Authorized Generic Pharmaceuticals: Effects on Innovation

Prepared for Members and Committees of Congress

The practice of “authorized generics” has recently been the subject of considerable attention by
the pharmaceutical industry, regulators, and members of Congress alike. An “authorized generic”
(sometimes termed a “branded,” “flanking,” or “pseudo” generic) is a pharmaceutical that is
marketed by or on behalf of a brand-name drug company, but is sold under a generic name.
Although the availability of an additional competitor in the generic drug market would appear to
be favorable to consumers, authorized generics have nonetheless proven controversial. Some
observers believe that authorized generics potentially discourage independent generic firms both
from challenging drug patents and from selling their own products.
These perceived disincentives result from the provisions of the Drug Price Competition and
Patent Term Restoration Act of 1984. Better known as the Hatch-Waxman Act, this legislation
provides independent generic firms with a reward for challenging patents held by brand-name
firms. That “bounty” consists of a 180-day generic drug exclusivity period awarded to the first
patent challenger. During the 180-day period, the brand-name company and the first generic
applicant are the only firms that receive authorization to sell that pharmaceutical. At the close of
this period, other independent generic competitors may obtain marketing approval and enter the
market, ordinarily resulting in lower prices for generic medicines.
Some commentators view the 180-day exclusivity period as a crucial incentive for generic firms
to challenge patents held by brand-name firms. Under this view, the launch of an authorized
generic during the 180-day exclusivity period makes the recovery of litigation expenses more
difficult. In turn, the possibility that a brand-name firm will sell an authorized generic during the
180-day exclusivity period may decrease the incentives of generic firms to challenge patents in
the first instance.
Other observers believe that authorized generics benefit consumers by increasing competition in
the generic market. Because the authorized generic is manufactured by the brand-name firm and
identical to its own product, consumers may be encouraged to switch to the lower-cost authorized
generic alternative. Authorized generics may also facilitate the settlement of patent litigation
between brand-name and independent generic firms. As an historical matter, certain of these
settlement agreements have allowed authorized generics to enter the market, and therefore
promoted competition, prior to the expiration of the relevant patent term.
Recent judicial opinions have upheld FDA practices allowing authorized generics. As a result of
congressional interest, however, the Federal Trade Commission has agreed to release a report
directed towards this issue. Although Congress may wish to take no action if the current
allowance of authorized generics is deemed appropriate, other possibilities include subjecting
them to the 180-day generic exclusivity period enjoyed by an independent generic firm, or simply
disallowing them altogether.
This report will be updated as needed.

Marketing Approval and Patent Issues for Generic Drugs..............................................................1
FDA Approval Procedures........................................................................................................2
Resolution of Patent Disputes...................................................................................................3
Generic Marketing Exclusivity.................................................................................................5
The Concept of Authorized Generics..............................................................................................6
Authorized Generics Practice....................................................................................................6
Authorized Generics within the Hatch-Waxman Framework...................................................7
Legality of Authorized Generics.............................................................................................10
The FTC Report......................................................................................................................12
Issues in Innovation, Competition and Public Health...................................................................13
Authorized Generics and Consumer Welfare..........................................................................13
Authorized Generics and Patent Challenges...........................................................................15
Concluding Observations..............................................................................................................17
Author Contact Information..........................................................................................................18

ising health care costs have for many years focused congressional attention upon the
development and availability of prescription drugs. Recently, the presence of “authorized
generic” pharmaceuticals in the drug marketplace has been the subject of congressional 1R

concern. An “authorized generic” is a pharmaceutical that is marketed by or on behalf of a
brand-named drug company, but is sold under a generic name. The brand-name firm may
distribute the drug under its own auspices or via a license to a generic drug company. The price of 2
this “authorized copy” is ordinarily lower than that of the brand-name drug. Some sources refer 3
to authorized generics as “branded,”“flanking,” or “pseudo” generics.”
Authorized generics may be pro-consumer in that they potentially increase competition and lower
prices, particularly in the short-term. They have nonetheless proven controversial. Authorized
generics ordinarily enter the market at about the time the brand-name drug company’s patents are 4
set to expire. Some observers argue that such products may possibly discourage independent 5
generic firms both from challenging drug patents and from selling their own generic products.
The potential diminution in independent generic incentives may in turn lead to less desire on the
part of brand-name firms to market authorized generics themselves.
This report presents an analysis of the innovation and public health issues relating to authorized
generic drugs. The report begins with a review of the procedures through which independent
generic drug companies receive government permission to market their products and resolve
patent disputes with brand-name firms. It then provides detailed background information
pertaining to the concept of authorized generics and assesses their potential impact upon patent
challenges and consumer welfare. The report closes with a summary of congressional issues and
possible alternatives.

The practice of authorized generics has arisen within a complex statutory framework established 6
by the Drug Price Competition and Patent Term Restoration Act of 1984, legislation more 7
commonly known as the Hatch-Waxman Act. Under parameters established by that statute, a
manufacturer that wishes to sell a generic drug must both obtain marketing approval from the
Food and Drug Administration (FDA) and account for any patent rights that pertain to that

1 See Thomas Chen, “Authorized Generics: A Prescription for Hatch-Waxman Reform,” 93 Virginia Law Review
(2007), 459; Saami Zain, “Sword or Shield? An Overview and Competitive Analysis of the Marketing ofAuthorized
Generics, 62 Food & Drug Law Journal (2007), 739.
2 See Leila Abboud, “Authorized Generics Duel Grows, Wall Street Journal (March 25, 2004); Leila Abboud, “Drug
Makers Use New Tactic to Ding Generic-Drug Firms,Wall Street Journal (January 27, 2004).
3 SeeBlockbuster Drugs with Expiring Patents Gain New Hope: Generic Drugs, Drug Week 352 (April 15, 2005).
4 Stephen Barlas, “Authorized Generics May Pose Unauthorized Problems: Government Worries About Potential
Brand-Name Blocking Technique,” 30 Pharmacy and Therapeutics no.8 (2005), 435.
5 See Michelle L. Kirsche, “Despite Challenges, Generics Dispensing is on the Rise, 27 Drug Store News no. 4 at 20
(March 21, 2005).
6 P.L. 84-417, 98 Stat. 1585 (1984).
7 See, e.g., Laura J. Robinson, “Analysis of Recent Proposals to Reconfigure Hatch-Waxman,” 11 Journal of
Intellectual Property Law (2003), 47.

product. This report first addresses FDA marketing approval procedures for generic drugs, and
then turns to possible patent implications.
The FDA regulates the marketing of pharmaceuticals in the interest of public health.8 Under this
regime, the developer of a new drug must demonstrate that the product is safe and effective
before it can be distributed to the public. This showing typically requires the drug’s sponsor to 9
conduct both preclinical and clinical investigations. In deciding whether to issue marketing
approval or not, the FDA evaluates the test data that the sponsor submits in a so-called New Drug
Application (NDA).
Prior to the enactment of the Hatch-Waxman Act, the federal food and drug law contained no
separate provisions addressing marketing approval for independent generic versions of drugs that 10
had previously been approved by the FDA. The result was that a would-be independent generic 11
drug manufacturer had to file its own NDA in order to sell its product. Some independent
generic manufacturers could rely on published scientific literature demonstrating the safety and
efficacy of the drug by submitting a so-called paper NDA. Because these sorts of studies were not 12
available for all drugs, however, not all independent generic firms could file a paper NDA.
Further, at times the FDA requested additional studies to address safety and efficacy questions 13
that arose from experience with the drug following its initial approval. The result was that some
independent generic manufacturers were forced to prove once more that a particular drug was
safe and effective, even though their products were chemically identical to those of previously
approved pharmaceuticals.
Some commentators believed that the approval of an independent generic drug was a needlessly 14
costly, duplicative, and time-consuming process. These observers noted that although patents on
important drugs had expired, manufacturers were not moving to introduce independent generic
equivalents for these products due to the level of resource expenditure required to obtain FDA 15
marketing approval.

8 CRS Report RL30989, The U.S. Drug Approval Process: A Primer, by Blanchard Randall IV.
9 See G. Lee Skillington and Eric M. Solovy, “The Protection of Test and Other Data Required by Article 39.3 of the
TRIPS Agreement,” 24 Northwestern Journal of International Law and Business (2003), 1.
10 See Alfred B. Engelberg, “Special Patent Provisions for Pharmaceuticals: Have They Outlived Their Usefulness?,”
39 IDEA: Journal of Law and Technology (1999), 389.
11 See James J. Wheaton, “Generic Competition and Pharmaceutical Innovation: The Drug Price Competition and
Patent Term Restoration Act of 1984,” 34 Catholic University Law Review (1986), 433.
12 See Kristin E. Behrendt,The Hatch-Waxman Act: Balancing Competing Interest or Survival of the Fittest?, 57
Food and Drug Law Journal (2002), 247.
13 Id.
14 See, e.g., Justina A. Molzon, “The Generic Drug Approval Process,” 5 Journal of Pharmacy and Law (1996), 275
(“The Act streamlined the approval process by eliminating the need for [generic drug] sponsors to repeat duplicative,
unnecessary, expensive and ethically questionable clinical and animal research to demonstrate the safety and efficacy
of the drug product.”).
15 See Jonathan M. Lave, “Responding to Patent Litigation Settlements: Does the FTC Have It Right Yet?,” 64
University of Pittsburgh Law Review (2002), 201 (“Hatch-Waxman has also increased the generic drug share of
prescription drug volume by almost 130% since its enactment in 1984. Indeed, nearly 100% of the top selling drugs
with expired patents have generic versions available today versus only 35% in 1983.”).

In response to these concerns, Congress enacted the Hatch-Waxman Act, a statute that has been
described as a “complex and multifaceted compromise between innovative and generic 16
pharmaceutical companies.” Its provisions included the creation of two statutory pathways that
expedited the marketing approval process for independent generic drugs. The first of these consist
of Abbreviated New Drug Applications, or ANDAs. An ANDA allows an independent generic
applicant to obtain marketing approval by demonstrating that the proposed product is
bioequivalent to an approved pioneer drug, without providing evidence of safety and
effectiveness from clinical data or from the scientific literature. The second are so-called §

505(b)(2) applications, which are sometimes still referred to as “paper NDAs.” Like an NDA, a §

505(b)(2) application contains a full report of investigations of safety and effectiveness of the
proposed product. In contrast to an NDA, however, a § 505(b)(2) application typically relies at
least in part upon published literature providing pre-clinical or clinical data.
The availability of ANDAs and § 505(b)(2) applications often allow an independent generic
manufacturer to avoid the costs and delays associated with filing a full-fledged NDA. They may
also allow an independent generic manufacturer, in many cases, to place its FDA-approved 17
bioequivalent drug on the market as soon as any relevant patents expire.
As part of the balance struck between brand-name and independent generic firms, Congress also
provided patent proprietors with a means for restoring a portion of the patent term that had been
lost while awaiting FDA approval. The maximum extension period is capped at a five-year 18
extension period, or a total effective patent term after the extension of not more than 14 years.
The scope of rights during the period of extension is generally limited to the use approved for the 19
product that subjected it to regulatory delay. This period of patent term extension is intended to
compensate brand-name firms for the generic drug industry’s reliance upon the proprietary pre-20
clinical and clinical data they have generated, most often at considerable expense to themselves.
In addition to being the holder of an FDA-approved NDA, the brand-name pharmaceutical firm 21
may own one or more patents directed towards that drug product. The product described by an

16 Natalie M. Derzko, “A Local and Comparative Analysis of the Experimental Use ExceptionIs Harmonization
Appropriate?, 44 IDEA: Journal of Law and Technology (2003), 1.
17 See, e.g., Sarah E. Eurek, “Hatch-Waxman Reform and Accelerated Entry of Generic Drugs: Is Faster Necessarily
Better?,” 2003 Duke Law and Technology Review (August 13, 2003), 18.
18 35 U.S.C. § 156(b) (2004).
19 35 U.S.C. § 156(b)(1) (2004).
20 CRS Report RL30756, Patent Law and Its Application to the Pharmaceutical Industry: An Examination of the Drug
Price Competition and Patent Term Restoration Act of 1984 (“The Hatch-Waxman Act”), by Wendy H. Schacht and
John R. Thomas. CRS Report RL32377, The Hatch-Waxman Act: Legislative Changes Affecting Pharmaceutical
Patents, by Wendy H. Schacht and John R. Thomas.
21 Patents, which are administered by the United States Patent and Trademark Office (USPTO), provide their owner
with the ability to exclude others from making, using, selling, offering to sell or importing into the United States the
patented invention. 35 U.S.C. § 271(a) (2004). The term of the patent is ordinarily set at twenty years from the date the
patent application was filed, 35 U.S.C. § 154 (2004), although pharmaceutical patents may be extended in order to
compensate for a portion of the patent term that was lost during FDA marketing approval procedures. 35 U.S.C. § 156
(2004). Patent proprietors are permitted to file a civil suit in federal court in order to enjoin infringers and obtain
monetary damages. 35 U.S.C. § 281 (2004). Although issued patents enjoy a presumption of validity, accused
infringers may assert that the patent is invalid or unenforceable on a number of grounds. 35 U.S.C. § 282 (2004).

independent generic firm’s ANDA or § 505(b)(2) application may possibly infringe those patents
should that product be approved by the FDA and sold in the marketplace. The Hatch-Waxman Act
therefore establishes special procedures for resolving patent disputes in connection with
applications for marketing generic drugs.
In particular, the Hatch-Waxman Act requires each holder of an approved NDA to identify patents
it believes would be infringed if a generic drug were marketed before the expiration of these 22
patents. The FDA then lists these patents in a publication titled Approved Drug Products with 23
Therapeutic Equivalence Evaluations, which is more commonly known as the “Orange Book.”
Would-be manufacturers of independent generic drugs must then engage in a specialized
certification procedure with respect to Orange Book-listed patents. An ANDA or § 505(b)(2)
applicant must state its views with respect to each Orange Book-listed patent associated with the
drug it seeks to market. Four possibilities exist:
(1) that the brand-name firm has not filed any patent information with respect to that drug;
(2) that the patent has already expired;
(3) that the generic company agrees not to market until the date on which the patent will
expire; or
(4) that the patent is invalid or will not be infringed by the manufacture, use or sale of the 24
drug for which the ANDA is submitted.
These certifications are respectively termed paragraph I, II, III, and IV certifications.25 An ANDA
or § 505(b)(2) application certified under paragraphs I or II is approved immediately after 26
meeting all applicable regulatory and scientific requirements. An independent generic firm that
files an ANDA or § 505(b)(2) application including a paragraph III certification must, even after
meeting pertinent regulatory and scientific requirements, wait for approval until the drug’s listed 27
patent expires.
The filing of an ANDA or § 505(b)(2) application with a paragraph IV certification constitutes a 28
“somewhat artificial” act of patent infringement under the Hatch-Waxman Act. The act requires
the independent generic applicant to notify the proprietor of the patents that are the subject of a 29
paragraph IV certification. The patent owner may then commence patent infringement litigation
against that applicant.
If the NDA holder demonstrates that the independent generic firm’s proposed product would
violate its patents, then the court will ordinarily issue an injunction that prevents the generic drug

22 21 U.S.C. § 355(c)(2) (2004).
23 See, e.g., Jacob S. Wharton, “Orange Book Listing of Patents Under the Hatch-Waxman Act,” 47 St. Louis
University Law Journal (2003), 1027.
24 21 U.S.C. § 355(j)(2)(A)(vii) (2004).
25 See Douglas A. Robinson, “Recent Administrative Reforms of the Hatch-Waxman Act: Lower Prices Now In
Exchange for Less Pharmaceutical Innovation Later?, 81 Washington University Law Quarterly (2003), 829.
26 21 U.S.C. § 355(j)(5)(B)(i) (2004).
27 21 U.S.C. § 355(j)(5)(B)(ii) (2004).
28 Eli Lilly and Co. v. Medtronic, Inc., 496 U.S. 1047, 15 USPQ2d 1121 (1990).
29 21 U.S.C. § 355(j)(2)(B)(i) (2004).

company from marketing that product. That injunction will expire on the same date as the NDA
holder’s patents. Independent generic drug companies commonly amend their ANDAs or §

505(b)(2) applications in this event, replacing their paragraph IV certifications with paragraph III 30

On the other hand, the courts may decide in favor of the independent generic firm. The court may
conclude that the generic firm’s proposed product does not infringe the asserted patents, or that 31
the asserted patents are invalid or unenforceable. In this circumstance, the independent generic
firm may launch its product once the FDA has approved its ANDA or § 505(b)(2) application. In
addition, the independent generic firm may benefit from a 180-day period of marketing
exclusivity, a concept this report describes next.
The Hatch-Waxman Act provides prospective manufacturers of independent generic
pharmaceuticals with a reward for challenging the patent associated with an approved
pharmaceutical. The reward consists of a 180-day generic drug exclusivity period awarded to the
first ANDA applicant to file a paragraph IV certification. During this 180-day period, the FDA
may not approve another ANDA containing a paragraph IV certification with respect to the same 32
drug. Notably, the 180-day generic drug exclusivity applies only to ANDA applicants, and not to 33
those filing § 505(b)(2) applications.
Commentators have long referred to this provision as creating “generic exclusivity” or “180-day 34
exclusivity.” As originally enacted, the Hatch-Waxman Act allowed the brand-name firm and
the first independent generic applicant to share the market for the first 180 days of generic
competition. At the close of this period, other independent generic competitors could receive FDA
marketing approval. Because market prices often drop considerably following the entry of
additional generic competition, the first independent generic applicant could potentially obtain 35
more handsome profits than subsequent market entrants.

30 21 C.F.R. § 314.94(a)(12)(viii)(C)(1)(i) (2006).
31 Although patents enjoy a presumption of validity, 35 U.S.C. § 282 (2004), that presumption is not uncontestable.
Accused infringers may demonstrate that the patent does not meet the standards established by the Patent Act, and as a
result should not have been issued by the U.S. Patent and Trademark Office. Id. In addition, an accused infringer may
demonstrate that the patent is unenforceable on a number of grounds, among that its owner has engaged in “misuse of
the patent. Id.
32 21 U.S.C. §355(j)(5)(B)(iv) (2004).
33 U.S. Dept. of Health and Human Services., Food and Drug Admin., Center for Drug Evaluation and Research,
Guidance of Industry, Listed Drugs, 30-Month Stays, and Approval of ANDAs and 505(b)(2) Applications Under
Hatch-Waxman, As Modified by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, at 5
n.14 (October 2004).
34 See, e.g., Valerie Junod, “Drug Marketing Exclusivity Under United States and European Union Law,” 59 Food and
Drug Law Journal (2004), 479; Gerry J. Elman, “FDA Approval of Generic Drugs: Instituting a First Successful
Defense Requirement for Generic Exclusivity,” 22 Biotechnology Law Reporter 97 (April 2003); Frederick Tong,
“Widening the Bottleneck of Pharmaceutical Patent Exclusivity, 24 Whittier Law Review (2003), 775.
35 See Michael Bobelian,1984 Act Led to a Boom in Prescription Drug Litigation,” 231 New York Law Journal 1, col.
3 (May 24, 2004).

Congressional enactment of the Medicare Modernization and Improvement Act of 200336
clarified that more than one patent challenger can enjoy “generic exclusivity,” provided that
certain conditions are met. Following the 2003 statute, all “first applicants” are potentially 37
entitled to the 180-day generic exclusivity. The statute defines the term “first applicant” to mean
all applicants who, on the first day on which a substantially complete generic application with
paragraph IV certification is filed, did themselves file a substantially complete generic application 38
with a paragraph IV certification. The statute therefore makes clear that multiple first
applicants—that is to say, more than one generic that filed a paragraph IV generic application on
the same day—may each enjoy “shared exclusivity.”
The 180-day generic exclusivity period is intended to ameliorate collective action problems that 39
may arise with regard to pharmaceutical patent challenges. Stated less technically, an
independent generic firm that challenges a patent must bear the expensive, up-front cost of
litigation. If the independent generic firm is successful, however, the challenged patent is
declared invalid with regard to the entire pharmaceutical industry. Any firm—not just the one
who challenged the patent—could then introduce a competing product to the marketplace.
Understandably, this forced sharing may undermine the incentives any one independent generic
firm would possess to challenge a brand-name firm’s patent. The award of 180 days of generic
exclusivity is therefore intended to allow a successful patent challenger to capture an individual 40
benefit for its effort, in turn encouraging such challenges in the first instance.

As noted previously, an “authorized generic” is a pharmaceutical that is marketed by or on behalf 41
of a brand-name drug company, but is sold under a generic name. Authorized generics are thus
similar to “private label” products, which are manufactured by one firm but sold under the brand
of another. Although private label products are commonplace in food, cosmetic, and other 42
markets, they have only recently attracted attention in the pharmaceutical industry.
Current interest in authorized generics is largely due to a shift in corporate strategies that has been
traced to the early 1990’s. Until that time, many entrants in the pharmaceutical industry engaged
exclusively either in selling brand-name, innovative drugs, or in selling generic drugs. Several
other brand-name firms began to market authorized generics shortly before patents on their
products were due to expire. Among such products were Nolvadex® (tamoxifen), authorized by

36 P.L. 108-173, 117 Stat. 2066 (2003).
37 21 U.S.C. §355(j)(5)(B)(iv)(I) (2004).
38 21 U.S.C. §355(j)(5)(B)(iv)(II)(bb) (2004).
39 Mova Pharm. Corp. v. Shalala, 140 F.3d 1060, 1064 (D.C. Cir. 1998).
40 See generally Joseph Scott Miller, “Building a Better Bounty: Litigation-Stage Rewards for Defeating Patents,” 19
Berkeley Technology Law Journal (2004), 667.
41 See Leila Abboud, “Authorized Generics Duel Grows, Wall Street Journal (March 25, 2004); Leila Abboud,
“Drug Makers Use New Tactic to Ding Generic-Drug Firms,Wall Street Journal (January 27, 2004).
42 See John Schmeltzer, “Upscale Generics Make Gains: ‘Private Label’ Items Battling Brand Names,” Montgomery
County Herald (May 19, 2006).

the Stewart Pharmaceutical Division of ICI Americas (now AstraZeneca) and sold by Barr
Laboratories; Dyazide® (triamterene/hydrochlorothiazide), marketed by SmithKline Beecham
Pharmaceuticals (now GlaxoSmithKline); and Ventolin® (albuterol), authorized by 43
GlaxoSmithKline and sold by Dey LP.
Many brand-name firms did not continue to sell authorized generics at that time, however, 44
reportedly due to a lack of profitability. One reason for the “resurgence” of authorized generics
in the early 2000’s is that physicians, pharmacists and patients more rapidly switch to generic 45
drugs upon their introduction to the marketplace than a decade ago. Because the rate of generic
adoption is much greater now, brand-name firms reportedly are more willing to “genericize” their 46
own brands in order to capture a share of that market. The expanding generic adoption rate has 47
also reportedly led to an industry trend where brand-name houses acquire generic firms. This
development too may encourage authorized generics practice in the future.
In line with current trends, a number of successful paragraph IV ANDA applicants have faced
competition from authorized generics during the 180-day generic exclusivity period. These 48
independent generic firms include Barr, for the product Allegra® (fexofenadine); Eon, for the 4950
product Wellbutrin SR® (bupropion SR); and Teva, for the product Glucophage®. Some
industry analysts believe that authorized generics will form an increasingly prominent feature of 51
the U.S. pharmaceutical market in the future. Other commentators believe that this time has
already arrived: According to one account, since 2004 “authorized generic versions have 52
appeared for nearly all drugs with expiring U.S. patents.”
Authorized generics practice has proven controversial due to the Hatch-Waxman Act’s
architecture and incentive structures. Some commentators have voiced concerns that the
introduction of authorized generics, particularly during the 180-day market exclusivity granted to
the independent generic firm that brought a paragraph IV challenge, thwarts the policy goal of 53
encouraging the introduction of generic pharmaceuticals. In particular, critics argue that the use
of authorized generics may discourage firms from filing paragraph IV patent challenges if their

43As brand-generic alliances grow, opponents cry foul,” Drug Store News (August 23, 2004).
44 Sanda Levy,Why authorized generics are making a comeback, Drug Topics: The Online Newspaper for
Pharmacists, available at
45 Id.
46 Id.
47 See Andrew Humphries and Nick D’Amore,Generic Deluge: As U.S. Regulators Receive a Record Number of
Generic Drug Applications, Pharmaceutical Companies Continue to Align With or Combat Generic Competition,24
Med Ad News no. 11 (November 1, 2005), 1.
48 See Beth Understahl, “Authorized Generics: Careful Balance Undone,” 16 Fordham Intellectual Property, Media,
and Entertainment Law Journal (Autumn 2005), 355.
49 Id.
50 See Tara Croft, “Building Teva,” Daily Deal (October 25, 2004).
51 See James Richie, “Prascos market share Rx: authorized generic drugs: Firm helps pharmaceutical companies retain
profits,” Cincinnati Business Courier (February 6, 2006).
52 Tony Pugh, “Drug companies battle generics with their own copies,” Duluth News-Tribune (April 30, 2006).
53 See Understahl, supra footnote 48.

litigation expenses cannot be recouped through the 180-day market exclusivity period.54 As
antitrust attorney David A. Balto explains:
The bounty from challenging a patent is very important. Pharmaceutical patent litigation is a
multimillion-dollar proposition. But for the potential reward of six-month exclusivity that
represents the vast majority of potential profits from generic entry, many firms might forgo 55
challenging patents.
For example, the FDA ruled that the generic manufacturer Apotex was entitled to 180-day
exclusivity for its version of the anti-depressant drug Paxil® in 2003. The brand-name drug
company, GlaxoSmithKline, introduced an authorized generic version of Paxil®. Although
Apotex anticipated sales of up to $575 million during the 180-day generic exclusivity period, its 56
sales were reported to be between $150 million and $200 million. In a 2004 filing with the
FDA, attorneys for Apotex asserted “that the authorized generic crippled Apotex’s 180-day
exclusivity—it reduced Apotex’s entitlement to about two-thirds—to the tune of approximately 57
$400 million.”
In addition, brand-name firms commonly introduce authorized generics on the eve of generic
competition. Without an independent generic patent challenger in the first instance, brand-name
firms may themselves make diminished, or delayed, use of the authorized generic strategy. As a
result, the pro-competitive benefits of authorized generics may be postponed, or not realized at
all, should independent generic rivals become less willing to challenge patents held by brand-58
name firms.
On the other hand, authorized generics potentially offer several benefits both to drug companies
and to consumers. Authorized generics are commonly less expensive than the brand-name drug.
The introduction of an authorized generic therefore allows a lower-cost product to be made 59
available to the consumer. As the FDA opined in a statement issued in July 2004:
Marketing of authorized generics increases competition, promoting lower prices for
pharmaceuticals, particularly during the 180-day exclusivity period in which the prices for
generic drugs are often substantially higher than after other generic products are able to enter 60
the market.

54 Tony Pugh, “Loophole may dampen generic-drug boom,” San Jose Mercury News (May 3, 2006), A1.
55 David A. Balto, “Well Sell Generics Too: Innovator drug makers are gaming the regulatory system and harming
competition,” 39 Legal Times no. 12 (March 20, 2006).
56 See Jenna Greene,The Drug Industry Has Figured Out a Way to Best Generic Competition, and Pharmaceutical
Patent Litigation Could Free-Fall, 183 New Jersey Law Journal (January 23, 2006), 217.
57 See Pugh, supra footnote 54.
58 See Narinder Banait, “Authorized Generics: Antitrust Issues and the Hatch-Waxman Act,” Mondaq (November 4,
59 Morton I. Kamien and Israel Zang,Virtual Patent Extension by Cannibalization,” Southern Economic Journal, July
60 U.S. Food and Drug Administration, FDA Supports Broader Access to Lower Priced Drugs, FDA Talk Paper, July 2,
2004. A study prepared by IMS Consulting for the Pharmaceutical Research and Manufacturers of America reached a
similar conclusion, determining that the average price discount to brand-name drugs during the 180-day exclusivity
period is greater when an authorized generic has been marketed than when one has not. IMS Consulting, Assessment of
Authorized Generics in the U.S. (Spring 2006), available at
IMS%20Authorized%20Generics% 20Report_6-22-06.pdf.

In addition, once a generic version of a drug becomes available following patent expiration,
brand-name firms may lose considerable market share. Indeed, many health management
organizations and insurance companies reportedly promote the use of generic substitutes for 61
brand-name medications once they become available. Absent participation in the generic
market, brand-name firms may not be able to take advantage of investments they previously made
with respect to their manufacturing facilities. Authorized generics therefore allow brand-name
firms to continue to employ their manufacturing facilities at or near peak capacity even following 62
patent expiration.
Authorized generics may also support the research and development efforts of brand-name firms
by providing them with additional revenue. Authorized generics may supply the brand-name firm
with an additional income source, such as a royalty on sales made by its generic subsidiary or 63
contracting partner. These funds, or some portion of them, can potentially be employed in
support of pharmaceutical innovation.
Authorized generics may also facilitate settlement of patent infringement suits between brand-
name and independent generic firms. A judicial holding of patent invalidity may have a severe
impact upon a brand-name firm in terms of its lost revenue. Many observers also believe that 64
patent litigation is an uncertain venture. By settling patent litigation, and allowing an ANDA
applicant to produce an authorized generic, brand-name firms may potentially better manage risk.
Such a technique provides a more stable revenue stream, both in support of the brand-name firm’s
research and development activities and for its investors. The generic company making an
authorized generic can also benefit by not having to expend funds on litigation with an uncertain
outcome or pursue an ANDA at the FDA, while expanding its product line, acquiring 65
manufacturing experience, and gaining the first-mover advantage in the generic market.
The use of authorized generics as a litigation settlement mechanism also impacts consumers, but
in a manner that is both less certain and likely varies on a case-by-case basis. On one hand,
particular settlement agreements may provide for the sale of authorized generics years before the
disputed patent is set to expire. As a result, consumers may gain early access to a lower-cost
alternative to the brand-name drug. On the other hand, had the generic firm refused to settle and
ultimately prevailed in the litigation, then the market would have been open to full competition
even earlier. The impact upon competition of a litigation settlement likely depends upon a number
of complex factors, including the strength of the patent, the number of potential generic
competitors, and the precise terms of the litigation settlement agreement.

61 Kathleen Kerr,Prescription Hurdles: Need Brand-Name Drug? Generic May Come First,Newsday (March 16,
2006), B13.
62 Jon Hess and Elio Evangelista, Authorized Generics: Lifecycle Management’s Compromise in the Patent Wars
(Cutting Edge Information, August 23, 2005), 4.
63 Id.
64 See James Bessen and Michael J. Meurer, “Lessons for Patent Policy from Empirical Research on Patent Litigation,”
9 Lewis and Clark Law Review 1 (2005).
65 Christopher Worrell, Authorized Generics, presentation given at The 5th Generic Drugs Summit, September 27-29,
2004, and David Reiffen and Michael R. Ward, “Branded Generics” as a Strategy to Limit Cannibalization of
Pharmaceutical Markets, May 2005, 2-4 available at

The policy debate concerning authorized generics has been accompanied by legal challenges
before the FDA and the courts concerning this practice. Opponents of authorized generics have
contended that the Hatch-Waxman Act’s generic exclusivity provisions should be understood as 66
excluding authorized generics from the marketplace for the 180-day period. The FDA has taken
the opposite view, however, reasoning that the Hatch-Waxman Act does not require a brand-name
pharmaceutical company to file any sort of application in order to market the drug as an 67
authorized generic. In turn, the 180-day period of generic exclusivity provided by the Hatch-
Waxman Act only applies to ANDA or § 505(b)(2) applications with paragraph IV certifications.
As a result, the 180-day generic exclusivity period does not bar authorized generics from entering
the market.
Two notable judicial opinions have recently upheld the FDA’s position favoring authorized 68
generics. In the first of these opinions, Teva Pharmaceutical Industries, Ltd. v. Crawford, the
Court of Appeals for the D.C. Circuit found no reasonable reading of the Hatch-Waxman Act that
would allow authorized generics to be barred by the 180-day generic exclusivity period. In that
case, independent generic manufacturer Teva had previously entered into an arrangement with
Purepac Pharmaceutical Co., the first paragraph IV ANDA applicant with respect to the drug
gabapentin. Teva and Purepac had agreed to share the 180-day generic exclusivity period. During
that period, however, Pfizer sold its own authorized generic version of gabapentin, which was 69
priced substantially below the price of its brand-name drug.
Teva responded by petitioning the FDA to prohibit the marketing of authorized generic versions
of gabapentin during the 180-day generic exclusivity period. Alternatively, Teva asserted that
Pfizer should be required to file a supplemental NDA (sNDA) before selling an authorized 70
generic. According to Teva, the impact of the latter proposed ruling would lead to the same
outcome as the first: Pfizer would be compelled to respect the 180-day generic exclusivity period
established by the Hatch-Waxman Act.
The FDA denied the petition, resulting in a Teva lawsuit against the FDA. The district court
confirmed the FDA’s views, concluding that “[n]othing in the statute provides any support for the
argument that the FDA can prohibit NDA holders from entering the market with [an authorized] 71
generic drug during the exclusivity period.” Teva then appealed to the Court of Appeals for the
D.C. Circuit, which affirmed.
Chief Judge Ginsburg began his opinion by observing that the Hatch-Waxman Act did not
stipulate the manner in which the holder of an approved NDA must market its drug. Further, prior
to the enactment of the Hatch-Waxman Act, nothing in the Food, Drug, and Cosmetic Act
prevented the NDA holder from marketing an authorized generic. The D.C. Circuit thus saw the

66 See Generic Pharmaceutical Association, Comment in Support of Citizen Petition Docket No. 2004P-0075/CP1 (May
21, 2004), available at
67 See M. Howard Morse and Richard E. Coe,Authorized Generics Are Good for You: Competition from drug
pioneers shouldn’t trouble the FTC, 29 Legal Times no. 15 (April 10, 2006).
68 410 F.3d 51 (D.C. Cir. 2005).
69 Id. at 52.
70 Id. at 52-53.
71 Teva Pharm. Indus. v. FDA, 355 F.Supp.2d 111, 117 (D.D.C. 2004).

issue as whether it should “declare that a previously lawful practice became unlawful when the 72
Congress passed a statute that said nothing about that practice.”
The Court of Appeals further rejected Teva’s “functional” interpretation of the Hatch-Waxman
Act. According to Teva, the practice of authorized generics had “developed only recently as a
routine brand-name business strategy” and therefore had not been anticipated by Congress.
Further, authorized generics practice severely diminished generic incentives to challenge
pharmaceutical patents. According to Teva, then, “adhering to the ‘literal’ terms of the statute
would lead to an absurd result, namely, that [the Hatch-Waxman Act] grants only a ‘meaningless’
exclusivity against subsequent ANDA filers rather than a ‘commercially effective’ exclusivity that 73
runs against the NDA holder as well.”
The D.C. Circuit responded by reasoning that the balance between innovation and competition
struck by the Hatch-Waxman Act was “quintessentially a matter for legislative judgment,” such 74
that “the court must attend closely to the terms in which the Congress expressed that judgment.”
Here, Chief Judge Ginsburg reasoned, the statute was unambiguous. Although the Hatch-Waxman
Act barred the approval of subsequent ANDAs for 180 days, the statutory language simply did
not speak to marketing arrangements made by the holder of the approved NDA. The court of
appeals further observed that, even in the event that an NDA holder authorized a generic, the 180-
day exclusivity period continued to bar other firms from marketing a generic version of the drug.
As a result, authorized generic practice hardly rendered the Hatch-Waxman Act’s generic 75
exclusivity provisions “meaningless.” In conclusion, because the Hatch-Waxman Act “clearly
does not prohibit the holder of an approved NDA from marketing, during the 180-day exclusivity
period, its own ‘brand-generic’ version of its drug,” FDA practices concerning authorized 76
generics were affirmed.
A second judicial opinion, Mylan Pharmaceuticals, Inc. v. U.S. Food and Drug Administration,77
also concluded that the Hatch-Waxman Act “does not grant the FDA the power to prohibit the 78
marketing of authorized generics during the 180-day exclusivity period ....” That case involved
the pharmaceutical nitrofurantoin, which is used to treat urinary tract infections. When the FDA
approved a paragraph IV ANDA filed by Mylan Pharmaceuticals, Inc, to sell nitrofurantoin, NDA
holder Proctor & Gamble Pharmaceuticals, Inc., licensed a third party generic firm to sell an
authorized generic version of the drug. Mylan reportedly lost sales of “tens of millions” of dollars 79
due to this arrangement.
Mylan challenged the FDA approval of authorized generics practice before the U.S. District Court
for the Northern District of West Virginia. Mylan appealed the district court’s dismissal of its case
to the Court of Appeals for the Fourth Circuit, which affirmed. Citing the D.C. Circuit’s decision
in Teva v. Crawford with approval, the Fourth Circuit similarly concluded that the statute clearly
defined the 180-day exclusivity period only with respect to other paragraph IV ANDAs, not to

72 410 F.3d at 53.
73 Id. at 54.
74 Id.
75 Id.
76 Id. at 55.
77 454 F.3d 270 (4th Cir. 2006).
78 Id. at 271.
79 Id. at 273.

authorized generics.80 The Fourth Circuit therefore concluded that “[a]lthough the introduction of
an authorized generic may reduce the economic benefit of the 180 days of exclusivity awarded to
the first paragraph IV ANDA applicant, § 355(j)(5)(B)(iv) gives no legal basis for the FDA to 81
prohibit the encroachment of authorized generics on that exclusivity.” As a result, the district
court’s judgment was affirmed.
It is possible to criticize the statutory construction of both Teva v. Crawford and Mylan v. FDA. In
particular, neither court of appeals stressed that the Hatch-Waxman Act describes the 180-day 82
time frame as an “exclusivity period.” The term “exclusivity” might be viewed as a curious
drafting choice in view of the ruling that generic firms must potentially compete alongside
authorized generics during the 180-day period.
On the other hand, the notion of “shared exclusivity” that arose following the Medicare
Modernization Act amendments may be viewed as codifying congressional intent that multiple 83
generic applicants may enter the market during the 180-day marketing exclusivity period. In
addition, many prescription drugs are available in a number of different dosage forms and
strengths. Under current Hatch-Waxman Act practice, each strength and dosage form is
considered a separate drug product for which a distinct generic applicant can qualify for 180-day 84
exclusivity. As a result, the term “exclusivity” may be considered to have a particular meaning
in the Hatch-Waxman Act—one that does not necessarily mean that independent generic firms
will not face competition during the 180-day period even in the absence of authorized generics.
Of course, these provisions may also impact the incentives that independent generic firms possess
to challenge pharmaceutical patents.
In any event, Teva v. Crawford and Mylan v. FDA currently represent the law of the land. Absent
further judicial developments or congressional activity, authorized generics will be judged as 85
legitimate means for NDA holders to market their products under the Hatch-Waxman Act.
The Federal Trade Commission has become increasingly interested in authorized generics
practice. Initially, the agency reportedly took the view “that authorized generic agreements are 86
pro-consumer because they allow multiple generic entrants sooner.” Over the past several years, 87
the FTC has either agreed to or has declined to challenge such arrangements.

80 Id. at 275.
81 Id. at 276
82 21 U.S.C. § 355(j)(5)(B)(iv) (2004).
83 See supra notes 36-38 and accompanying text.
84 See Apotex, Inc. v. FDA, 414 F. Supp. 2d 61, 64 (D.D.C. 2006).
85 See generally Thomas P. Noud and Paul T. Meiklejohn,The Developing Law of Pharmaceutical Patent
Enforcement,” 87 Journal of the Patent and Trademark Office Society (2005), 921.
86 “Bristol/Teva ‘Authorized’ Generic Agreement Approved By FTC,The Pink Sheet, May 31, 2004, 7.
87 See, e.g., FTC Press Release,With Conditions, FTC Allows Cephalon’s Purchase of CIMA, Protecting Competition
for Breakthrough Cancer Drugs” (August 9, 2004), available at;
Advisory Opinion In the Matter of Bristol-Myers Squibb Co., Docket No. C-4076 (May 24, 2004), available at

More recently, the FTC has expressed concerns about authorized generics practice. Jon
Leibowitz, one of five FTC Commissioners, reportedly stated that “the introduction of an
authorized generic will likely diminish incentives for generic firms to challenge patents and incur 88
substantial development and litigation costs.” Although the commissioner was said to be
skeptical that authorized generics practice violated the antitrust laws, he reportedly stated that he
was “persuaded that authorized generics may have competitive implications that could upset the 89
Waxman-Hatch balance.”
The FTC is currently considering the authorized generics issue at greater length. In response to a
written request by three U.S. Senators, the FTC agreed to study “how competition between
Paragraph IV generics and authorized generics during the 180-day exclusivity period has affected 90
short-run price competition and long-run prospects for entry by Paragraph IV generics.” The 91
FTC will also address the impact of generic drug entry on the price of pharmaceuticals. The
report is expected to be released during the 2008 calendar year.

Because authorized generics are a relatively recent phenomenon, economic and scholarly
evaluation of their effect upon innovation, competition and public health has been relatively
limited. Even the handful of academic commentary reveals differences of views over their
significance. This report next reviews two leading working papers that reached different 92
conclusions about the impact of authorized generics practice upon social welfare.
One recent working paper, Authorized Generic Drugs, Price Competition and Consumers’
Welfare, was authored by Ernst R. Berndt, a member of the faculty of the MIT Sloan School of 93
Management, and several individuals associated with the private firm Analysis Group, Inc. The

88FTC Is Urged to Examine Authorized Generics,” 27 Chain Drug Review no. 10 (June 6, 2005), at 257.
89 Senators Request FTC Study on Authorized Generics,” World Generic Markets (May 31, 2005).
90 FTC Chairman Deborah Majoras quoted in “Authorized Generics Noose Tightens With ‘Best Price’ Proposal, FTC
Study,” The Pink Sheet (November 14, 2005), 20.
91 Id.
92 Two other notable published reports were sponsored by trade associations. The Pharmaceutical Research and
Manufacturers of American (PhRMA), which represents brand-name firms, sponsored a report stating that authorized
generics practice benefitted consumers. That report can be found at
IMS%20Authorized%20Generics%20Report_6-22-06.pdf. The Generic Pharmaceutical Association subsequently
sponsored its own report, which “came up with drastically different results.” See Generic Drug Industry Challenges
PhRMA Authorized Generic Study, FDA Week (August 4, 2006). The report is available at
http://www.gphaonlin Template.cfm?Section=Ho me&section=2006&temp late=/ CM/
93 Ernst R. Berndt, Richard Mortimer, Ashoke Bhattacharjya, Andrew Parcee, and Edward Tuttle, “Authorized Generic
Drugs, Price Competition and Consumers’ Welfare (October 26, 2005), available at
20051103_GenericsDraft.pdf. The authors of the paper acknowledge the funding support of Johnson and Johnson, but
further state thatThe opinions expressed herein are those of the authors, and may not necessarily reflect those of the
institutions with which they are affiliated, or of the research sponsor.”

Berndt study concluded that “on balance authorized generics are unlikely to harm competition 94
and can indeed benefit consumers.” The authors initially observed that authorized generics may
potentially improve consumer welfare in several respects. In particular, by introducing price
competition, the authorized generic could reduce the average price of the drug and result in 95
greater marketplace penetration. Because an authorized generic is identical to the brand-name
drug, consumers who are loyal to the brand-name drug may also be encouraged to switch to the 96
lower-cost authorized generic alternative.
According to the Berndt study, because numerous factors determine the profitability of generic
drugs, the additional variable of authorized generics should not substantially impact the decision
of an independent generic firm to file a paragraph IV ANDA. These factors include the
possibilities that the independent generic firm was not the first paragraph IV applicant, that the
FDA may not approve its ANDA, and that other independent generic firms may sell the identical 97
drug at a different dosage level during the 180-day exclusivity period. Because independent
generic firms have traditionally filed paragraph IV ANDAs despite these risks, the authors reason
that “it is not clear that one additional factor, authorized generic entry, is sufficient to discourage 98
many patent challenges.” The report further observed that, even with the entry of an authorized
generic into the relevant market, the expected profits may still suffice to induce patent 99
The Berndt study additionally reported empirical findings that, although the 180-day exclusivity
period significantly increased short-run generic-to-brand price ratios, it had scant impact upon
long-run generic-to-brand price ratios. Stated differently, once multiple generic products enter the
market, the historical existence of an earlier 180-day generic exclusivity period had little effect
upon drug pricing. The authors conclude that “high generic penetration and low generic-to-brand
price ratios are achieved in the long run regardless of whether successful paragraph IV 100
certifications occurred.”
The Berndt study further addressed the concern that authorized generics may potentially delay
generic entry. According to the authors:
It has been argued that authorized generics will deter paragraph IV certifications and
potentially delay generic entry. Most drugs, however, do not face a paragraph IV
certification (historically only about 20 percent have). If the anticipation of authorized
generic entry decreases incentives for paragraph IV certifications for the drugs that do face
paragraph IV certification, it will do so in those cases with the least likelihood of success. As 101
a result, generic entry will not be delayed for most drugs (if any).
To elaborate on this latter point, the report reasoned that authorized generics may also lead to the
salutary effect of reducing wasteful litigation. According to the authors, independent generics

94 Id. at 1.
95 Id. at 16.
96 Id. at 13.
97 Id. at 14.
98 Id.
99 Id.
100 Id. at 17.
101 Id. at 19.

have prevailed in Hatch-Waxman Act litigation 42 percent of the time. As a result, the “paragraph
IV certifications that may be deterred by the prospect of authorized generic entry would most 102
likely have a lower likelihood of success than average.” Because such litigation is less likely to
lead to improved consumer access to independent generic drugs, any potential discouragement of
this litigation due to authorized generics practice is unlikely to impact competition and public
health, the Berndt study explained.
Some of the contentions of the Berndt study may be subject to criticism. First, while it is true that
the percentage of ANDAs with paragraph IV certifications is relatively low, that set of challenged 103
patents are most likely the ones with sufficient sales to attract generic interest. In turn, the
challenged patents are likely to have a disproportionate impact upon public health. Second,
although experience with authorized generics has thus far been limited, some commentators 104
believe that this practice is growing. If so, the marketplace presence of authorized generics may
not amount merely to one risk among many, but rather a certainty.
Finally, although a successful patent challenge may not have much impact upon drug prices years
after the patent was scheduled to expire anyway, such a challenge ordinarily allows generic 105
competition to take place earlier than had the patent not been invalidated. The judicial holding
that a pharmaceutical patent is invalid has significant short- and medium-term consequences,
including lower consumer expenditures on that medication but also the innovator’s diminished
ability to recoup research and development costs. Achieving the socially optimal balance between
innovation and competition ultimately remains a difficult policy question that authorized generics
practice renders even more complex.
A second recent working paper, “Branded Generics” As a Strategy to Limit Cannibalization of 106
Pharmaceutical Markets, was less sanguine about the marketplace impact of authorized
generics practice than the Berndt study. As the authors, David Reiffin of the U.S. Commodity
Future Trading Commission and Michael R. Ward, a member of the economics faculty of the
University of Texas at Arlington, concluded:
Under current [FDA] regulations, the branded firm is not prohibited from producing [an
authorized] generic drug during the exclusivity period. As in the analysis above, the
introduction of a branded generic drug will reduce the successful litigant’s profits
significantly, creating a duopoly, rather than a monopoly during the 180 day period. Thus,
branded generic entry in Paragraph IV cases can dramatically change the incentives of

102 Id. at 15.
103 See Kimberly A. Moore,Worthless Patents, 20 Berkeley Technology Law Journal (2005), 1532 (Whether a
patent is likely to end up in litigation is indicative of the value of the patent to both the patent owner and competitors,
since competitors are unlikely to infringe a patent of low value.).
104 See George E. Jordan, “Trade officials will study so-called authorized generics,” Star-Ledger (November 10, 2005),
105 See Stephanie Greene,A Prescription for Change: How the Medicare Act Revises Hatch-Waxman to Speed Market
Entry of Generic Drugs, 30 Journal of Corporate Law (2005), 309.
106 David Reiffin and Michael R. Ward, “Branded Generics As a Strategy to Limit Cannibalization of Pharmaceutical
Markets (May 2005), available at

generic firms, perhaps eliminating the incentive to litigate the validity of patents in some 107
In reaching this conclusion, Reiffin and Ward explained that relatively few authorized generics
had been introduced in the United States. Because the decision of an independent generic firm to
submit a paragraph IV ANDA occurs prior to patent expiration, the authors asserted that “it seems
reasonable to assume that the branded firm’s action in the instances in which it took place was not 108
anticipated by independent generic producers at the time they began the ANDA process.” Their
report therefore develops an economic model representing “a stylized version of [pharmaceutical] 109
industry characteristics and economic intuition.”
Although the Reiffin and Ward model is complex, its analysis is founded upon the notion that 110
earlier entry by a firm into a generic market implies greater economic rents for that firm.
Generic firms essentially compete to obtain the largest rents by being the first market entrant,
followed by diminished rewards for achieving “second place,” further diminished rewards for
“third place,” and so on as additional firms commence sales. The authors’ analysis reveals several
salient points about authorized generics practice. Under their model, the anticipated entry of 111
authorized generics should “crowd out” more than one independent generic firm. Second, the
“primary effect of branded generic strategy is to transfer rents from the consumer to the patent 112
holder.” Finally, the effect of authorized generics upon generic drug prices is, according to 113
Reiffin and Ward, less significant for larger markets than smaller ones.
Some of the reasoning of the Reiffin and Ward study also is not immune to criticism. The authors
are undoubtedly correct that past experience with authorized generics may not suggest the future
impact of this practice, given the reported “resurgence” of authorized generic introductions in 114
recent years. Nonetheless, at least with respect to some medications, there has been no shortage
of firms willing to compete in generic markets despite knowledge of potential competition. For
example, on June 9, 2004, the FDA authorized fourteen firms to market Bayer’s Cipro® 115
(cirprofoxacin). Similarly, on July 29, 2004, thirteen firms received FDA approval to market 116
generic versions of Pfizer’s Diflucan® (fluconazole). Due to the possibility of “shared

107 Id. at 28-29. Two other studies reached similar conclusions. One study, written by a member of the Department of
Economics of the University of Calgary, concluded that authorized generic practice deterred market entry by
independent generic firms within the Canadian pharmaceutical market. Aidan Hollis, “The Anti-Competitive Effects of
Brand-ControlledPseudo-Generics’ in the Canadian Pharmaceutical Market, 29 Canadian Public Policy no. 1
(2003), 21. Another, authored by a member of the California Western School of Law faculty, concludes that
introduction of generics by brand name firms before patent expiration may be anticompetitive. Bryan A. Liang,The
Anticompetitive Nature of Brand Name Firm Introduction of Generics Before Patent Expiration,” 41 The Antitrust
Bulletin (Fall 1996), 599.
108 Id. at 5.
109 Id. at 15.
110 Id. at 15.
111 Id. at 18.
112 Id. at 27.
113 Id. at 27.
114 See Levy, supra footnote 44.
115 See Dept. of Health and Human Services, U.S. FDA, Center for Drug Evaluation and Research, ApprovalsJune
2004, available at
116 See Dept. of Health and Human Services, U.S. FDA, Center for Drug Evaluation and Research, ApprovalsJuly
2004, available at

exclusivity” following enactment of the Medicare Modernization and Improvement Act of 117
2003, the likelihood of multiple generic market entrants during the 180-day statutory period
has in fact increased. Future experience will undoubtedly enrich economic understanding of the
costs and benefits of authorized generic practice.

Although Congress made significant amendments to the Hatch-Waxman Act as recently as 118

2003, authorized generics were not subject to discussion at that time. The rise of this practice,

as well as the vigor of the debate surrounding it, suggests both the pace of change within the
industry and the prominence of the pharmaceutical industry within the national public health
As discussion of authorized generics continues, Congress may wish to have a sense of its
legislative options. Should Congress conclude that authorized generics are appropriate, then it
may simply take no action. The opinions of the D.C. and Fourth Circuits suggest that, as currently
drafted, the Hatch-Waxman Act does not allow the FDA to restrict the ability of brand-name firms 119
to sell or approve of authorized generics. Absent legislative input, the FDA may be unlikely to
alter its interpretation of the Hatch-Waxman Act in this respect in the future.
If Congress instead believes that authorized generics practice may instead disrupt the “bounty”
system established by the Hatch-Waxman Act, one option is to require brand-name firms to file a 120
supplemental NDA, or a similar application, with the FDA. This filing would then place the
brand-name firm in the same category as generic applicants who did not qualify as the first to file.
In turn, the 180-day generic exclusivity period would then apply to the authorized generic.
Alternatively, Congress could simply disallow authorized generics practice, at least during the

180-day generic exclusivity period.

Notably, whether the 180-day generic exclusivity period strikes an appropriate balance between
encouraging patent challenges and ensuring prompt access to generic medications is itself a 121
contested proposition within the pharmaceutical industry. Discussion of the authorized generics
issue may also prompt further reflection on the basic structure of incentives within the Hatch-
Waxman Act.
Current interest in authorized generics reflects longstanding congressional concern for the
appropriate balance between innovation and competition within the pharmaceutical industry.
Although academic inquiry into authorized generics practice remains in its early phases, it is
notable that knowledgeable commentators have reached disparate views of the benefits or
detriments of this practice. Some observers stress that authorized generics benefit consumers by
providing enhanced access to lower-cost alternatives to branded drugs, while others express

117 See supra notes 36-38 and accompanying text.
118 Medicare Modernization and Improvement Act, P.L. 108-173, 117 Stat. 2066 (2003).
119 See supra notes 68-81 and accompanying text.
120 This option is essentially the same as the one that Teva unsuccessfully argued before the Court of Appeals for the
District of Columbia Circuit in the Teva v. Crawford case. See supra footnote 70 and accompanying text.
121 Letter of Robert A. Armitage, Eli Lilly and Company, Re: Authorized Generic Study (June 5, 2006), available at

concerns that authorized generics will defeat the incentives that independent generic firms
possess to challenge pharmaceutical patents. The analysis to be provided in the forthcoming FTC
report and other studies may shed additional light on the impact of authorized generics upon 122
consumer welfare.
John R. Thomas

This report was funded in part by a grant from the John D. and Catherine T. MacArthur Foundation.

122 See supra notes 85-86 and accompanying text.