John R. Thomas
Visiting Scholar
Thepractice of “authorized generics” has recently been the subject of considerableattention by the pharmaceutical industry, regulators, and members ofCongress alike. An “authorized generic” (sometimes termed a “branded,” “flanking,”or “pseudo” generic) is a pharmaceutical that is marketed by or on behalfof a brand-name drug company, but is sold under a generic name. Althoughthe availability of an additional competitor in the generic drug market wouldappear to be favorable to consumers, authorized generics have nonethelessproven controversial. Some observers believe that authorized genericspotentially discourage independent generic firms both from challengingdrug patents and from selling their own products.
These perceived disincentives result from the provisions of the Drug PriceCompetition and Patent Term Restoration Act of 1984. Better known as theHatch-Waxman Act, this legislation provides independent generic firms witha reward for challenging patents held by brand-name firms. That “bounty”consists of a 180-day generic drug exclusivity period awarded to the first patentchallenger. During the 180-day period, the brand-name company and the firstgeneric applicant are the only firms that receive authorization to sellthat pharmaceutical. At the close of this period, other independent genericcompetitors may obtain marketing approval and enter the market, ordinarilyresulting in lower prices for generic medicines.
Some commentators view the 180-day exclusivity period as a crucial incentivefor generic firms to challenge patents held by brand-name firms. Underthis view, the launch of an authorized generic during the 180-dayexclusivity period makes the recovery of litigation expenses more difficult.In turn, the possibility that a brand-name firm will sell an authorized genericduring the 180-day exclusivity period may decrease the incentives ofgeneric firms to challenge patents in the first instance.
Other observers believe that authorized generics benefit consumers byincreasing competition in the generic market. Because the authorized genericis manufactured by the brand-name firm and identical to its own product,consumers may be encouraged to switch to the lower-cost authorized genericalternative. Authorized generics may also facilitate the settlement of patentlitigation between brand-name and independent generic firms. As anhistorical matter, certain of these settlement agreements have allowedauthorized generics to enter the market, and therefore promotedcompetition, prior to the expiration of the relevant patent term.
Recent judicial opinions have upheld FDA practices allowing authorizedgenerics. If authorized generic practice is deemed appropriate, then noaction need be taken. The approach taken by legislation introduced in the112th Congress, H.R. 741 and S. 373,presented another option. Under these bills, authorized generics may notbe sold during the term of the 180-day generic exclusivity. Thislegislation was not enacted.
Date of Report: January 17, 2013
Number of Pages: 18
Order Number: RL33605
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