A handful of Senate Democrats have revived a bill that would restrict brand-name drugmakers from being able to market an authorized generic during the 180-day exclusivity period that follows the first successful challenge to a patent by a generic rival. Known as the Fair Prescription Drug Competition Act, the bill was first introduced by US Senator Jay Rockefeller, a West Virginia Democrat, in 2007.
Authorized generics, as you know, may be sold by brand-name drugmakers after a patent expires, although marketed differently. However, a 2009 report by the US Federal Trade Commission found that consumers are harmed by deals between brand-name and generic drugmakers in which a generic entry is delayed. The FTC noted that the arrival of an authorized generic during that 180-day exclusivity period can reduce the revenue of the first-filer generic drugmaker by 47 percent to 51 percent.
"As a result, because a generic can earn greater revenues if an authorized generic does not enter the market, a generic firm may be willing to agree to defer its market entry in return for a brand’s promise not to launch a competing authorized generic during the 180-day marketing exclusivity period," the FTC concluded, noting that prices are lower when authorized generics are marketed against a single generic than when they are not. And so consumers would not benefit from lower-cost generics.
"First, generic drugs, and accompanying price discounts, would not be available to consumers as soon as otherwise would have been the case," the FTC wrote. "Second, consumers would lose the benefit of price discounts from authorized generic competition during the 180-day marketing exclusivity period, because the brand has agreed not to compete against the generic drug during that time" (read the report here).
At the time, Rockefeller first introduced the proposal, he called authorized generics a "sham" and described the legislation as a way to close a "prominent loophole" used by brand-name drugmakers that are "desperately trying to protect their market share and prevent consumers from cashing in on savings from generic drugs."
"This practice of re-labeling a brand product and placing it on the market to undermine the 180-day exclusivity period will only serve to reduce generic competition and lead to longer brand monopolies and higher healthcare costs over the long-term," he argued (here is the complete statement and you can read the bill here by clicking on 'bill number' and typing in S 373). Co-sponsors include Hawaii's Dan Inouye; Vermont's Pat Leahy; New York's Chuck Schumer; New Hampshire's Jeanne Shaheen and Michigan's Debbie Stabenow.
4 Comments
Does the 180 day exclusivity for successful patent challenges make sense? A bill introduced in the Senate is aiming to protect exclusivity by prohibiting authorized generics.
Senator Jay Rockefeller of West Virginia is introducing legislation to protect the 180 day exclusivity period from being eroded by authorized generics. As the Senator notes, the ability to have an authorized generic dilutes the value of the 180 day exclusivity. Since society wants to reward successful patent challengers, it is a bad idea to allow authorized generics. It does not surprise me that Senator Rockefeller is sponsoring the legislation. West Virginia is home to Mylan, a generic firm with many successful patent challenges that would want to preserve the 180 day exclusivity.
Rather than simply prohibiting authorized generics, it makes sense to look at the economic consequences of the 180 day exclusivity. The exclusivity period, particularly without an authorized generic, gives the patent challenger a 180 day monopoly on the generic product. During this period, the patent challenger can charge substantially higher prices (often as high as 90% of the full branded price), make substantial profit and recoup any expenses associated with the patent challenge.
It makes sense to reward a successful patent challenger, but who bears that price. Under the current system, health care consumers bear the price by paying monopoly prices for a generic medication. A better system would be to reward the successful generic challenger by penalizing the innovator. After all, the innovator has been benefitting, perhaps unfairly, from a patent that subsequently proves to be invalid. It makes sense to reward successful patent challengers, but the innovator, rather than healthcare consumers should pay the price.
I agree with Senator Rockefeller that something should be done about authorized generics. If we are going all the way to passing new legislation, perhaps it is time to look for a new way to reward successful patent challengers such as a payment from the innovator to the challenger. Rewarding the challenger to an unfair monopoly (the original patent) with another monopoly (180 day exclusivity) only hurts the consumer.
I don't understand why the innovator company just doesn't drop the price of the brand name drug once it goes generic. Don't even repackage, etc to make it "generic". I am sure some will stay with the name brand if the price is close to the generic price.
For the innovator an authorized generic is a better strategy. The innovator can raise the price for those patients that will only accept the brand name product(DAW or Brand Medically Necessary, would be indicated on the prescription). Meanwhile the same product in different packaging can be sold at a lower price to compete with the generic. This is a market segmentation approach which typically maximizes profits for the seller.
Dear Mr. Silverman, Thank you for bringing to our attention the detrimental impacts of AGs on healthcare costs and consumer prices. I agree that it is seems counter-intuitive to offer a 180 day exclusivity period, as an incentive for companies to produce generics, and then undermine their profits by allowing brand name corporations (who already reaped the rewards of twelve years of medication monopoly) to market an authorized generic. I also agree with Dr. Rutman’s first comment, where he suggests that perhaps the healthcare problems precipitated by this whole issue could also stem from the exclusivity period itself. While it is important to reward a successful patent challenger, it is more significant to be cognizant of the consumers who have to “bear the price by paying monopoly prices for a generic medication.” However, to give the other side a voice for a moment, I found several arguments that support AGs. Because the original company has been producing the drug for twelve years, they have the experience and research to best accommodate the market that has accumulated. As noted in a study in Systematic Reviews in Pharmacy, a generic company may be able to produce a cheaper version of the standard 5 and 10 mg doses of a drug, but the brand company would be better equipped to produce a 15 mg dosage, providing a fuller complement to its customers. Additionally, although you suggest that the predatory AGs promote “longer brand monopolies,” modern antitrust law has deemed the entry of a rival product does not equate to predation, a statement also substantiated by FTC Commissioner Jon Leibowitz who stated that “generic companies’ claims that [AGs] violate antitrust laws” are unpersuasive. While you mentioned monopoly briefly in your post, I wanted to ask if you could further share your thoughts on this intersection of business and legislation for AGs. Another interesting point is that it seems many of the reasons for the Senate bill stem from the desire to stop the abuse of the 180 exclusivity period, caused by clandestine deals between brand and generic firms. This suggests that perhaps the problem is the way the exclusivity period is handled, and not the AGs themselves. Perhaps the FTC and FDA could investigate methods of regulating AG and generic entry in ways that would promote both price competition and incentive for companies to make generics. Are there any particular solutions you favor for this issue? There are some calls for drastic measures against this abuse. Some call for a 180 day exclusivity period for AGs to precede the generic period, others call for disallowing all exclusivity periods after the initial twelve year patent. If either of the two mentioned policies were instated, what possible consequences do you think would the industry have to deal with? Would the industry be able to handle such changes? Overall, I find this topic engaging as the industry tries to juggle both the demands of the firms and consumer advocates. Thank you for shedding light on this controversial issue.