Legal: Authorized Generics: Still Legal—and Holding

Despite the rattle and hum, courts continue to support the practice of authorized generics. The response? Generic manufacturers are changing the way they argue these cases.
Sep 01, 2006

Robert P. Reznick
More than two years ago in these pages, we tackled the regulatory and antitrust concerns being raised about the then-emerging issue of "authorized generics." (See "Permission Granted," Pharm Exec, May 2004.) In exchange for somewhat faster erosion of sales, innovative companies had begun competing with ANDA holders during the 180-day exclusivity period, by marketing a low-priced generic version of their brands. Since these authorized generics are manufactured under the brand name company's NDA, not an ANDA, pharma companies are, by law, allowed to market the drug during the six-month exclusivity period—the period of time that generic companies make most of the profits, profits that brand-name manufacturers otherwise lose completely.

James B. Kobak, Jr.
In the two years since our analysis was published, authorized generics have become more widespread, court cases have been decided, arguments for and against it have been published, Congress has taken a step toward making the future introduction of authorized generics less profitable, and the Federal Trade Commission (FTC) has announced an investigation of the effects of authorized generics on competition. However, opponents continue to be vocal, charging that brand-name manufacturers are "gaming the system" and violating the "spirit" of the Hatch-Waxman Act. Waxman himself has referred to authorized generics as a "loophole" that takes away profits intended for independent generics in order to spur more competition.

Continued Support

Since the publication of our 2004 article, FDA and two federal courts of appeal have decisively rejected challenges to authorized generics. In response to citizen petitions filed by generic manufacturers Teva and Mylan, FDA determined that a branded company's decision to authorize a generic copy of its innovative drug, either on its own or through an agreement with a third party, was a "marketing arrangement" falling outside the agency's jurisdiction: "FDA does not regulate drug prices and has no legal basis on which to prevent an innovator company from marketing its approved NDA product at a price that is competitive with that charged by a first generic applicant to the market." Moreover, FDA determined that the practice was consistent with the goals of the Hatch-Waxman Amendments: "[I]t can be anticipated to encourage ANDA applicants to offer their products at lower prices during the exclusivity period, thereby reducing the substantial 'mark-up' the ANDA applicant can often apply during the period." Further, in the recently decided Mylan Pharmaceuticals v. FDA, the Fourth Circuit noted that in addition to making generic drugs more speedily available, Congress sought to protect a "countervailing interest ... namely, the intellectual property rights of pioneer drug companies," which have always been "free to license generic versions of their pioneer drugs."

High burden of proof The federal courts are typically disinclined to adopt highly speculative claims of injury that aren't tied to a particular product. A party attacking a specific authorized-generic arrangement would need to prove on a case-by-case, rule-of-reason basis that the presence of an authorized generic prevented the timely entry of other generics and an overall reduction in prices. Indeed, at this time, we are aware of no evidence that the practice of authorized generics has actually deterred any Paragraph IV certification or post-180-day generic entry, let alone a challenge to a patent that was invalid.

Additionally, studies by the Analysis Group, funded by Johnson & Johnson and Bear Stearns, suggest that authorized generics don't significantly decrease the incentives generic companies need to challenge vulnerable patents.

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