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Authorized Generic Pharmaceuticals: Effects on Innovation

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Publication Date: August 2006

Publisher(s): Library of Congress. Congressional Research Service

Series: RL33605

Topic: Manufacturing and industry (Pharmaceutical industry)

Abstract:

The practice of "authorized generics" has recently been the subject of considerable attention by the pharmaceutical industry, regulators, and members of Congress alike. An "authorized generic" -- sometimes termed a "branded," "flanking," or "pseudo" generic -- is a pharmaceutical that is marketed by or on behalf of a brandname drug company, but is sold under a generic name. Although the availability of an additional competitor in the generic drug market would appear to be favorable to consumers, authorized generics have nonetheless proven controversial. Some observers believe that authorized generics potentially discourage independent generic firms both from challenging drug patents and from selling their own products.

These perceived disincentives result from the provisions of the Drug Price Competition and Patent Term Restoration Act of 1984. Better known as the HatchWaxman Act, this legislation provides independent generic firms with a reward for challenging patents held by brand-name firms. That "bounty" consists of a 180-day generic drug exclusivity period awarded to the first patent challenger. During the 180-day period, the brand-name company and the first generic applicant are the only firms that receive authorization to sell that pharmaceutical. At the close of this period, other independent generic competitors may obtain marketing approval and enter the market, ordinarily resulting in lower prices for generic medicines.

Some commentators view the 180-day exclusivity period as a crucial incentive for generic firms to challenge patents held by brand-name firms. Under this view, the launch of an authorized generic during the 180-day exclusivity period makes the recovery of litigation expenses more difficult. In turn, the possibility that a brandname firm will sell an authorized generic during the 180-day exclusivity period may decrease the incentives of generic firms to challenge patents in the first instance.

Other observers believe that authorized generics benefit consumers by increasing competition in the generic market. Because the authorized generic is manufactured by the brand-name firm and identical to its own product, consumers may be encouraged to switch to the lower-cost authorized generic alternative. Authorized generics may also facilitate the settlement of patent litigation between brand-name and independent generic firms. As an historical matter, certain of these settlement agreements have allowed authorized generics to enter the market, and therefore promoted competition, prior to the expiration of the relevant patent term.

Recent judicial opinions have upheld FDA practices allowing authorized generics. As a result of congressional interest, however, the Federal Trade Commission has agreed to release a report directed towards this issue. Although Congress may wish to take no action if the current allowance of authorized generics is deemed appropriate, other possibilities include subjecting them to the 180-day generic exclusivity period enjoyed by an independent generic firm, or simply disallowing them altogether.

This report will be updated as needed.