An “authorised generic” version of a branded drug, launched by its original maker during the first six months after patent expiry, reduces the product’s retail price by an average 4.2% compared with the original branded price, says a government report.

Authorised generics also reduce wholesale prices 6.5% on average during the 180 days’ exclusive marketing period which the law awards the first generic competitor, says an interim report from the US Federal Trade Commission (FTC), presenting the first findings of its study into the effects of authorised generics on competition in the prescription drug marketplace.

However, it adds, authorised generic entry during this time also reduces by 47%-51% the revenues of the branded drug’s first generic competitor, which is awarded the 180-day marketing exclusivity period under the Hatch-Waxman Act.

As a result, and 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, it states.

These “pay-for-delay” deals appear to be more common now than in the past, it adds. During fiscal years 2004-8, about 25% of patent settlement agreements reviewed by the FTC contained provisions related to authorized generics and 76 final patent settlements were with first-filer generic firms. About 25% of those settlements involved an agreement by the brand not to launch an authorized generic to compete against the first filer, combined with an agreement by the first filer to defer market entry past the settlement date by an average of 34.7 months.

“Pay-for-delay” deals can harm consumers in two ways, the report goes on. First, generic drugs, and the accompanying price discounts, are not available to consumers as soon as otherwise would have been the case; generics are often priced substantially below the price of branded drugs so overall prescription drug costs could be significantly increased by even a few additional months during which only the brand drug is available. Second, consumers lose the benefit of price discounts from authorized generic competition during the 180-day exclusivity period because the brand has agreed not to compete against the generic drug during that time.

The revenue effect for generic firms is much greater than the price decline for consumers, mainly because the authorized generic represents a very close substitute for the conventional generic, and typically gains significant market share at its expense, the report adds.

Commenting on the findings, FTC Commissioner Jon Leibowitz said the short-term extra discounts provided to consumers by authorised generics are “relatively modest.”

“An American consumer should not be denied the discounts that come with generic entry - both modest discounts during the 180-day exclusivity and much more significant, 85% price reductions thereafter, when multiple generics enter - because a brand and a generic have decided they can make more money if they substantially delay the point at which they begin to compete with each other,” he said.

The day before the interim report was published, Commissioner Leibowitz had told a conference of the Center for American Progress in Washington that restricting “pay-for-delay” settlements would result in savings to American consumers of $35 billion or more over ten years, about $12 billion of which would be savings to the federal government.

Kathleen Jaeger, chief executive of the Generic Pharmaceutical Association (GPhA) said that while she had not had the opportunity to read the entire FTC report, “the fact is that authorised generics harm, not help consumers,” and permitting brand companies to undercut the 180-day exclusivity period is “just not sound public policy.”

The generic industry experience has shown that the 180-day exclusivity incentive “has resulted in numerous patent challenges, yielding greater competition. And when patent settlements occur, they save consumers tens of billions of dollars,” she said.

- The FTC study into the effects of authorized generics on market competition was requested by Senators Jay Rockefeller, Patrick Leahy and Charles Grassley, and Representative Henry Waxman. This interim report examines the short-term effects; the full study will also look at the long-term effects.