September 1st, 2011

Authorized Generics Are A Double Whammy: FTC


In an effort to thwart generic competition, brand-name drugmakers are promising not to launch so-called authorized generics if their generic rivals promise not to market copycat versions of the brand-name drugs, according to a new report from the US Federal Trade Commission.

The findings, released in a 270-page report, explore a twist on the controversial practice of pay-to-delay in which brand-name drugmakers settle patent litigation with an agreement that involves a payment and a commitment by a generic drugmaker not to launch a rival med for a specified period of time. The FTC has called these deals anti-competitive and cost consumers $3.5 billion annually.
Now, the agency, which has been urging Congress to pass legislation to restrict these deals (see here), is turning its attention to authorized generics as evidence of another tactic used by brand-name drugmakers to delay generic competition at the expense of the public.

The agency report finds that authorized generics can lower both retail and wholesale prices, and also affect decisions by generic drugmakers to challenge patents on drugs with low revenues. But FTC commish Jon Leibowitz says the threat of an authorized generic during negotiations over patent litigation can be an intimidating tactic.

“The clearest and most disturbing finding is that some brand companies may be using the threat of launching an authorized generic as a powerful inducement for generic companies to delay bringing their drugs to market,” he says in a statement. “When companies employ this tactic it is a double whammy for consumers. Consumers have to pay the higher brand prices while the generic delays its entry and, once generic entry does occur, consumers pay higher prices without the benefit of competition from the authorized generic.”

In response, the trade group that represents generic drugmakers, which have fought hard to combat efforts by the FTC to restrict patent settlements with brand-name drugmakers, called the report misleading and insisted that patent deals benefit consumers by resulting in deals that bring lower-cost meds to market sooner than they might otherwise become available.

“It’s the patent, not the patent settlements that holds up the launch of a generic drug,” Generic Pharmaceutical Association executive director Bob Billings says in a statement. “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.”

This year, 17 of the expected 23 new generic drug launches, including Lipitor and Plavix generics, will result from patent settlements, he continues, adding that, of the 370 drug patent challenges in the 10-year period from 2000 to 2009, generic drugmakers prevailed in 48 percent of cases that were resolved by litigation. “As a result, consumers gained access to lower cost generics prior to the brand patent expiring in less than half of the non-settled cases,” he maintains.

In arguing its case, though, the FTC notes that brand-name drugmakers are increasingly marketing authorized generics at about the same time that a generic drugmaker takes advantage of a 180-day exclusivity period to market its own version, “leading to questions about the effects of authorized generics on pharmaceutical competition.”

Among its findings: During the 180-day exclusivity period, competition by an authorized generic lower retail prices by 4 percent to 8 percent, and wholesale prices drop by 7 percent to 14 percent, compared with generics that do not face competition from an authorized generic.

However, the presence of an authorized generic, on average, reduces revenue for that first generic rival by 40 percent to 52 percent. And revenues are between 53 and 62 percent lower during the first 30 months after the exclusivity period ends, if there is an authorized generic on the market. The bottom line, the FTC says, is that introduction of an authorized generic “can mean hundreds of millions of dollars in lost revenue for the first generic competitor to enter the market.”

The agency goes on to maintain that “there is strong evidence” that deals in which a brand-name drugmaker agrees not to sell an authorized generic have become a way to “compensate” generic rivals for delaying launches of their copycat meds.

For instance, in fiscal year 2010, 15 drug patent settlements combined an explicit agreement by the brand-name drugmaker not to launch an authorized generic competitor with a commitment by generic drugmaker, which is entitled to a 180-day marketing exclusivity period, to delay launching a copycat. These generic drugmakers, by the way, are referred to as first filers.

And between fiscal years 2004 and 2010, approximately 25 percent of patent settlements with first-filing generics – involving drugs with a total market value of more than $23 billion – involved explicit agreements by the brand-name drugmaker not to launch an authorized generic to compete against the generic rival, combined with an agreement by the first-filer to delay a copycat launch.

In fiscal year 2010, nearly 60 percent of final settlement agreements with first-filing generic drugmakers that contained both compensation and a restriction on generic launches included explicit agreements that the brand-name drugmaker would not market an authorized generic competitor.

The FTC also notes that the 39 settlements between fiscal years 2004 and 2010 combining an explicit agreement by the brand-name drugmaker not to launch an authorized generic and a commitment by the first-filing generic to delay entry, a copycat launch was delayed by an average of 37.9 months past the settlement date.

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