FTC: Authorized generics reduce overall drug prices
WASHINGTON — Branded drugs sold under their generic names at a reduced price can reduce retail and wholesale drug prices, according to a new report by the Federal Trade Commission.
The FTC report found that when an authorized generic is introduced onto the market, it can lower the expected profits of the generic drug's manufacturer and, over the longer term, affect generic manufacturers' decisions to challenge patents covering branded drugs with low sales, though patent challenges by generic drug makers "remain robust."
The report found that an authorized generic during the customary 180-day exclusivity period in which the first generic drug to be approved competes directly against the branded version can reduce retail prices by 4% to 8% and wholesale prices by 7% to 14%. It also can reduce revenues from the generic by 40% to 52% during the 180-day period and by 52% to 63% during the 30 months after the exclusivity period ends.
"Today's report finds that authorized generics modestly reduce drug prices during the first 180 days of generic competition and identifies some evidence suggesting that the presence of an authorized generic could affect decisions by generic competitors to challenge patents on drugs with low revenues," FTC chairman Jon Leibowitz said.
When a generic drug company wishes to be the first to market a version of a drug, it will file a regulatory approval application with the Food and Drug Administration containing a paragraph IV certification, an assertion that one or more patents covering the drug are invalid, unenforceable or won't be infringed; the branded drug maker is then entitled to sue for patent infringement, putting an automatic stay of final FDA approval on the generic for two and a half years or until the companies reach a settlement.
In many cases, rather than going to trial, the two companies will settle out of court, with the generic drug agreeing to hold off launching its product immediately in exchange for some type of "payment" from the branded drug maker. Usually, this involves not a monetary transaction but a promise by the branded drug maker not to launch an authorized generic. Under the Hatch-Waxman Act of 1984, which created a regulatory approval pathway for generic pharmaceuticals, the first generic drug maker to win approval for a generic drug is entitled to 180 days in which to compete exclusively with the branded drug, but authorized generics allow a form of back-door competition that has the generic competing against both the branded version and a lower-cost form of the branded version.
The FTC derides such settlements as "pay-for-delay" deals, but in most cases, the generic drug is launched before patent expiration. And in any case, waiting until after patent expiration to launch would be illegal. An analysis by RBC Capital Markets found that over the past decade, generic drugs hit the market ahead of patent expiration in 76% of the 370 patent litigation cases resolved through a patent settlement; but when those cases went to court, generics reached the market before patent expiration only 48% of the time.
While many generic drug companies sell authorized generics — such as Watson Pharmaceuticals, which will sell an authorized generic of Pfizer's cholesterol-lowering drug Lipitor (atorvastatin) when the generic is expected to launch later this year — the Generic Pharmaceutical Association opposes authorized generics in general and has supported efforts to ban them, saying they undermine the goals of Hatch-Waxman. It also accuses the FTC of misleading consumers about patent settlements. Various attempts to ban patent settlements in Congress, spearheaded by Sen. Herb Kohl, D-Wis., have consistently failed as well.
"By continuing to push its misguided policy to ban pro-consumer patent litigation settlements, the FTC is gambling with consumers' savings," GPhA executive director Bob Billings said in response to the report. "It's the patent, not the patent settlements, that holds up the launch of a generic drug. Patent settlements have never prevented competition beyond the patent expiry and generally have resulted in making lower-cost generics available months and even years before patents have expired."