How Authorized Generics Reduce Drug Pricing

As brand-name drug prices rise, several large pharmaceutical companies have launched authorized generic versions at steeply reduced list prices.

Authorized generics are exact copies of the brand-name drug without the associated brand labeling. The market for such drugs has increased substantially since 1967. Authorized generic drugs do not need to undergo additional testing or approval process, unlike a traditional generic drug that must meet bioequivalence testing standards through an abbreviated new drug application. The new drug application holder instead must notify the U.S. Food and Drug Administration if it intends to market an authorized generic.

In a viewpoint by Stacie B. Dusetzina, Ph.D., and colleagues, the experts said three strategies underlie authorized generic entry. For one, brand-name drug manufacturers can seek to introduce an authorized generic at the time that a traditional generic drug is first marketed or later. The Hatch-Waxman Act encourages rapid generic entry by giving a 180-day exclusivity period to the first company that files an abbreviated new drug application that successfully challenges the patent on a brand-name drug. The company can gain market share while keeping the generic drug’s price high. Then the manufacturer of the brand-name drug can attempt to limit the market share for the first traditional generic drug by introducing an authorized generic during the 180-day exclusivity period.

Another strategy, Dusetzina and the team wrote, is tied to “pay-for-delay” agreements between a brand-name drug manufacturer and a traditional generic drug manufacturer. Under “reverse payment” agreements, the manufacturer of the brand-name drug compensates the generic manufacturer for not marketing the drug.

The third strategy involves the marketing of authorized generics when substantial patient life remains on the brand-name drugs. The manufacturers use authorized generic entry with large list price reductions to ward off pressure for the federal government to take more steps to decrease the price of prescription drugs.

“Ultimately, the benefits of authorized generics should be judged by whether they meaningfully reduce spending on prescription drugs for payers and patients. Otherwise, they are a misleading distraction from more effective measures to decrease drug prices and increase access,” the team concluded.

The viewpoint, “Authorized Generics and Their Evolving Role in Prescription Drug Pricing and Access,” was published in JAMA Internal Medicine.