When PDL BioPharmas $40 million blood-pressure medicine faced the threat of a generic rival this year, the company pulled out a little-known strategy that critics say helps keep drugs expensive and competition weak.
It launched its own generic version of Tekturna, a pill taken daily by thousands. PDLs authorized copycat hit the market in March, stealing momentum from the new rival and protecting sales even though Tekturnas patent ran out .
PDLs version sold for $187 a month versus $166 for the competing generic, made by Anchen Pharmaceuticals, according to Connecture, an information technology firm. PDLs brand-name Tekturna runs about $208 a month.
The plan is to maximize profit at this point, Dominique Monnet, PDLs CEO, told stock analysts in March. With the boost of PDLs house generic, the economics would still be very favorable to us even against the generic rival and even if prescriptions plunged for the brand, he said.
Lawmakers who created the modern generic-drug industry in the 1980s never imagined anything like this brand-pharma companies maximizing profits by appearing to compete with themselves.
But it goes on all the time. In fact, there are now nearly approved in the U.S., according to the Food and Drug Administration. 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.
Authorized generics are not generic drugs, Dr. Sumit Dutta, chief medical officer for drug-benefit manager OptumRx, told Congress in April. The marketing and production of authorized generics is exclusively controlled and directed by brand-drug manufacturers. They do nothing to promote competition.
Last year, authorized generics appeared at the rate of about once a week. High-profile examples in recent years included anti-allergy injector, introduced to soothe public outrage after the company raised the brand price 400%. In March, Eli Lilly said it would launch a less expensive insulin, whose branded list price has also soared.
Of all the ways drug companies try to protect sales as patents expire changing doses, adding ingredients, seeking approval to treat new diseases authorized generics are by far the most profitable, returning $50 for every dollar invested, research firm
Brand-drug companies say authorized generics increase competition even if theyre not an independent product.
This reduces prices and results in significant cost savings, said Holly Campbell, spokeswoman for the Pharmaceutical Research and Manufacturers of America, or PhRMA, the brand-drug lobby. Congress should reject attempts to delay, restrict or prohibit authorized generics.
But critics say authorized generics hurt long-term competition and often perversely increase costs, even in the short term.
Authorized generics dont just steal sales from existing generic rivals. Critics say they erode incentives to make generic drugs, partly by thwarting the intent of Congress to let one company temporarily have generic business to itself after a brand patent expires.
Tactics like this can stave off generic competition and make sure that generics cant get much of a foothold when they do get to market, said Robin Feldman, a professor at the University of California Hastings College of the Law, who studies pharma policy. Thats the game. And drug companies have become masters at this.
Authorized copycats may help explain why relatively few true generics are reaching the market despite a surge in approvals, analysts say.
The 1984 Hatch-Waxman Act founded the modern generic business by establishing rules for safety and competition, including granting six months of market exclusivity to the first generic rival to each brand. The idea was to give the first mover a profitable head start to attack the established pill.
Few realized the law left room for brand companies to launch their own generics at the same time as or even earlier than rivals, often slightly lower in cost and nearly indistinguishable to patients and doctors from the brand as well as any independent generics.
PDL acquired Tekturna from Novartis and soon learned that Anchen was planning a generic. It moved quickly to fight back.
PDLs authorized generic version of Tekturna was timed to secure us the benefit of being first to market, before Anchens version was even on the shelves, PDLs CEO, Monnet, told analysts. We believe this provides [PDL] with a distinctive competitive advantage.
PDL was so confident the authorized generic, called aliskiren, would produce substantial revenue without much effort that it got rid of its Tekturna salesforce of 60 people.
Theres a lot of parts of the system that just automatically switch to generics, whatever the source, said Maxim Jacobs, who follows PDLs stock for Edison Investment Research. So even if the authorized generic isnt much cheaper than the brand, its almost like a no-brainer to roll one out, he said.
Monnet was unavailable for an interview, a spokesperson said. Anchen did not respond to requests for comment.
Oddly enough, authorized generics can be more profitable than the brand-name drug even if their list prices are much lower, OptumRXs Dutta told Congress. Thats because they usually arent subject to rebates that flow from the drugmaker to middlemen such as OptumRX and effectively lower a brands revenue.
These authorized generics often result in net prices higher than the brand drugs they replace, he told Congress. Authorized generics are just another tactic for drug manufacturers to improve profitability.
The list price for the authorized generic of Humalog insulin is $137 versus $275. That apparent discount offered limited relief to uninsured patients paying cash and generated spirited headlines saying Lilly had lowered the price significantly.
But the move wont 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 its still far higher than what insulin costs in other countries.
Its a parlor trick, the executive said. They're bending to political pressure, but are they taking any money out of the system? Theyre not.
Lillys Humalog generic, called insulin lispro, and Mylans EpiPen copycat departed from the traditional playbook by launching well before patents for those brands expired. The companies were trying to calm outrage over rising prices rather than fend off generic rivals, analysts said.
Generic Humalog was made available to help people paying full retail price for their insulin because of coverage gaps or lack of insurance, said Lilly spokesman Greg Kueterman.
The mere threat of an authorized generic can also smother competition.
A 2013 Supreme Court ruling challenged deals in which brands blatantly paid rivals to keep generics off the market. So pharma firms came up with an alternative: They could would hold fire on an authorized clone if generic firms agreed to delay launching their products or gave some other concession,
Both sides win. The brand stretches its monopoly beyond the life of the patent, while the generic firm avoids facing an authorized rival later on.
Authorized generics can generate outsize profits in yet another way: as a method to game Medicaid contracts that costs taxpayers hundreds of millions of dollars a year, according to investigators for the Health and Human Services Department.
Brand-pharma companies routinely sell authorized generics to a corporate affiliate at a sharp discount, establishing an artificial wholesale price, said Edwin Park, a research professor who studies Medicaid at the Georgetown University Center for Children and Families.
Because of complex discounting formulas, this strategy minimizes rebates the drugmakers owe to Medicaid, of Inspector General.
Congress is eyeing to close that loophole, which the would save the federal government $3.15 billion over 10 years.
The next frontier in authorized generics involves harder-to-make biologic drugs, such as generic Humalog, which are made from components of living organisms, analysts say.
Such products tend to be expensive and highly profitable, producing especially strong incentives for brand companies to preserve their franchises.
Makers of valuable biologics such as arthritis drug Humira have avoided the kind of competition from generic-like biosimilars that exists in Europe, partly due to patent extensions .
But once patents do expire, authorized biosimilars are likely to be an integral part of their profit-preservation tactics, analysts say. In February, Lilly on branded biosimilars a clear indication of its interest.
The query is part of a number of questions Lilly and others have posed about shifting FDA treatment of biologics, said Lilly spokesman Kueterman.
窪蹋勛圖厙 News is a national newsroom that produces in-depth journalism about health issues and is one of the core operating programs at KFFan independent source of health policy research, polling, and journalism. Learn more about .