The Federal Trade Commission (FTC) is considering conducting a study to analyze the use and likely short- and long-run competitive effects of authorized generic drugs in the prescription drug marketplace. An authorized generic is chemically identical to a particular brand-name drug, but the brand-name manufacturer authorizes it to be marketed in a generic version.

In the United States, the Food and Drug Administration (FDA) must approve the marketing of any pharmaceutical drug, whether brand-name or generic. The Hatch-Waxman Act establishes the regulatory framework under which the FDA may approve a generic drug to be marketed. Typically, a brand-name drug obtains FDA approval through a New Drug Application (NDA), and a generic drug manufacturer obtains FDA approval through an Abbreviated New Drug Application (ANDA) in which it may be allowed to rely on the clinical data first submitted by the brand-name drug manufacturer.

To encourage generic entry as soon as is warranted, the Hatch-Waxman Act allows generic drug manufacturers, in certain circumstances, to market a generic drug prior to the expiration of claimed patent protection for the corresponding brand-name drug. To be permitted to do so, a generic drug manufacturer must first submit a paragraph IV ANDA in which it certifies that (a) its generic drug will not infringe patents listed in the FDA’s Orange Book, as claiming the relevant brand-name drug product, and/or (b) the relevant Orange Book patents are invalid.

If the paragraph IV ANDA leads to litigation, then 30 months after the litigation was filed (or after final decision in the litigation, if earlier), the FDA may authorize the marketing of the generic drug under the ANDA application. At that point, the first-filed paragraph IV ANDA applicant becomes entitled to a 180-day marketing exclusivity period, during which the FDA cannot approve any other, later-filed paragraph IV ANDA for a generic drug corresponding to the same brand-name drug product. This protects the first FDA-approved paragraph IV ANDA applicant from competition with other generic ANDA applicants during this time.

The 180-day marketing exclusivity period does not preclude competition from NDA-approved “authorized generics,” however. An authorized generic is chemically identical to a particular brand-name drug, which the brand-name manufacturer authorizes to be marketed in a generic version under the NDA-approval that the FDA granted for the brand-name drug. The brand-name manufacturer either sells the authorized generic itself through a subsidiary or licenses a generic firm to sell the authorized generic.

In recent years and with increasing frequency, brand-name drug manufacturers have begun to market authorized generic drugs at precisely the same time that a paragraph IV generic is beginning its period of 180-day marketing exclusivity. In the short run, the entry of an authorized generic drug may benefit consumers by creating additional competition that lowers generic prices further than if only the paragraph IV generic were marketed. Many generic manufacturers assert, however, that in the long run, consumers will be harmed because an expectation of competition from authorized generics will significantly decrease the incentives of generic manufacturers to pursue entry prior to patent expiration.

The FTC now proposes to undertake a study to examine both the likely short-term competitive effects of authorized generic drug entry and, to the extent possible, the likely long-term impact of entry by authorized generic drugs on competition by generic manufacturers.

Comments on the FTC’s “Authorized Generic Drug Study” will be accepted until June 5, 2006.

See additional information in the Federal Register Notice.

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