Drugmakers’ latest gambit explained: Designed to extend market exclusivity and stifle or delay competition, authorized generics can be more profitable than brand.
In 1984, the Hatch-Waxman Act established the modern generic drug business by establishing rules for safety and competition, including granting six months of market exclusivity to the first generic rival to each brand. Big Pharma found a way to circumvent that.
Their latest (and most important) parlor trick: Authorized Generics.
Designed to stifle competition and circumvent rebate deals with Pharmacy Benefit Managers, authorized generics are one of the most profitable market sectors for drug makers, returning $50 for every $1 invested. (This according to a report by Cutting Edge Information.)
It’s not as if they don’t want us to know this. We are not their audience.
Speaking to wall street analysts in March, Dominique Monnet, CEO of PDL BioPharma Inc. (NASDAQ: PDLI) noted that the release of an “authorized” generic version of its high-blood pressure medication, Tekturna, “was timed to secure us the benefit of being first to market…” and that the plan is “to maximize profit at this point.”
WHAT IS AN AUTHORIZED GENERIC?
For years, drug makers struck deals in order to keep generic competitors off the market, paying exorbitant sums in “reverse payments” to retain market exclusivity. A 2013 Supreme Court decision ended all that, ruling that those same deals could be challenged in court under anti-trust laws.
Authorized generics are Big Pharma’s workaround.
Pfizer very generously offers a definition on its website: “Authorized generics are manufactured by the innovator company and are the same as the brand name drug in all aspects, with the exception of not using the brand name on the label.”
Often sold by a subsidiary company, authorized generics offer a number of competitive advantages for drug makers (again according to Cutting Edge Information, data provider of choice to 22 of the top 25 pharmaceutical companies).
Can be first to market with an “authorized” copy during the life of its patent.
Shares FDA approval with the original brand-name drug.
Offers the appearance of increasing competition. (see: EPIPEN, below)
Allows the original drug maker to circumvent established deals with PBMs and payers.
What’s not to love if your goal is to “maximize profit” and extend the life of your patent? It’s called “life cycle management (LCM),” and it deals a direct blow to payers, confusing both patients and physicians, all in the name of profiteering.
DRUG LCM AND YOUR PHARMACY BENEFITS
Authorized Generics have the added benefit of allowing drug makers to say that they are doing something about the high cost of prescription drugs. Critics, however, note that the effect is just the opposite:
According to a superb article from Jay Hancock and Sydney Lupkin, writing for Kaiser Health News, “There are now nearly 1,200 authorized generics approved in the U.S…. While these might look like products that would push prices down, authorized generics can be as profitable as, if not more profitable than, brand-name drugs.”
Take the case of Mylan’s EpiPen – the company introduced a generic version in response to public outrage (and congressional pressure) after the company raised the price for its branded version 400%. The catch? At $300 the Authorized Generic is still much more expensive than it was when Mylan purchased the rights to produce EpiPen.
Most importantly for self-funded payers, authorized generics usually aren’t subject to rebates that flow from the drug maker to middlemen.
KEEPING OUR EYE ON THE BALL
According to Kaiser News: “Authorized generics don’t just steal sales from existing generic rivals. Critics say they erode incentives to make generic drugs… and make sure that generics can’t get much of a foothold when they do get to market.”
TekTurna’s “authorized” copycat hit the market in March, stealing momentum from its new rival and protecting sales even after Tekturna’s patent ran out.
More recently, drug maker Eli Lilly promised a “generic” version of its Humalog insulin, ostensibly to address out-of-pocket costs for patients. The list price for the authorized generic of Humalog insulin is half the brand price, a tidy discount for the uninsured, no doubt.
Kaiser again: “But the move won’t cost Lilly any money, said another senior pharmacy benefits executive who asked for anonymity to speak candidly about a vendor. After rebates, $137 is about what the drug giant nets for Humalog now, the executive said. And it’s still far higher than what insulin costs in other countries.”
The only way to stay ahead of Big Pharma on this is to become better, more informed consumers, and that means giving plan members the tools to make decisions that save them money, while at the same time saving money for the plan overall.
That’s where Scripta can help.
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