Should authorised generics be abolished?

The Hatch Waxman legislation is intended to strike a balance between encouraging innovation and affordable access to medication. In short, the Act offers a patent term restoration to compensate the innovator companies for the time lost during the regulatory review process and a 180 day exclusivity period as an incentive to generic companies for successfully challenging a Patent.
In the recent years, innovator companies have used authorized generics as a strategy to counter Paragraph IV challenges to their Orange Book listed patents. Authorized generics may provide for a market entry prior to patent expiry as well as may seize upon the 180-day exclusivity period granted to a successful Paragraph IV Litigant. This essentially  reduce the economic inventive to the generic applicant. The question that arises is whether authorized generics increase price competition and contribute to providing affordable medication or do they discourage generic firms from pursuing Paragraph IV challenges.
A Bill to amend the Federal Food, Drug, and Cosmetic Act to prohibit the marketing of authorized generic drugs was introduced in the House of Representatives on 15 January, 2009. The Amendment proposes to prohibit the marketing of authorized generic drugs.
While there may be no concrete evidence that authorized generics deter Paragraph IV challenges, there have been multiple concerns raised by opponents of the authorized generic system. 
Authorized generics may deprive generic competitors of their “first to market” status and hence discourage generic competition. Since the authorized generics are likely to enter the market before the Paragraph IV litigant, they can easily secure a definite market share, deterring the benefit to the 180-day exclusivity holder.
Authorized generic are often the innovator’s drugs approved under the original New Drug Application, with a generic label. This definitely seems to benefit the consumer, since the marketed product has the same size, shape, color i.e. same product experience. In such cases, will a physician be inclined to prescribe an authorized generic product as against a merely bioequivalent generic formulation?
Moreover, the advertising capabilities of the innovator company is most likely to be higher than the generic competitors which only causes further harm to generic competition.
Innovator companies on the other hand have however argued that the authorized generics foster generic competition and benefit consumers by increasing price competition
Authorized generic undoubtedly present a regulatory advantage over other bioequivalent formulations. They clearly offer a consumer benefit, since the consumer is psychologically accustomed to the properties of the brand product.
However, a successful paragraph IV challenge may not guarantee complete exclusivity, but result in shared exclusivity, even absent any authorized generic. In such a scenario, how is the competition between two generics different from that between a generic and an authorized generic? 

What do you think?  Should authorized generics be banned?

4 Comments on “Should authorised generics be abolished?

  1. Interesting question that you pose Vandan and although I cannot disagree with your arguments, the question of what to do about it is very complex.I think the major issue is to define an authorised generic in order to ban it.  Is it: a) a product that is manufactured, registered and distributed by the innovator (or a generic division thereof) and only differs in the packaging b) a product that is manufactured and registered by the innovator but distributed by a generic company, c) a product that is manufactured by the innovator and supplied to the generic company who obtains its own registration and then distributes it, or d) a product that is manufactured, registered and distributed by the generics company under license?As you would know, each has an individual IP structure and it could be argued that the innovator at any stage would have the right to brand and price it’s own authorised product however it chooses… can congress really change that?Leighton

  2. Thanks Leighton, great comments.Is this just a question of where to draw the line?I’m still grappling with the fundamental question about whether this genus should be banned.  I wonder whether another approach is to look for other incentives for generic companies game enough to go after early launch? 

  3. That is a great point, Leighton. Thanks!
    Defining authorized generics is definitely a good start to answer the question. Having said that, I think it is also important to then determine where does the actual benefit to the consumer lie?
    While Authorized generics seem to present a direct and immediate benefit to the consumers (being almost the same product as that of the innovator); it is also important to keep the incentives for generic companies in place, since they finally culminate into price reduction of drug products. Again, the question is where does the balance lie?
    As Duncan says, it is probably worth looking at other incentives for generic companies.

  4. I agree that incentive is an issue here – the 180 day exclusivity is a balance between reward for the challenging generic firm to go through the expense of challenging or circumventing a listed patent, and alowing further generic entry to solicit a larger price drop for the patient after the exclusivity period has expired when other generics enter the market and compete on price.There are a number of strategies the innovator can use to minimise the effect of generic competition, most of which do not fall foul of the legislation and are acceptable marketing strategies in any free market.  However, I think the timing of these activities is most critical in protecting the interests of the generic challenger and the patient.  For example, if the launch of an authorised generic within a certain period of time prior to, or after generic launch were prohibited, this would arguably give the generic challenger more certainty by preventing against more ‘tactical’, short term actions by the innovator that are seemingly intended only to spoil the reward for the challenging generic and ‘cash out’ of the monopoly position.However, in my view, congress needs to be careful that it does not push patent litigation outside of the framework of the Hatch Waxman legislation by causing innovators to not list patents in the Orange Book, a practise that [our database shows] is becoming more commonplace but which does not prevent the patentee from sueing a generic for patent infringement upon launch.

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