The Federal Trade Commission announced earlier today that it has completed its study into the competitive effects of authorized generic drugs. The FTC's final report, entitled "Authorized Generic Drugs -- Short-Term Effects and Long-Term Impact," was unanimously approved by the five-member commission and follows up on a 2009 interim report. The study was commenced upon requests in 2005 by Senators Grassley (R-IA), Leahy (D-VT) and Rockefeller (D-WV), and Representative Waxman (D-CA).
The final report contains four main findings:
- Competition from authorized generics during the 180-day marketing exclusivity period has led to lower retail and wholesale drug prices. Specifically, authorized generics are associated with retail prices that are 4-8% lower and wholesale prices that are 7-14% lower.
- Authorized generics have a substantial effect on the revenues of competiting generic firms. For instance, an authorized generic reduces the first filer's revenues by 40-52% during the 180-day exclusivity period and by 53-62% over the following 30 months.
- Lower expected profits could affect a generic company's decision to challenge patents on products with low sales. However, the reduced revenues resulting from authorized generic competition during the 180-day exclusivity period have not substantially reduced the number of challenges to branded drug patents by generic firms.
- There is strong evidence that agreements not to compete using authorized generics have become a way that some branded firms compensate generic firms. For example, in FY 2010, fifteen drug patent settlements combined an explicit agreement by the brand manufacturer not to launch an authorized generic competitor and a commitment by the first-filing generic to defer entry.
The report is 270 pages long, it contains dozens of tables and figures, and it includes a great deal of data about specific pharmaceutical companies.
The report concludes:
During the 180-day exclusivity period, competition from authorized generics lowers prices for consumers and lowers revenues for the independent generic competitor. Over the longer term, lower expected profits could affect a generic company's decision to challenge a patent on products with low sales, and one company provided a few examples where it claimed the expectation of an authorized generic led it to reject or delay such a challenge. Overall, however, patent challenges, even on drugs with low sales, remain robust and, by most measures, have increased despite the prevalence of authorized generic competition. Moreover, as a consequence of an authorized generic's significant negative impact on a generic's revenues, some brand-name companies have used agreements not to launch an authorized generic as a way to compensate an independent generic in exchange for the generic's agreement to delay its entry. The frequency of this practice and its profitability may make it an attractive way to structure a pay-for-delay settlement, a practice that causes substantial consumer harm.