The FTC Issues Interim Report on Authorized Generics; Report Examines the Short-Term Effects of Authorized Generics During 180-Day Exclusivity

By Kurt R. Karst –      

The Federal Trade Commission (“FTC”) announced the publication of an interim report on authorized generic drugs.  The report, titled “Authorized Generics: An Interim Report,” presents the first set of results from an FTC study conducted, at the request of several members of Congress, to examine the short-term and long-term effects of authorized generics on competition in the prescription drug marketplace.  The report has been in the making for some years.  In March 2006, the FTC proposed a study of the competitive effects of authorized generics.  In April 2007, the FTC announced that it was seeking public comment on its proposed information requests to firms in the prescription drug industry.  In December 2007, the FTC announced the issuance of those information requests.

Below are the results of the FTC’s preliminary data analysis on the short-term effects of authorized generics on competition during 180-day exclusivity.  According to the FTC:

• Retail prices are on average 4.2 percent lower, relative to the pre-generic brand price, when an AG competes with one ANDA generic during the 180-day exclusivity period than when an AG does not enter.

• Wholesale prices are on average 6.5 percent lower, relative to the pre-generic brand prices, when an AG competes with one ANDA generic during the exclusivity period than when an AG does not enter.

• Revenues of a sole ANDA generic company during the180-day exclusivity period drop substantially with AG entry, with estimates of the average decline ranging from 47% to 51%.  The revenue effect for generics is so much larger than the price effect for consumers primarily because the AG represents a very close substitute for the ANDA generic and therefore typically obtains significant market share at the expense of the ANDA generic.  This is confirmed by an analysis of the quantities dispensed by retail pharmacies.

• To prevent this loss of revenue, a generic may be willing to delay its entry in return for a brand’s agreement not to launch an authorized generic – that is, a brand’s agreement not to compete with the generic through an AG – during the generic’s 180 days of marketing exclusivity.

• Between FY2004-FY2008, about one-quarter (38 out of 152) of the final patent settlements reviewed by the FTC contained provisions relating to AGs. 

• Between FY2004-FY2008, 76 final patent settlement agreements were with first-filer generics. About one-quarter (20 out of 76) of those patent settlements involved (1) an explicit agreement by the brand not to launch an AG to compete against the first filer, combined with (2) an agreement by the first-filer generic to defer its entry past the settlement date by, on average, 34.7 months. With regard to these twenty settlements, branded sales of the affected products ranged from $12.6 million to $5.3 billion, with an average market size of $917 million and a median market size of $514 million. Five of the settlements covered products with annual sales of $1 billion, $1.1 billion, $2.1 billion, $2.5 billion, and $5.3 billion.

• Such agreements can harm consumers in two ways:

• First, generic entry, and the accompanying discounts, would not be available to consumers as soon as otherwise would be the case. Because generic drugs often are priced substantially below the price of branded drugs, overall prescription drug costs could be significantly increased by even a few additional months of branded prices in a large market.

• Second, consumers would lose the benefit of price discounts from AG competition during the 180-day marketing exclusivity. The consumer harm in such instances arises because the brand has agreed not to compete against the independent generic during the exclusivity period. The consumer harm arises from the absence of AG competition against an ANDA generic, not from the presence of AG competition against an ANDA generic.

FTC Chairman Jon Leibowitz and Commissioner Rosch issued separate statements on the interim report (here and here). 

Interest in authorized generics has steadily increased over the past few years, particularly after FDA denied citizen petitions in 2004, concluding that “[t]he marketing of authorized generics during the 180-day exclusivity period is a long-standing, pro-competitive practice, permissible under the FDC Act,” and legal challenges upheld FDA’s determination.  (See an article we published on the topic in RAPS Focus.)  The FDA Amendments Act ("FDAAA") amended the FDC Act to create new § 505(t) – “Database for Authorized Generic Drugs” – that requires FDA to compile and publish a complete list of all authorized generic drugs identified in annual reports submitted to the Agency since January 1, 1999.  Among other uses, this list is intended to assist the FTC as the Commission progresses with its authorized generics study.  In September 2008, FDA  issued a direct final rule and a companion proposed rule to implement FDAAA § 920.  FDA withdrew the direct final rule after the Agency received “significant adverse comment.”  Congress is also considering legislation concerning authorized generics.  Earlier this year, Rep. Jo Ann Emerson (R-MO) introduced H.R. 573, which would amend the FDC Act to prohibit the marketing of authorized generics during a generic applicant’s 180-day exclusivity period.  The bill is almost identical to the bill Rep. Emerson introduced during the 110th Congress – H.R. 806.  Senator Jay Rockefeller (D-WV) has introduced a similar bill in the U.S. Senate – S. 501.