. Some firms market authorized generics through a subsidiary such as Sandoz (Pfizer), Greenstone (Pfizer), or Patriot (Johnson & Johnson), Carroll said. Other firms license authorized generics to generic companies such as Teva, Mylan, and Barr in order to settle or forestall patent challenges. Some companies use third-party generic firms such as Prasco to distribute authorized generics. And some firms use all three strategies, depending on the drug and the potential competition.

Profits count

"Authorized generics devalue that 180-day period," said GPhA spokeswoman Andrea Hofelich. "They represent a third product on the market during that critical 180-day period. The goal of authorized generics is to dissuade competition by generic companies."

That's hogwash, according to the Pharmaceutical Research & Manufacturers of America. "There is not a difference between multiple generic companies sharing that 180-day period and an authorized generic in terms of competition," said PhRMA VP for policy Lori Reilly. "When you have an authorized generic on the market, health care will benefit and you don't have any decline in paragraph IV [patent challenge] filings."

The federal government's experts on competition-the FTC-could deliver its own conclusion late this year, said its spokesman Mitchell Katz. The interested parties are not waiting for the FTC to make up its mind. Both sides are staking out political and public opinion positions now, just in case the FTC decision goes the other way.

On Capitol Hill, GPhA is pushing legislation that would ban authorized generics with bipartisan support. On the Senate side, S. 438, "The Fair Prescription Drug Competition Act of 2007," would bar a brand-name drugmaker from introducing an authorized generic during the 180-day exclusivity period.

"Mylan has been on the forefront of this issue," said CEO and vice chairman Robert Coury. "And we have never wavered in our commitment to address this practice that we believe disrupts the natural balance between innovation and access to affordable medicines that Congress intended for our industry."