Authorized Generic Drugs: 

Short-Term Effects and Long-Term Impact

Federal Trade Commission

August 2011
AUTHORIZED GENERIC DRUGS: 

SHORT-TERM EFFECTS AND LONG-TERM IMPACT 

——————— 

A REPORT OF THE 

FEDERAL TRADE COMMISSION 

JON LEIBOWITZ Chairman 

WILLIAM E. KOVACIC Commissioner 

J. THOMAS ROSCH Commissioner 

EDITH RAMIREZ Commissioner 

JULIE BRILL Commissioner 

Joni Lupovitz Chief of Staff 

Eileen Harrington Executive Director 

Richard Feinstein Director, Bureau of Competition 

David Vladeck Director, Bureau of Consumer Protection 

Joseph Farrell Director, Bureau of Economics 

Willard K. Tom General Counsel 

Randolph W. Tritell Director, Office of International Affairs 

Jeanne Bumpus Director, Office of Congressional Relations 

Susan S. DeSanti Director, Office of Policy Planning 

Cecelia J. Prewett Director, Office of Public Affairs 

Donald S. Clark Secretary of the Commission 

Report Drafters and Contributors 

Karen A. Goldman, Office of the General Counsel 

William E. Cohen, Deputy General Counsel for Policy Studies, Office of the General Counsel 

Karen L. Grimm, Assistant General Counsel for Policy Studies, Office of the General Counsel 

Christopher N. Bryan, Office of the General Counsel 

Robert A. Nelson, Jr., Formerly Office of the General Counsel 

Brett W. Wendling, Bureau of Economics 

David R. Schmidt, Assistant Director, Office of Applied Research and Outreach, Bureau of Economics 

Mark Hertzendorf, Bureau of Economics 

Luke M. Olson, Bureau of Economics 

Hajime Hadeishi, Formerly Bureau of Economics 

Cagatay Koc, Formerly Bureau of Economics 

Gregory J. Kuczura, Formerly Bureau of Economics 

Ellen Connelly, Bureau of Competition 

Jamie Towey, Bureau of Competition 

Inquiries concerning this report should be directed to: 

William E. Cohen (202) 326-2110 or wcohen@ftc.gov 

David R. Schmidt (202) 326-2781 or dschmidt@ftc.gov 
1 The Federal Trade Commission conducted this study at the request of Senators Grassley, Leahy, and

Rockefeller, as well as at the request of Representative Waxman, all of whom asked the Commission

to examine the competitive effects of authorized generic drugs. See Letter from Senators Charles

Grassley, Patrick Leahy, and John Rockefeller to Deborah Platt Majoras, Chairman, Fed. Trade

Comm’n (May 9, 2005) (infra Appendix A); Letter from Hon. Henry A. Waxman, U.S. House of

Representatives, to Deborah Platt Majoras, Chairman, Fed. Trade Comm’n (Sept. 13, 2005) (infra

Appendix B). Then-Commissioner Leibowitz also requested the FTC to study “the competitive

implications of authorized generics.” Jon Leibowitz, Commissioner, Fed. Trade Comm’n, Health Care

and the FTC: The Agency as Prosecutor and Policy Wonk, Remarks at the Antitrust in HealthCare

Conference 9–10 (May 12, 2005), http://www.ftc.gov/speeches/leibowitz/050512healthcare.pdf. 

2 21 U.S.C. § 355(j)(5)(b)(iv) (2010). Exclusivity now may be “shared” by two or more applicants

filing on the same day. See 21 U.S.C. § 355(j)(5)(B)(iv)(I)–(II)(bb) (2010).

EXECUTIVE SUMMARY

This Report analyzes the competitive effects of authorized generic drugs (“AGs”).1 AGs

are pharmaceutical products that are approved as brand-name drugs but marketed as generic

drugs. AGs do not bear the brand-name or trademark of the brand-name drug or manufacturer,

but the brand-name and AG products are manufactured to the brand’s specifications. In

examining competitive effects, the Report looks both at the price and revenue effects of AG

competition and at the potential long-term impacts on incentives for generics to challenge

patents on brand-name drugs. The Report also assesses the competitive implications of patent

litigation settlements in which brand-name companies refrain from offering an AG when the

generic company agrees to defer its entry (so-called “pay-for-delay settlements”). For more than

a decade, the Commission has expressed concern about brand-name companies paying generics

to delay entry. As this Report observes, promises not to compete with generic entrants by

marketing an AG are a common form of compensation to generics in such arrangements, and the

competitive effects of such promises should therefore be analyzed in the same manner as other

forms of consideration paid to generics.

Authorized generics have a unique impact during the first six months of generic

competition. Under the Hatch-Waxman Amendments, when the first generic (the “first-filer”)

challenges the brand’s patent, the FDA may not approve any additional generic competitors until

180 days after the first-filer launches its product.2

 During that period, because of the absence of

competition, both the generic drug price and the first-filer’s revenues are significantly higher

than they would be when there are additional generic competitors. Congress created this

exclusivity as an incentive for generic companies to enter as soon as possible by challenging

invalid patents or patents that are not infringed.

Competition from AGs during the 180-day exclusivity period has the potential to reduce

both generic drug prices and generic firm revenues. The courts have ruled that 180-day

exclusivity does not preclude a brand-name company from entering with its own generic because

it already has approval for its product; therefore, it can sell an AG during that exclusivity
3 See Teva Pharm. Indus. Ltd. v. Crawford, 410 F.3d 51, 54 (D.C. Cir. 2005).

4 FED. TRADE COMM’N, AUTHORIZED GENERICS: AN INTERIM REPORT (“Interim Report”) (2009),

http://www.ftc.gov/os/2009/06/P062105authorizedgenericsreport.pdf. 

5 Id., Executive Summary, at 2.

6 Id.

-iiperiod.3

 Brand-name companies now frequently launch an AG to compete with the first-filer. 

AGs thus have been the subject of controversy. Brand-name companies that offer AGs

contend that they are procompetitive – that they make valuable products available to consumers

at lower prices than those of brand-name products and provide competition that leads to lower

generic prices overall. Some in the generic drug industry, in contrast, contend that AGs harm

competition by drawing revenues away from generic firms during the 180-day exclusivity period

provided for first-filers that challenge a brand-name company’s patents. They caution that this

reduces the potential reward available to generics that challenge patents, thereby discouraging

patent challenges that facilitate earlier generic competition and reduce prices for consumers. 

This, the AG critics argue, undermines long-run competition and the goals of the Hatch-Waxman

Amendments. 

As a first step toward shedding light on this controversy, the Commission in June 2009

issued an interim report that focused on the short-term effects of AGs during the 180-day

exclusivity period (the “Interim Report”).4

 That report presented an initial analysis suggesting

that “consumers benefit and the healthcare system saves money during the 180-day exclusivity

period when an AG enters the market, due to the greater discounting that accompanies the added

competition provided by the AG.”5

 The Interim Report, however, also found that “AG entry

significantly decreases the revenues of a first-filer generic company during its 180-day

exclusivity period.”6

 Apart from a preliminary analysis of the use of AGs in patent litigation

settlements, the Commission left most questions of long-term effects – including any possible

impact of AG competition on the calculus of generic entry via patent challenges – for

exploration in a final report. 

This final Report refines the short-term analysis of the Interim Report and expands the

analysis to consider long-term effects. It combines information obtained by compulsory process

from more than 100 brand-name and generic manufacturers with price and sales data acquired

from commercial sources and information gleaned from FDA databases to assess AGs’

competitive effects. Moreover, it updates and extends the Interim Report’s study of the use of

AGs as a form of consideration in patent litigation settlement agreements.

The new analysis finds that, depending on model specifications, competition from an

authorized generic during the 180-day exclusivity period is associated with retail generic prices

that are 4-8 percent lower and wholesale generic prices that are 7-14 percent lower than prices

without authorized generic competition. On average, the retail price of a typical generic drug

during the 180-day exclusivity period is 86 percent of the pre-entry brand price without AG
7 For instance, for a drug with brand sales of $130 million, a generic that does not anticipate AG

competition will expect a patent challenge to be profitable if it has at least a 4 percent chance of

winning; with AG competition, that generic would need at least a 10 percent chance of winning to

expect a patent challenge to be profitable. Under this mode of analysis, the AG might discourage a

challenge only if the generic thinks the chance of winning is between 4 and 10 percent, i.e., when the

challenge is unlikely to be successful. For larger drugs, the presence of an AG is critical to the patentchallenge decision only when the expected likelihood of success is even less than 10 percent.

-iiicompetition and 82 percent of the pre-entry brand price when an AG competes. Similarly, the

average wholesale price of a typical generic drug during exclusivity, which is 80 percent of the

pre-entry brand wholesale price without an AG, falls to 70 percent of the brand price with AG

competition. An analysis of authorized generic pricing over the long term provides no evidence

that AG prices are higher than prices of other generics, allaying concerns that AGs might be less

aggressive competitors. 

The new analysis also confirms the Interim Report’s finding that authorized generics

have a substantial effect on the revenues of competing, generic firms during the 180-day

exclusivity period; depending on how the models are specified, they estimate that the presence of

authorized generic competition reduces the first-filer generic’s revenues by 40 to 52 percent, on

average. Moreover, the impact of AG competition on first-filer revenues persists outside of

exclusivity. Revenues of the first-filer generic manufacturer in the 30 months following

exclusivity are between 53 percent and 62 percent lower when facing an AG. 

With regard to long-term incentive effects, the analysis concludes that the reduced

revenue stemming from authorized generic competition during 180-day exclusivity has not

affected the generic’s incentives in a way that has measurably reduced the number of patent

challenges by generic firms. Any disincentive effects would likely be experienced in small

markets or in situations where the generic had little chance of winning the patent suit anyway. 

The Report examines a variety of evidence to reach these conclusions.

• Based on economic analysis, revenue lost from authorized generic competition

would be most likely to affect decisions to challenge patents on products with

small sales. 

" If a challenger anticipates a 50 percent chance of success, an expectation

of AG competition could tilt the balance against bringing a patent

challenge in markets with brand sales between $12 million and $27

million, a range that accounts for 13 percent of drugs, but given their low

sales, approximately one percent of total prescription drug expenditures. 

AGs, however, are rarely introduced for these small drugs. For the drugs

with higher sales that frequently do attract AG competition, AGs may

conceivably deter only a narrow range of challenges that the generic

believes it will rarely win, meaning that the challenges are unlikely to

result in early generic entry even if pursued.7

 
8 An absence of documents is not necessarily determinative: generic companies simply might not have

recorded the reasons for a decision to refrain from filing a patent challenge. In reaching its

conclusions, the Commission considered all the evidence before it; no single category, including the

documents provided by generic firms, was dispositive.

-iv-

• Considerable evidence suggests that brand-name firms launch authorized generics

to preserve their profits following the onset of generic competition. The

evidence, however, also reveals that brand-name companies do recognize that

authorized generics, when launched, reduce the revenues of generic rivals and

could deter future generic entry. 

" Brand-name firm documents frequently note that launching an AG at the

time of generic entry increases revenue, but they also recognize that

authorized generic competition reduces generic competitors’ profits and

could discourage future patent challenges. The documents furnish no

basis for deeming one rationale more important than the other. 

" Brand-name firm AG marketing practices are consistent with revenueenhancement following the onset of generic competition and do not

suggest a sacrifice of overall profits to discourage generic entry. None of

the econometric estimates provided evidence that brand-name firms

sacrifice revenues by introducing AGs. Moreover, about two-thirds of the

AGs studied were launched after 180-day exclusivity had ended or when

no exclusivity had occurred. This does not preclude a disincentive effect

for those AGs that were marketed during 180-day exclusivity periods, but

it does suggest that other explanations for AG marketing should also be

considered. Furthermore, almost all AGs marketed during exclusivity

continued to be marketed for an extended period. Again, the pattern

suggests that AG marketing provides value to brand-name firms distinct

from any potential disincentive effect from devaluing 180-day exclusivity. 

• Although none of the generic companies’ internal documents expressly discusses

authorized generics as a factor in deciding whether to file a particular patent

challenge or identifies specific instances when the expectation of an authorized

generic dissuaded the company from challenging a patent,8

 some generic

companies’ internal documents do reflect a general concern that AGs could

impact the profitability of patent challenges or suggest that AG competition

requires generic firms to better manage their product selection and litigation

processes. The document submissions provide no evidence that any firm has

substantially abandoned its basic patent-challenge business strategy because of

the proliferation of authorized generics. On the contrary, documents submitted by

some generic companies question contentions that AGs create significant

disincentives to patent challenges. Different generic companies have adopted

different business strategies in the face of AG competition, and those strategies
9 While the Report finds that AGs have infrequently been launched for drugs in markets with less than

$50 million of annual brand sales, generic documents discussing assumptions about AG competition

do not draw distinctions based on market size. The documentary evidence regarding this point,

however, is limited.

10 “Paragraph IV” generic drug applications, filed with the Food and Drug Administration pursuant to 21

U.S.C. § 355(j)(2)(A)(vii)(IV), certify that a patent is invalid or will not be infringed by the generic

drug and begin the process of generic entry via patent challenge.

11 New chemical entities are drugs for which the active ingredient has not received previous FDA

approval. For new chemical entities, the first day that applications with Paragraph IV certifications are

allowed is four years after approval of the brand-name drug. This is a specific, known day, on which

filers will expect to share exclusivity.

-vappear to reflect how they view AGs and their potential long-term impact. 

• Generic companies typically expect authorized generic competition during the

180-day exclusivity period and often build that assumption into their forecasts,

which means reducing the expected revenues for the generic challenger.9

 And

one company provided an analysis suggesting that this reduction in expected

profits had led it to reject or defer filing patent challenges for two products in

small markets.

• Finally, despite the presence of AG competition, generic companies have

continued to challenge patents, even on brand-name drugs with small markets. 

" From 2003 through 2008, 17 percent of the drugs subject to a first patent

challenge had sales below $50 million. The median revenue of drugs

subject to a first patent challenge fell during this period, while AGs were

becoming common, from $553 million to $131 million. 

" The number of drugs receiving their first Paragraph IV certification

approximately doubled between 2003 and 2008.10

" Generic companies’ willingness to pursue Paragraph IV challenges when

they know that they are likely to share exclusivity with other generic

companies indicates that AGs have not deterred generic challenges. The

evidence comes from examination of patent challenges for new chemical

entities, a category of drugs for which first-filers expect to have to share

exclusivity.11 The percentage of such drugs drawing first-day patent

challenges has increased greatly despite the likelihood of shared

exclusivity, from 6 percent in 2002 to 73 percent in 2008. 

Each category of evidence has its limitations. And each category is consistent with some

expected impact on incentives to challenge patents, particularly for drugs in small markets. On

the whole, however, whether viewed from the perspective of a break-even analysis drawn from
12 FTC staff estimates that “pay-for-delay” arrangements, overall, cost American consumers $3.5 billion

per year. FED. TRADE COMM’N, PAY-FOR-DELAY: HOW DRUG COMPANY PAY-OFFS COST

CONSUMERS BILLIONS 8–10 (2010), http://www.ftc.gov/os/2010/01/100112 payfordelayrpt.pdf.

13 See, e.g., CONG. BUDGET OFFICE, HOW INCREASED COMPETITION FROM GENERIC DRUGS HAS

AFFECTED PRICES AND RETURNS IN THE PHARMACEUTICAL INDUSTRY 31 (1998),

http://www.cbo.gov/ftpdocs/6xx/doc655/pharm.pdf. “No AG” agreements also deny consumers the

benefit of price discounts from AG competition during the 180-day exclusivity period.

14 Of the 39 agreements from FY 2004 to FY 2010, 24 were made between FY 2004 and FY 2009 (an

average of four per year), while 15 were made in FY 2010. The 15 agreements in FY 2010 in which

brand-name firms agreed not to introduce an AG were nearly 60% of the 26 agreements that year

containing payments to a first-filer generic and a restriction on that firm’s ability to market its product.

-viquantitative data, brand-name firm strategic documents and marketing practices, generic firm

memoranda and forecasts, or the number of patent challenges observed even for small-market

drugs, authorized generics appear not to have substantially altered generic firms’ willingness to

enter by challenging questionable patents.

While there is little evidence of authorized generic competition affecting the number of

patent challenges, there is strong evidence that agreements not to compete with an authorized

generic have become a way for brand-name companies to compensate generic competitors for

delaying entry. These agreements can be part of “pay-for-delay” patent settlements, which have

long concerned the Commission.12 These agreements involve a brand-name firm compensating a

generic and the generic agreeing to delay its entry. One form that compensation can take is the

brand’s commitment, in exchange for the first-filer’s agreement to delay entry, not to sell an AG

during the first-filer’s 180-day exclusivity period. Because the first-filer’s revenue will

approximately double absent an authorized generic, its revenues will be much larger by agreeing

to delay than if it litigated, won, and faced AG competition. The generic firm benefits from

greater profits during its 180-day exclusivity; the brand-name firm benefits from later generic

entry; but consumers suffer from delay of generic competition. Because generics often are

priced substantially below the price of brand-name drugs,13 even a few additional months

without generic competition can significantly increase overall prescription drug costs. 

Settlements in which the brand-name company agrees not to compete with an AG have

become commonplace. Between FY 2004 and FY 2010, 39 of 157 patent settlements with firstfiler generics (approximately 25 percent) contained such provisions, which have been used with

some frequency and have become common in agreements with pay-for-delay provisions.14 The

average delay for the 39 agreements was 37.9 months, and the total market for the drugs

involved (an indeterminate amount of which represented consumer harm tied to the practice)

exceeded $23 billion. The promise to suppress AG competition – not the AG itself – is

responsible for any ensuing consumer harm.

In conclusion, this Report finds that, during the 180-day exclusivity period, competition

from authorized generics lowers prices for consumers and lowers revenues for the independent
-viigeneric competitor. Over the longer term, lower expected profits could affect a generic

company’s decision to challenge a patent on products with low sales, and one company provided

a few examples where it claimed the expectation of an authorized generic led it to reject or delay

such a challenge. Overall, however, patent challenges, even on drugs with low sales, remain

robust and, by most measures, have increased despite the prevalence of authorized generic

competition. Moreover, as a consequence of an authorized generic’s significant negative impact

on a generic’s revenues, some brand-name companies have used agreements not to launch an

authorized generic as a way to compensate an independent generic in exchange for the generic’s

agreement to delay its entry. The frequency of this practice and its profitability may make it an

attractive way to structure a pay-for-delay settlement, a practice that causes substantial consumer

harm. 

AUTHORIZED GENERIC DRUGS: 

SHORT-TERM EFFECTS AND LONG-TERM IMPACT ——————— 

A REPORT OF THE 

FEDERAL TRADE COMMISSION 

CHAPTER 1: INTRODUCTION ................................................................................................1 

I. THE BASIC REGULATORY FRAMEWORK AND THE HATCH-WAXMAN AMENDMENTS ........................... 2 

II. THE KEY ISSUES ADDRESSED IN THIS REPORT ..................................................................................... 4 

III. STUDY SCOPE AND DATA SOURCES .................................................................................................... 6 

IV. ORGANIZATION OF THE REPORT.......................................................................................................... 8 

CHAPTER 2: AN OVERVIEW OF AG MARKETING AND ITS RELATIONSHIP TO 

THE EXCLUSIVITY SYSTEM .................................................................................................11 

I. AG MARKETING: TRENDS AND INDUSTRY PRACTICES ........................................................................ 11 

A. The Scope and Time Course of AG Marketing ................................................................................ 11

B. Brand and Generic Industry Involvement in Authorized Generics ................................................. 14

1. Authorization of Generic Drugs by NDA-Holding Companies ................................................... 15

2. Distribution of AGs: In-House Marketing and External Generic Partners ................................ 17 

II. AG MARKETING: RELATIONSHIP TO 180-DAY EXCLUSIVITY PERIODS AND PATENT CHALLENGES . 25 

A. AG Marketing During 180-Day Exclusivity Periods ....................................................................... 26

B. AG Marketing Apart from 180-Day Exclusivity Periods and Patent Challenges ........................... 27

III. CONCLUSION ..................................................................................................................................... 32 

CHAPTER 3: SHORT-TERM IMPACTS OF AUTHORIZED GENERICS: PRICE AND 

REVENUE EFFECTS DURING 180-DAY EXCLUSIVITY ..................................................33 

I. PRIOR STUDIES ..................................................................................................................................... 34 

II. DESCRIPTION OF THE DATA ................................................................................................................ 36 

III. THE EFFECT OF AUTHORIZED GENERIC COMPETITION DURING THE EXCLUSIVITY PERIOD ............ 38 

A. Market Prices of Generic Drugs ..................................................................................................... 40

1. Generic Retail Market Prices ...................................................................................................... 41

2. Generic Wholesale Market Prices ............................................................................................... 46 

3. Generic Firm Level Pricing Analysis .......................................................................................... 48

B. Market Prices of Brand-Name Products ......................................................................................... 50

1. Brand Retail Prices ..................................................................................................................... 50 

2. Brand Wholesale Prices .............................................................................................................. 52

3. Investigating Lower Brand Prices During Exclusivity ................................................................ 54

C. Wholesale Expenditures .................................................................................................................. 56 

1. Wholesale Revenues of ANDA-Generic Firms ............................................................................ 57

2. Wholesale Revenues of the Brand-Name Product ....................................................................... 59

3. Wholesale Revenues of Brand-Name Firms ................................................................................ 61 

IV. CONCLUSION ..................................................................................................................................... 63 

CHAPTER 4: THE MARKETING OF AUTHORIZED GENERICS: BRAND-NAME 

FIRMS’ OBJECTIVES AND STRATEGIES ...........................................................................65 

I. AUTHORIZED GENERICS AND REVENUE ENHANCEMENT .................................................................... 66 

A. The Use of Authorized Generics to Maintain a Revenue Stream .................................................... 66 

B. The Use of Brand-Name Discounting to Maintain a Revenue Stream ............................................ 69
II. AUTHORIZED GENERICS AND IMPACT ON GENERIC FIRMS’ INCENTIVES ........................................... 71 

III. EVIDENCE FROM BRAND MARKETING PRACTICES ............................................................................ 72 

A. Relationship to Exclusivity; Timing of Launch and Withdrawal ..................................................... 72

B. Pricing, Market Share, and Profit-Splits ......................................................................................... 75 

IV. CONCLUSION ..................................................................................................................................... 77 

CHAPTER 5: THE MARKETING OF AUTHORIZED GENERICS: GENERIC FIRM 

PERCEPTIONS AND DECISION-MAKING ..........................................................................79 

I. THE IMPACT OF AGS ON GENERIC FIRM REVENUES AND PROFITS: GENERIC COMPANY CONCERNS 

AND RESPONSES ...................................................................................................................................... 80 

A. The Nature of Generic Company Concerns .................................................................................... 80

B. Differing Generic Company Responses .......................................................................................... 83

II. THE LONG-TERM IMPACT OF AGS ON GENERIC FIRM INCENTIVES TO BRING GENERIC PRODUCTS TO 

MARKET VIA PATENT CHALLENGES ....................................................................................................... 85 

A. Documents Suggesting an Impact on Generic Entry through Patent Challenges ........................... 86

B. Documents Suggesting that Impacts of AGs on Generic Entry through Patent Challenges May Be 

Overstated ........................................................................................................................................ 89

III. CONCLUSION ..................................................................................................................................... 92 

CHAPTER 6: LONG-TERM EFFECTS OF AUTHORIZED GENERICS: PRICE, 

REVENUE, AND BREAK-EVEN EFFECTS ...........................................................................93

I. PRIOR STUDIES ..................................................................................................................................... 94 

II. DATA AND METHODOLOGICAL APPROACH ........................................................................................ 96 

III. MARKET PRICES OF GENERIC DRUGS ............................................................................................. 100 

A. Retail Prices .................................................................................................................................. 101 

B. Wholesale Prices ........................................................................................................................... 102

IV. WHOLESALE EXPENDITURES ........................................................................................................... 103 

A. Evolution of Revenue Shares in Markets with and without AGs ................................................... 103

B. Wholesale Expenditures on the First-Filer’s Product ................................................................... 105

C. Wholesale Expenditures on The Brand-Name Firm’s Products ................................................... 107 

V. INCENTIVES TO FILE PARAGRAPH IV CHALLENGES ......................................................................... 109 

A. The Profit Calculation ................................................................................................................... 109

B. Break-Even Analysis ..................................................................................................................... 112

1. Markets without an AG .............................................................................................................. 112 

2. Markets with an AG ................................................................................................................... 113

3. Effect on Threshold Probability of a Successful Challenge ...................................................... 115 

VI. CONCLUSION ................................................................................................................................... 118 

CHAPTER 7: ASSESSING THE IMPACT OF AG COMPETITION FROM PATENT 

CHALLENGE DATA ................................................................................................................121

I. PATENT CHALLENGES BY SALES LEVEL ............................................................................................ 122 

A. Challenges to Patents on Low-Sales Drugs .................................................................................. 122

B. Trends in Sales Levels of Drugs Subject to Challenge .................................................................. 125

II. THE PREVALENCE OF PATENT CHALLENGES AND DRUGS SUBJECT TO PATENT CHALLENGES ....... 126 

A. ANDA Filings and Paragraph IV Certifications ........................................................................... 126

B. Drugs Subject to ANDAs with First PIV and PIII Certifications .................................................. 128

III. PATENT CHALLENGES LEADING TO SHARED EXCLUSIVITY: NEW CHEMICAL ENTITIES ................ 133 

IV. CONCLUSION ................................................................................................................................... 137 
CHAPTER 8: THE USE OF AUTHORIZED GENERICS IN PATENT LITIGATION 

SETTLEMENT AGREEMENTS ............................................................................................139

I. THE PROBLEM OF ANTICOMPETITIVE BRAND-GENERIC PATENT SETTLEMENT AGREEMENTS......... 140 

II. THE POSSIBLE USE OF AGS TO COMPENSATE GENERICS FOR DEFERRING GENERIC ENTRY ........... 142 

A. Agreements Involving AGs ............................................................................................................ 142

B. Type (1) Agreements: Explicit Commitments Not to Compete with an AG ................................... 145 

C. Type (2) Agreements: Other Promises by Brands Limiting AG Competition on the Litigated 

Product .......................................................................................................................................... 149

D. Type (3) Agreements: Brand Appoints a Subsequent Filer as an AG for the Litigated Product .. 150 

E. Type (4) Agreements: Brand Appoints Generic as AG on Another Product ................................. 152

III. CONCLUSION ................................................................................................................................... 152 

APPENDIX A: LETTER FROM SENATORS LEAHY, GRASSLEY, AND ROCKEFELLER (MAY 9, 2005)... A-1

APPENDIX B: LETTER FROM REPRESENTATIVE WAXMAN (SEPT. 13, 2005) ...................................... B-2

APPENDIX C: LIST OF COMPANIES COVERED BY THE STUDY ............................................................. C-1

APPENDIX D: BRAND-NAME DRUG COMPANY SPECIAL ORDER ......................................................... D-1

APPENDIX E: GENERIC DRUG COMPANY SPECIAL ORDER ................................................................. E-1

APPENDIX F: AUTHORIZED GENERIC DRUG COMPANY SPECIAL ORDER .......................................... F-1

APPENDIX G: LIST OF AUTHORIZED GENERIC DRUGS IN STUDY ....................................................... G-1

APPENDIX H: METHODS ......................................................................................................................... H-1 

APPENDIX I: TECHNICAL DATA APPENDIX ............................................................................................ I-1

APPENDIX J: AUTHORIZED GENERICS AND THE MEDICAID REBATE PROGRAM ................................ J-1

APPENDIX K: PATENT CHALLENGES: IMPACT ON GENERIC ENTRY AND BRAND EXCLUSIVITY ..... K-1

APPENDIX L: TECHNICAL MODELING APPENDIX ................................................................................ L-1

1 Authorized generic drugs (often referred to in this Report as “AGs”) are drugs that are approved as

brand-name drugs but are marketed as generic drugs. AGs do not bear the brand-name or trademark of

the brand-name drug or manufacturer, but the brand-name and AG products are chemically identical. 

2 See Letter from Senators Charles Grassley, Patrick Leahy, and John Rockefeller to Deborah Platt

Majoras, Chairman, Fed. Trade Comm’n (May 9, 2005) (infra Appendix A).

3 Drug Price Competition and Patent Term Restoration (Hatch-Waxman) Act of 1984, Pub. L. No. 98-

417, 98 Stat. 1585 (1984) (codified in scattered sections of 15, 21, 28 & 35 U.S.C.).

4 See Letter from Hon. Henry A. Waxman, U.S. House of Representatives, to Deborah Platt Majoras,

Chairman, Fed. Trade Comm’n (Sept. 13, 2005) (infra Appendix B). Then-Commissioner Leibowitz

also requested the FTC to study “the competitive implications of authorized generics.” Jon Leibowitz,

Commissioner, Fed. Trade Comm’n, Health Care and the FTC: The Agency as Prosecutor and Policy

Wonk, Remarks at the Antitrust in HealthCare Conference 9–10 (May 12, 2005),

http://www.ftc.gov/speeches/leibowitz/050512healthcare.pdf.

5 See infra Chapter 2.

6 See Andrx Citizen Petition, FDA Docket No. 2004P-0563/CP1 (Dec. 27, 2004),

http://www.fda.gov/ohrms/dockets/dockets/04p0563/04p-0563-cp0000-01-vol1.pdf (urging the FDA

to “inform McNeil Specialty Pharmaceuticals that any authorized version of Concerta® that is

introduced and marketed as a ‘generic’ drug before or during the initial product launch of the first

ANDA-approved version will be regarded as misbranded and subject to regulatory action”); Teva

1

CHAPTER 1 INTRODUCTION

This Report presents the results of a study undertaken by the Federal Trade Commission

on the effects of authorized generic drugs1 (“AGs”) on competition in the prescription drug

marketplace. The Commission undertook this study at the request of Senators Grassley, Leahy,

and Rockefeller, who asked the Commission to examine “the short term and long term effects on

competition of the practice of ‘authorized generics,’”2 as well as Representative Waxman, one of

the co-authors of the Hatch-Waxman Amendments,3 who requested the FTC to study “the impact

of so-called ‘authorized generics’ on competition in the prescription drug marketplace.”4

Since their marketing surged beginning in 2003,5 AGs have been the subject of

controversy. Brand-name companies that offer AGs contend that they are procompetitive – that

they make valuable products available to consumers at substantially lower prices than those of

branded products and provide competition that leads to lower generic prices overall. Some

companies in the generic drug industry, in contrast, contend that AGs harm competition by

drawing revenues away from generic firms during the 180-day exclusivity period provided by

governing statutes for first-filers that challenge a brand-name company’s patents, thus

discouraging future challenges that would allow earlier generic competition and reduce prices

for consumers. Opposition to AG marketing during the 180-day exclusivity period has been

voiced in citizen petitions filed with the FDA6

 and raised in litigation.7 This study seeks to shed
Citizen Petition, FDA Docket No. 2004P-0261/CP1 (June 10, 2004),

http://www.fda.gov/ohrms/dockets/dailys/04/June04/061004/04p-0261-cp00001-toc.htm (urging the

FDA to “prevent Pfizer Inc. from marketing a generic version of its Accupril® (quinapril) drug

products until after the expiration of Teva’s 180-day exclusivity period for generic quinapril

products”); Mylan Citizen Petition, FDA Docket No. 2004P-0075/CP1 (Feb. 18, 2004),

http://www.fda.gov/ohrms/dockets/dailys/04/feb04/021804/04p-0075-cp00001-vol1.pdf (urging the

FDA “to prohibit the marketing and distribution of [AGs] until the expiration of any 180-day generic

drug exclusivity to which an ANDA applicant is entitled”); see also Apotex Comment in Support of

Mylan Citizen Petition, FDA Docket No. 2004P-0075/EMC1 (Mar. 24, 2004),

http://www.fda.gov/ohrms/dockets/dailys/04/apr04/040204/04P-0075-emc00001.pdf.

7 See, e.g., Mylan Pharm., Inc. v. FDA, No. Civ.A. 104CV242, 2005 WL 2411674 (N.D. W. Va. Sept.

29, 2005), aff’d, 454 F.3d 270 (4th Cir. 2006); Teva Pharm., Indus., Ltd. v. FDA, 355 F. Supp. 2d 111

(D.D.C. 2004), aff’d, Teva Pharm. Indus. Ltd. v. Crawford, 410 F.3d 51 (D.C. Cir. 2005); see also

SmithKline Beecham Corp. v. Apotex Corp., 383 F. Supp. 2d 686 (E.D. Pa. 2004).

8 FED. TRADE COMM’N , AUTHORIZED GENERICS: AN INTERIM REPORT (“Interim Report”) (2009),

http://www.ftc.gov/os/2009/06/P062105authorizedgenericsreport.pdf.

9 See 21 U.S.C. § 355(b), (c) (2010).

10 See 21 U.S.C. § 355(j) (2010). Generic drugs approved through the filing of an ANDA will be

referred to as “ANDA-generic” drugs when necessary to distinguish them from AGs.

2

light on this controversy by examining the competitive effects of AGs based on substantial data

sets obtained from governmental and non-governmental sources and on documentary

information produced by brand-name and generic companies in response to compulsory

information requests. 

This Report substantially extends the analysis presented in an interim report in June

2009.8

 The Interim Report examined two sets of topics: (1) the short-term impacts of AGs on

retail prices, wholesale expenditures, and sales quantities; and (2) the use of AGs in patent

litigation settlement agreements. Whereas the Interim Report looked at the short-term impacts in

terms of weighted and unweighted averages, this Report applies more sophisticated statistical

techniques to refine that analysis. This Report then provides a comprehensive look at the longterm impacts of AGs, examining from a variety of perspectives their potential impact on generic

firms’ incentives to challenge patents. Finally, this Report updates the analysis of patent

litigation settlement agreements, highlighting the increasing use of brand-name company

commitments not to market an AG as compensation to generic firms for agreeing to defer entry.

I. The Basic Regulatory Framework and the Hatch-Waxman Amendments

The Food and Drug Administration (“FDA”) must approve the marketing of all

pharmaceutical drugs, both brand-name and generic, in the United States. The Federal Food

Drug and Cosmetic Act, as amended by the Hatch-Waxman Amendments, establishes the

regulatory framework. Typically, a brand-name drug obtains FDA approval through a New

Drug Application (“NDA”).9

 A generic drug manufacturer obtains FDA approval through an

Abbreviated New Drug Application (“ANDA”)10 in which it is allowed to rely on the clinical
11 Under 21 U.S.C. § 355(j)(2)(A)(vii)(IV), a generic manufacturer certifies that each relevant patent is

“invalid or will not be infringed by the manufacture, use, or sale of the new [ANDA] drug for which

the application is submitted.”

12 OFFICE OF GENERIC DRUGS, U.S. FOOD & DRUG ADMIN., APPROVED DRUG PRODUCTS WITH

THERAPEUTIC EQUIVALENCE EVALUATIONS (“Orange Book”) (31st ed. 2011), available at

http://www.accessdata.fda.gov/scripts/cder/ob/default.cfm. 

13 Unless otherwise specifically noted, all references in this Report to exclusivity or an exclusivity period

are to 180-day exclusivity. Exclusivity now may be “shared” by two or more applicants filing on the

same day. See 21 U.S.C. § 355(j)(5)(B)(iv)(I)–(II)(bb) (2010).

14 See, e.g., Richard G. Frank, The Ongoing Regulation of Generic Drugs, 357 NEW ENG. J. MED. 1993,

1993 (2007), available at http://www.nejm.org/doi/pdf/10.1056/NEJMp078193.

15 See PHARM. RESEARCH AND MFRS. OF AM. (“PhRMA”), PHARMACEUTICAL INDUSTRY PROFILE (2010),

http://www.phrma.org/sites/default/files/159/profile_2010_final.pdf (citing IMS Health data); see also

GENERIC PHARM. ASS’N, 2010 ANNUAL REPORT 17 (2010),

http://www.gphaonline.org/sites/default/files/Annual%20Report%202010.pdf (also citing IMS Health

data).

3

data first submitted by the brand-name drug manufacturer to establish the safety and efficacy of

the generic drug.

To encourage generic firms to pursue entry as soon as warranted by challenging

questionable patents covering brand-name drugs, the Hatch-Waxman Amendments allow generic

drug manufacturers, in certain circumstances, to seek FDA approval prior to expiration of

claimed patent protection for the corresponding brand-name drug. To do so, a generic drug

manufacturer must first submit to the FDA a “Paragraph IV” ANDA11 in which it certifies that

(a) its generic drug will not infringe patents listed in the FDA’s “Orange Book” in regard to the

relevant brand-name drug product, and/or (b) that the relevant Orange Book patents are invalid.12

At that time the applicant must also provide notice of its certification to the NDA filer and any

other patent holders, including a detailed statement of why it believes the patent is invalid or will

not be infringed.

For ANDAs with Paragraph IV certifications, if the brand-name company files a patent

infringement suit within 45 days after receiving the required notice from the generic firm of the

Paragraph IV ANDA, the FDA may not approve the generic drug until 30 months after that

notice (or until a decision that the patent is invalid or not infringed, if earlier). At that point the

FDA may authorize the marketing of the generic drug, and the first-filed Paragraph IV ANDA

applicant becomes entitled to 180 days of marketing exclusivity.13 This exclusivity protects the

first FDA-approved Paragraph IV ANDA applicant from competition against other ANDA

marketers during the 180-day period, thereby providing an incentive for ANDA applicants to

challenge patents on brand-name drugs and to seek generic entry prior to patent expiration.

Some commentators have credited this regulatory framework with helping to foster

immense growth of generic drug offerings.14 In 2009, 74 percent of all U.S. prescriptions

reportedly were filled by generics,15 up from 43 percent in 1996 and only 19 percent in 1984,
16 See CONG. BUDGET OFFICE, HOW INCREASED COMPETITION FROM GENERIC DRUGS HAS AFFECTED

PRICES AND RETURNS IN THE PHARMACEUTICAL INDUSTRY 27 (1998),

http://www.cbo.gov/ftpdocs/6xx/doc655/pharm.pdf.

17 Public Comment from the GPhA to the Fed. Trade Comm’n 2 (June 27, 2006),

http://www.ftc.gov/os/comments/genericdrugstudy3/062806gpha.pdf.

18 See Teva Pharm. Indus. Ltd. v. Crawford, 410 F.3d 51, 54 (D.C. Cir. 2005).

19 See, e.g., Fair Prescription Drug Competition Act, S. 373, 112th Cong. (2011); H.R. 741, 112th Cong.

(2011).

20 In recent years, the Commission has undertaken two other major empirical studies to address

competition policy issues affecting the pharmaceutical industry. See FED. TRADE COMM’N,

PHARMACY BENEFIT MANAGERS: OWNERSHIP OF MAIL-ORDER PHARMACIES (2005),

www.ftc.gov/reports/pharmbenefit05/050906pharmbenefitrpt.pdf; FED. TRADE COMM’N, GENERIC

DRUG ENTRY PRIOR TO PATENT EXPIRATION (2002), www.ftc.gov/os/2002/07/genericdrugstudy.pdf. 

This Report draws upon the knowledge and experience accumulated in conducting these earlier

studies.

4

when the Hatch-Waxman Amendments were enacted.16 The Generic Pharmaceutical

Association (“GPhA”), a trade association comprised of generic drug companies, attributes much

of the health of generic marketing to Hatch-Waxman exclusivity, maintaining that “[t]he vast

majority of potential profits for a generic drug manufacturer materialize during the 180-day

exclusivity period.”17

The 180-day marketing exclusivity does not, however, preclude competition from an AG. 

The courts have determined that a brand-name company can market an AG during that

exclusivity period because the brand-name company does not need the FDA to approve an

ANDA. Instead, the brand-name company can rely on its already-approved NDA.18 As the

practice has become increasingly common, however, it has generated increasing controversy,

with some generic companies contending that AGs deprive generic companies of the “true”

exclusivity that was contemplated by the Hatch-Waxman Amendments, and brand-name

companies defending AGs as procompetitive and consistent with the Amendments. A number of

industry and academic studies (discussed below) have reached differing conclusions on the

competitive effects of AGs, and various bills have been introduced in Congress to address the

practice.19 It is in this context that the FTC has undertaken this study.20

II. The Key Issues Addressed in this Report

Policy discussions surrounding AGs generally focus on opposing short-term and longterm competitive effects: (1) whether, and to what extent, AGs offer consumers a short-term

benefit by lowering prices during 180-day exclusivity through competition with the first filer’s

ANDA-generic drug; and (2) whether, and to what extent, by reducing ANDA-generic revenues

during 180-day exclusivity, authorized generics deter future Paragraph IV filings, which then

could delay generic entry, diminish generic competition, and reduce consumer benefits from

lower-priced generic products.
21 IMS CONSULTING, IMS HEALTH, ASSESSMENT OF AUTHORIZED GENERICS IN THE U.S. (2006)

(written for PhRMA),

http://replay.web.archive.org/20061009134405/http://www.phrma.org/files/IMS%20Authorized%20G

enerics%20Report_6-22-06.pdf. See infra Chapter 3. 

22 Aidan Hollis & Bryan A. Liang, An Assessment of the Effect of Authorized Generics on Consumer

Prices, 10 J. BIOLAW & BUS. 10, 16 (2007) (written for GPhA) (an earlier version of this paper was

made available by GPhA in July 2006, available at

http://www.gphaonline.org/sites/default/files/GPhA_AG_Study.pdf). See infra Chapter 3. 

23 Ernst R. Berndt, Richard Mortimer & Andrew Parece, Do Authorized Generic Drugs Deter Paragraph

IV Certifications? Recent Evidence (2007) (working paper written for PhRMA),

http://www.analysisgroup.com/uploadedFiles/Publishing/Articles/PhRMA_Authorized_Generic_Entry

.pdf; see also Ernst R. Berndt et al., Authorized Generic Drugs, Price Competition, and Consumers’

Welfare, 26 HEALTH AFF. 790 (2007), available at

http://content.healthaffairs.org/cgi/reprint/26/3/790.pdf. See infra Chapter 7, Section II.B.

24 HOWREY LLP, THE SHORT-TERM AND LONG-TERM COMPETITIVE IMPACT OF AUTHORIZED GENERICS

(2009) (written for PhRMA),

http://www.ftc.gov/os/comments/genericdrugstudy3/091028pharmresearch.pdf.

5

A number of industry and academic studies have reached varying conclusions. For

example, a study conducted by IMS HEALTH on behalf of the Pharmaceutical Research and

Manufacturers of America (“PhRMA”), a trade association composed largely of brand-name

firms, concluded that the presence of AGs significantly reduced wholesale prices during the 180-

day exclusivity period.21 On the other hand, a study announced by GPhA found that retail price

effects of AGs on the same set of drug products were minor, with “the prices faced by most

consumers . . . virtually unchanged by the presence or absence of AGs.”22 Another study, funded

by PhRMA, concluded that AGs have not deterred patent challenges, citing data showing that the

number of Paragraph IV challenges has remained steady.23 Yet another study, commissioned by

PhRMA and submitted to the FTC while this Report was in preparation, concluded that any

effects of AGs on patent challenges would be confined to markets with annual sales between $50

million and $110 million.24

This Report addresses both the short-term and long-term competitive effects of AGs. 

With respect to short-term effects, Commission researchers drew upon a considerably larger data

set than that analyzed in prior studies in order to enhance reliability of the conclusions and

applied a variety of statistical techniques to further refine the results. They took care to isolate

the effects of other explanatory variables in addition to AGs. They also broadened the scope of

investigation, looking at AGs’ effects on wholesale expenditures, as a proxy for the revenues of

generic and brand-name manufacturers, as well as prices at both retail and wholesale levels. 

With respect to long-term effects, this Report considers whether AGs have deterred

patent challenges over time, as their critics have asserted. It examines numerous strains of

evidence, including documents from brand-name and generic firms; data regarding the effect of

AG marketing on generic firms’ revenues and on the sales levels and probabilities of a

successful patent challenge needed to break even on, or justify, generic entry via Paragraph IV
25 OMB approval was obtained pursuant to requirements of the Paperwork Reduction Act, 44 U.S.C. §§

3501-21 (2007). See Agency Information Collection Activities; Comment Request, 72 Fed. Reg.

25,304 (FTC May 4, 2007); Agency Information Collection Activities; Comment Request, 71 Fed.

Reg. 16,779 (FTC Apr. 4, 2006).

26 15 U.S.C. § 46(b) (2010).

27 Special Orders list the information that each company must provide to the FTC. 

6

challenges; and information regarding the frequency and context of Paragraph IV challenges. 

Each piece of evidence provides insights from a different perspective regarding AGs’ potential

entry-deterrence effects. 

Although discussion generally has been formulated in terms of these short- and long-term

competitive effects, the Report presents its analysis within a broader context. Thus, it examines 

the potential for brand-name firms’ AG marketing strategies to serve multiple objectives,

preserving a revenue stream following generic entry while reducing the profit opportunities of

potential generic rivals. It notes the difficulty of separating these possible objectives when some

of the same strategies that create disincentives to patent challenges also yield incremental

income without respect to any disincentives. As to the generic companies, the Report describes

how firms choose from a package of possible strategies, with some concentrating on pursuing

exclusivity periods for their own ANDA-generics and others tending to partner with brand-name

firms by marketing AGs. It observes how this choice may affect a generic company’s views of

AGs.

Finally, the Report examines a different way in which AGs might be used to impair

competition. Numerous recent patent litigation settlements combine the brand’s agreement not

to market an AG in competition with a first-filer generic with the generic’s commitment to defer

its entry. Such arrangements, though mutually beneficial to the litigating parties, could prolong

a brand-name company’s monopoly and impose substantial costs on consumers of prescription

drugs. The Report examines recent use of these “No AG” agreements, presenting findings

regarding their frequency, the duration of periods during which they defer generic entry, and the

size of the affected markets. 

III. Study Scope and Data Sources 

In April 2006 the Commission began the formal process of obtaining authorization for

the study. On August 20, 2007, the Commission obtained OMB approval,25 and in October

2007, under authority of Section 6(b) of the FTC Act,26 it began service of Special Orders to

brand-name, generic, and authorized generic pharmaceutical companies.27
28 Brand-name companies were included in the study if they marketed an AG or had a brand-name drug

subject to a Paragraph IV certification that was included in the study. See infra note 31.

29 These are companies that marketed ANDA-generic versions of brand-name drugs subject to a

Paragraph IV certification, ANDA-generic drugs bioequivalent to an AG, or an AG not based on the

company’s or parent company’s NDA. Thus, the generic companies included ANDA-generic

subsidiaries of brand-name companies, but not subsidiaries that market only AGs on behalf of the

parent.

30 See infra Appendix G. The final count of 119 relevant AGs treats different dosage forms as separate

AGs. Injectables and solutions were excluded to provide a more uniform data set.

31 In general the Special Orders sought information on (i) AGs launched after January 1, 2001 and all

drugs related to them, i.e., brand-name versions of AG drugs and all bioequivalent generic drugs; (ii)

brand-name drugs that first faced generic competition after January 1, 2001, for which at least one

ANDA with a Paragraph IV certification was filed, and all bioequivalent generic drugs; and (iii)

brand-name drugs for which at least one ANDA with a Paragraph IV certification was filed after

January 1, 2001, but for which generic entry had not yet occurred. There was substantial overlap

between the first two categories.

32 The time periods covered by the Report’s analyses vary due to the availability of information from

diverse sources. See infra Appendix H.

33 See infra Appendix D, ¶ 27, at D-6 (Brand-Name Drug Company Special Order covering the period

from January 1, 2002 through April 3, 2006); see also infra Appendix F, ¶ 10, at F-3 (Authorized

Generic Drug Company Special Order requesting similar information from companies that marketed

AGs, but not ANDA-generic drugs).

7

Fifty-nine brand-name28 and 59 generic29 companies, including all the major firms

involved in marketing AG products, were included in the study. Additionally, two AG-only

companies – firms that market AGs but do not file ANDAs – also were included. Appendix C

lists all companies included in the study. The Commission’s Special Orders for the Brand-Name

Companies, the Generic Companies, and the Authorized Generic Companies are set out in

Appendices D, E, and F, respectively.

Staff identified 119 different oral-solid (tablet/capsule) AG products that were first

marketed between January 1, 2001, and December 31, 2008.30 The Special Orders required the

companies to provide detailed data submissions on AGs, as well as the brand-name drugs and

ANDA-generics related to the AGs, and information on relevant Paragraph IV filings and 180-

day exclusivity periods.31 As described more fully in Chapter 3 and Appendices H and I, staff

supplemented this quantitative data with pricing and sales information purchased from

commercial sources and also relied heavily on information culled from FDA databases.32

 

Additionally, the Special Orders required the brand-name companies to produce certain

categories of preexisting “planning, decisional, or strategy documents” that “evaluated,

considered, or analyzed . . . the marketing or possible marketing of an AG or AGs (as a response

to current or future generic competition or for other reasons).”33 The generic companies were

subject to a similar request, as well as an additional request for documents reflecting the effects

of AGs on the decision to file an ANDA or to make a Paragraph IV certification or on the
34 See infra Appendix E,. ¶¶ 18-19, at E-4, E-5 (Generic Drug Company Special Order covering the

period from January 1, 2003, through April 3, 2006).

8

profitability of ANDA-generic marketing during 180-day exclusivity.34

IV. Organization of the Report

The study’s detailed findings are presented in the next seven chapters:

 • Chapter 2, “An Overview of AG Marketing and Its Relationship to the

Exclusivity System,” examines trends and industry practices in the marketing of

AGs – alternative marketing strategies and key attributes of brand-generic

marketing arrangements that may affect the price of an AG and the timing of its

presence in the market – and presents basic facts regarding the relationship

between AG marketing and exclusivity periods;

 • Chapter 3, “Short-Term Impacts of Authorized Generics: Price and Revenue

Effects During 180-Day Exclusivity,” examines the short-term effects of AGs on

retail and wholesale prices and on brand and generic revenues based on

quantitative analysis of IMS data;

• Chapter 4, “The Marketing of Authorized Generics: Brand-Name Firms’

Objectives and Strategies,” describes the brand-name firms’ interest in using AGs

to maintain an income stream after generic entry has occurred as well as to reduce

generic firms’ incentives to enter early via patent challenges and analyzes the

brand-name firms’ documents and practices for consistency with revenueenhancement and entry deterrence strategies;

• Chapter 5, “The Marketing of Authorized Generics: Generic Firm Perceptions

and Decision-Making,” reviews the contemporaneous documents produced by

generic companies discussing their concerns with AG competition and the impact

of AGs on incentives to challenge brand patents via Paragraph IV certifications;

• Chapter 6, “Long-Term Effects of Authorized Generics: Price, Revenue, and

Break-Even Effects,” analyzes quantitative data (i) reflecting long-term effects of

AGs on retail and wholesale prices and wholesale expenditures and (ii) indicating

how AG competition may affect the break-even point – measured, alternatively,

in terms of market size and probability of a successful patent challenge –

necessary to profitably support generic entry via a patent challenge; 

• Chapter 7, “Assessing the Impact of AG Competition from Patent Challenge

Data,” inquires about the extent to which generic firms have continued to

challenge brand-name firms’ patents despite the proliferation of AG competition. 

It presents data on the relationship between patent challenges and sales levels. It
9

also examines generic firms’ record of bringing patent challenges under

circumstances where they are likely to share exclusivity with other ANDA

generics, a setting analogous to sharing exclusivity with an AG; and

• Chapter 8, “The Use of Authorized Generics in Patent Litigation Settlement

Agreements,” describes the various roles played by AGs in settlement contexts. 

In particular, the chapter examines the increasingly frequent occurrence of

settlements in which a brand-name firm’s commitment not to market an AG in

competition with an ANDA generic during 180-day exclusivity serves to

compensate the generic for deferring entry. 

1 This data set, which is the basis for much of the Report, includes all tablet and capsule dosage forms

(“oral solids”) of AGs that were first marketed between 2001 and 2008. Other dosage forms, such as

injectables or solutions, were excluded to provide a more uniform data set. Counts reflect the number

of NDAs (individual brand-name drugs) rather than the number of strengths (“products”), avoiding

multiple counts for drugs with more than one strength. AGs were identified from information

provided by the FDA, company responses to the Special Orders, and other sources. The time periods

covered by the Report’s analyses vary due to the availability of information from diverse sources. See

infra Appendix H for more information on the definition and identification of AGs, criteria for

inclusion in the study, and how they were counted. See infra Appendix G for a list of all AGs covered

by the study. 

11

CHAPTER 2 AN OVERVIEW OF AG MARKETING AND ITS

RELATIONSHIP TO THE EXCLUSIVITY SYSTEM

This chapter charts the landscape of AG marketing, describing industry practices and

trends that may influence AGs’ competitive effects. The overview first considers the extent of

brand-name industry marketing of AGs and generic industry participation in their distribution. It

then focuses on a central issue regarding AGs: their relationship to the 180-day exclusivity

periods granted to ANDA-generic companies. 

 

Consistent with industry reports, the data show that AG marketing surged beginning in

2003, becoming a widespread industry practice around that time. Many brand-name companies

distributed AGs, either themselves or through contracts with generic companies. Beginning in

2003, more than half of the 180-day exclusivity periods included an AG. Yet the majority of

AGs were not marketed during any portion of a 180-day exclusivity period. Indeed, brand sales

level, rather than whether generic entry occurred via exclusivity, appears to have been a key

factor in decisions to market AGs. These findings set the stage for analysis of the short- and

long-term effects of AGs presented in the chapters that follow.

I. AG Marketing: Trends and Industry Practices 

A. The Scope and Time Course of AG Marketing

A total of 119 AGs, each arising from a different capsule or tablet form of a brand-name

drug, were launched from 2001–2008.1 As shown in Figure 2-1, there were few AG launches

during the earliest years covered by the study, but, consistent with industry reports, launches

surged in 2003 and remained high through 2006. Only seven AGs were launched per year from

2001–2002, but from 2003–2006 the number of launches ranged between 19 and 21 per year. At

the same time, the marketing of AGs during 180-day exclusivity periods substantially increased,

suggesting the possibility of a new rationale for AG marketing and generating the controversy
2 See infra Figures 2-7 and 2-8, and accompanying discussion. 

3 See, e.g., See, e.g., JOHN R. THOMAS, CONG. RESEARCH SERV., AUTHORIZED GENERIC

PHARMACEUTICALS: EFFECTS ON INNOVATION 8–9 (2008); Letter from William K. Hubbard, FDA, to

Stuart A. Williams, Mylan Pharmaceuticals Inc. and James N. Czaban, Heller Ehrman, Re: Docket

Nos. 2004P-0075/CP1 & 2004P-0261/CP1, at n.9 (July 2, 2004),

http://www.fda.gov/ohrms/DOCKETS/dailys/04/july04/070704/04p-0075-pdn0001.pdf (listing

authorized generic drugs launched as long ago as 1992); Kurt R. Karst, Authorized

Generics—Historical Overview and Current Issues, REG. AFF. FOCUS, Mar. 2005. 

4 During the 1990s, AGs were not marketed during 180-day exclusivity, because there were almost no

exclusivity periods as a result of the requirement that the first generic applicant defend successfully

against a brand-name company’s patent infringement lawsuit. When this requirement was eliminated,

exclusivities began to increase, and the opportunity for marketing during the valuable exclusivity

period grew. See FED. TRADE COMM’N, GENERIC DRUG ENTRY PRIOR TO PATENT EXPIRATION 57–58

(July 2002), http://www.ftc.gov/os/2002/07/genericdrugstudy.pdf (citing Mova v. Shalala, 955 F.

Supp. 128 (D.D.C. 1997), aff’d, 140 F. 3d 1060 (D.C. Cir. 1998)). There were no awards of

exclusivity from 1992–1997. For tablet and capsule prescription drugs, one exclusivity was awarded

in 1998, two in 1999, and one in 2000. See Figure 2-7 for data on exclusivities and AGs from

2001–2008.

5 See infra Chapter 4, Sections I, II. 

6 See, e.g., Sandra Levy, Why Authorized Generics are Making a Comeback, DRUG TOPICS, Nov. 3,

2003, available at

http://drugtopics.modernmedicine.com/drugtopics/article/articleDetail.jsp?id=111159; Robert P.

Rezick & James B. Kobak, Permission Granted, PHARMACEUTICAL EXECUTIVE, May 2004. All seven

AGs launched in 2001 were marketed by generic subsidiaries. In 2002, three were marketed by

contract and four by subsidiaries. In 2003, 15 were marketed by contract (including four settlements),

and four by subsidiaries.

12

over AGs.2

The increase in 2003 marked a resurgence of interest in AGs arising from several trends

in the pharmaceutical marketplace. Although AGs had been marketed during the 1990s, they

reportedly were not very profitable, and many companies had abandoned the practice by the end

of the decade.3 One trend that likely contributed to rekindled interest in AGs a few years later

was the increase in 180-day exclusivity periods that began at that time.4

 

At the same time, the rate of generic penetration was increasing, with much of the brand

share being lost soon after generic entry. This added urgency to the use of AGs as a way for

brand-name companies to stem their losses to generic competition and perhaps to reduce

incentives for patent challenges by marketing an AG during exclusivity.5

 In addition, rather than

incurring the time and expense of buying or developing a generic subsidiary, many brand-name

companies began to contract with ANDA-generic companies to market their AGs.6

 The

marketing in 2003 of several AGs during 180-day exclusivity, including one with brand sales of

more than $2 billion, brought widespread publicity to the practice and the resultant loss to
7 See, e.g., Leila Abboud, Drug Makers Use New Tactic to Ding Generic-Drug Firms, WALL ST. J., Jan.

27, 2004, at B1; Lewis Krauskopf, Generic Drug Companies Fighting Threat from Big Brands, THE

RECORD, Aug. 22, 2004.

8 See Letter from William K. Hubbard, FDA, supra note 3; supra Chapter 1, notes 7, 18, and

accompanying text.

9 Deficit Reduction Act of 2005 (“DRA”), Pub. L. No. 109-171, § 6003, 120 Stat. 4, 60–61 (2006)

(codified as amended at 42 U.S.C. § 1396r-8).

10 Details regarding the DRA requirements and information derived from the Special Orders regarding

the DRA’s likely effects are presented in Appendix J. However, subsequent changes in the DRA

implementing regulations, which occurred after the cut-off date for document production, may limit

the utility of the information produced.

11 See BUREAU OF COMPETITION, FED. TRADE COMM’N, AGREEMENTS FILED WITH THE FEDERAL TRADE

COMMISSION UNDER THE MEDICARE PRESCRIPTION DRUG, IMPROVEMENT, AND MODERNIZATION ACT

OF 2003: OVERVIEW OF AGREEMENTS FILED IN FY 2010 (2011),

http://www.ftc.gov/os/2011/05/1105mmaagreements.pdf.

12 See infra Chapter 4, Section III.A. (AG launch usually simultaneous with ANDA-generic entry); FED.

TRADE COMM’N, PAY-FOR-DELAY: HOW DRUG COMPANY PAY-OFFS COST CONSUMERS BILLIONS 5

(2010), http://www.ftc.gov/os/2010/01/100112payfordelayrpt.pdf.

13 See infra Chapter 8. 

13

ANDA-generics.7 Shortly thereafter, both the FDA and the courts affirmed the legality of

marketing an AG during 180-day exclusivity,8

 setting the stage for numerous launches from

2004–2006.

Launches fell back to 12–15 per year in 2007 and 2008, however. At least two factors

may have contributed. One was a change in the calculation of rebates paid by pharmaceutical

manufacturers under the Medicaid Drug Rebate Program, which is intended to ensure that

Medicaid pays the lowest price charged by a manufacturer for its drugs. Under Section 6003 of

the Deficit Reduction Act of 2005,9 beginning in 2007 manufacturers were required to include

AGs when calculating the “best price” and “average manufacturer price” of brand-name drugs

for the purpose of determining rebates. Some public comments submitted in connection with the

Commission’s study as well as other observers have argued that this requirement will diminish

the incentive to market many AGs by reducing the profitability of brand-name drugs with

substantial sales through Medicaid.10 

Another possible cause of the decline could be the increase beginning in 2005 in patent

litigation settlements that defer generic entry.11 Such settlements would also defer the launch of

AGs that typically accompanies generic entry.12 In addition, some settlements that defer generic

entry include a promise by the brand-name company not to launch an AG.13 In 2008, a generic

company launched one product that did not face competition from an AG, and the brand was

blocked from launching an AG due to a “No AG” provision in a previously negotiated settlement
14 Also, a “No AG” agreement for one drug prohibited the launch of an AG for part of 2007, and no AG

was launched thereafter. For a few other drugs, “No AG” agreements prohibited the launch of AGs

only during exclusivity or for some strengths, but because an AG version of the drug was launched,

the AG count in Figure 2-1 was unaffected.

14

between the brand and the generic.14

Figure 2-1: Number of Authorized Generic Drugs Launched

15

12

21

19 19 19

7 7

0

5

10

15

20

25

2001 2002 2003 2004 2005 2006 2007 2008

Year of AG Launch

Number of AGs

Authorized generic drugs per calendar year, based on the launch date of the first strength

that was launched for each drug (NDA). Each NDA is counted only once, even if there

were AGs for more than one strength. The figure includes all AGs of “oral solids,”

including those launched outside of 180-day exclusivity periods as well as those launched

during exclusivity. 

B. Brand and Generic Industry Involvement in Authorized Generics

The following sections examine industry involvement in two aspects of AGs – the

authorization by NDA-holding companies of the marketing of AGs under their NDAs; and the

distribution of AGs by companies that may or may not hold the NDAs. Companies that

authorize the marketing of AGs under their NDAs are usually, but not always, brand-name

companies, as explained below. By contrast, companies that distribute AGs may be subsidiaries

or divisions of brand-name companies or external generic marketing partners of brand-name

companies. Examination of these marketing patterns provides background for understanding the

impact of AGs on industry participants and the differences in companies’ views regarding AGs. 
15 This issue is explored in Chapter 3, Section III.B.3.

16 These were companies that had rights to the NDA for a brand-name drug that was included in the

study because it was related to an AG, a paragraph IV certification, or first generic entry (with or

without exclusivity) within specific time frames. The group of 55 companies that received the FTC’s

Special Order for brand-name companies, and four other companies that were identified later, included

most major brand-name companies. See infra Appendix C. A few companies generally regarded as

generic companies received both brand and generic Special Orders, because in addition to their

ANDA-generic business they held a few NDAs that were the basis for marketing AGs. See infra

Appendix H for more information on the criteria for inclusion of drugs and companies in the study.

17 See, e.g., infra Chapter 5, text accompanying note 17.

15

In addition, the different marketing patterns might affect brand pricing strategy.15

1. Authorization of Generic Drugs by NDA-Holding Companies

The majority of NDA-holding companies included in the study authorized a generic

product under their NDAs. As shown in Figure 2-2, 43 companies, about three-fourths of those

in the study, distributed or granted rights to distribute AGs pursuant to their NDAs. Most of

these companies were brand-name companies, while a few were primarily generic companies or

companies with both brand and generic businesses.16 Most AGs, however, arose from the NDAs

of a few large brand-name pharmaceutical companies that have emphasized AG marketing; two

companies accounted for 29% of the 119 AGs. Four large companies accounted for 44% of the

AGs. Such companies may have developed a reputation for marketing AGs.17
16

Figure 2-2: Number of Authorized Generic Drugs 

per NDA-Holding Company

0 4 812 16 20

X-Gen

Takeda

Somerset

Reliant

Novo Nordisk

Lannett

Hoffman-La Roche

Hi-Tech

Eli Lilly

Eisai Daiichi Sankyo Cephalon

Celgene

Blansett

Astellas Aqua

Wyeth

UCB

Teva

Stat-Trade Solvay Sigma-Tau

Shire

Savient

Salix

PDL BioPharma

Otsuka

Mission Pharmacal

MGI Pharma

K-V Pharma King

Jerome Stevens

Elan Bradley Boehringer Ingelheim

Biovail

3M

Warner Chilcott

Valeant

Sciele

Schwarz Schering-Plough

Purdue

Proctor & Gamble

Mallinckrodt

Forest Duramed (Barr) Bayer

Abbott Organon

Merck

Watson

Sanofi-Aventis Bristol-Myers Squibb

AstraZeneca

Novartis

Johnson & Johnson

GlaxoSmithKline

Pfizer

Number of AGs from 2001-2008

For each company, the graph includes all AGs marketed pursuant to the company’s

NDAs, whether marketed internally (e.g., by a subsidiary), or through an external generic

partner. The figure includes all companies that held an NDA under which an AG shown

in Figure 2-1 was marketed, and the other NDA-holding companies included in the study. 

Most were brand-name companies, but a few were primarily generic or mixed

brand/generic companies with rights to market the brand-name drug pursuant to their

NDAs. See Appendix H for more information on the categorization of companies. 

Several reasons may explain why about one-fourth of the NDA-holding companies had

no AGs. A number of these companies, often small ones, had few or no instances of first generic

entry with respect to their brand-name drugs during the period covered by the study. Such
18 See infra text accompanying note 28 (agreements usually provide for AG launch upon ANDA-generic

entry or the date of expected ANDA-generic launch); Chapter 4, Section III.A (AG launch usually

occurs at ANDA-generic entry). 

19 See infra Chapter 3, Section III.C.2; Chapter 4, Section I.A. Brand strategies to address the loss of

revenue at generic entry by promoting sales of a new patent-protected drug at the expense of a product

for which generic entry has occurred (a “product hop”) could be less effective or even incompatible

with an AG, e.g., if the brand discontinues the NDA for the product experiencing generic entry. 

20 See, e.g., FED. TRADE COMM’N & U.S. DEP’T OF JUSTICE, IMPROVING HEALTH CARE: A DOSE OF

COMPETITION ch. 7, at 20 (2003), http://www.ftc.gov/reports/healthcare/040723healthcarerpt.pdf

(discussing promotion and advertising of brand-name drugs to physicians and consumers, and noting

the absence of such efforts with regard to generic products); FED. TRADE COMM’N, PHARMACY

BENEFIT MANAGERS: OWNERSHIP OF MAIL ORDER PHARMACIES 6–7, 44–46 (2005),

http://www.ftc.gov/reports/pharmbenefit05/050906pharmbenefitrpt.pdf (discussing competition for

placement of brand-name but not generic drugs on PBM formularies); Haiden A. Huskamp et al.,

Generic Entry, Reformulations and Promotion of SSRIs in the US, 26 PHARMACOECONOMICS 603, 604,

606 (2008) (reviewing literature showing that brand-name drug promotional efforts decline

significantly upon generic entry).

21 See, e.g., Company Document (“CD”), July 2004 (generic drugs are a “Commodity business; Highly

competitive and price-driven; . . . Minimal focus on marketing”); CD, Dec. 8, 2004 (identifying

“Competitive Pricing” first in a list of “Key Success Factors for Gx Manufacturers” in marketing to

wholesalers and retailers).

22 See, e.g., CD, Dec. 8, 2004 (identifying “Broad portfolio” among “Key Success Factors”); CD, Mar.

31, 2005 (noting “[s]ome customer preference for larger ANDA portfolios”); CD, July 2004 (top

generic firms provide “Product Quality & Consistency of Supply . . . lapses in supply [ruin

relationship with customer] . . . Self-manufacturing is seen as a major advantage”). 

17

companies would have been unlikely to launch an AG.18 Other companies with no AGs,

however, had a number of drugs that experienced generic entry during the study period. Such

companies may have relied on strategies other than AGs to address the loss of revenue that

occurs with generic entry.19

2. Distribution of AGs: In-House Marketing and External Generic Partners

Because brand-name and generic marketing strategies are very different, brand-name

companies that authorize generic drugs under their NDAs either enter into distribution and

supply agreements with generic companies or develop “in-house” expertise in the strategies and

techniques of generic marketing, usually in a subsidiary or division. Brand-name drugs are

marketed by emphasizing product differentiation to physicians and consumers and by securing

favorable formulary placement with PBMs; such marketing generally drops off following

generic entry.20 

By contrast, generic drugs are commodity products marketed to wholesalers and

drugstores primarily on the basis of price.21 Successful generic marketing may also require

consistency of supply and the ability to offer a broad portfolio of drugs.22
23 The business model for the brand subsidiaries varied. From 2001–2008, the period covered by Figure

2-3, Greenstone, a subsidiary of Pfizer, was the primary example of a brand subsidiary with a generic

portfolio limited to AGs of the parent’s brand-name drugs. Beginning in 2009, however, Greenstone

expanded its portfolio to include ANDA-generics and AGs for which the applications are held by other

companies. See, e.g., Lisa Lucarelli Chandler & Harry Dutt Samaroo, Pfizer and the Greenstone

Brand: A Sustainable Competitive Advantage?, 10 J. MED. MARKETING 155, 157, 161 (2009),

available at http://mmj.sagepub.com/content/10/2/155 (“The Greenstone subsidiary has morphed from

a unit that marketed only Pfizer legacy products to a full line generic company” as a result of

agreements with Aurobindo Ltd. and Claris Lifesciences Ltd. to market a variety of their generic

products); Greenstone LLC, Press Release, Greenstone Selected as Eisai Partner to Launch Authorized

Generic of Aricept® (Donepezil Hcl) Tablets (Sept. 8, 2010), 

http://www.greenstonellc.com/press-release-1.aspx. Other brand subsidiaries listed in Figure 2-3 also

offered ANDA-generic or AG versions of other companies’ brand-name drugs. Sandoz, a subsidiary

of Novartis, and Roxane, a subsidiary of Boehringer Ingelheim, are examples.

24 These include Watson, Teva, Barr, Mallinckrodt, and K-V Pharma. AGs marketed in-house

represented a small fraction of the generic business of these companies, the bulk of which was ANDAgeneric drugs, but also included AGs arising from agreements with brand-name companies. Although

Barr merged with Teva and became Teva’s subsidiary, Barr is treated as a separate company for

purposes of this study because the merger did not become effective until December 23, 2008, close to

the end of the period covered by the study. For more information on the study’s treatment of

companies that merged, see infra Appendix H. 

18

A breakdown of how the NDA-holding companies distributed AGs is shown below in

Figures 2-3 and 2-4. Of the 43 companies listed in Figure 2-2 that had AGs, about a third, listed

in Figure 2-3, marketed AGs internally. About two-thirds, shown in Figure 2-4, entered into

agreements with outside parties. A few companies marketed AGs both internally and externally,

and thus appear in both figures. 

a. In-House Marketing

Figure 2-3 shows that a total of fifteen companies marketed in-house 52 AGs arising

from the NDAs of their brand-name drugs, approximately 44 percent of the 119 AGs in the

study. Ten of these companies were brand-name companies that had generic marketing

expertise, usually in a subsidiary or division. These companies marketed 42 AGs arising from

the NDAs of their brand-name drugs. Almost half of all AGs marketed in-house were

distributed by two brand subsidiaries, Greenstone and Sandoz.23 Figure 2-3 also includes five

primarily generic or mixed brand/generic companies that self-marketed ten AGs for which they

held the NDA.24
19

0 4 8 12 16 20

UCB (Upstate Pharma)

Teva

K-V Pharma (Ethex)

Bradley (A. Aarons)

Boehringer Ingelheim (Roxane)

AstraZeneca

Mallinckrodt

Schering-Plough (Warrick)

(Duramed) Barr

Schwarz/UCB (Kremers Urban)

Forest (Inwood Labs)

Watson

J&J (Patriot)

Novartis (Sandoz)

Pfizer (Greenstone)

Number of Self-Marketed Authorized Generic Drugs (2001-2008)

Figure 2-3: NDA-Holding Companies that Distributed 

Authorized Generic Drugs In-House

This figure depicts a subset of the NDA-holding companies shown in Figure 2-2, those

that distributed AGs in-house. Unlike Figure 2-2, the numbers of AGs shown in this

figure include only AGs for which the firm held the NDA and marketed the AG itself, not

those marketed pursuant to contract. Subsidiaries are shown in parentheses; the first

company listed holds the relevant NDA.

b. Marketing by Contract

i. Brand-Name Companies

While some companies marketed the AGs under their NDAs in-house, about two-thirds,

all of which were brand-name companies, imported the necessary generic marketing expertise. 

As shown in Figure 2-4, twenty-nine brand-name companies marketed a total of 56 percent (67

of 119) of the AGs in the study through arrangements with external generic distributors. 

Typically, the arrangements transferred only marketing rights, so that the brand-name company

retained manufacturing responsibilities.
25 This addresses AGs marketed between January 1, 2001 and December 31, 2008. See infra Appendix

H, Section II. The first number differs from the number of AG agreements identified infra in Chapter

8, which includes agreements that provide for the marketing of AGs in the future.

26 A settlement in which the brand-name firm designates the first-filer to be the authorized generic (or

grants the first-filer an exclusive license) does not undermine a generic’s incentives to challenge

patents because the AG neither competes against the first-filer’s product nor reduces the first-filer’s

20

Figure 2-4: Brand-Nam e Com panies that 

Distributed Authorized Generic Drugs Through 

Agreements with External Generic Companies

0 4 8 12 16

W yeth

Stat-Trade

Solvay

Sigma-Tau

Shire

Savient

Salix

Pfizer

PDL BioPharma

Otsuka

M ission Pharm acal

MGI Pharma

King

Jerom e Stevens

3M

W arner C hilcott

Valeant

Sciele

Purdue

Proctor & Gam ble

Bayer

Abbott

Organon

Merck

AstraZeneca

Sanofi-Aventis

Bristol-M yers Squibb

Johnson & Johnson

G laxoSm ithKline

Number of AGs (2001-2008)

Distributed by Contract

Distributed after Settlem ent with Non-First-Filer

Distributed after Settlem ent with First-Filer

This figure depicts a subset of the NDA-holding companies shown in Figure 2-2, those

that distributed AGs by agreement. It counts only AGs for which marketing was by

agreement with an external licensee, not those for which marketing was in-house. The

categories of agreements are settlements with first filers, settlements with subsequent

filers, and non-settlement contracts. 

Although brand-name and generic companies routinely engage in patent litigation, Figure

2-4 shows that most agreements for distribution of an AG by an external marketer did not arise

from settlement. Fifty-four of the externally-marketed AGs were distributed pursuant to nonsettlement agreements; thirteen were marketed pursuant to distribution agreements that arose

from settlements.25 Of the AGs marketed pursuant to settlements, four were with first-filers of

ANDAs with Paragraph IV certifications.26
revenues. Such agreements are one form of a settlement in which the brand agrees to refrain from

offering a competing AG. See infra Chapter 8. 

27 Exclusive supply and distribution agreements that authorize the marketing of an AG by the first-filer

can raise competitive concerns. They are effectively “No AG” agreements, because, although the AG

is marketed, there is no competing ANDA-generic. See infra Chapter 8.

28 See infra Chapter 4, note 40 and accompanying text.

21

Agreements between a brand-name company and its generic licensee typically are

exclusive: the brand agrees that the generic company is the exclusive marketer of the AG. 

Exclusivity terms may bar competing AG sales by the brand-name firm itself, as well as by other

generic marketers.27 In such cases, the brand may retain the right to market the AG through its

subsidiary after the 180-day exclusivity period expires. 

The agreements also establish the timing of AG launch. Many agreements provide for

launch only after ANDA-generic entry or the date of expected ANDA-generic launch. To ensure

that brand sales are not eroded before ANDA-generic competition begins, penalty provisions

often apply if the AG marketer launches before generic entry.28 

ii. External Generic Licensees of Brand-Name Companies

Most ANDA-generic companies do not market AGs. As shown in Figure 2-5, only 21

generic companies, about one-third of the 59 ANDA-generic and two AG companies in the

study, entered into agreements with the brand-name companies shown in Figure 2-4 to distribute

67 AGs. Of the 21 companies, three were responsible for more than half of the AGs marketed

pursuant to agreement. 
29 Watson and Par are examples. As noted above, a generic licensee may be a subsidiary of another

brand-name firm. See supra note 23.

30 The specialized AG marketer is Prasco. Another AG marketer, Heritage Pharmaceuticals, did not

expressly state that it specialized in AGs but had no ANDA-generic drugs with a paragraph IV

certification or first generic entry (with or without exclusivity) within the study’s time frames.

22

Figure 2-5: Generic Drug Companies that 

Distributed Authorized Generic Drugs by 

Agreement with Brand-Name Companies

0 3 6 9 12 15 1 8

U psher-Sm ith

M allinckrodt

Lannett

H i-Tech

Heritage

G lades Pharm a (Stiefel Labs)

CorePharma

Andrx

Actavis

URL

Teva

Ranbaxy

DAVA

Barr

Sandoz (N ovartis)

Mylan

Dr. Reddy's

Par

Prasco

Ivax

Watson

Num ber of AGs (2001-2008)

Distributed by Contract

Distributed after Settlem ent with Non-First-Filer

Distributed after Settlem ent with First-Filer

The number of AGs per company includes only AGs distributed pursuant to an agreement

with a brand-name company. AGs for which a company held the NDA (e.g., an NDA held

by a brand parent) are not included. The categories of agreements are settlements with

first-filers, settlements with subsequent filers, and non-settlement contracts.

Like the 40 generic companies in the study that did not market AGs, the primary business

of most external AG marketing partners involves filing ANDAs and marketing ANDA-generic

products.29 Only one of the outside marketers specialized in distributing AGs.30 

Outside marketing partners that enter into non-settlement agreements for distributing an

AG may or may not have filed an ANDA or made a Paragraph IV certification covering the

brand-name drug related to the AG. Some brand-name companies will not contract with firms
31 See, e.g., CD, May 18, 2004.

32 See, e.g., Agreement, 2007 (“[Generic Co.] acknowledges and agrees that during the Term, it shall not

. . . file an ANDA . . . with the FDA or manufacture, market, sell or distribute any Competing

Equivalent Product.”); Agreement, 2006 (similar).

33 See, e.g., Agreement, 2007 (generic may manufacture and market an ANDA-generic product after the

exclusivity period but is required to pay the same profit split on its ANDA-generic product as on the

AG). Some settlement agreements also call for a profit split on ANDA-generic products. See

Settlement Agreement, 2005 (marketing of ANDA-generic version); id. (royalty of 5% of net sales of

the ANDA-generic); Settlement Agreement, 2005 (option to market ANDA-generic instead of AG); id.

(requiring the generic to pay 20% of its profits on the ANDA-generic product). This Report cites all

agreements arising from settlements or patent litigation, including settlements, licenses and supply and

distribution agreements, as settlement agreements.

34 See infra Chapter 4, note 46; cf. Settlement Agreement, 2001 (“Buyer may discount . . .Generic

Products or sell . . . Generic Products at a loss or without compensation . . . after negotiation of terms

acceptable to [brand] to compensate [brand] for any loss of Net Profit distribution . . . incurred by

[brand] as a result of such actions by Buyer”).

35 See, e.g., Agreement, 2004 (“‘Transfer Price’ means an amount equal to Manufacturer’s Direct Cost

for the Product.”); Agreement, 2003 (“Delivery Price” is equal to the “Seller’s Cost of Goods for the

manufacture and supply of such Product”); Agreement, 2004 (“[generic co.] shall pay to [brand-name

co.] a transfer price equal to [brand-name co.]’s actual cost of Product”).

36 See infra Chapter 4, Section III.B.

23

that have filed an ANDA or made a Paragraph IV certification for a bioequivalent product,31 and

some non-settlement agreements prohibit the generic firm from filing or marketing an ANDA

product bioequivalent to the relevant brand-name drug.32 Other non-settlement agreements allow

the marketing of an ANDA-generic but require the generic to pay the brand a percentage of the

profits, usually similar to the profit split on the AG.33

A number of terms affect potential profitability:

• Pricing: Neither settlement nor non-settlement agreements restrict the generic

company’s authority in setting the price of AGs. Indeed, they frequently affirm

that authority.34 

• Transfer Price: The transfer or supply price establishes the amount the generic

company pays the brand-name company for the AG. In some agreements, this

price is related by express terms to the cost of manufacturing the AG.35

• Profit-Splits: Most agreements provide a profit-split, which governs the

distribution of profits between the brand and generic companies from sales of the

AG. Many non-settlement agreements require the AG marketer to pay the brand

a large percentage of profits on the AG.36 Profit-splits have implications for

generic firms’ incentives: although AG distribution agreements can give a generic
37 The inverse relationship between exclusivities and AGs could also arise from brand-name company

preferences; as discussed above, some brand-name companies will not contract with generic firms that

have filed an ANDA or made a Paragraph IV certification for a bioequivalent product. See supra text

accompanying note 31. 

38 Generic companies may tap the high revenues available during 180-day exclusivity by marketing AGs. 

The top four companies for marketing AGs by contract (Fig. 2-6) sold about one-third of such AGs

during 180-day exclusivity, about the same fraction as for AGs overall (Fig. 2-8). Generic company

documents discussing plans to market AGs highlighted their value during 180-day exclusivity. See

generally CD, Jan. 15, 2006 (“Strategic Rationale” for entering into an agreement to market two AGs:

“Accelerates path to profitability . . . by accessing profit share during exclusivity period . . . .”); CD,

May 6, 2005 (favorable AG opportunities include “Paragraph IV exclusivities (key value drivers)”).

24

company that was not the first filer the benefit of being able to market during the

180-day exclusivity period, first-filing status provides the possibility of

exclusivity unburdened by a profit-split, albeit with the likely expense of patent

litigation. 

Generic companies generally appear to choose between strategies that focus either on (i)

entering agreements to market AGs or (ii) obtaining first-filing status providing 180-day

exclusivity. Figure 2-6 shows that from 2001 through 2008, companies that marketed the most

AGs by non-settlement agreement tended to have few 180-day exclusivities.37 These companies,

including one that specializes in AGs and does not file ANDAs (Prasco), appear to have focused

on AG marketing, rather than first-to-file status, as a way of enhancing their profitability.38
39 Data regarding recent trends in the timing of generic entry and the length of brand-name firm

exclusivity are presented in Appendix K. 

40 For example, the Prescription Access Litigation Project has argued that “the intent [of marketing an

AG] is not to foster true competition but merely to sabotage the ability of the ANDA filer to take

25

Figure 2-6: Top Com panies for 180-Day Exclusivity Periods and 

Authorized Generic Drugs by Contract

3

3

5

9

11

2 6

14

9

9

4

1

1

1

1

2

0 5 10 15 2 0 2 5 30

Watson

Prasco

Ivax

Par

Sandoz

M ylan

Barr

Teva

ANDA Exclusivity Periods Awarded (2001-2008)

Authorized Generics Launched Pursuant to Non-Settlem ent Agreem ents (2001-2008)

Exclusivities and AGs pursuant to agreement for the four ANDA-generic companies with

the most 180-day exclusivity periods, and the four generic companies with the most AGs

pursuant to non-settlement agreements. In order to make the figure most useful for

examining the extent to which some generic companies seek opportunities to market AGs

rather than to pursue patent challenges, AG counts do not include AGs pursuant to

settlement agreements (which arise from patent challenges). Similarly, the figure does

not include AGs for which the company or a parent or subsidiary company holds the

NDA, because that is a reflection of a company’s brand-name business.

Conversely, Figure 2-6 shows that those companies with the most 180-day exclusivity

periods tend to market few AGs. This difference in strategies, where some companies focus on

marketing an ANDA-generic during 180-day exclusivity while others seek to market AGs, may

contribute to differences in generic company views on AGs, as discussed in Chapter 5.

II. AG Marketing: Relationship to 180-Day Exclusivity Periods and Patent Challenges

By challenging patents, generic companies can bring lower cost drugs to consumers

before the expiration of a drug’s last-to-expire patent.39 Some have argued that brand-name

companies seek to discourage such challenges by launching AGs during 180-day exclusivity

periods, thus reducing ANDA-generics’ incentives to bear the cost of patent litigation.40 To
advantage of the 180-day exclusivity period provided for by Hatch Waxman.” Public Comment from

the Prescription Access Litig. Project et al. to the Fed. Trade Comm’n 4 (June 5, 2006),

http://www.ftc.gov/os/comments/genericdrugstudy3/060605pal.pdf. Similarly, the Generic

Pharmaceutical Association (“GPhA”) stated, “Authorized generics occur when a brand company

introduces or licenses a ‘generic’ version of its product to compete with the true generic during the

180-day exclusivity period, awarded to the first generic manufacturer to challenge the patent.” Public

Comment from the GPhA to the Fed. Trade Comm’n 1 n.2 (June 27, 2006),

http://www.ftc.gov/os/comments/genericdrugstudy3/062806gpha.pdf.

41 See supra note 4 and accompanying text.

42 Although subject to fluctuation from year to year, the number of exclusivity periods generally has

grown during the period analyzed; whereas nineteen exclusivity periods started in 2001–2003, twentynine began in 2006–2008. See Figure 2-7.

43 Most “No AG” agreements do not restrict launch of an AG after the expiration of 180-day exclusivity,

although the restrictions have lasted longer on some products with low sales. See infra Chapter 8,

Figure 8-3.

26

assess the linkage between AGs and ANDA-generics’ 180-day exclusivity periods, this section

examines the prevalence of AG marketing during, and apart from, exclusivity. Similarly, the

section explores the extent to which AGs have been marketed for drugs subject to Paragraph IV

patent challenges, as opposed to other certifications. Although AGs have been present during

most 180-day exclusivity periods, brand-name companies frequently launched AGs in situations

without an exclusivity period or where there was not a patent challenge. The rate of AG launch

was similar for ANDA-generic entry with and without exclusivity and was much more closely

associated with sales levels than with the presence or absence of exclusivity. 

A. AG Marketing During 180-Day Exclusivity Periods

Since 2003, drug companies have marketed AGs during many 180-day exclusivity

periods. Prior to that time, most such exclusivity periods featured only ANDA-generic

products.41 Thus, as shown in Figure 2-7, only two of the twelve (17%) exclusivity periods that

began in 2001–2002 included an AG. Thereafter, the number of exclusivity periods with AGs

increased, and in five of the six years from 2003 through 2008, an AG was marketed during at

least half of the exclusivity periods. From 2003–2008, the percentage of exclusivities with AGs

was 61%, ranging from 43–71% per year.42

Moreover, the percentage of exclusivity periods with AGs likely would have been higher

had it not been for “No AG” settlement agreements. As explained in Chapter 8, “No AG”

agreements, which became common around 2006, are settlements in which a brand promises the

first-filer generic that it will refrain from marketing a competing AG during 180-day exclusivity. 

Such a promise can provide value to persuade a generic to defer entry of its litigated product. As

shown in Figure 2-7, three of the exclusivity periods without AGs in 2006, and two in 2008,

were subject to a “No AG” agreement.43 Without these “no AG” agreements, AGs might have

been marketed during 92% of the exclusivity periods in 2006, and 89% in 2008. Indeed, without
44 AGs marketed outside or without exclusivity included those launched after conclusion of an

exclusivity period as well as AGs for drugs for which there was no exclusivity period. (Also, in one

instance the first-filer marketed, and discontinued, an AG before its 180-day exclusivity period began.) 

This calculation excludes AGs launched during exclusivity that the brand continued to market after the

exclusivity period expired. Nor does it include drugs for which first generic entry occurred prior to

January 1, 2001.

27

“no AG” agreements, 70% of exclusivity periods from 2003–2008 might have had AGs.

Figure 2-7: Number of 180-Day Exclusivity Periods

 W ith and W ithout Authorized Generic Drugs

1 1

4

6 5

9

3

6

3

2

5 5

2

6

2

1

4

1

0

2

4

6

8

10

12

14

2001 2002 2003 2004 2005 2006 2007 2008

Year that Exclusivity Period Started

Number of Exclusivity Per

AG No AG per Settlement No AG

Exclusivity periods with and without AGs. Exclusivity periods without AGs are broken

down into those for which a “No AG” agreement prohibited the marketing of an AG and

those for which there was no such prohibition. Exclusivity periods are shown by brandname drug (not by strength). Because the graph focuses on the competitive conditions of

exclusivities, the x-axis shows the year during which the first 180-day exclusivity period

began for any of the strengths of the drug.. This is not necessarily the year of AG launch.

Similar results are obtained when exclusivities and AGs are plotted by strength. For

more information, see Appendix H. 

B. AG Marketing Apart from 180-Day Exclusivity Periods and Patent

Challenges

Although drug companies marketed many AGs during 180-day exclusivity, they

marketed more during non-exclusive periods, and often for drugs that had not been subject to a

patent challenge. As shown in Figure 2-8, approximately two-thirds of the 119 AGs launched

from 2001 through 2008 were not marketed during an exclusivity period.44 In every year during

the study period except 2008, the number of AGs marketed outside or without an exclusivity

period was considerably higher than the number marketed during exclusivity. In 2008 a little
45 AGs “[n]ot marketed during an exclusivity period” include four AGs that were marketed by the

ANDA-generic that was the first-filer for the relevant drug. These AGs, like others marketed apart

from exclusivity, likely would not have created a disincentive for patent challenges; indeed, they

contributed to the first-filers’ revenues. A fifth first-filer AG was marketed during a 180-day

exclusivity period shared by two competitors, which, under the circumstances, likely would have

anticipated a third competitor during the exclusivity period. 

28

more than half of the AGs launched were marketed during a 180-day exclusivity period. It

remains to be seen whether this shift, which followed a year in which almost all AGs were

marketed apart from 180-day exclusivity, has continued.

Figure 2-8: Number of Authorized Generic Drugs Marketed

During and Apart from Exclusivity

0

2

4

6

8

10

12

14

16

2001 2002 2003 2004 2005 2006 2007 2008

Year of AG Launch

Number of AGs

Marketed during an exclusivity period Not marketed during an exclusivity period

The figure shows the numbers of AGs marketed during and apart from 180-day

exclusivity.45 Because the graph focuses on AGs and the conditions under which they

were launched, the number of AGs per year was graphed by the year of launch for each

AG. The year of AG launch may not be the same as the year when a 180-day exclusivity

period for that drug began. Thus, the number of AGs marketed during exclusivity in this

graph is not always the same as in Figure 2-7, which shows the number of AGs marketed

during exclusivity by the year the exclusivity began. For more information, see Appendix

H. 

Although the overall number of AGs that were not marketed during a 180-day exclusivity

period was greater than the number marketed during exclusivity, it does not necessarily follow

that the rate of AG launch – the percentage of first generic entries for which an AG was
46 Figure 2-9 examines the rate of AG launch by pre-entry market size for drugs for which first generic

entry occurred during the April 2003–December 2008 period analyzed. Because the purpose of that

figure is to examine whether 180-day exclusivity affects the propensity to launch an AG, the

appropriate comparison is between first generic entry with and without exclusivity at similar sales

levels. Launches of AGs into mature markets are not included because the decision whether to launch

an AG into a mature market involves consideration of an additional factor, the ability to gain share in a

market with established generic competitors. By contrast, other figures in this chapter include AGs

launched into mature markets as well as those launched at first generic entry because the analyses are

intended to show the circumstances of launch of all AGs. 

47 First generic entry may occur without 180-day exclusivity because no ANDA included a Paragraph IV

certification, e.g., all generic applicants may have certified to the FDA that they would wait for patent

expiration before entering. Moreover, even when an ANDA included a Paragraph IV certification,

entry occurs without exclusivity under a number of circumstances, e.g., if the first-filer loses the

infringement litigation and obtains FDA approval of its ANDA after patent expiration; launches its

ANDA-generic product more than 180-days after exclusivity was triggered by a court decision; or

relinquishes or forfeits its exclusivity. See, e.g., David E. Korn, Erika Lietzan & Shaw W. Scott, A

New History and Discussion of 180-Day Exclusivity, 64 FOOD & DRUG L.J. 335 (2009); Shashank

Upadhye, GENERIC PHARMACEUTICAL PATENT AND FDA LAW ch. 13, 14 (2010). 

48 See infra Chapter 4, Section I.A.

29

launched46 – was higher when generic entry occurred without exclusivity than with exclusivity.47

Indeed, because of the high revenues potentially available to an AG during exclusivity,48 and the

potential disincentive to future patent challenges, brands might prefer to market AGs during

exclusivity.

As shown in Figure 2-9, however, the rate of AG entry is correlated with pre-entry brand

sales, rather than with the nature of generic entry. While the rate of AG entry increases with preentry brand sales, there was no consistent pattern as to the relative magnitude of the rates of AG

entry for generic entry with and without exclusivity. And within most sales levels, the

percentage of drugs with AGs was similar for ANDA-generic entry with and without exclusivity. 

These data suggest that during the period when AGs have been common, the anticipated sales

level, on average, has had greater bearing on brands’ decisions to launch AGs than whether

generic entry occurred via 180-day exclusivity. 
49 A Paragraph I certification requires an ANDA applicant to state that “patent information has not been

filed,” while a Paragraph II certification requires an applicant to state that “such patent has expired.” 

21 U.S.C. §§ 355(j)(2)(A)(vii)(I), (II). Certification under Paragraph III identifies the date on which

the patent will expire, 21 U.S.C. § 355(j)(2)(A)(vii)(III), and indicates that the applicant is seeking

ANDA approval only after patent expiration. 

Twelve AGs were “old antibiotics” that originally were approved under 21 U.S.C. § 357, and thus

were exempt from the Hatch-Waxman patent listing, patent certification, and 180-day exclusivity

provisions of 21 U.S.C. § 355. Although no patent certifications could have been made for these

drugs, the FDA database lists them among ANDAs with Paragraph I filings. Eleven of the 12 were

30

Figure 2-9: Rate of AG Entry by Pre-Entry Brand Sales

19 / 24 

6 / 11 

5 / 7 

2 / 5 

0 / 6 

9 / 12 

7 / 9 

3 / 5 

7 / 11 

2 / 40 

0%

20%

40%

60%

80%

100%

<$50M $50-100M $100-200M $200-500M >$500M

Annualized Brand Sales Prior to First G eneric Entry

% of Drugs with AG 

Exclusivity No Exclusivity

The figure shows the rate of AG entry by pre-entry sales of drugs for which first generic

entry occurred between April 1, 2003 and December 31, 2008, which is the largest time

window possible using the available IMS data. In each fraction above the bar for a

particular sales range and condition (drug with or without exclusivity), the numerator is

the number of AGs marketed, and the denominator is the total number of drugs for which

first generic entry occurred. Sales levels are annualized based on the three months prior

to generic entry, adjusted for inflation as described in Chapter 3, and include all

strengths of a drug (NDA). If a 180-day exclusivity period was granted for any strength,

the drug was counted as having an exclusivity. Similarly, if an AG was marketed for any

strength, the drug was counted as having an AG.

Data examining the patent certification of ANDAs for brand-name drugs for which an

AG was marketed are consistent with the data showing that the majority of AGs were not

marketed during 180-day exclusivity periods. As shown in Figure 2-10, from 2001 through

2006, more than half of the AGs were versions of drugs that had not been subject to a patent

challenge, i.e., no ANDA included a Paragraph IV certification. During 2001–2006, only 41 AG

launches involved drugs for which an ANDA with a Paragraph IV certification had been filed,

whereas 51 involved drugs for which the highest certifications fell under Paragraphs I, II, or III.49
marketed from 2001–2006. Even if the 11 “old antibiotics” were excluded from the analysis of those

years, about half of the AGs from 2001–2006 (40 out of 81) arose from NDAs of drugs for which there

was no patent challenge.

50 One possibility is that they could reflect a decline in the prevalence of drugs that were not subject to

patent challenges, rather than a shift in the reasons for AG launch. See Chapter 7, Section II; see also

AARON GAL & NIKHIL R. CHARI, BERNSTEIN RESEARCH, THE LONG VIEW: U.S. GENERIC

PHARMACEUTICALS - A BOTTOM-UP MODEL OF THE U.S. COMMODITY GENERICS MARKET IN 2009, at

3, 7, 13, 14 (by dollar or prescription volume, Paragraph IV drugs increased in prevalence from 2004

31

Figure 2-10: Number of Authorized Generic Drugs Launched, by 

Highest Patent Certification in ANDAs

0

5

10

15

20

25

2001 2002 2003 2004 2005 2006 2007 2008

Year of AG Launch

Number of AGs

Paragraph 1 Paragraph 2 Paragraph 3 Paragraph 4

The graph shows the highest patent certification by ANDAs filed with respect to the NDA

pursuant to which the AG was marketed, i.e., the NDA for the reference-listed brandname drug. The number of AGs for which the brand-name drug was subject to an ANDA

with a PIV certification is higher than the number shown in Figure 2-8 of AGs marketed

during an exclusivity period because not all patent challenges result in an exclusivity

period. This figure includes Paragraph IV certifications for five drugs, the same as those

discussed in footnote 45, for which an AG was marketed by the first-filer. 

 

Nonetheless, beginning in 2003 there was a substantial increase in the number of AG

launches for drugs that were subject to a Paragraph IV certification, and by 2007–2008 most

AGs were versions of drugs for which there had been a Paragraph IV certification. The

predominance of AG launches associated with a Paragraph IV certification in 2007–2008

appears to arise more from a decrease in AGs for drugs subject to ANDAs with Paragraph I, II,

or III certifications, than from an increase in those subject to PIV. Figure 2-8 similarly shows a

decrease in 2007 and 2008 of the number of AGs that were not marketed during a 180-day

exclusivity period. Various factors could have contributed to the decreases.50 In any event, it
through 2008 and comprised the bulk of generic market entry beginning in 2006). Another possibility

is that the drop in AGs marketed apart from exclusivity and Paragraph IV certifications could have

arisen from decisions not to market less profitable AGs as a result of implementation of the Deficit

Reduction Act in 2007. See infra Appendix J.

32

does not appear that the more controversial aspect of AGs, their launch during exclusivity, is

undergoing a similar decline. 

Taken together, the exclusivity and patent certification data in Figures 2-8 and 2-10

indicate that during the period when AGs became common, undermining 180-day exclusivity

was unlikely to have been the primary rationale for many AG drugs. This does not preclude a

disincentive effect or rationale for those AGs that were marketed during 180-day exclusivity

periods, but it suggests that different or additional explanations for AG marketing also should be

considered. 

III. Conclusion

AG marketing became commonplace around 2003, with many brand-name companies

marketing AG versions of their drugs either through subsidiaries or via partnerships with generic

companies. AGs frequently were marketed during the 180-day exclusivity periods granted to the

first ANDA-filer for a particular drug. Indeed, from 2003–2008, the percentage of exclusivities

with AGs was 61%, and might have been 70% without “No AG” agreements. 

Nonetheless, AGs marketed during exclusivity were in the minority. More AGs were

marketed after exclusivity or when no exclusivity had occurred; many of the latter drugs had not

been subject to a patent challenge. The rate of AG launch increased as pre-entry brand sales

increased, and within most sales levels was similar for ANDA-generic entry with and without

exclusivity; there was no consistent pattern in the relative magnitude of rates of AG entry for

generic entry with and without exclusivity. These findings suggest that, on average, the

anticipated sales level of the brand-name drug has had greater bearing on decisions to launch 

AGs than whether ANDA-generic entry occurred via exclusivity. The findings, however, do not

preclude a disincentive rationale or effect for AGs that were marketed during exclusivity.

The widespread marketing of AGs, especially during exclusivity periods, suggests that

AGs could have a number of important short-term effects. They could spur competition that

might reduce prices during exclusivity, perhaps generating savings for consumers. Similarly,

marketing of AGs during exclusivity periods could have an impact on the revenues of both

ANDA-generic and brand-name firms. Chapter 3 addresses these issues based on quantitative

economic data. 
1 FED. TRADE COMM’N, AUTHORIZED GENERICS: AN INTERIM REPORT (“Interim Report”) (2009),

http://www.ftc.gov/os/2009/06/P062105authorizedgenericsreport.pdf.

2 The analysis performed in this chapter allows for careful consideration of the statistical properties of

the estimates. The analysis of price effects, for instance, often yields estimated effects that would not

be unlikely to have been observed even if the true effect was zero, in which case the estimated effects

are characterized as not statistically different from zero or “statistically insignificant.” Just how

unlikely the estimated effect would be if the true effect actually was zero is often referred to as the

level of significance. For instance, if the significance level associated with an estimated effect is 10%,

that would generally be considered weaker evidence that the observed data was inconsistent with a true

average effect of zero than if the significance level is 5%.

33

CHAPTER 3 SHORT-TERM IMPACTS OF AUTHORIZED

GENERICS: PRICE AND REVENUE EFFECTS DURING

180-DAY EXCLUSIVITY

This chapter analyzes the effects of AG drug competition on several market outcomes

during FDA-granted 180-day exclusivity periods. The market outcomes that are the focus of the

analysis are prices and revenues. Preliminary analysis of these data appeared in the Interim

Report.1

 This chapter employs more sophisticated tools to account for market characteristics that

may systematically differ between AG and non-AG markets, in order to better isolate the effect

of the AG.

As discussed in Chapter 1, an important consequence of competition from AGs may be

that purchasers face lower prices. This chapter confirms the Interim Report’s finding that the

presence of an AG during a 180-day exclusivity period is associated with lower retail and

wholesale prices. The analysis in this chapter finds that the presence of an AG during an

exclusivity period was associated with lower generic prices – ranging from slightly, but not

significantly,2

 lower to as much as 14% lower. The estimated impact generally was smaller for

retail prices than for wholesale prices.

Another key finding of the Interim Report was that revenues of first-filer generic

manufacturers were substantially lower in the presence of AG competition. Again, the more

sophisticated analysis in this chapter confirms the findings of the Interim Report, that AG

introduction significantly diminishes first-filer revenues during the exclusivity period. This

chapter finds that the wholesale expenditures on the first-filer’s generic drug – a proxy for

revenues – were 40 to 52 percent lower, on average, when an AG was present. AGs could have

material long-term effects if their impact on first-filer revenues is large enough to substantially

alter the incentives to file Paragraph IV challenges or even to file an ANDA at all. Discussion of

the impact on incentives to pursue Paragraph IV challenges is a topic of Chapter 6, where the

effects of AGs beyond the exclusivity period are estimated. 
3 IMS CONSULTING, IMS HEALTH, ASSESSMENT OF AUTHORIZED GENERICS IN THE U.S. (2006)

(written for the Pharm. Research and Mfrs. of Am. (“PhRMA”)),

http://replay.web.archive.org/20061009134405/http://www.phrma.org/files/IMS%20Authorized%20G

enerics%20Report_6-22-06.pdf (“the IMS Study”). 

4 Id. at 9–11.

5 Aidan Hollis & Bryan A. Liang, An Assessment of the Effect of Authorized Generics on Consumer

Prices, 10 J. BIOLAW & BUS. 10, 20–21 (2007) (written for the Generic Pharm. Ass’n (“GPhA”)) (an

earlier version of this article was made available by GPhA in July 2006, available at

http://www.gphaonline.org/sites/default/files/GPhA_AG_Study.pdf) (“Hollis and Liang”). 

6 Id. at 11–12.

34

A related question about incentives is whether the AG’s direct revenue impact alone

makes the decision to launch a rational choice, or whether indirect effects, such as potential

deterrence of Paragraph IV challenges, must also be present to make the strategy profitable. 

There is some evidence that brand-name drug manufacturers have higher revenues during the

exclusivity period when they introduce an AG than when they do not.

This chapter begins with a review of some prior studies that investigated related topics. 

That is followed by a description of the data compiled for this study and a discussion of the basic

methodology used in the analysis. Finally, the chapter presents new analysis of the impact of

AGs on prices and revenues of generics and brands during exclusivity periods.

I. Prior Studies

The short-term price effects of AGs have been examined in a series of prior studies that

have not completely resolved the questions raised above. In 2006, IMS Consulting conducted a

study commissioned by the Pharmaceutical Research and Manufacturers of America (“PhRMA”)

to measure the impact of AGs upon costs to the health care system through their influence on

generic pricing, both during and after periods of 180-day exclusivity.3

 It compared two groups

of generic drugs. The first group included nine drugs for which an AG competed against a single

generic firm during the 180-day exclusivity period. The second group included nine drugs for

which a generic drug company with 180-day exclusivity did not face AG competition. The study

concluded that, relative to the brand price, wholesale generic prices were about 16 percent lower

when the first generic faced competition from an AG. (The generic price was 38.8% lower than

the brand price with AG competition but only 23% lower when there was no AG.)4

 The

statistical properties of these estimates were not discussed, which could be important given the

small number of drugs used in the analysis. 

The IMS Study was critiqued on numerous fronts by Aidan Hollis and Bryan Liang5 in a

study released by the Generic Pharmaceutical Association (“GPhA”). First, the authors suggest

that retail prices, rather than wholesale prices, should have been used. Second, the authors point

out that “the PhRMA study appears to examine the average generic price discount off the brand

price at any point in time.”6 They argue that this approach is erroneous because brand prices

may change over time and instead recommend that generic prices be compared to the brand price
7 Id. at 14.

8 For example, the authors contend that minor drugs such as Ganciclovir should not be weighted as

heavily as major drugs such as Fluoxetine. Id. at14.

9 PHRMA, HOWREY LLP & CAPANALYSIS, AUTHORIZED GENERICS BENEFIT CONSUMERS BY REDUCING

PRICES: A REPLY TO HOLLIS & LIANG (2007),

http://www.howrey.com/files/News/29b5c3ee-6dd3-480f-9c42-c2dd170f7e94/Presentation/NewsAttac

hment/0e5f5d06-0649-453a-8784-efe59844cea1/Authorized%20Generics%20Benefit%20Report.pdf.

10 Id. at 6–8.

11 HOWREY LLP, THE SHORT-TERM AND LONG-TERM COMPETITIVE IMPACT OF AUTHORIZED GENERICS

14–15 (2009) (written for PhRMA),

http://www.ftc.gov/os/comments/genericdrugstudy3/091028pharmresearch.pdf.

35

that prevailed prior to entry. This issue is especially pertinent because, according to the authors,

brand prices tend to increase more following introduction of an AG than they do following

introduction of an ANDA-generic. After adopting these two changes, Hollis and Liang conclude

that, for the same set of drugs analyzed by IMS, the average generic discount off the pre-entry

brand price was 15% without an AG and 20% with an AG.7

 Again, the statistical properties of

these estimates are not reported. 

Hollis and Liang go further however, and argue that even the 5% difference overstates

the immediate benefits from AGs. In particular, the authors argue that each of 18 drugs used in

the IMS Study should be weighted by sales. When this is done, Hollis and Liang conclude that

the average generic discount off pre-entry brand price is virtually identical with and without AGs

(17.1% with an AG and 17.7% without an AG).8

 

The controversy over whether retail or wholesale price is the more appropriate measure

of the impact of AGs received further attention in a white paper produced for PhRMA by

Howrey and CapAnalysis.9

 It argues that the retail pricing data used by Hollis and Liang do not

accurately portray the impact on consumers: many of the reported transactions are for

individuals covered by health insurance, so that the data include payments from the pharmacy

benefit manager to the pharmacy plus a dispensing fee, in addition to a co-payment paid by the

consumer. Furthermore, the white paper argues that retail pharmacies set prices based on many

factors that are unrelated to the AG question, making reliance on wholesale prices more

appropriate when investigating the effect of a change in the level of competition between rival

manufacturers.10 Howrey also responded to the findings from the FTC Interim Report in a

separate white paper produced in 2009. Combining the findings from the Interim Report and

their own analysis, they construct a metric of aggregate consumer benefit from the introduction

of an AG using the short-term price effect estimates from the sales-weighted wholesale data

presented in the Interim Report.11

Neither wholesale nor retail data are direct measures of consumer outcomes in these

markets, but both can shed light on the impact of AGs on consumers provided that care is taken

in their use and interpretation. While the linkage between consumer benefit from a lower retail
12 Estimating the impact on consumers in pharmaceutical markets is indeed a very difficult task, due not

only to the prevalence of private health insurance, but also government programs. The Centers for

Medicare and Medicaid Services estimate that in 2007, consumers’ out-of-pocket payments accounted

for 21% of expenditures on pharmaceuticals; private health insurance paid for 44%; and public funds

covered the remaining 35%. See National Health Expenditure Data: Historical, CTRS. FOR MEDICARE

AND MEDICAID SERVS.,

http://www.cms.gov/NationalHealthExpendData/02_NationalHealthAccountsHistorical.asp. The

extent to which a given retail price increase is passed on to each of these types of payers depends on

contracts between retail pharmacies and pharmacy benefit managers; contracts between pharmacy

benefit managers and health insurance plan sponsors; provisions of health benefit plans; and Medicare

and Medicaid regulations. Untangling this web of dependencies is beyond the scope of this Report.

13 A detailed description of these sources and how they were processed is provided in Appendix I.

14 The full reference for data that will be referred to as retail or NPA data is: IMS Health, IMS National

Prescription Audit Plus 7TM, Years 2003 to 2008, Data Extracted January 2009. The channels included

in our National Prescription Audit data are Chain Stores, Food Stores, Independents, Long-Term Care,

and Mail Service. The full reference for data that will be referred to as wholesale or NSP data is: IMS

Health, IMS National Sales PerspectivesTM, January 2003 to December 2008, Retail and Non-Retail

Channels, Data Extracted February 2009. The channels included in our National Sales Perspectives

data are: Chain Stores, Clinics, Federal Facilities, Food Stores, HMOs, Home Health Care,

Independents, Long-Term Care, Mail Service, Misc-Other, Misc-Prisons, Misc-Universities, and NonFederal Hospitals. The analysis presented here aggregates all sales across channels.

36

price is undeniably less direct in pharmaceutical markets than in most other markets,12

consumers nonetheless benefit from lower retail prices, whether through reduced out-of-pocket

payments, lower health insurance premiums, or a diminished tax burden. Furthermore, some

portion of the cost savings from lower wholesale prices will get passed on to the consumer,

depending on market conditions in the health insurance and retail pharmacy markets, so

wholesale prices could be used as a measure of the impact on consumers, or at least as a measure

of cost savings to the health-care system.

The second main point of the CapAnalysis paper, that wholesale data more directly

reflect changes in competition between manufacturers, seems valid. To the extent that this

Report’s analysis seeks to quantify measures of competition between manufacturers, it will rely

primarily on wholesale data, though analysis of the retail data will also typically be reported for

completeness. 

II. Description of the Data

The empirical analysis performed for this study relies on information drawn from several

different data sources.13 The FTC acquired a license for both retail and wholesale sales data

from IMS Health Services (IMS). It obtained monthly wholesale and retail dollar and quantity

sales data for oral solid prescription drugs from January 2003 through December 2008.14 The

licensed sales data have been combined with drug information from the Food and Drug

Administration (FDA) and firm submissions. All retail and wholesale expenditures and prices

are deflated to December 2008 dollars using the monthly producer price index (PPI) series for
15 The monthly Producer Price Index (PPI) for finished goods (WPSSOP3000) over the period of our

data (January 2003 through December 2008) is obtained from the Bureau of Labor Statistics. See

Producer Price Indexes, BUREAU OF LABOR STATISTICS, http://www.bls.gov/ppi/data.htm.

16 Throughout this chapter and Chapter 6, the term “product” refers to a full specification of active

ingredient(s), dosage form, and strength. The term “molecule” refers to the set of active ingredients

that are included in a single tablet or capsule. The definition of a “product” using IMS data, for

purposes of this chapter and Chapter 6, differs from the definition of a “drug” used elsewhere in this

Report in describing data from the FDA. FDA drug information is provided at the NDA and ANDA

level, whereas IMS product information is provided at the level of the molecule-dosage-form-strengththerapeutic class. 

17 Sales of a generic or AG product prior to the end of an FDA-granted exclusivity period are treated as

occurring during an exclusivity period. 

18 The analysis in this chapter compares prices and expenditures before and shortly after first generic

entry. In order to ensure availability of at least three months’ data prior to generic entry, the analysis is

limited to products with first generic entry no earlier than April 2003. Chapters 3 and 6 do not cover

introductions of AGs that occurred from 2003 through 2008 if another generic entered prior to April of

2003. As such, this should be seen as an analysis of the impact of AGs on recently genericized

markets.

19 For instance, among products with 180-day exclusivity, the average market size for products with an

AG was more than twice that when no AG was launched ($381 million versus $178 million). The

difference was even more pronounced for products that were not subject to a Paragraph IV challenge. 

As was the case for Figure 2-9, market size is calculated throughout this chapter as the annualized

retail sales of the brand-name product based on the three months prior to generic entry, measured in

December 2008 dollars. 

37

finished goods.15 Whether a product16 faced a Paragraph IV challenge and the dates of any

exclusivity period arising from the challenge were determined using information obtained from

the FDA.17 AGs were identified based on information from the FDA, supplemented and

verified using information subpoenaed from the pharmaceutical firms. Among other things, the

subpoenaed information reports on whether the brand issued an AG and, if so, the identity of the

AG distributor. The study thus builds upon and supplements the data used in prior research

regarding the impact of AGs, including the IMS Study sponsored by brand-name manufacturers

and the Hollis and Liang study released by the generic manufacturers. Using the combined data,

the sample covers 312 products that first faced generic competition during the period between

April 2003 and December 2008.18

The relationships depicted in Figure 2-9 and Figure I-1 in Appendix I show that AGs

tend to be introduced on relatively higher sales products19 and suggest that market size may

influence decisions about both whether to attempt generic entry through a Paragraph IV

challenge and whether to launch an AG. One concern is that market size also may be correlated

with the amount of discounting that happens following generic entry, which may make it

difficult to separate the price effect of AG presence from the hypothesized price effect of market

size. Furthermore, market size may not be the only variable that helps explain the competitive

environment.
20 The endogeneity of the decision to issue an AG was also addressed by using instrumental variables

regression analysis. These regressions used either market size, brand-name firm identity, or both to

predict whether an AG would be launched, and then estimated the impact of the predicted presence of

an AG on prices. The results of this analysis did not differ substantively from the results reported

here.

21 In addition, AG competitors might replace potentially more aggressive ANDA-generic competitors

outside of the 180-day exclusivity period. In this way, consumers could face higher prices for generic

products outside of exclusivity. Chapter 6 explores this issue.

38

The regressions in this chapter attempt to control for many of these issues by including

product-characteristic controls in the analysis of the effect of AG competition on market

outcomes. Therapeutic class indicator variables represent an important subset of these productcharacteristic controls. Therapeutic class indicators, as defined by the data vendor, IMS, are

used to group together similar products that treat similar conditions. The condition treated by

the product is the single most important characteristic relating the products in a category

together. Therefore, the regression analysis of this chapter uses the therapeutic class indicators

to help control for potential differences between products that have an AG and products that do

not.20 The use of these controls is discussed further in Appendix I. 

III. The Effect of Authorized Generic Competition During the Exclusivity Period

The introduction of an AG can affect consumers in several ways. Some of these effects

may be beneficial, but others could be harmful. For example, in the short-run, consumers may

benefit from lower prices associated with additional competition from an AG. However, in the

long-run, the expectation of an AG may deter ANDA-generic firms from challenging

questionable patents using a Paragraph IV certification. If there were deterrence, consumers

would not have the opportunity to choose the generic alternative until the (potentially invalid or

not-infringed) patent of the brand had expired.21 Furthermore, the anticipation of revenues from

an AG version of a drug in addition to the brand sales of the drug could potentially provide

added incentive for the brand-name company to develop the drugs in the first place, which could

also benefit consumers. Whether an AG is, on net, beneficial to consumers depends on the

relative size of the beneficial and harmful effects.

Although the analysis will not be able to address the full welfare implications of the

introduction of an AG, the empirical analysis attempts to estimate many of the effects that AG

competition may have on market outcomes that are relevant in both the short- and long-run. We

begin by considering how AG competition affects generic and brand prices and revenues during

the exclusivity period.

The price analysis addresses several issues important to consumers. Introducing an AG

during exclusivity might be expected to add a competitor to the lone ANDA-generic and,

consequently, to reduce generic prices in the short-run. The analysis estimates this effect using

both retail and wholesale data. The prices of AGs and rival ANDA-generics are also compared

to investigate whether one type of generic tends to be a relatively more or less aggressive price
22 Other competitive environments are possible due to legal provisions that allow for shared exclusivity;

settlement arrangements between brand-name and ANDA-generic firms; or other market anomalies. 

For example, the third most commonly observed competitive arrangement during exclusivity is an

AG-only market, but this is a distant third. Generally, such arrangements can be explained by

settlements between brand-name and ANDA-generic firms or short-run supply problems for the

ANDA-generic firm. Our econometric specifications account for the possibility that atypical

competitive environments could generate atypical market outcomes by including in the price

regressions an indicator variable for these markets. The coefficient on this indicator variable is rarely

statistically significant.

39

competitor than the other. Because the effect of AGs on generic prices may be somewhat offset

or exacerbated by brand-name firm pricing decisions, the analysis also considers the effect of an

AG on brand prices. Furthermore, we investigate the extent to which both generic and brand

prices depend on the nature of the relationship between the AG marketer and the brand-name

firm. For instance, one analysis looks at differences in brand pricing depending on whether the

AG marketer is a subsidiary of the brand or an independent licensee.

Firm revenues are also studied. The revenues available during the 180-day exclusivity

period may be an important consideration in a generic firm’s decision to challenge a patent. This

chapter provides estimates of the impact of AG competition on first-filer revenues during

exclusivity. In Chapter 6, this information is combined with other findings to assess how the

presence of an AG is likely to affect a generic firm’s incentives to challenge a patent.

The revenues of the brand-name firm during exclusivity are analyzed to provide insight

into its motivation for issuing an AG. Assuming that the brand-name firm is profit-maximizing,

a strategy that reduces revenues in the short-run must either decrease short-run costs at least as

much, or be motivated by a long-term objective. If the AG diminishes brand-name firm

revenues in the short-run, the profitability of offering an AG most likely would be attributable to

longer-term effects, perhaps entry deterrence. However, if the brand-name firm earns higher

revenues in the short-run by issuing an AG, then the decision to issue an AG may be either a

long-run or a short-run strategy.

The analyses compare these market outcomes across groups of products that are

distinguished by whether an AG was marketed. They control for product attributes that could

potentially confound the effects of an AG with the impacts of other product characteristics in

order to estimate the effect of AG entry. Limitations on generic entry during the exclusivity

period create a relatively homogenous set of market conditions that do not change very much

over time. Approximately 74% of products observed during exclusivity fall into one of two

categories: a single ANDA-generic competitor (ANDA-Only); or an ANDA-generic and an AG

competitor (ANDA+AG).22 The competitive environment for individual products tends to be

stable during exclusivity. Over 85% of products observed during exclusivity begin and end the

period with the same competitive environment (for example, they begin and end exclusivity as

an “ANDA-Only” product). Similarly, products with the same molecule typically face identical
23 Of the 40 molecules observed during exclusivity, only seven (16.7%) have at least one strength or

dosage form that faces an AG competitor and one that does not. For the typical molecule in the

sample, either all or none of the strengths face AG competition.

24 Because the sample is limited to oral solid dosage forms, the extended units are equivalent to

molecule-strength-dosage-form combinations. In other words, the analysis is done at the 9-digit

National Drug Code level. 

25 For both the retail and wholesale analysis, the monthly generic market price for a product is calculated

as the total sales dollars of all generic products divided by the extended units sold by all generic

manufacturers. For example, in markets that have both an ANDA and an AG in the market, this

calculation represents the sum of the total sales dollars from the ANDA and the AG divided by the

total extended units sold by the ANDA and the AG. Consequently, in markets with more than one

manufacturer the generic price is a weighted average of all generic manufacturer prices.

26 To be more precise, let G be the average price of a generic product in the current month, and B the

average price of the brand-name product in the three months prior to generic entry. The generic

relative price would be calculated as G/B. The generic discount off the pre-entry brand price, as

discussed in the Interim Report, supra note 1, is 1-G/B.

40

competitive environments.23 

A. Market Prices of Generic Drugs

Nearly all of the previous studies of AGs’ short-run effects have found that generic prices

during exclusivity are lower in markets with an AG than in markets without an AG. However,

these studies find effects of different magnitudes because they apply different methodologies to

analyze two different data sets, retail and wholesale sales data. The original price analysis in this

Report considers the effect of an AG on generic prices using both wholesale and retail data and

employing several methodologies as robustness checks. 

 

The measure of quantity used in this analysis is an extended unit. For example, if a

pharmacy buys a bottle of 1000 10mg tablets of Alendronate, the extended unit is a tablet, so the

quantity associated with that purchase would be 1000. The unit of observation is a product,

which as described above, refers to active ingredient(s)-strength-dosage-form combinations.24

Using measures derived from IMS Health’s retail and wholesale data, price is calculated as the

total dollars spent on the product during the month divided by the number of extended units of

the product sold within the month. 

Generic prices are normalized across products by dividing the generic price by the

average price of an extended unit of the brand-name version of that product in the three months

preceding generic entry. This calculation provides the standard measure of price used

throughout this Report, referred to as the “relative price.”25 Normalization is necessary to allow

comparisons and aggregation across products that may have very different nominal prices. 

Normalizing generic prices by the pre-entry brand price accords with recent literature that

reports relative prices in terms of the percentage discounts off the pre-entry brand price.26
27 See infra Appendix L for details regarding the exact specification of the model.

28 These prices are plotted for one month only, so that all data points reflect markets that have had the

same amount of time to adjust to generic entry. Month four data reflect conditions after the markets

have had some time to adjust to generic entry, but before the end of exclusivity was imminent. 

Corresponding graphs for other months are not substantially different.

41

1. Generic Retail Market Prices

This section reports on estimated percent changes in average retail relative prices of

generic products due to AG entry. These prices are referred to as market prices because they are

averages of ANDA and AG prices, to distinguish them from firm level prices. The estimates are

predictions made using the results from a linear regression model relating generic prices to

characteristics of the competitive environment.27 

The empirical analysis in the Interim Report focused on two subsets of products. In the

first subset, only an ANDA competitor provided a generic product during exclusivity. In the

second, an ANDA competitor was joined by an AG. The Interim Report noted potential

problems with comparing summary statistics between these two sets of markets to determine the

impact of AG competition because the decision to launch an AG may depend on characteristics

of those markets that also affect the summary statistics independent of the AG effect. The

regressions in this chapter employ econometric methods to address that concern.

Before turning to the regression analysis, first consider Figure 3-1, which provides

graphical evidence consistent with the regression results that follow. Figure I-1 in Appendix I

shows that introduction of an AG was substantially more frequent on products with higher preentry brand sales. One might be concerned that relative prices may also be correlated with the

market size, so Figure 3-1 plots the relative market price for each product in the two subsets

(ANDA-Only and ANDA+AG) against the market size for that product in the fourth month of

exclusivity.28 On average, relative market prices in ANDA-Only markets are 0.85, and they are

0.81 in ANDA+AG markets. It is clear from the graph that all of the smaller markets are

ANDA-Only markets, but that some of the larger markets are also ANDA-Only. As suggested

by the averages, the ANDA-Only products tend to have higher relative prices, and this appears to

be true regardless of the market size, though there are exceptions.
29 The manufacturers are included in the regression by a set of indicator variables that describe the

competitive environment. For example, all of the models include dummy variable indicators

(variables that take the value of one if true and zero if false) representing each possible number of

manufacturers, whether an AG is present, and interactions between the two. The dependent variable is

the generic relative price. Logarithmic transformations of the relative price result in nearly identical

AG effects in all pricing models. See infra Appendix L for a more detailed description of the model

employed and its assumptions.

42

Figure 3-1: Generic Retail Relative Market Prices in Month Four of Exclusivity

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

1.1

100,00 0 1,000,000 10,000,000 10 0,000,000 1,0 00,000,000

M arket Size

Relative Price

ANDA+AG AN DA-Only AND A+AG Average ANDA-Only Average 

In order to more carefully investigate the effect of an AG, several linear regression

models are estimated with different types of controls to take account of the possibility that

markets with an AG may be inherently different from non-AG markets. All of the models

explore the effects on relative generic market prices associated with the number and type of

generic marketers.29 Some of the models also control for the effects of additional factors, other

than the presence of an AG, that might also affect price. These models introduce product

characteristic controls (or “Full Controls”) that include dosage form, the number of months since

generic entry, and therapeutic class indicators. 

 Whether the appropriate model should include such product characteristic controls

depends on the nature of AG competition. The decision to market an AG is non-random. The

presence of an AG reflects a deliberate choice made by a brand-name manufacturer with a good

understanding of the market for that product. Consequently, products that have AG competitors

may be systematically different from products without AG competitors. A brand-name firm may

choose not to issue an AG when consumers are likely to be reluctant to switch to generic
30 Similarly, controlling for other product attributes, such as dosage form and the months since entry, can

help control for factors that could be related to the presence of an AG and price. For example, a

consumer may be more reluctant to switch to generic forms of a product with an extended release

formula, and producing generic versions of extended-release drugs may be relatively more costly than

for typical drugs, making those products both less attractive as AG markets and likely to experience

higher relative generic prices. Controlling for the number of months since entry can take separate

account of any market dynamics associated with a product’s life cycle, such as the decline of

advertising’s influence over time. 

31 The Interim Report, supra note 1, estimated the difference in the discounts between markets with an

AG and markets without an AG. In order to convert the differences from that report to a percentage

change in the generic price as reported here, they would need to be divided by the average price of the

generic. For example, the Interim Report found that the unweighted average difference between retail

discounts in ANDA+AG and ANDA-Only markets was -4.2%. Dividing that by the ANDA-Only

Mean Relative Price of 0.86 from the unweighted analysis in Table 3-1 would yield -4.8%, which is

very close to what is reported here, given that the standard error of the estimated effect is reported in

43

products. Furthermore, an ANDA-generic firm may find it necessary to offer deeper than

average discounts for the product in order to entice consumers to switch. In this circumstance, it

would be errant to conclude that the lack of an AG caused the deep discount. 

Controlling for product characteristics may allow the AG effect to be estimated in a way

that accounts for unobserved factors, such as a consumer’s reluctance to switch from brandname products to generic products. For example, if consumers are equally as reluctant to switch

to generic alternatives for all products within the same therapeutic class, then the inclusion of

product characteristic indicators that reflect the therapeutic class would absorb the causes of their

reluctance to switch in the product characteristic estimates. In that case, an estimate of the effect

of an AG would not include the consumer-reluctance effects, and it would therefore be closer to

the true effect of the AG.30 This is the argument for including therapeutic class controls.

When unobserved factors (e.g., consumers’ reluctance to switch to generic products) are

not constant within a therapeutic class (because, for example, the reluctance to switch is productspecific), including the product characteristics would not fully separate the causal effect of the

AG from these other factors. In addition, the inclusion of therapeutic class controls might distort

coefficient estimates if the variables of interest are measured with error. These arguments would

caution against adding therapeutic class controls. For these reasons, estimates with and without

these controls are reported. With these caveats in mind, however, given the great diversity of

drugs included in the analysis, controlling for unobserved characteristics is especially important,

so we generally focus on the estimates based on models with the full set of controls.

Table 3-1 presents estimates of the effect of introducing an AG on retail market prices

under four model specifications. To interpret the results, consider the “Effect of Adding an AG

to ANDA-Only” figure reported in column (i), which is -3.8%. An interpretation of this number

is that adding an AG to a market that otherwise would have only one ANDA-generic competitor

would lower the retail relative price by 3.8%, compared to the price that would have been

realized with only an ANDA competitor, on average.31 In the simplest model, reported in
Table 3-1 to be 2.8%. The Interim Report also estimated the difference to be -4.3% when taking a

weighted average (and dropping clopidogrel from the analysis, as was done here), which is similar to

the analysis in column (iii) of Table 3-1. Dividing that -4.3% difference by the weighted average

generic price of 0.9 yields a percentage change in the discount of about -4.8%, which is also quite

close to the -4.2% reported in column (iii). 

32 “Clustering” standard errors is a statistical technique to account for the fact that some observations

may essentially be co-determined. For instance, if a company sells both 100mg and 200mg tablets of

the same drug, there is no reason to expect the 200mg tablets to be exactly twice as expensive as the

100mg tablets. However, it is entirely possible that the company would want to price a 200mg tablet

somewhat higher than a 100mg tablet. If so, the prices of these products should not be treated as

independent observations. Similarly, it may not be reasonable to assume that the price of the 200mg

tablet in one month is independent of the price of the 200mg tablet in the preceding month. Although

clustering the standard errors assumes that observations of different clusters are independent, the

clustering allows calculation of standard errors that account for correlation between observations

within the same cluster. Thus, a decision to cluster by molecule allows the model to determine the

correlation between observations of the same molecule but with different months, strengths, and

dosage forms. However, observations from different molecules are assumed to be independent from

each other.

44

columns (i) and (iii), the regression includes controls for both the number and the type (ANDA

or AG) of competitors in the market, but does not control for any other product characteristics. 

The more complex model, presented in columns (ii) and (iv), controls for the number and the

type of competitors as well, but also includes controls for product characteristics such as the

dosage form (e.g., whether the product is an extended-release capsule or a tablet), the therapeutic

class (e.g., “Gastrointestinal Medications” and “Analgesics”), the survey year, and the months

since generic entry began. 

The difference between columns (i) and (iii) is essentially like the difference between a

simple average and a weighted average. The unweighted analysis, in columns (i) and (ii), treats

each observation of each product equally. The sales-weighted models, in (iii) and (iv), allow

contributions to the estimates to be proportional to the pre-entry brand-name product sales, such

that products with larger pre-entry brand sales contribute more to the estimation than products

with smaller pre-entry brand sales. Because products with identical molecules may not price

independently from each other the models cluster standard errors by molecule.32

Although all of the estimated AG effects reported in Table 3-1 suggest that changing

from a market structure with a single ANDA to one with an ANDA and an AG lowers the

average relative price (or, equivalently, increases the price discount), the data do not provide

strong, consistent evidence that the true effect of an AG is different from zero. The magnitude

of the estimated change ranges from -3.8% to -7.6% of the original “ANDA-Only” price,

depending on whether the model sales-weights the observations and controls for product

characteristics. 

In the unweighted models, the effects appear robust to the inclusion of full controls: the

estimates are very similar between the two models and only range from -3.8% to -4.9%. For
33 A 95% Confidence interval indicates that if the data generating process were repeated many times, and

the estimations were performed on each instance of the data generating process, roughly 95% of the

confidence intervals would contain the true average AG effect. The 95% confidence intervals for these

AG effects can be calculated using the estimated AG effect and their standard errors, where the

interval is (Estimated AG Effect)±1.96×(Standard Error). As a rule of thumb, similar confidence

intervals can be calculated for all such effects by doubling the standard error and adding and

subtracting that from the estimated effect.

34 Clustering the standard errors has a big impact on the estimated standard errors. If the regression in

column (i) is performed without clustering, the estimated effect does not change (-3.8%), but the

estimated standard error drops from 2.8% to 0.7%, which would imply a 95% confidence interval of [-

5.2%, -2.4%]. Incorrectly treating all the observations as if they were independent would cause the

statistical significance of the analysis to be greatly overstated.

45

both weighted and unweighted models, the price decreases are statistically significant at the 5%

level only when the full controls are included. The AG effect in the model without controls is

insignificant (i.e. not different from zero) at all standard confidence levels, suggesting that the

hypothesis that AG competition had no effect during the exclusivity period cannot be rejected. 

Another way to characterize the statistical properties of this analysis is with a confidence

interval.33 For the unweighted regression without controls in column (i) of Table 3-1, the 95%

confidence interval of the AG Effect is [-9.3%, 1.7%].34

The sales-weighted model finds somewhat more pronounced effects than the unweighted

models. The sales-weighted model without full controls yields an estimate similar to both of the

unweighted estimates and is statistically insignificant at all standard confidence intervals. 

However, including full controls in the sales-weighted models results in larger estimates of

effects from the AG. The estimate in column (iv) is roughly twice the size of the unweighted

estimates and is statistically significant at the 5% level. 

Table 3-1 also reports estimated mean relative prices for ANDA-Only markets. Since a

fundamental goal of this analysis is to determine how the presence of AGs impacts markets in

which AGs are launched, these mean relative prices are calculated to represent the counterfactual

price that would have prevailed in those markets if an AG had not launched. Consequently, the

average generic relative prices for drugs in AG markets are calculated, then the estimated AG

effect is used to pull out the impact of having an AG in that market. These predicted prices are

0.86 and 0.90 in the unweighted and weighted analysis, respectively. Although these represent

fairly substantial discounts off the pre-entry brand price, the prices are much closer to the preentry brand price than is typically observed for a generic product outside exclusivity. Results

presented in Chapter 6 will show that once further generic entry is allowed outside of

exclusivity, the discounts increase. 
46

Table 3-1: Effect of AG Introduction on Generic Retail Market Prices

Unweighted Sales Weighted

 (i)

No

Controls

(ii)

Full

Controls+

(iii)

No

Controls

(iv)

Full 

Controls+

Effect of Adding an AG to ANDA-Only -3.8% -4.9%** -4.2% -7.6%**

(Standard Error) (2.8%) (2.3%) (4.0%) (2.7%)

ANDA-Only Mean Relative Price 0.86 0.90

 

Sample Size 666 666 666 666

**Statistically different from zero at the 5% level. 

(Note: The statistical test on the AG effect in this and all tables that follow is a two-sided

test; testing whether the effect is different from zero.)

 +The Full Controls include dosage form, months since generic entry, and therapeutic

class indicators.

2. Generic Wholesale Market Prices

This section presents analysis parallel to that of the previous section, except using

wholesale data rather than retail data. Figure 3-2 shows the relationship between wholesale

relative prices and market sizes for ANDA-Only and ANDA+AG products in the fourth month

of the exclusivity period. Here, market size is defined as the annualized wholesale expenditures

on the brand-name product just prior to generic entry. The wholesale data show quite a bit more

dispersion than the retail data, though qualitatively they are quite similar in many respects. 

Again, the smallest products are all ANDA-Only products. Controlling for market size, the

products with lower relative prices tend to be the ANDA+AG products. The average ANDAOnly price is 0.75, while the average ANDA+AG price is 0.67. Again, relative prices do not

appear to vary systematically with market size, though the smaller ANDA-Only products tend to

have below average relative prices.
35 Although the estimated effects of AG competition are larger using wholesale prices rather than retail

prices, this is partially explained by the fact that the base wholesale prices are lower. Averaged across

all drugs in the sample, the pre-entry brand wholesale prices are on average 10% lower than pre-entry

brand retail prices. Furthermore, larger discounts off these brand prices are observed in the wholesale

data. The base ANDA-Only mean relative prices, off of which these AG effects are taken, are lower at

the wholesale level. 

47

Figure 3-2: Generic Wholesale Relative Market Prices in Month Four of

Exclusivity

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

100,0 00 1,000,0 00 10,00 0,000 100,0 00,000 1,00 0,000,000 10,0 00,000,000

M arket Size

Relative Price

ANDA+AG AN DA-Only AND A+AG Average ANDA-Only Average 

Table 3-2 presents estimates of the effect of introducing an AG on wholesale prices from

four model specifications that control for different sets of variables. The model specifications

are identical to those in Table 3-1 and the reported results are exactly analogous, except that the

sales information used to calculate the results represents wholesale-level sales (sales from

manufacturers or wholesalers to pharmacies) rather than retail-level sales. For example, the -

6.9% estimate of the “Effect of Adding an AG to ANDA-Only” reported in column (i) means

that adding an AG competitor to a market with only an ANDA-generic competitor would lower

the wholesale relative price by 6.9% compared to the price that would have been realized had

there been only an ANDA competitor, which is reported to average 0.80 two rows down in the

table. As with the retail data, AG entry lowers market prices in every model specification. 

However, the magnitude of the effects is generally larger than suggested by the retail data; the

estimates range from -6.9% to -13.5%, depending on whether the model controls for product

characteristics and weights the observations by pre-entry brand sales.35 Moreover, the effects are

statistically significant at the 1% level for the models that include the full set of controls. 
36 The results are remarkably stable with regard to model specification: they are nearly identical in sign

and magnitude whether the model includes no product characteristics or a full set of indicators.

48

Controlling for product characteristics in the wholesale data has larger effects in both the

sales-weighted and unweighted models than in the analogous retail data. For unweighted

models, the AG effect, measured as the percentage change in relative price, increases from -

6.9% to -12.8% when full controls are included. Although the two effects are not statistically

different from each other, inclusion of product characteristics increases the precision of the AG

effect, and allows the hypothesis that the AG effect is zero to be rejected with greater

confidence. In the sales-weighted models, the inclusion of the product characteristics also

increases the magnitude of the AG effect from -6.6% to -13.5%. Again, the estimate from the

model with controls is more precise and significantly different from zero with greater

confidence. Weighting the data by pre-entry brand sales had very little impact on the magnitude

of the AG effect estimates. 

Table 3-2: Effect of AG Introduction on Generic Wholesale Market Prices

Unweighted Sales Weighted

 (i)

No 

Controls

(ii)

Full 

Controls

(iii)

No

Controls

(iv)

Full 

Controls

Effect of Adding an AG to ANDA-Only -6.9% -12.8%*** -6.6% -13.5%***

(Standard Error) (4.8%) (2.8%) (5.7%) (2.4%)

 

ANDA-Only Mean Relative Price 0.80 0.83

Sample Size 673 673 673 673

***Statistically different from zero at the 1% level 

3. Generic Firm Level Pricing Analysis

The analysis above considered the impact of AG entry on the average price paid for a

generic version of a product, regardless of whether the product was an AG or an ANDA-generic.

 This section looks more deeply at pricing within markets for products that have experienced AG

entry by comparing the prices for the ANDA products to the AG prices. This sheds light on the

possibility that the relationship between the AG and the brand could make the AG a less

aggressive price competitor than an ANDA-generic. In addition, understanding the relationship

between ANDA-generic and AG prices may provide insight into the mechanism by which the

presence of an AG affects market prices. 

Table 3-3 presents estimates, at both retail and wholesale levels, of the differences in

prices charged for an AG relative to the prices charged for a competing ANDA product. Both

model specifications include the full set of controls that were included in columns (ii) and (iv) of

Tables 3-1 and 3-2.36 
identifying the product of interest.

37 Another way to address this question would be to compare generic prices in markets with one ANDA

competitor and one AG to generic prices in markets with only two ANDA competitors. Unfortunately,

the number of observations of the latter type of market condition was insufficient to allow for

meaningful statistical analysis.

49

This analysis shows that retail prices for the AG tend to be lower than the retail prices for

corresponding ANDA-generics, and this difference is statistically significant at the 1% level. 

The value of -11.4% reported as the “AG Firm Effect” estimate in column (i) implies that retail

prices for the AG product are 11.4% lower, on average, than retail prices of competing ANDAgeneric products, which average 0.86 in the retail data.37 The analysis of wholesale prices

discussed below suggests that this effect is a result of pricing decisions made by pharmacies,

which are not a focus of this study, so this difference is not explored further here, though it could

be an interesting topic for further research. 

The wholesale data tell a different story. This evidence suggests the AG does not price

very differently from the ANDA, and that the estimated difference is not statistically significant. 

The estimated AG firm effect – implying that prices for AG products are 0.3% higher, on

average, than prices for competing ANDA-generic products – is positive, small in magnitude,

and statistically insignificant. In short, the wholesale data suggest that the AG firm and the

ANDA firm price very similarly. 

Table 3-3: Unweighted Price Differences Between AG and ANDA Firms

(i) (ii)

Retail Wholesale

AG Firm Effect -11.4%*** 0.3%

(Standard Error) (2.7%) (1.0%)

ANDA Firm Mean Relative Price 0.86 0.70

Sample Size 711 715

***Statistically different from zero at the 1% level.

More detailed analysis of these generic prices investigated whether the vertical

relationship between the brand-name firm and its AG marketer affects the pricing decisions of

either the AG or ANDA generic firms. Although economic theory predicts that the pricing

decision of the generic firms need not be affected by whether the AG was marketed by a

subsidiary of the brand-name firm or by an independent licensee, depending on the nature of the

contracts, one might believe that future potential competitors of the brand (licensees) on other

products have different long-run incentives than the brand-name firms’ own subsidiaries. 

However, the estimated impacts of the vertical relationship underlying AG marketing on both

AG and ANDA pricing were both economically and statistically insignificant. Put simply, the
38 A word of caution with respect to the measurement of brand prices and revenues in this chapter and

Chapter 6 is warranted. Rebates paid by brand-name companies are not included in our data. Rebates

can be substantially scaled back upon generic entry, and the impact of such practices will not be

reflected in the brand prices or revenues reported here. This may cause the levels of both brand prices

and revenues following generic entry to be understated in our data. Since this impact would be present

regardless of whether an AG is launched, we have no reason to believe it biases our estimate of AG

impacts on either brand prices or revenues.

39 These prices are for the same set of products used in the generic product analysis during exclusivity. 

All of the products considered eventually face an FDA-granted exclusivity period. Price changes are

measured relative to the month of generic entry.

40 The model that produces these percentage changes regresses the logarithm of brand price against

product fixed-effects and time dummy variables. The models are estimated separately for the sample

with and without an AG. Both series plotted in Figure 3-3 represent the coefficient estimates on the

50

prices of AGs were similar regardless of whether they were being marketed by a subsidiary of

the brand or by an independent licensee, so these results are omitted. The impact of this vertical

relationship on brand pricing will be considered below.

B. Market Prices of Brand-Name Products

The pricing analysis, thus far, has focused on the effect that an AG has on the prices of 

generic products. However, whether a brand-name firm issues an AG may also affect the

optimal pricing strategy for its brand-name product. This section considers the impact of an AG

on brand-name product prices using both wholesale and retail data. Brand prices directly affect

purchasers of the brand-name product, and they influence the long-run incentives of brand-name

firms. How the decision to market an AG affects brand prices is therefore both directly relevant

to current consumers and useful for understanding the long-run incentives of the brand-name

firm.

Much of the analysis of brand prices is analogous to that of generic prices.38 It covers the

same set of products, employs the same data, and continues to use extended units of the product

as the analytical unit. It derives estimates from linear regressions relating brand prices to the

competitive environment. The models that examine the impact of an AG on brand prices during

exclusivity are nearly identical to those that considered generic prices. These models include the

same set of controls and normalize contemporaneous brand prices by pre-entry brand prices. 

However, because brand prices are also observed prior to generic entry, the analysis can be

extended to look at pricing strategies prior to exclusivity. 

1. Brand Retail Prices

The regression estimates of the change in relative retail prices for brand-name products

due to AG entry can be foreshadowed by consideration of a graph of a time series of retail real

price changes over the 18 months prior to generic entry and the six months after generic entry.39

Figure 3-3 plots these series separately for products with and without an AG.40 
month-since-entry dummy variables. Dummy variable coefficients in log-linear models are

approximations of the average percent change. 

51

For most of the period prior to generic entry the two series track each other closely. 

Prices for products that eventually experience AG entry increase at a rate that appears linear over

time, and is very similar to that for products that never experience AG entry. This real rate of

price increase is consistent with price increases observed across all brand-name products over

this time. Beginning roughly five months before generic entry, the time path for products that

never face an AG becomes steeper relative to brand drug prices in AG markets, but any apparent

differences in the rates (or the levels) are not statistically different from each other. Finally,

during exclusivity, the prices of products with an AG change course and begin to fall, while

prices for products without an AG continue to rise at roughly the same rate as prior to generic

entry. Although the graph shows an abrupt change of course in the direction of prices, the

differences are not statistically different from each other. 

Figure 3-3: Average Brand Retail Price Changes Over Time 

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

-18 -17 -16 -15 -14 -13 -12 -11 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6

Months Since Entry

Percent Change in Relative Brand Price Index

No AG AG
52

Table 3-4 reports the results of regression analysis estimating the impact of introducing

an AG on brand prices during the exclusivity period. It does not show statistically significant

evidence of an effect. These results are consistent with what is observed in Figure 3-3. During

exclusivity, the presence of an AG lowers estimated relative brand retail prices by between 4.2%

and 7.2% relative to pre-entry brand prices depending on the controls that are included in the

regression model, but these estimates are generally not statistically different from zero at any

reasonable significance level. The magnitude of these estimated effects is similar across all four

models. 

Table 3-4: Effect of AG Introduction on Brand Retail Prices During Exclusivity

Unweighted Sales Weighted

(i) (ii) (iii) (iv)

No 

Controls

Full 

Controls

No 

Controls

Full

Controls

Effect of Adding an AG to ANDA-Only -4.2% -4.8%* -7.2% -6.5%

(Standard Error) (4.1%) (2.4%) (6.8%) (4.1%)

ANDA-Only Mean Relative Price 1.05 1.01

Sample Size 666 666 666 666

*Statistically different from zero at the 10% level

2. Brand Wholesale Prices

This section presents analysis parallel to that of the brand retail prices, except that

wholesale data rather than the retail data are employed. Figure 3-4 shows the time series of

wholesale relative prices for products that will eventually face an AG and products that will not. 

The figure is exactly analogous to Figure 3-3 except that it uses wholesale prices rather than

retail.

The wholesale data reveal price patterns nearly identical to those shown by the retail

data. Prior to generic entry, the two time series of prices are very similar. As in the retail data,

the slopes of the two price series are not statistically significantly different from each other. 

Also similar to the retail analysis, wholesale prices for brand-name products that experience AG

entry decrease during exclusivity. The magnitude of this decrease, however, is much larger for

wholesale prices than for retail prices. Unlike the retail pattern, brand wholesale prices in

markets without an AG also decline during exclusivity, but to a lesser extent than for products

associated with an AG. 
41 In contrast, the average retail relative prices for brand-name products were slightly higher than the preentry brand prices.

53

Figure 3-4: Average Wholesale Brand Price Changes Over Time

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

-18 -17 -16 -15 -14 -13 -12 -11 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6

Months Since Entry

Percent Change in Relative Brand Price Index

No AG AG

The relationship between AGs and wholesale prices is investigated further using

regression models. Table 3-5 presents estimates of the impact of an AG on relative brand

wholesale prices. These results are exactly analogous to those presented in Table 3-4, except

that the relationships are estimated using wholesale data rather than retail data.

The average ANDA-Only contemporaneous brand price is 4% lower than the pre-entry

brand prices in the unweighted sample and 11% lower than pre-entry brand prices in the salesweighted sample.41 During exclusivity, the presence of an AG lowers relative brand wholesale

prices by between 7.7% and 12.2%, depending on the controls that are included in the regression

model. These estimates are qualitatively similar to those from the retail data, but they are nearly
42 This result may be surprising in light of economic research dating back to Frank and Salkever (1997),

which shows that brands generally raise their prices upon generic entry. See Richard G. Frank &

David S. Salkever, Generic Entry and the Pricing of Pharmaceuticals,6 J. ECON. & MGMT. STRATEGY

75 (1997). However, this new finding only appears in the context of 180-day exclusivity periods, and

we know of no published study that restricts attention to brand pricing during 180-day exclusivity

periods. A report submitted to the FTC by Howrey LLP on behalf of PhRMA, supra note 9, at 23,

also found brand that wholesale prices dropped following generic entry in markets with an AG.

43 See infra Chapter 8.

54

twice as large in magnitude. Moreover, the estimates from all four models are statistically

significant at the 5% confidence level.42 These results are explored further below. 

Table 3-5: Effect of AG Introduction on Brand Wholesale Prices During Exclusivity

Unweighted Sales Weighted

(i) (ii) (iii) (iv)

No 

Controls

Full

Controls

No 

Controls

Full

Controls

Effect of Adding AG to ANDA-Only -9.5%** -10.6%*** -12.2%** -7.7%**

(Standard Error) (3.1%) (2.4%) (5.6%) (2.5%)

ANDA-Only Mean Relative Brand

Price

0.96 0.89

Sample Size 673 673 673 673

**Statistically different from zero at the 5% level; ***at the 1% level

3. Investigating Lower Brand Prices During Exclusivity

One might believe that part of the strategic value of issuing an AG is to allow the brandname firm to segment the market into groups of consumers, some of whom are price elastic (i.e.,

sensitive to price reductions) and others who are price inelastic. In this scenario, the lowerpriced AG would capture the demand of price elastic consumers, while the price inelastic

consumers would remain with the brand. This segmentation in other contexts often results in a

higher price for the brand-name product. 

The circumstances surrounding the decision to issue an AG may help explain the lower

brand-name product prices of drugs with an AG during exclusivity. Although some brand-name

firms may issue an AG in order to segment the market, in other cases the presence (or more

often, absence) of an AG is determined by the terms of a settlement of a patent dispute.43 For

example, some settlement terms specify that the brand-name firm may not issue an AG or that

the ANDA-generic firm can become the AG marketer. In these scenarios, the brand-name firm

has forgone the ability to segment the market using an AG for some other advantage, such as
44 The price effects reported in Table 3-6 are the predicted results from a regression model that includes

the full set of controls employed in Tables 3-1 and 3-2. 

55

deferred entry by the ANDA-generic firm. Consequently, the brand-name firm’s strategy may

differ in these settings from the standard scenario described in the previous paragraph. 

This relationship is investigated further by considering how different competitive

environments affect brand pricing strategy. Table 3-6 provides the pricing results for two market

scenarios chosen to describe the nature of competition in the market.44

One factor to consider is whether the AG is distributed by a subsidiary or by an

independent licensee. Depending on specific licensing terms, the brand-name firm may retain

more of the profits from customers who switch from the brand to the AG following a brand price

increase when a subsidiary, rather than a licensee sells the AG. If so, this would make a brand

price increase more attractive (or a brand price decrease less attractive). Consequently, one

might expect that brand prices would be higher in markets where the AG is distributed by a

subsidiary than in markets where the AG is distributed by a licensee. 

Table 3-6 reports evidence supporting this hypothesis. Analysis of both the retail and the

wholesale data suggests that the brand price is higher in markets where the AG is distributed by

the subsidiary. The wholesale data show that brand prices are almost 22% higher when the AG

is distributed by a subsidiary than when it is distributed through an independent licensee. This

result is statistically significant at the 1% level. The retail data reveal a similar positive

subsidiary effect, but the effect is smaller in magnitude. 

Another factor that could influence brand pricing is whether the brand-name and generic

companies have resolved a patent dispute with an agreement that includes provisions relating to

the launch of an AG. These settlements often stipulate either that an AG will not be issued or

designate the generic party as the AG distributor. In either case, the brand-name firm’s ability to

segment the market via an AG is constrained by the settlement, which may induce the brand to

try to retain market share by lowering the brand price. The analysis of wholesale prices

presented in Table 3-6 finds evidence that brand prices indeed were 6.8% lower when the brandname firm was party to a settlement that involved the AG, and this effect is statistically

significant at the 5% level. No such effect is found in the retail data.
45 Technically, issuing an AG could be profit-maximizing if the costs of issuing an AG were lower than

not issuing an AG. This seems unlikely.

46 Our measure of wholesale expenditures is the total dollars reported in the IMS National Sales

Perspective (NSP) database, which is the total amount paid by pharmacies. 

56

Table 3-6: Effect of AG Competition Type on Brand Prices

Subsidiary instead 

of Licensee 

AG Involved in

Settlement?

Wholesale Retail Wholesale Retail

Percent Change in Relative Brand Price 21.6%*** 12.7%** -6.8%** 3.2%

(Standard Error) (5.0%) (5.1%) (3.2%) (2.9%)

Sample Size 382 405 673 666

Sample Only AG Products All Products in

Exclusivity

**Statistically different from zero at the 5% level; *** at the 1% level. 

C. Wholesale Expenditures 

This section presents an analysis of total wholesale expenditures using the same set of

products considered above with regard to prices. Wholesale expenditures are employed as a

proxy for revenues of the relevant firm. As explained above, a generic firm will decide whether

to challenge a patent based, in part, on the revenues it expects to earn during exclusivity, which,

in turn, could depend on whether it expects to face AG competition. In this way, the presence or

absence of AG competition could affect long-run outcomes, such as patent challenges. 

The brand-name firm’s revenues also could provide insight into whether the AG affects

long-run outcomes. If brand-name firms that offer AGs earn less revenue during the exclusivity

period than brand-name firms that do not, then issuing an AG cannot be profit-maximizing in the

short-run.45 If issuing an AG is not profitable in the short-run and the brand-name firm is

maximizing profits, the introduction of an AG must be part of a long-run strategy. This chapter

focuses only on market outcomes during exclusivity periods. However, AG introduction may

also impact brand-name firm revenues beyond the exclusivity period. The combined short-run

and long-run effects ultimately measure the total impact on brand-name firm incentives. Longer

term effects will be addressed in Chapter 6.

The following analysis uses wholesale expenditures by pharmacies rather than retail sales

to approximate the revenues of generic and brand-name manufacturers. Wholesale expenditures

represent purchases by pharmacies from manufacturers and wholesalers.46 They are a better

reflection of the revenues received by manufacturers than are retail sales dollars, which likely

include both wholesale and retail mark-ups. Retail margins likely differ across retailers,

geographic location and time and, consequently, might mask the effects of an AG on revenues
47 The wholesale data include wholesaler margins, which may differ on the products that pass through

wholesalers. This could bias the results if the proportions of products going through wholesalers are

systematically different for products with and without AG sales. However, we have no reason to

believe that is the case.

48 Profits are obviously preferable to revenues as a metric for estimating AG competition effects. 

Although profits cannot be estimated directly, Chapter 6 uses revenue estimates in a break-even

simulation that considers firm costs in an effort to address the impact of AG competition on the

profitability of generic entry through patent challenges. 

57

received by the product producer. The wholesale data are closer in the supply chain to the

producing firm, do not include retailer margins, and should therefore better represent the firm’s

revenues. For ease of exposition, wholesale expenditures on particular drug products will often

be referred to as the revenues created by those products, with the understanding that wholesale

expenditures are an imperfect measure of revenue.47

Just as with prices, expenditures have been normalized in terms of corresponding data

from the brand-name product prior to generic entry. Monthly wholesale expenditures are

divided by average monthly expenditures on the brand for the three months prior to generic

entry, and are referred to as “relative expenditures.” Again, the normalization facilitates

aggregation across products. 

1. Wholesale Revenues of ANDA-Generic Firms

The primary reason for considering the wholesale expenditures on products of ANDAgeneric firms during exclusivity is to approximate how the revenues of a first-filer generic

manufacturer are affected by competition from an AG.48 Consider first a simple comparison of

first-filer contemporaneous revenue shares across markets with only an ANDA competitor

(ANDA-Only) and markets with both an ANDA and an AG. As noted in the previous subsections, ANDA-Only products and ANDA+AG products represent the largest fraction of

products in the sample during exclusivity and were the focus of the empirical analysis in the

Interim Report. 

Figure 3-5 compares the contemporaneous revenue share of ANDA products in ANDAOnly markets and in markets with both an AG and an ANDA competitor in the fourth month

following first generic entry. Clearly, even when controlling for market size, the ANDA-generic

product usually takes a larger share of the market when it does not face an AG competitor. The

difference between average generic revenue shares across these two groups of markets is 25

percentage points. 
49 Differences in the sample sizes reported in Tables 3-2 and 3-7 reflect the fact that some of the products

considered in the price analysis do not have an ANDA firm present in the market and therefore would

not be included in the analysis of AG effects on ANDA revenues. These products represent “AG

Only” markets, discussed earlier. 

50 Table 3-7 reports results from four model specifications that are very similar to those used in

developing Tables 3-1 and 3-2. The regression models control for how the number of manufacturers

and their type affect the variable of interest, which in this case is the relative expenditures on the firstfiler generic (rather than the relative market price). The specifications differ with respect to what

variables are included in a way that is exactly analogous to those presented in Tables 3-1 and 3-2. In

contrast to the pricing model, the revenue model focuses on those revenues generated by a subset of

generic firms, specifically, ANDA-generic firms, rather than considering overall market revenues. 

(The pricing model considered the effect of AG competition on a weighted average of all generic

prices, including the AG price, rather than the prices of ANDA-generic firms.)

58

Figure 3-5: Revenue Share of ANDA Generic in Month Four of Exclusivity

0%

20%

40%

60%

80%

100%

100,0 00 1,000,0 00 10,00 0,000 100,0 00,000 1,00 0,000,000 10,0 00,000,000

M arket Size

Sh are

ANDA+AG AN DA-Only AND A+AG Average ANDA-Only Average 

Table 3-7 reports the results of a linear regression analysis of the impact of AG

introduction on the revenue of the ANDA-generic firm during exclusivity as a percentage of

what the firm would have earned had the AG not been introduced.49 For example, the “Effect of

Adding an AG to ANDA-Only” figure reported in column (i) is -45.1%, which means that

adding an AG to a market with only an ANDA generic competitor would reduce the ANDA

competitor’s revenues by about 45% relative to what it would have earned without AG

competition.50 
59

As shown in Table 3-7, introducing an AG has a large and negative effect on ANDA

revenues in every model specification. All of the models predict effects that are statistically

significant at the 1% confidence level. The magnitude of the AG entry effect is between -39.6%

and -52.0%, depending on whether the model sales-weights observations and includes full

controls. However, the differences across model specifications are small relative to the

estimated AG effects, and none of the estimates is statistically different from the others. 

Regardless of which of the four models one favors, the estimated impact of AG entry on

wholesale expenditures on the first filer’s product is quite a bit larger than the estimated price

effects reported in Table 3-2. Revenue impacts depend on both prices and quantities. The

evidence so far suggests that increased pricing pressure from AGs only partially explains the

impact on first-filer revenues. By construction, the remainder of the revenue effect must be due

to AG impact on first-filer quantities.

Table 3-7 also reports that expenditures on ANDA-generics operating in markets without

an AG average between 51% and 70% of the pre-generic entry brand expenditures in the 180-

day exclusivity period. This not only indicates that they have much to gain by obtaining the

exclusivity, but also likely indicates that generic entry can have substantial impact on brand

revenues, which is the focus of the next section. 

Table 3-7: Effect of AG Entry on ANDA-Generic Product Revenues

Unweighted Sales Weighted

(i) (ii) (iii) (iv)

No 

Controls

Full

Controls

No 

Controls

Full

Controls

Effect of Adding AG to ANDA-Only -45.1%*** -52.0%*** -40.1%*** -39.6%***

(Standard Error) (7.2%) (10.6%) (5.9%) (10.8%)

 

ANDA-Only Mean Relative Expenditures 0.70 0.51

Sample Size 630 630 630 630

***Statistically different from zero at the 1% level 

2. Wholesale Revenues of the Brand-Name Product 

A potential cost of AG introduction is the cannibalization of brand-name product sales by

the AG. This section directly addresses this issue by considering the extent to which an AG

affects the revenues of the brand-name product. Figure 3-6 shows that even when controlling for

market size, the brand-name product captures a smaller share of revenues in markets with an AG

than in markets where it faces the ANDA-generic alone. In the fourth month following generic

entry in markets with an AG, the brand-name product’s share of revenues is approximately seven

percentage points lower than in markets without an AG. 
51 A note of caution is appropriate in interpreting these results: a failure to control for unobserved

characteristics relevant to the decision to market an AG is virtually certain to bias the estimates of

changes in brand expenditures. The point has particular relevance here. In the pricing context,

unobserved market characteristics that influence the decision to launch an AG may or may not be

60

Figure 3-6: Revenue Share of Brand-Name Product in Month Four of Exclusivity

0%

20%

40%

60%

80%

100%

100,0 00 1,000,0 00 10,00 0,000 100,0 00,000 1,00 0,000,000 10,0 00,000,000

M arket Size

Sh are

ANDA+AG AN DA-Only AND A+AG Average ANDA-Only Average 

Table 3-8 presents results from four regressions that estimate the effect of introducing an

AG on the brand-name products’ revenues during the exclusivity period. The model

specifications are very similar to those in Table 3-7. The regressions are used to control for how

the number of manufacturers and their type affect relative expenditures on the brand-name

product. 

Table 3-8 examines how introducing an AG affects the revenues of the brand-name

product as a percentage of what it would have earned if no AG had been introduced. For

example, the “Effect of Adding an AG to ANDA-Only” figure reported in column (i), -26.8%,

means that introducing an AG into a market with only an ANDA-generic competitor decreases

the revenues of the brand-name product by about 27%, compared to what it would have earned if

no AG had been marketed. As shown in Table 3-8, the revenues of brand-name products in AG

markets are lower on average than the revenues of brand-name products in No-AG markets. The

AG effect estimates range from between -26.8% and -49.0%, and are all statistically significant

at the 1% level. Although the differences between the various models can be relatively large in

absolute terms, the estimates are not statistically different from each other.51
correlated with generic pricing. However, market characteristics that explain the decision to launch an

AG almost certainly are strongly correlated with the amount of revenue that the brand expects to lose

when facing generic competition. 

52 Here, all AGs are treated as if they are marketed by a subsidiary of the brand-name company. 

Sometimes the brand-name firm will license the rights to distribute an AG to an independent marketer,

in which case, the brand-name firm will not receive all of the revenue associated with sales of the AG. 

The brand-name firm, however, typically receives both a transfer price and a share of any profits –

usually a large share, unless a patent litigation settlement is involved. See supra Chapter 2, Section

I.B.2.b.ii; infra Chapter 4, Section III.B; Company Document, Oct. 12, 2004 (stating that the share of

profits awarded to generic firms in AG marketing arrangements had fallen to 10 percent or less).

61

Table 3-8: Effect of AG Entry on Brand-Name Product Revenues

Unweighted Sales Weighted

(i) (ii) (iii) (iv)

No 

Controls

Full

Controls

No 

Controls

Full

Controls

Effect of Adding an AG to ANDA-Only -26.8%*** -49.0%*** -27.8%*** -47.2%***

(Standard Error) (6.8%) (7.9%) (9.2%) (9.6%)

ANDA-Only Mean Relative Expenditures 0.49 0.44

 

Sample Size 673 673 673 673

***Statistically different from zero at the 1% level 

Reduced revenues for the brand-name product, however, do not equate to reduced

revenues for the brand-name firm. As discussed in the next section, the brand-name firm

receives revenue from the AG as well as from the brand-name product, and both revenue streams

contribute to the firm’s overall revenues. 

3. Wholesale Revenues of Brand-Name Firms

Brand-name companies earn revenues not only from the sale of the brand-name product,

but also from the AG, when one is launched.52 The effect of AG marketing on brand-name

company revenues provides some insight into the strategy of the brand-name firm. Because

brand-name product sales during exclusivity are more heavily cannibalized in markets with AGs,

as shown in Table 3-8, an important question is whether the brand-name company is able to

recoup those lost sales with AG sales. If so, the launch of an AG is in the short-term interest of

the brand-name company. If not, perhaps the introduction of an AG is part of a long-term

strategy. Long-term strategies might include settlements that designate an ANDA-generic firm

as the AG marketer in exchange for delayed generic entry, or they might involve deterring

Paragraph IV certifications with respect to other products in the portfolio that are likely to face

generic entry at a later date. 
53 All of the estimates are imprecisely estimated, and neither model that controls for product

characteristics can reject the hypothesis that introducing an AG has no effect on brand-name firm

revenues.

62

Table 3-9 presents the estimated effect that introducing an AG has on the brand-name

firm’s revenues during exclusivity. The regressions control for how the number of

manufacturers and their type affect the relative expenditures on both products of the brand-name

firm (the brand-name product and the AG). The model specifications are very similar to those in

Table 3-8. 

Table 3-9 reports how the introduction of an AG affects the revenues of the brand-name

firm as a percentage of what it would have earned had the AG not been introduced. For

example, the “Effect of Adding an AG to ANDA-Only” figure reported in column (i), 21.0%,

implies that introducing an AG to a market with only an ANDA-generic competitor increases the

brand-name firm’s revenues by 21%, compared to what it would have earned without

introducing an AG. All four models in Table 3-9 report that revenues of brand-name firms that

introduce AGs are higher on average than revenues of brand-name firms that do not. The

estimated AG effects range between slightly less than 6% and 21%. However, despite the large

magnitude of some of the estimates, the results are not always statistically significant.53

Although not all of our specifications allow us to conclude that brand-name firms earn more

revenues in markets with an AG than in markets without an AG, none of the estimates provides

evidence that brand-name firms lose revenues as a result of introducing an AG. Consequently,

based on the quantitative data, brand-name firms may be introducing an AG either as part of a

short-run strategy or a long-term strategy. The long-term strategy may include an entrydeterrence element, as well as more benign, revenue-maximizing activities. Chapter 4 explores

the brand-name firms’ objectives and strategy from additional perspectives.

Table 3-9: Effect of AG Entry on Brand-Name Firm Revenues (Brand-Name Product and

AG)

Unweighted Sales Weighted

(i) (ii) (iii) (iv)

No 

Controls

Full

Controls

No 

Controls

Full

Controls

Effect of Adding an AG to ANDA-Only 21.0%** 5.9% 20.7%* 18.0%

(Standard Error) (10.4%) (10.4%) (12.4%) (13.6%)

ANDA-Only Mean Relative Expenditures 0.49 0.44

 

Sample Size 673 673 673 673

*Statistically different from zero at the 10% level; ** at the 5% level. 
63

IV. Conclusion

The analyses presented in this chapter establish several important points. First, firms’

decisions to enter, or attempt to enter, markets for specific products can depend on the

characteristics of those markets; specifically, Paragraph IV challenges and AG launches are

significantly more common with respect to large-market products than small-market products. 

Second, the introduction of an AG into a market is associated with lower retail and wholesale

prices for generic versions of that product. Third, based on estimates of wholesale expenditures

first-filer generics make considerably less revenue when an AG enters the market. Finally, while

sales of brand-name products are lower when an AG is launched, revenue losses on brand-name

products may be offset by revenues from AGs. The data do not suggest that brand-name firms’

overall revenues are diminished.

These results paint a very important part of the picture, but leave some portions blank. 

Empirical analysis in Chapter 6 will demonstrate that the impact of an AG extends beyond the

exclusivity period. Those post-exclusivity results play a part in the analysis, and any overall

quantitative assessment of the impact of AGs on generic firms’ decisions must be deferred until

that later discussion.

1 Public Comment from the Generic Pharm. Ass’n (“GPhA”) to the Fed. Trade Comm’n 3 (June 27,

2006), http://www.ftc.gov/os/comments/genericdrugstudy3/062806gpha.pdf.

2 Public Comment from Gilbert’s LLP to the Fed. Trade Comm’n 1–2 (June 5, 2006),

http://www.ftc.gov/os/comments/genericdrugstudy3/060605gilberts.pdf (contending that “the ultimate

goal of brand name companies in launching authorized generics is to neutralize the legislative scheme

intended by Congress to nurture a vigorous generic industry”).

65

CHAPTER 4 THE MARKETING OF AUTHORIZED GENERICS:

BRAND-NAME FIRMS’ OBJECTIVES AND

STRATEGIES

Some critics of authorized generic drugs have asserted that brand-name companies

market AGs primarily to deter generic firms’ challenges to patents. For example, comments

submitted by the Generic Pharmaceutical Association (GPhA) in the course of the FTC’s study

argue:

There are . . . no legitimate business reasons for authorized generics launched during the

generic exclusivity period. Rather, the sole purpose of such products is to undercut and

devalue legitimate generic entry. The sale of authorized generics during the generic

exclusivity period reduces the value of the 180-day exclusivity and consequently reduces

the incentive for generic drug companies to challenge questionable patents.1

Similarly, comments filed “on behalf of one of the largest generic pharmaceutical companies in

the United States” maintain that “no brand name company launches an authorized generic during

the 180-day exclusivity for the comparatively negligible profits associated with such licensing. 

Brand-name companies release authorized generics to undermine the incentives granted by

Congress to generic companies to challenge and invent around patents.”2

This chapter explores information on brand-name firms’ strategies and objectives

regarding authorized generic drugs. Specifically, it looks for evidence that brand-name firms

view AGs as a way to compete and maintain a revenue stream after generic entry and for

evidence that brand-name firms view AGs as a way to undermine generic competitors’

incentives to challenge brand-name firms’ patents.

For some AGs – those marketed when there is no exclusivity – the AG cannot be a

strategic device to limit the incentives to challenge patents. For AGs marketed during

exclusivity periods, the evidence suggests a mixture of motivations. Indeed, the same 180-day

exclusivity period that may be crucial to generic profitability offers brand-name firms their best

opportunity for enhanced revenue, so that entry-deterring and revenue-enhancement objectives

cannot be easily distinguished and separated. Thus, brand-name firm documents show an
3 See Henry Grabowski, Competition between Generic and Branded Drugs, in PHARMACEUTICAL

INNOVATION: INCENTIVES, COMPETITION, AND COST-BENEFIT ANALYSIS IN INTERNATIONAL

PERSPECTIVE 153, 154–58 (Frank A. Sloan & Chee-Ruey Hsieh eds., 2007) (generic share increased

from 19% in 1984 to 51% in 2002).

4 See PHARM. RESEARCH AND MFRS. OF AM. (“PhRMA”), PHARMACEUTICAL INDUSTRY PROFILE (2010),

http://www.phrma.org/sites/default/files/159/profile_2010_final.pdf (citing IMS Health data); see also

GPHA, 2010 ANNUAL REPORT 23 (2010),

http://www.gphaonline.org/sites/default/files/GPhA%202010%20Annual%20Report.pdf (also citing

IMS Health data); Company Document (“CD”), Oct. 10, 2007 (“Generic revenue & Rx penetration is

at an all time high and continues to out pace branded product growth.”).

5 See, e.g., Tracy L. Regan, Generic Entry, Price Competition, and Market Segmentation in the

Prescription Drug Market, 26 INT’L J. INDUS. ORG. 930, 939–940 (2008) (reporting brand share six

months after entry of approximately 40 percent, based on generic entries from 1998–2001); see also

Grabowski, supra note 3, at 158–59 (citing Atanu Saha et al., Generic Competition in the U.S.

Pharmaceutical Industry, 13 INT’L J. ECON. BUS. 15 (2006)) (finding brand share six months after

entry of about 60 percent, based on generic entry in the 1990s); CD, May 25, 2006 (showing brand

market share at 26 weeks of approximately 70 percent, based on 1991–1993 CBO data).

66

expectation that AGs will increase brand-name firm revenues after generic entry but also

recognize that launching an AG during the exclusivity period may undermine generic incentives

to challenge questionable patents. 

This chapter explores the facts surrounding branded companies’ marketing of AGs. It

notes the steep decline in brand-name firms’ sales that follows the onset of generic competition

and explores the role of AGs in maintaining a brand-name firm’s revenue stream following

generic entry, as described in the brand-name firms’ internal documents. It observes that those

documents also show clear recognition that AG competition during 180-day exclusivity may

diminish incentives for ANDA-generic entry via patent challenges. Finally, the chapter

examines brand marketing practices – including AG launch timing and post-exclusivity

marketing and AG pricing and profit-splits – that shed additional light on brand-name firm

objectives. 

I. Authorized Generics and Revenue Enhancement

A. The Use of Authorized Generics to Maintain a Revenue Stream

In recent years, the brand-name industry has been affected by substantial growth in the

market share of generic drugs and the speed at which they are adopted. Continuing a trend that

began with enactment of the Hatch-Waxman Amendments in 1984,3

 generics’ overall share of

prescriptions increased from 49 percent in 2000 to 74 percent in 2009.4

 The speed of generic

penetration also increased during this period. Until about 2000, studies reported that six months

after generic entry, the brand retained 40–70 percent of market share.5 By contrast, recent
6 See, e.g., CD, May 25, 2006 (in 2005, brand share 26 weeks after entry was less than 20 percent, based

on IMS data); CD, Mar. 31, 2006 (indicating that a single generic product sold during 180-day

exclusivity can be expected to erode branded share by “about 80% in the first few months”); CD, Sept.

27, 2004 (“Accelerating Rate of Generic Penetration . . . 80% conversion within 4–6 weeks, compared

to 60% within 6–8 months just a few years ago”); see also Murray Aitken, Ernst R. Berndt & David

M. Cutler, Prescription Drug Spending Trends in the United States: Looking Beyond the Turning

Point, 28 HEALTH AFF. w151, w155 (2009) (“[I]n 2002 branded products retained 28 percent of their

prescription volume twelve months after patent expiry. In 2007 that figure dropped to 14 percent.”). 

The Commission’s Interim Report found that during the sixth month of exclusivity, brand share of

retail quantities dispensed averaged under thirty percent in markets without AGs and approximately

sixteen percent in markets where AGs were present. FED. TRADE COMM’N, AUTHORIZED GENERICS:

AN INTERIM REPORT (“Interim Report”) ch. 1, at 15–16 (2009),

http://www.ftc.gov/os/2009/06/P062105authorizedgenericsreport.pdf.

7 See, e.g., MEDCO, 2009 DRUG TREND REPORT 22 (2009),

http://medco.mediaroom.com/file.php/177/2009+DRUG+TREND+REPORT.pdf (reporting that 30

days after generic entry, Fosamax lost 84 percent of its market share at retail).

8 See, e.g., CD, 2006 (denoted “DRAFT”) (“launch [subsidiary’s] generic products to maximize postLOE return and provide [parent] a competitive generic offering”).

9 CD, June 28, 2004 (the brand’s AG subsidiary is the “[c]ornerstone of US LOE strategy to leverage

[the brand’s] strengths and capture value post-LOE”).

10 CD, undated.

11 See, e.g. CD, Nov. 2004 (“[p]rovides high margin to [branded firm] during exclusivity period . . .

[a]bility to launch on day one of competitors 180 day exclusivity provides greatest dollar return”); CD,

undated (illustrating greater AG revenue potential during 180-day exclusivity period than with no

exclusivity).

67

observations suggest that for many drugs, brand share at six months is less than 20 percent,6

 and

in some cases brand share may fall even more rapidly.7

 

Based on their internal documents, many brand-name firms regard authorized generics as

a way to recapture some of the lost revenue. For example, one major brand-name firm used a

subsidiary to launch AG products, with the stated goal of maximizing returns after loss of

exclusivity (“LOE”).8

 The AG subsidiary continues to be the “cornerstone” of the firm’s

strategy to capture value after its brand-name drugs lose exclusivity.9

 Another large brandname firm justified decisions to launch AGs based on the “incremental profits” available from

“captur[ing] a share of the generic market without cannibalizing the branded business.”10

The documents suggest that brand-name companies are particularly interested in

marketing during 180-day exclusivity for the same reasons that generic companies are – with

limited competition and the ability to sell at a relatively high price, the exclusivity period offers

the greatest profit opportunity.11 Thus, while marketing an AG during exclusivity necessarily

reduces ANDA-generic returns on patent challenges, it also provides the brand the highest

return. For example, one brand-name company explained that when one of its products loses

exclusivity, its AG subsidiary blunts the loss because it:
12 CD, Dec. 1, 2006.

13 CD, Nov. 11, 2005; see also CD, Sept. 15, 2005 (without 180-day exclusivity, “economic potential is

minimal”).

14 See, e.g., CD, Nov. 4, 2004 (forecast of brand and AG sales, gross margin, royalties, and business unit

contribution with different numbers of generics and with no AG, simultaneous launch, and early

launch); CD, Sept. 8, 2005 (best- and worst-case forecasts of sales, share, and margin).

15 See, e.g., CD, May 5, 2004 (“Key Success Factors” for AG include “Assessment of . . . sales

cannibalization; Accurate forecasting of the financial return”); CD, June 7, 2003 (forecast

methodology based on recent market share and price erosion); CD, 2005–2006 (sales forecasts with

best- and worst-case assumptions regarding sales, share, and erosion); CD, undated (forecasts of

profits and profit share used in selecting AG distributor). These forecasts are evidence that brandname companies are looking at AGs as a revenue opportunity.

16 See, e.g., CD, undated (“Financials: Proj[ected] vs. actual: Branded share erosion; Share captured by

the authorized generic; Price erosion; [Brand Firm] Sales / BUC”).

17 See, e.g., CD, Mar. 31, 2006 (launching an AG simultaneously with third party entry “[d]elivers

incremental revenue which otherwise would be lost to the generic challenger”); CD, 2005 (AGs

generate “incremental volume and profits”); CD, Mar. 22, 2005 (launching AG would result in

“incremental net trade sales and net income”). Indeed, many brand-name firms’ documents suggest

that if the supply of ANDA-generic products is sufficient to satisfy demand, marketing an AG will not

accelerate erosion of brand sales. See, e.g., CD, 2005 (AG can be used to “[r]ealize a share of the

generic market, without cannibalizing the Rx tail”); CD, July 2003 (analysis of previous AGs indicated

68

can also market during the lucrative 180 day period of limited competition. This practice

of using an AG to participate in the high margin 180 day exclusivity period has now

become standard throughout the industry. . . . Due to the success of this practice, we

anticipate that every product with annual brand sales in excess of $50 million will have

an AG launched with a Para IV loss of exclusivity.12 

Another brand-name firm projected that an AG would add $60–$65 million of incremental 

business unit contribution in one year “[a]ssuming that the 180-day exclusive period is

maintained” but would yield only “marginal” benefit without exclusivity.13

The brand-name firms’ keen interest in the revenues arising from AGs and their intense

concern with any impact of the AG on branded sales are reflected in their extensive forecasting

and sales analysis documents. Virtually every brand-name company in the study that had

marketed an AG produced multiple forecasts and revenue analyses in response to the FTC

Special Orders.14 The forecasts were incorporated into different phases of company decisionmaking, including decisions to market an AG, select an external distributor, determine launch

timing, and project how much to manufacture.15 After launch of an AG, companies closely

monitored actual revenues, price, and market share to facilitate adjustments based on market

conditions.16

A key conclusion of the brand-name firms’ analyses is that AGs can generate incremental

revenue when a branded product loses exclusivity.17 This is supported by the study’s data
that “Authorized Generics Do Not Negatively Impact Brand Share”); CD, Feb. 8, 2002 (“the

substitution of brand to generic on this product will occur at the same rate irrespective of [an AG]

launch or not”); CD, Nov. 2004 (stating that when an AG is launched in response to generic entry,

there is “[n]o acceleration of brand erosion” because there is “no incentive for customer to accelerate

substitution”). This is consistent with firm analyses finding that so long as one generic substitute is

available, presence of a second generic product does not accelerate substitution. See, e.g., CD, Mar.

23, 2005 (“No correlation between brand erosion and the number of generic entrants.”). In contrast,

the expectation that brand sales are not eroded by AGs might conflict with the empirical findings of

Table 3-8, which show lower expenditures on brand-name products with AG introduction. However,

as previously suggested, the analysis that underlies that table cannot distinguish between an AG

increasing brand erosion and brands having greater incentives to introduce AGs for products that

would rapidly lose sales to generics regardless of whether an AG is introduced. See supra, Chapter 3,

note 51. The documentary evidence points toward the latter explanation.

18 See supra Chapter 3, Table 3-9 (showing statistical significance for models without controls but not

for models with controls). Similarly, analysis of the post-exclusivity data shows a positive average

effect on brand-name firm wholesale relative expenditures from marketing an AG. See infra Chapter

6, Table 6-6. Results for the latter period, however, were not statistically significant.

19 Other than when AGs were introduced, brands cut price only 20% as much as the ANDA-generics

during the 180-day exclusivity period (based on unweighted prices). Weighting showed brand price

reductions that were 65% of those of ANDA-generics. Compare supra Chapter 3, Table 3-2 with

Chapter 3, Table 3-5.

20 See CD, undated (indicating that AGs are preferable to price equalization because AGs “allow for

market segmentation,” i.e., they “[m]aintain branded price for patients with low price sensitivity”);

CD, undated (powerpoint prepared for June 2005 presentation listing as the first benefit of an AG

strategy, “Segment the market”). The technique of selling both low- and high-priced versions of the

same product is not unique to pharmaceutical drugs; price discrimination has long been recognized as

a potential means for enhancing a firm’s total revenues. See, e.g., ROBERT S. PINDYCK & DANIEL L.

69

analysis. Wholesale expenditures during 180-day exclusivity on the brand-name firm’s

combined products (brand plus any AG) were higher under all models when an AG was present

than when only the brand-name product and an ANDA generic competed.18 This is consistent

with a brand-name firm objective of maintaining a revenue stream following generic entry.

B. The Use of Brand-Name Discounting to Maintain a Revenue Stream

In theory, instead of marketing an AG, a brand-name company might try to retain market

share after generic entry by cutting the price of its brand-name product to a level directly

competitive with generic drugs. Typically, however, brand-name firms have not employed full

“price equalization” strategies.19 This section explores possible reasons why brand-name

companies that seek to defend their revenues after generic entry might turn to AGs.

Selling AGs at the ANDA-generic price and brand-name products at a higher price is a

form of price discrimination. If customers can be segmented by their willingness to pay a

premium for a branded product, such price discrimination affords an opportunity for the brandname manufacturer to reap greater revenues.20 Market segmentation indeed appears possible. 
RUBINFELD, MICROECONOMICS 381–82 (4th ed. 1997) (explaining that a company that sells the same

product in different bottles at different prices to different segments of the market “does it because the

practice is profitable”); DENNIS W. CARLTON & JEFFREY M. PERLOFF, MODERN INDUSTRIAL

ORGANIZATION 293 (4th ed. 2005) (explaining that, under certain conditions, “[a] firm price

discriminates to increase its profits”).

21 See, e.g., Thomas Chen, Note, Authorized Generics: A Prescription for Hatch-Waxman Reform, 93

VA. L. REV. 459, 473–77 (2007), available at

http://www.virginialawreview.org/content/pdfs/93/459.pdf (discussing physician prescription practices

and consumer loyalties to brand-name drugs).

22 See CD, undated; CD. Feb. 17, 2005.

23 See CD, undated.

24 In contrast, the brand may find it easier to take advantage of such developments when it need merely

limit availability of an AG. See CD, Sept. 17, 2004 (noting that if the brand-name firm’s AG

subsidiary launches before a TRO decision is reached and the generic competitor is forced to pull

back, “we would pull back also”); CD, Mar. 29, 2006 (discussing plans for transitioning to withdrawal

of AG following anticipated withdrawal of ANDA-generic competition after reversal of a lower

court’s patent unenforceability ruling).

25 See CD, undated (noting “[d]ifficulty in justifying price of follow-on compounds” if a discounted price

serves as the reference). 

26 Id. at 0010; CD, undated (explaining that because generics must be priced lower than brand-name

drugs in order to be eligible for substitution, a price equalization effort would just force the generics to

reduce price further); see also Kent S. Bernard & Willard K. Tom, Antitrust Treatment of

Pharmaceutical Patent Settlements, 15 FED. CIR. B.J. 617, 624 (2006) (citing a 2005 Novartis study

finding mandatory generic-use policies applicable to nearly all Medicaid enrollees and a 97.1 percent

generic substitution rate for Medicaid plans); Nicole Hubersfeld, Clear Notice for Conditions on

Spending, Unclear Implications for States in Federal Healthcare Programs, 86 N.C. L. REV. 441, 479

(2008) (noting that “some states limit their [Medicaid] formularies to generic drugs”).

70

The brand will be attractive to purchasers buying under “dispense as written” prescriptions and

to consumers who are willing to pay more for brand-name products.21 The generic is an option

for the more price-sensitive customers.

In contrast, reducing price on the brand potentially has some economic and strategic

disadvantages. Such discounting entails a loss of residual brand sales at full margin.22

Moreover, a brand-name firm analysis cautions that a price discount might effectively become

permanent, to the brand-name firm’s detriment.23 For example, if the brand cuts price when a

generic enters at risk, it may be difficult to restore full price upon a favorable appellate

decision.24 And the same firm’s analysis indicates that cutting price on a core branded product

could make it more difficult for the brand-name firm to justify the price of any line extensions.25 

Other considerations sometimes cited in analyzing the choice between offering an AG

and reducing brand price across the board upon generic entry include state generic substitution

laws and Medicaid mandates for generic substitution.26 Brand-name firm analyses also note that
27 CD, undated.

28 See CD, undated (discussing retail chains); CD, undated (“PBM’s will substitute with a generic

regardless of how much the branded price is discounted”).

29 The documents add insight regarding the implications of our finding that “first-filer generics make

considerably less revenue when an AG enters the market,” Chapter 3, Section IV, with the magnitude

of the AG-entry effect during exclusivity ranging between -39.6% and -52.0%, depending on the

model employed. See supra Chapter 3, Table 3-7; cf. CD, Oct. 6, 2005 (projecting that a first-filer

generic’s product would lose 29–32% of its net present value over roughly a five-year time frame if

faced with AG competition). 

30 CD, June 7, 2003; see also CD, 2006 (denoted “DRAFT”) (“AGs have had a significant impact on

market pricing especially during the 180-day exclusivity period. . . . The increased competition has led

to significant price erosion and reduced revenue for generic companies.”). 

31 CD, Oct. 2005. The same document, however, lists above the quoted entry the point that AGs

“[m]aximize profits for brands facing generic competitors.” Id.

32 CD, Apr. 25 (year unspecified).

71

drug plans encourage generic substitution through their co-payment schedules27 and that

pharmacies typically earn greater profit margins with generic substitution and, along with PBMs,

have policies and/or incentives that favor generic substitution.28

In sum, the price of brand-name drugs typically remains significantly above generic

levels. For the various reasons noted, it appears plausible that reliance on AGs could be the most

effective means for brand-name firms to retain revenues following the onset of generic

competition. 

II. Authorized Generics and Impact on Generic Firms’ Incentives

Revenue considerations, however, are not the whole story. Brand-name firm documents

produced for this study reveal a clear understanding that the marketing of AGs during 180-day

exclusivity periods may have some impact on generic firms’ incentives to challenge patents.29

Of course, the fact that a company recognizes that an authorized generic could deter future

generic entry does not necessarily mean that the company employs the strategy to achieve that

outcome. 

For example, the operating plan for one brand-name firm notes that the ability to launch

an AG “during 180 day exclusivity period may make paragraph IV challengers think twice

before attacking [brand-name company] brands, due to reduced financial rewards.”30 Another

brand-name firm recognizes AGs’ potential to “[d]iscourage future paragraph IV litigation by

devaluing the 180 days exclusivity period”31 and to “modestly diminish value of first-to file

generics” but adds, “overall financial attractiveness for first to file ANDA is still relatively

high.”32 A document from a third brand-name firm emphasizes the disincentive effect over

revenue generation with regard to a specific AG: “Financially speaking, [the AG is] not a

particularly attractive proposition, but . . . strategically we may want to send a message . . . that
33 CD, Mar. 27, 2006.

34 See supra Chapter 2, Section II.B.

35 See supra Chapter 2, Figure 2-10.

36 See CD, Nov. 2004 (AG’s share is enhanced by launching before the brand loses exclusivity because

“historically the first generic to market captures significant value during ‘duopoly period’ and gains a

significant foothold in market share”); CD, undated (“[f]ive day pre-emptive launch would secure

added retail share”); CD, Feb. 2, 2004 (concluding that AG marketing “make[s] the launch of

subsequent generic product more difficult by establishing a strong early market share, and the product

72

[the brand] will launch authorized generics . . . and thereby hopefully reduce future Gx

competition for subsequent . . . products coming off patent.”33

Overall, the document production reflects that brand-name companies see authorized

generics as a strategy to maintain revenue but recognize that AGs could deter future patent

challenges. It provides no clear basis for deeming one consideration more important than the

other and only rarely isolates a single rationale for particular AG marketing decisions. We next

examine brand-name firms’ practices, finding behavior patterns consistent with maximization of

combined brand and AG revenues rather than a sacrifice of revenue to maximize impact on

generic competition.

III. Evidence from Brand Marketing Practices

A. Relationship to Exclusivity; Timing of Launch and Withdrawal

Marketing during 180-day exclusivity: Although AGs frequently are marketed during an

ANDA-generic’s 180-day exclusivity, as would be expected if AGs were launched to deter

patent challenges, most AGs are not associated with exclusivity periods. As noted above, about

two-thirds of the 119 AGs identified in this study were not marketed during an exclusivity

period.34 Moreover, nearly half of the brand-name drugs for which AGs were launched were

subject only to Paragraph I, II, or III certifications and thus were not associated with drugs that

had been subject to patent challenges.35 The fact that brands often introduce AGs in

circumstances that are unlikely to have any long-term impact on future patent challenges

strongly suggests that AGs have value as a competitive response unrelated to any reduction of

incentives to challenge patents. 

Launch timing: Brands almost always launch AGs simultaneously with or shortly after

ANDA-generic entry. This is consistent both with strategies based on retaining revenues and

with strategies premised on deterring patent challenges. As explained below, launching AGs

prior to ANDA-generic entry might support claims that aspects of AG marketing serve the sole

purpose of devaluing 180-day exclusivity, but this has not been the pattern observed. 

Launching an AG before ANDA-generic entry would give the AG a first-mover

advantage by which it could gain and keep market share,36 thereby “[d]ilut[ing] the value of the
placed on appropriate formularies”); Chen, supra note 21, at 478–79 (arguing that pharmacies’

tendency to stock only one generic confers a substantial advantage on first generic to enter). 

37 CD, Mar. 31, 2004 (considering whether the brand’s AG subsidiary should adopt a strategy of early

launch to deter patent challenges). However, another brand-name firm that considered launching an

AG slightly before generic entry carefully evaluated effects on brand and AG revenue but did not

include any disincentive effect in its calculus. See, e.g., CD, Mar. 8–9, 2005. 

38 See, e.g., CD, undated; Saami Zain, Sword or Shield? An Overview and Competitive Analysis of the

Marketing of “Authorized Generics,” 62 FOOD & DRUG L.J. 739, 774 n.199 (2007) (noting that “the

earlier the authorized generic enters the market, the more it cannibalizes the branded drugs’ profits”).

39 See CD, Nov. 4, 2004 (“financial risk to brand [of early launch is] significant” because brand erosion

cannot be “made up by benefit of 2 week early launch”; that risk is exacerbated if the first generic

entrant is delayed for any reason, because the AG would cannibalize the brand during the delay); CD,

Feb. 2, 2005 (“Do not put Rx brand at risk (i.e., do not launch in advance of a generic, but can have

contracts in place and inventory at wholesalers”)) (emphasis original); CD, Jan. 5, 2007 (“[generic

subsidiary] and [brand-name company] agree it is not financially viable to launch an AG prior to

launch of other AB rated generics in the US”); CD, Mar. 31, 2004 (disadvantages of launching the AG

early include “Uncertainty over ultimate LOE date [that] could cause unnecessary brand erosion;

Additional incentive for earlier ‘at risk’ launches by generics; Potential public relations issue;

Legislative Risks”).

40 For example, some AG supply agreements require the AG marketer to compensate the brand for

profits lost due to early launch of the AG. See, e.g., Agreement, 2007; Agreement, 2003; Agreement,

2002, amended 2003. Alternatively, an agreement might require that the AG marketer pay the brand a

high percentage of net revenues or profits from AG sales before third-party launch. See, e.g.,

Agreement, 2005 (distributor must pay brand 100% of net profits on AG during the time when the AG

is the only generic on the market).

41 See, e.g., CD, undated (“An authorized generic should NEVER be launched before a competitor in

order to avoid eroding the brand prematurely.”); CD, July 2004 (“Launch generic versions of [brandname company] products that lose patent protection in response to generic competitive launch: Rule

#1: First do no harm to the brand . . .”); CD, undated (“[AG Subsidiary] strategy is never to launch

first. The strategy is to launch simultaneous (or as close as possible) to formidable generic

competition (to protect brand profitability).”); see also Agreement, 2005 (launch date after entry by

specified competitor); Agreement, 2005 (launch when “Third Party Generic . . . Product” is available,

as verified by independent sources); Agreement, 2002, amended 2003 (launch when “third party

delivers any Equivalent Product to any retail pharmacy”).

73

180 exclusivity to the ANDA holder.”37 Early launch, however, “cannibalizes” sales of the

brand-name product, starting their decline before ANDA-generic entry has occurred.38 Brandname firms have chosen to tightly control the timing of AG launch to avoid unnecessary loss of

brand sales and other disadvantages.39 Launch even a short time before confirmation of ANDAgeneric entry is disfavored, and AG supply agreements often include strict penalty provisions or

financial terms that enforce launch timing.40 Accordingly, at least apart from settlement

contexts, AGs generally are launched immediately upon confirmation of ANDA-generic entry,

so as to achieve the highest level of AG sales without unnecessarily eroding brand-name sales.41

Figure 4-1 illustrates this point; for the 88 drugs/strengths covered by AGs and associated with

exclusivity periods during the 2001–2008 period, AG launch occurred within five days of
42 The figure does not include three instances where the brand settled with the first-filer and made the

first-filer its exclusive AG marketer because, under those circumstances, there was no competition

between the AG and the ANDA-generic during the 180-day exclusivity period. In the one instance

where the figure identifies AG entry more than five days before the first-filer’s entry, the AG entered

on one strength of the product eleven months before ANDA-generic entry on that specific strength, but

ten months after ANDA-generic entry on the other strengths. 

43 See, e.g., Public Comment from the Prescription Access Litig. Project et al. to the Fed. Trade Comm’n

4 (June 5, 2006), http://www.ftc.gov/os/comments/genericdrugstudy3/060605pal.pdf (“[T]he fact that

74

generic entry 76% of the time; AG launch preceded generic entry by more than five days roughly

one percent of the time.42

0 1 0 0

67

7

4 2

7

0

10

20

30

40

50

60

70

80

More Than

a Year Prior

365 to 181

Days Prior

180 to 31

Days Prior

30 to 6

Days Prior

Within 5

Days

6 to 30

Days After

31 to 180

Days After

181 to 365

Days After

More Than

a Year After

AG

Strengths

Launched

Figure 4-1: Authorized Generic Drug Launch Timing Compared, 

Strength by Strength, to Entry of Corresponding ANDA-Generics 

with 180-Day Exclusivity (2001-2008)

This, of course, does not preclude a rationale based on deterring patent challenges;

marketing an AG beginning with the 180-day exclusivity period simultaneously raises brandname firm revenues and decreases revenues of the first-filer. The data do suggest that brandname firms have not sacrificed combined AG and brand revenues in order to maximize impact

on the first-filer. If brand-name firms frequently began AG marketing before generic entry, a

long-term strategy, such as deterring Paragraph IV certifications or encouraging settlements that

delay generic entry, would have been indicated, but this has not been the case. All in all, the

launch timing data are consistent with the presence of both revenue-driven and entry-deterring

objectives.

Market withdrawal: Contrary to assertions that AGs are marketed only during exclusivity

and are removed from the market almost immediately afterwards,43 almost all AGs marketed
most authorized generics disappear from the market after the 180 days shows that they are neither

intended to promote competition nor in fact do so.”). 

44 For 2001–2007, discontinuation dates were based on company responses to the Special Orders. The

2010 Red Book, company websites, and other sources were used to determine whether AGs were

marketed through the end of 2009.

45 CD, July 26, 2004 (“working draft”).

46 See, e.g., Agreement, 2006 (“Distributor shall have sole discretion over Distributor’s price for the

Product”); Agreement, 2004 (distributor “has sole authority and discretion to implement pricing

changes”); Agreement, 2005 (distributor solely responsible for pricing).

47 CD, Mar. 31, 2004 (“Potential [Company] Strateg[y]” of “Substantially Reduc[ing] Generic Price of

All [Brand-Name Co.] LOEs During the 180-day Exclusive Period”).

48 As of 2003, the brand-name firm noted that its AG subsidiary “historically follows pricing down

(never leads) . . . . Customers expect [AG subsidiary] to follow competitor price changes (both up and

75

during exclusivity continue to be marketed for an extended period, often for many years. 

Indeed, of the 25 oral-solid AGs launched between 2001 and 2006 and associated with a 180-day

exclusivity period, 23 continued to be marketed two years after the beginning of exclusivity; by

the end of 2009, three to eight years after the start of the exclusivity periods, 16 remained on the

market.44 This is consistent with brand-name firms’ statements that they continue to market AGs

“after the 180-day period expires, if it is commercially desirable to do so.”45

In sum, quantitative information shows that brand-name firms market AGs both with and

without exclusivity; typically launch AGs on schedules that forgo maximum impact on ANDAgeneric rivals while avoiding cannibalization of brand sales; and generally continue marketing

AGs after 180-day exclusivity has ended. These facts all point to use of AGs as a revenueenhancing technique, but the data are also consistent with the use of some AGs as a disincentive

to patent challenges by generic firms.

B. Pricing, Market Share, and Profit-Splits

As described above in Chapter 2, AG marketing follows two principal routes; brandname companies or their subsidiaries distributed 44 percent of the AGs covered by this study;

independent licensees distributed the remaining 56 percent. When AG marketing is handled inhouse, the brand-name company can exercise direct control. In contrast, pricing decisions by

outside licensees typically are independent of the brand.46 In both cases, however, material

produced for this study suggests that brand-name firms shy away from maximizing impact on

generic competitors, while enhancing brand-name firm revenues.

Brands that market in-house generally do not appear to aggressively reduce the price of

AGs during 180-day exclusivity, even though such discounting might capture a larger share of

the market and thereby diminish generic firms’ incentives to challenge patents. At least one

major brand-name company recognized that lowering AG prices would tend to “[r]educe[]

financial incentives to file Para IV ANDAs”47 but rejected that approach.48 Indeed, documents
down) within 30 days.” CD, Sept. 23, 2003. When the firm’s AG subsidiary later considered

“Refocus[ing] objective . . . From: Maximizing value capture for [the branded parent], To: Deterring

patent challenges” by “aggressively pricing” its AGs, CD, Feb. 1, 2006, it described the “deterrence”

option strategy as a potential change from the “[s]tatus quo.” Id. A subsequent strategy document,

which continues to describe the firm’s strategy as “do not lead on price,” CD, Oct. 19, 2006, indicates

that the aggressive pricing option was not selected.

49 See, e.g., CD, undated (“An authorized generic should always be a price follower while letting the

competition establish market value.”); CD, undated (“As a ‘price follower,’ the authorized generic will

never be the initiator of a price war leading to market price erosion.”); CD, undated (“[AG

subsidiary’s] launch strategy is defensive in that the overall strategy id [sic] to protect the brand and

delay the erosion of brand units and overall market price.”); cf. CD, Feb. 8, 2002 ([Subsidiary’s] plan

was to be “a price follower to [the ANDA-generic], not a price leader” and to “offer a slightly higher

contract price to the trade versus [ANDA-generic rival] to avoid price competition,” but “with major

customers the [subsidiary’s] price will likely net down to an estimated 5% lower than [ANDA-generic

competitor] . . . .”).

50 CD, Mar. 31, 2004 (listing as “Cons” of reducing price during exclusivity, “Loss of . . . high margin

during 180 days; Negative financial reimbursement impact on retailers; Additional incentive for earlier

‘at risk’ launches by generics; Can accelerate brand erosion; Potential public relations issues; Lose

some of the benefits of ‘settlements’ . . .”).

51 See CD, undated ( “[AG Subsidiary] will share the 6-month exclusivity with first filer(s) and capture a

40% share of the generic market”); CD, undated (“An authorized generic should strive to achieve only

a minority share (40%) of the substitution market and not encourage price cuts.”); CD, Feb. 8, 2002

(“[Subsidiary] will compete with [ANDA-generic] on select accounts and attempt to obtain between

40% and 60% of the generic market. Anything greater than a 60% share may incite severe pricing

competition from [ANDA-generic] which is NOT a goal of [subsidiary].”).

52 See supra Chapter 3, Section III.A.3.

53 CD, Dec. 12, 2005.

76

explaining the pricing practices of brand subsidiaries often assert that an AG should be a price

follower, not a price leader, to avoid driving price down, especially during exclusivity.49 These

documents articulated many drawbacks to aggressive AG pricing during 180-day exclusivity,

including loss of the high margin available during that period and possible acceleration of brand

erosion.50 Similarly, brand-name firms’ documents suggest that they generally seek to capture a

large but measured portion of the market because seeking more would require substantial price

cuts.51 Again, this indicates that brands generally have not attempted to maximize the deterrent

value of AGs by acquiring market share at the expense of profitability. 

Marketing through independent distributors has followed a similar approach. AGs as a

whole were priced similarly to the competing ANDA generics at wholesale, and there was no

statistically significant difference between the pricing of AGs marketed by independent licensees

and the pricing of AGs marketed by brand-name firm subsidiaries.52 Describing its criteria for

evaluating the effectiveness of competition by a generic marketing partner, one brand-name firm

expressly opted for a “[p]rofit maximizing rather than a sales maximizing approach.”53 Indeed,

many AG supply agreements specify that the distributor cannot use the AG as a loss leader or
54 See Agreement, 2006 (“Distributor shall not sell the Product as a loss leader”); Agreement, 2004

(similar); Agreement, 2005 (similar); id. (distributor shall not discount AG in a way not applied to the

majority of distributor’s other products).

55 See, e.g., Agreement, 2004 (profit split is 50% to the brand); Agreement, 2005 (profit split is 92% to

brand if there is one ANDA-generic competitor); CD, Oct. 12, 2004 (“Historically, generic partners

received 20–35% of the economics, but this has now been driven down to 10% or less”). In settlement

contexts, by contrast, generics often pay less than 35 percent, and a number of agreements – involving

both litigated and other products—have brand-name firm profit splits of ten percent or less. See, e.g.,

Settlement Agreement (requiring generic to pay brand 10% of Net Sales of AG of litigated product);

Settlement Agreement (requiring generic to pay brand 8% of Profits on sales of AG of non-litigated

product); Settlement Agreement (requiring generic to pay brand 5% of Net Profit on sales of AG of

litigated product); cf. Settlement Agreement (requiring generic to pay brand 1–25% of profits on AGs

of litigated and non-litigated products, depending on the time after launch and the number of entrants).

77

price it differently from the way it prices its ANDA-generic products.54 

Profit-splits, i.e., the percentage of profits that the AG distributor must pay to the brand,

are also consistent with the brand’s interest in the revenue stream arising from an AG. Apart

from contexts where AG marketing rights derive from patent litigation settlements, marketing

agreements generally require AG distributors to pay the brand a large percentage of profits on

the AG, typically from 50–92 percent.55 In sum, neither the pricing terms nor the profit splits of

arrangements with independent marketers suggest that brand-name firms have maximized AGs’

deterrent value without regard to impact on brand-name firm revenues. 

IV. Conclusion

Review of documents and data accumulated for this study suggests that brand-name

firms understand that authorized generics have two principal effects. Plainly, they are aware that

AG marketing during the 180-day exclusivity period could cause potential generic entrants to

think twice before adopting strategies based on patent challenges and early, exclusive entry. 

Claims that this is the sole purpose of AG marketing, however, appear overstated and

inconsistent with the marketing strategies that brand-name companies adopt with regard to

authorized generics. Marketing an AG is a way for a brand-name firm to preserve a revenue

stream after the onset of generic competition. That this marketing frequently occurs during the

generic’s 180-day exclusivity period is no surprise: that is when maximum profits are available,

for the brand-name firm as well as the generic. Moreover, AG marketing typically persists

beyond the end of 180-day exclusivity, and most AGs are not marketed during exclusivity

periods. 

Moreover, while AG marketing substantially impairs generic firms’ revenue

opportunities, brand-name firms have not sacrificed combined AG and brand revenues in order

to maximize impact on the first-filer. Thus, AG marketing typically is timed to begin

simultaneously with or follow immediately after generic entry, forgoing a first-mover advantage

that would harm generics but also cannibalize brand sales. And AGs usually are price followers,

not competitors that undercut generic rivals in ways that would inflict the most harm.
78

Analysis of brand-name firms’ documents and marketing practices consequently provides

a mixed picture, one consistent with both revenue-generating and entry-deterring objectives. In

subsequent chapters we look to additional sources of evidence in order to examine AGs’ likely

effects on generics’ long-run incentives.
1 See infra Appendix E, ¶¶ 18–19, at E-4, E-5. Request 18 sought documents on the impact of AGs on

ANDA-generic profitability and the decision of whether to file a Paragraph III or Paragraph IV

ANDA. Request 19 focused on documents relating to the marketing of AGs by generic companies. 

Of the 57 generic companies that received the Order, 16 provided some documents in response to one

or both specifications, although several of the submissions were minimal, and several of the largest

generic companies produced no documents in response to either Request. Subsequently, one large

generic company supplemented its production with company documents and a third-party, interpretive

analysis. 

2 See, e.g., Public Comment from the Generic Pharm. Ass’n (“GPhA”) to the Fed. Trade Comm’n (June

27, 2006), http://www.ftc.gov/os/comments/genericdrugstudy3/062806gpha.pdf (“The sale of

authorized generics during the generic exclusivity period reduces the value of the 180-day exclusivity

and consequently reduces the incentive for generic drug companies to challenge questionable

patents.”).

79

CHAPTER 5 THE MARKETING OF AUTHORIZED GENERICS:

GENERIC FIRM PERCEPTIONS AND DECISIONMAKING

In Chapter 4 we examined AGs from the perspective of brand-name companies. In this

chapter we consider AGs from the perspective of generic pharmaceutical firms, based largely on

the documents they submitted in response to the Commission’s Generic Company Special

Order.1 In Section I we discuss what the documents reveal about generic company concerns

regarding, and reactions to, AGs’ effects on their revenues. In Section II we turn to the central

issue: the extent to which AGs may create disincentives to patent challenges by generic firms,

thereby potentially delaying generic entry and diminishing generic competition.

 

The generic company documents confirm Chapter 3's empirical finding that the sale of an

AG during the exclusivity period substantially reduces the revenue of the ANDA generic,

thereby reducing the value of the exclusivity gained through a patent challenge. Yet the

documents do not reflect consensus on the longer-term impact of AGs. Although some

documents express concern with the potential long-run impact of AGs on generic firm incentives

and the financial health of the generic industry, these were largely advocacy documents

articulating for public presentation the position of the generic firms’ trade association2 and of

certain of the generic companies that have been at the forefront of challenging the marketing of

AGs during 180-day exclusivity periods. By contrast, there were few internal company

documents discussing (or even alluding to) the disincentive issue, even from those companies

focused on securing exclusivities. Indeed, none of the internal company documents expressly

discusses AGs as a factor in deciding whether to file a particular patent challenge. The projected

effects of AG competition, however, may have resulted in financial forecasts for Paragraph IV

entry by some drugs in small markets showing losses, rather than profits. 
3 See supra Chapter 2, Section I.B.2.b.ii.

4 Company Document (“CD”), July 15, 2004. 

5 Id. A later analysis submitted to the FTC asserted that the firm “typically forecasts that an AG will

reduce its revenue during the [180-day] exclusivity period by roughly 70%” and that “[d]epending on

the drug, upwards of 60% of total lifetime revenues and profits come during this exclusivity period.” 

CD, Apr. 2011. 

6 CD, July 15, 2004.

7 Id.

80

 At the same time the internal company documents submitted by a number of generic

companies raise questions regarding contentions that AGs create significant disincentives to

patent challenges and seriously threaten the industry’s continued ability to develop generic

drugs, as some in the industry have argued. As discussed in Chapter 2, different generic

companies have adopted different business strategies in the face of AG competition,3 and those

strategies, not surprisingly, appear to be reflected in how they view AGs and their potential longterm impact. 

I. The Impact of AGs on Generic Firm Revenues and Profits: Generic Company

Concerns and Responses 

A. The Nature of Generic Company Concerns

Generic company concerns about AGs are most clearly set out in advocacy documents

submitted by several of the generic companies. These materials focus largely on revenue losses

experienced by generic firms due to AG marketing during the 180-day exclusivity period. For

example, in one generic firm’s 2004 powerpoint presentation to the FTC, entitled “The

Anticompetitive Threat of Authorized Generics,” the firm referenced the example of another

generic company that reportedly lost approximately $400 million of expected revenues due to

AG competition during the exclusivity period for one drug, which represented as much as threetimes its entire annual R&D budget.4

 In another example, the firm contended that it had lost

revenues of over $32 million on one drug during the 180-day exclusivity period alone and that

that amounted to over 32% of the firm’s entire R&D budget for fiscal year 2004.5 The

presentation estimated that, industry-wide, AGs reduced generic revenues by $700 million to

$1.2 billion.6 Thus, it argued, “[a]uthorized generics harm consumers by impairing the ability of

generic companies to continue innovating and developing new generic drugs.”7

Similar concerns about the impact of AGs on exclusivity, using the same examples of lost

revenues, are reflected in other advocacy documents produced by the generic firms,
8 See, e.g., CD, Mar. 24, 2004 (providing Apotex Comment in Support of Mylan Citizen Petition, Food

& Drug Admin. Docket No. 2004P-0075/EMC1 (Mar. 24, 2004),

http://www.fda.gov/ohrms/dockets/dailys/04/apr04/040204/04P-0075-emc00001.pdf).

9 CD, undated.

10 CD, undated.

11 CD, Feb. 1, 2005; see also CD, Dec. 6, 2004 (Bear Stearns report noting that “[a generic company’s]

attorneys said that the company expected to earn $41 mil. during the exclusivity period, but that with

Watson’s generic on the market, the anticipated return was less than $9 mil.”).

12 E.g., CD, Nov. 2, 2005; CD, Feb. 15, 2006; cf. CD, Feb. 8, 2006 (“Forecast . . . is based on [firm]

having exclusivity. Substitution rate = 80% with [firm] generic market share being at 60%

(exclusivity + Authorized Generic)”). Other documents from the same company note the company’s

failure to meet 2004 work plan projections in part because of AGs. CD, 2004 (stating that “[firm]

continued to face with the Authorized Generics phenomena, gained share from the AG portion on few

products,” and noting that “77% of new products sales related to products with AG competition in

comparison to 42% in Q3"). 

13 Typically, the generic firm forecasts project lower prices when an AG is present. Although some

forecasts predict greater discounts than found by the analysis in Chapter 3, others are consistent with

our findings. The projections were too few, and in some cases too ambiguous, to permit compilation

of meaningful results.

81

including citizen petitions.8 Another document, urging that a joint letter be sent to the FDA

“requesting that the Agency protect the incentives entitled to generic drug companies for the

future development of generic drugs,” says that “[t]he consequences of authorized generic deals

are tremendous: by losing its 180-day head-start on other generic competitors, a first filing

generic company faces strikingly reduced profit opportunities.”9

Non-advocacy documents confirm that the introduction of an AG during the exclusivity

period substantially erodes the expected profitability of the ANDA. Thus, one internal company

document observes that authorized generics are “here to stay,” and “in general cut in half or

more the profitability of the value of the 180-day exclusivity.”10 This estimate is consistent with

that in an investment advisory letter, which observed that “[d]ue to market share and pricing

erosion at the hands of the authorized player, we estimate that the profits for the ‘pure’ generic

during the exclusivity period could be reduced by approximately 60% in a typical scenario.”11

Another company’s sales forecasts assume an AG, and, because of that assumption, the

“[f]orecast is reduced from 100% market share during 6 months of exclusivity to 60% market

share.”12 In fact, various sales and pre-launch forecasts indicate that generic firms routinely

assume the presence of an AG, and weave that consideration, along with assumptions about

market size, substitution rates, price erosion,13 and the likely number of competitors, into their

projections of sales and profitability of the ANDA-generic drug during the exclusivity period
14 See, e.g., CD, Apr. 19, 2005 (e-mail and sales forecast noting, “[w]e would always assume an

authorized generic.”); CD, undated (noting, “AG impact assumed for every new generic product

launch; [d]espite FTC review of AGs, studies show AG presence increases competition and reduces

price and cost”); CD, Jan. 5, 2006 (new products launch summary, including forecasts for four

products based on assumptions of 180-day exclusivity and the presence of an AG); CDs, Sept. 14,

2007 and May 8, 2008 (four new product forecasts by another generic firm assuming the presence of

AG competition during the 180-day exclusivity period); see also CD, Feb. 1, 2005 (“We believe

investors should assume that most new generic product launches will include an authorized generic

player.”). 

15 CD, May 23, 2005 (also noting as contributing to price erosion, “India disadvantage: increasing bulk

availability and competition”).

16 CD, July 19, 2005.

82

and beyond.14 Accordingly, the generic company documents underscore Chapter 3's quantitative

findings of revenue impacts and indicate that, especially for those firms whose business models

focus on obtaining exclusivities via Paragraph IV filings, the adverse financial consequences of

AGs may be significant.

Several other internal company documents allude generally to the effect of AGs on the

value of 180-day exclusivity. Thus, a 2005 strategic planning document from one generic firm

notes that “price erosion is here to stay,” that “[e]xclusivity has become elusive; [a]uthorized

generics erodes market share,” and that “authorized generics diminish value of exclusivity.”15

Another document, discussing the competitive profile of a rival generic company, observed as

one challenge for that company, “Intense competition/Revenues decline with competition;

Authorized generics will impair 180 [day] exclusivity.”16

A March 2005 business plan of one company likewise refers to the threat posed by AGs 

to at least some generic companies. After observing that innovators had “become more savvy

about protecting their intellectual property” and that patent litigation had grown more difficult

and costly for generic challengers, increasing their product development risks and reducing their

returns, it continued:

Of specific concern to [the company], as well as other generic manufacturers is

the fact, that quite recently several innovators have been making authorized

generics available to the market. Pfizer (the innovator behind a number of

products that figure prominently in [the company’s] pipeline) has been using

Greenstone . . . to launch a steady stream of products whose patents have

expired/successfully challenged in court. Greenstone’s approach of aggressive

product pricing and achieving success in retaining substantive market share is a

chilling prospect for any generics company that targets Pfizer products for

development and market introduction. GSK and J&J have also introduced
17 CD, Mar. 2005 (emphasis omitted); see also CD, Feb. 20, 2005 (noting change in projections for

specific drugs marketed by Pfizer – “I have changed the competitive lay of the land and included

Pfizer’s authorized generic”). The concerns quoted in the text should be placed in context, however:

AG competition was only the tenth of thirteen trends identified by the Business Plan, and the entire

discussion was a single paragraph (with one follow-up sentence) in a 93-page report.

18 CD, Nov. 2004.

19 CD, July 14, 2005 (Powerpoint presentation citing as the other major focuses “[c]learing a path for

approval of generic biopharmaceuticals” and “[k]eeping door firmly closed to imports and price

controls”). 

20 CD, Dec. 8, 2004.

21 See, e.g., CD, Mar. 3, 2005 (“For generic drug companies, authorized generics are only one of a

number of factors that appear to have accelerated competition, which include shared exclusivities,

expanded capabilities of existing companies, and new entrants into the U.S. market leading to price

erosion.”); CD, Feb. 1, 2005 (noting citizen petitions and AGs as “two important risk factors affecting

the generic industry”).

83

generic versions of their leading compounds . . . .17

Other internal company documents reflect general concerns about competition from AGs

but provide few details. For example, one company, in a 2005 business strategy document,

identified AGs as one of two “[p]otential near term pricing pressures,” the other being “off shore

manufacturers (India/China).”18 Another firm, in a 2005 competitor assessment, identifies as one

of three major focuses for the generic industry “[b]eating back authorized generics from big

pharma.”19 Still another identified AGs as one of a large number of factors causing increasing

competitive pressures in the generic industry, referencing in particular Indian generics, “Buyer

consolidation; Industry-wide capacity increases; Authorized generics; Shared exclusivity; [and]

Aggressive innovator responses (e.g., scientific challenges, Citizen’s Petitions, follow-on

products, own Gx operations).”20 Likewise, a number of third-party investment reports mention

AGs as one of a number of factors responsible for increasing competitive pressures in the

industry, again, without any detailed analysis.21

In short, the generic company document submissions support the contention that

introduction of an AG during the 180-day exclusivity period significantly cuts into the expected

revenue and profit of the ANDA-generic, and thereby decreases the value of exclusivity. As

discussed below, the generic firms have responded to these pressures in varying ways and

consequently view AGs from varying perspectives. 

B. Differing Generic Company Responses

Chapter 2 explains that different generic companies have adopted different business
22 See supra Chapter 2, Figure 2-6 and accompanying text.

23 At one end of the spectrum, Prasco markets itself as “The Authorized Generics Company,” and

explains that it is “not structured to compete with brand companies,” but rather focuses on “providing

Pharma companies access into the generic marketplace.” See Our Business: Authorized Generics,

PRASCO, http://www.prasco.com/default.asp?contentid=12&img=ourbusiness.jpg.

24 CD, July 14, 2005 (proposing to “[p]ursue PIV ANDAs; [p]ursue authorized generics . . . If you can’t

beat-em join-em”); see also CD, Dec. 8, 2004 (stating that “most major generic companies have

participated in authorized generic opportunities”).

25 See CD, Mar. 26, 2004 (providing Leila Abboud, “Authorized” Generics Are Under Fire, WALL ST.

J., March 25, 2004, at D4) (e-mail attaching Wall Street Journal article reporting that “[a]uthorizedgeneric deals are dividing the generic-drug industry. Some companies such as Watson

Pharmaceuticals and Pharmaceutical Resources Inc.’s Par Pharmaceuticals unit think partnering with

brands is a good strategy. But generic industry heavyweights Teva Pharmaceutical Industries Ltd.,

Mylan Laboratories and Barr Pharmaceuticals Inc. say authorized generics threaten the profitability

and long-term health of the industry.”); CD, undated (chart entitled “Generic Manufacturers Differ in

Strategic Approach,” showing Teva, Mylan and Barr “Against” AGs and Sandoz, Watson and Ivax

“For”).

26 See supra notes 4-7 and accompanying text.

27 See, e.g., CD, Jan. 9, 2006 (noting “authorized generic/piggybacking” as one objective); CD, Dec. 8,

2004 (detailing five “near term authorized generic opportunities actively pursued”); CD, June 18, 2004

(e-mail from company CEO stating “I believe we should approach the innovators about authorized

generics”).

28 See, e.g., CD, Dec. 21, 2005 (e-mail asking brand-name companies to consider generic company as

AG distributor).

84

strategies in the face of widespread AG marketing.22 Some have continued to emphasize

Paragraph IV certifications and pursuit of 180-day exclusivities. Others instead have sought to

partner with brand-name firms in marketing AGs.23 Still other generic companies pursue a mix

of ANDA and AG business. As one document quipped, “If you can’t beat em, join em.”24

Unsurprisingly, with variations in strategic response, firms have developed different

attitudes toward AGs,25 and the companies’ document submissions reflect those differences. 

Thus, for example, one generic firm that has emphasized pursuing exclusivity opportunities

submitted advocacy and other third-party documents strongly opposing the introduction of AGs

during the exclusivity period.26 On the other hand, many of the generic company document

submissions focused, not on the impact of AGs on 180-day exclusivity, but rather on how best to

compete for AG business from the brand-name companies, as the generic firms sought to

develop business strategies to take advantage of potential market opportunities provided by

AGs.27 The documents show that some generic firms did in fact embark on marketing efforts

aimed at encouraging brand-name companies to use them as distributors,28 and AG distribution
29 See CD, Dec. 8, 2004 (chart showing that AGs contribute significantly to the bottom lines of certain

generic companies and explaining for two different firms that “authorized generic growth covers base

business erosion” and “two authorized generics cover base business erosion”).

30 See CD, May 6, 2005 (describing options as “Stay the course . . . ; Limiting to High Barrier to Entry

(HBE), including PIV exclusive opportunities . . . ; Limiting to HBE, not including PIV exclusive

opportunities unless they are HBE post exclusivity; [and] Terminate AG activities”).

31 CD, Oct. 12, 2004; see also CD, Dec. 8, 2004 (“Authorized generics will be a continued focus as

blockbusters reach the end of exclusivity;” while “[s]ingle product deals open the door to additional

opportunities,” “the deal value continues to shrink in the US.”).

32 See supra Section I.A.

85

arrangements reportedly became important sources of profits for some generic firms.29

At the same time, some documents also suggest that AG distribution opportunities for

generic firms even as early as 2004 were becoming more difficult to obtain, thereby prompting

some to re-visit their AG strategies.30 As one generic firm document explains:

AGx opportunities and expected returns have both been substantially reduced in

recent months, due to the decision of various brand companies to market more of

their products through their own AGx subsidiaries, and increased competition

among generic companies for available AGx deals.

 . . . .

Revenue and earnings shortfalls by many publicly-traded generic companies due

to severe pricing competition has made AGs one of the only ways to maintain

growth in the short term; The resulting intense competitive bidding for remaining

opportunities has made brand companies realize they are in a position to retain

most of the economic value of authorized generic versions of their intellectual

property; Historically, generic partners received 20–35% of the economics, but

this has now been driven down to 10% or less; The reduced value of AG deals for

generic companies will hurt the business models of some companies . . . .31

In sum, the documents produced by the generic firms reflect different perspectives on

AGs depending in large part on their differing business strategies. With this foundation, the

following section examines what the generic company document submissions reveal about the

long-term impact of AGs on the incentives of generic firms to challenge patents via Paragraph

IV filings.

II. The Long-Term Impact of AGs on Generic Firm Incentives to Bring Generic

Products to Market via Patent Challenges

Although a few documents register concern with AGs at a general, strategic level,32 or

suggest an increased need to manage the product selection and litigation processes, none of the
33 One document includes a one-sentence statement memorializing a decision to drop a generic project

“[d]ue to launch of the authorized generic.” CD, Aug. 9, 2005. The context, however, did not involve

the issues of concern. The patent had expired years before, so there was no elimination of a patent

challenge. The firm that decided against entering would have faced three established, ANDA-generic

competitors in addition to the newly-launched AG.

34 See, e.g., CD, undated (describing company’s “Limited Paragraph IV FTF pipeline” as a weakness and

identifying as a “Market Objective[]” the need to “Focus on First-to-File (FTF) Paragraph IV

opportunities”); CD, May 23, 2005 (“[f]ocus on FTF opportunities”).

35 CD, Sept. 20, 2005.

36 For example, one investment report identified “the potential impact of multiple 180-day exclusivities

as a crucial factor in [the company’s] earnings outlook” and emphasized that “patent challenges are the

key near-term drivers in the 2005 to 2008 time frame.” CD, June 27, 2005.

86

generic companies’ internal documents states that the presence of AGs caused a firm to decide

against pursuing early entry through any specific patent challenge.33 The internal documents do

include financial forecasts that, without providing a narrative or stating any conclusions, could

be consistent with assertions that expected AG competition has undermined the profitability of

patent challenges for some small-market drugs. Taken together, the documents suggest that,

even with AG competition, expected financial returns during the 180-day exclusivity period

generally remain sufficiently attractive to incentivize generic firms to pursue early entry through

Paragraph IV filings, with the possible exception of certain small-market drugs. 

A. Documents Suggesting an Impact on Generic Entry through Patent

Challenges

The documents produced by the generic companies suggest that the promise of 

exclusivity provides an incentive for companies to file Paragraph IV ANDAs and that AG

marketing during the 180-day exclusivity period detracts from that incentive. The documents

submitted, however, are both fewer and weaker than would be expected if AGs had markedly

undermined generic firm business models based on Paragraph IV patent challenges.

On the one hand, the documents speak to the importance generic companies place on

exclusivity gained through first-to-file opportunities. A number of the generics’ internal strategy

documents recommend concentrating on first-to-file opportunities.34 As one generic company

put it, “products with a chance to be FTF need special consideration. . . . The difference between

profits on FTF product and not-FTF product are significant.”35 Similarly, third-party investment

advisory reports highlight exclusivities as an important component of perceived firm value.36

In view of the importance of 180-day exclusivity to many generic companies, AG

incursions on exclusivity may also be significant, leading to diminished incentives to file

Paragraph IV ANDAs, and, at least in theory, fewer patent challenges. One generic firm

produced a strategic planning document that questioned whether “Para IV [is] still a viable
37 CD, Oct. 27, 2005. In particular, it noted that Paragraph III pricing had declined “from over 10% of

brand to under 2% of brand” and that Paragraph IV pricing had declined “from ~60% of brand to

~40% of brand.” Id.

38 Id.

39 See id. (noting that one AG deal alone “[c]ould add $6M[million]–$24M margin potential in

FY06–07").

40 CD, Jan. 12, 2005.

41 CD, undated (noting that the “loophole [that] allows the brand manufacturer’s ‘authorized generic’ to

immediately compete with the generic manufacturer’s product that was granted 180 day exclusivity 

87

strategy,” noting that the “Generic Landscape has changed: No More True Exclusivity

(Authorized Generics); Probability of Success (POS) of litigation may have changed” and

“Market Pricing & Share assumptions have changed.”37 The outcome in that instance, however,

was not to cease or shift away from Paragraph IV filings. Rather, the document suggests that the

company’s mix of Paragraph III and Paragraph IV filings be reviewed and that a more rigorous,

systematic selection process be implemented (“[w]e must realign cost/risk against potential

upsides in our PIV strategy”), with the goal of placing “Increased Focus on Formulation and

Product Selection (pursue higher quality [PIV] cases only).”38 At the same time, the document

reveals that the company planned to approach several large brand-name companies with AG

marketing proposals, thereby attempting to diversify its revenue sources.39

If generic firms were to become more selective in pursuing first-to-file opportunities

because of the reduced value of exclusivity, that could reduce the number of patent challenges

overall. Likewise, if the firms decided to significantly cut back on their Paragraph IV filings in

favor of pursuing AG marketing opportunities, that too could result in fewer patent challenges. 

The document submissions provide only scattered support for either of these scenarios, however,

and suggest that AGs are but one of a number of factors that shape generic firms’ selections of

drugs to face patent challenges.

Four other documents offer opinions consistent with AGs having some long-term

detrimental impact, but do not delve into the issue. 

• One, a third-party report commissioned by one of the generic companies, simply

observes that “[t]he authorized generic erodes the market share, profitability and

market price of the Paragraph IV generic during the exclusivity period,” and

states that “[t]he authorized generic strategy has a long term focus by reducing the

funding available for generic manufacturers to challenge brand patents to obtain

the 180 day exclusivity period.”40

• An internal company document from the same generic firm reflects much the

same opinion.41
. . . is significant because the company that was granted market exclusivity must lower its price to

compete with the authorized generic, resulting in decreased profits. Over time, this strategy will lower

funding available to generic manufacturers for legal challenges of brand patents.”).

42 CD, June 27, 2005. But cf. infra text accompanying note 60 (explaining that the report ultimately

concludes that the exclusivity opportunities studied would be profitable even with AG competition). 

43 CD, undated.

88

• Another third-party report, produced by a different generic firm, similarly

observes that “authorized generics have eroded a significant financial incentive

for the industry” but does not elaborate.42

• One other document, reporting a question-and-answer session with one

company’s executives, addresses both AGs and exclusivity. Thus, in answer to

the questions, “What do you think of authorized generics? Are they pro consumer

or anti consumer?” the executive replied:

It depends on whether your focus is short term or long

term. I think in the short term they can be viewed as pro

consumer because they lower the price immediately.

For that segment of the population that’s private pay, it

makes a difference. For that segment that isn’t, I don’t

think it changes their copay much, if at all. The generic

copay is the generic copay. So a lot of consumers may see

little if any savings.

Longer term I do think there’s some element of the

authorized generic approach that’s intended to undermine

the generic industry. Over time, that could have an impact

on the number and types of products brought into the

market.43

Yet, when asked whether his firm would “still go after the first-to-file

opportunities” if 180-day exclusivity were abolished, the same executive

appeared somewhat ambivalent about the importance of exclusivity:

That’s what I’m sitting here trying to think through. Would

we go after the same number if we didn’t see those controls

in the market and in the timing of the entrance into the

market? That’s probably where I’ve got the most

hesitation. I’m not sure we’d go after as many. I would
44 Id.

45 CDs, Sept. 14, 2007 & May 8, 2008 (new product forecasts).

46 CD, Apr. 2011.

47 Id.

48 Id. The firm’s quantitative analysis, however, shows that a generic version of a third drug (with

annual sales of $36 million) would have been profitable with or without an AG competitor and finds

generic entry for a fourth drug (with annual sales of $20 million) unprofitable under both

circumstances. Id.

89

think we’d be more selective.44

 Finally, some of the financial forecasts produced by generic companies support

assertions that the expectation of AG competition has tipped the balance against proceeding with

a Paragraph IV challenge for certain small-market drugs. One generic company produced

contemporaneous “new product forecasts” for four drugs,45 and explained these forecasts in a

subsequent interpretive analysis submitted to the FTC.46 Combining the contemporaneous data

with some additional assumptions and assertions regarding the firm’s assessment methodology,

that analysis concludes that the reduced sales and lower prices attributable to AG competition

could have led the firm in these cases to decide against (or to defer) pursuing entry via a patent

challenge.47 Indeed, the analyst’s calculations appear to suggest that AG competition may have

made a difference in two of the cases, one a drug depicted as having annual sales of

approximately $40 million (which nonetheless did draw a Paragraph IV challenge from another

firm) and the other a drug with annual sales of about $50 million at the time that ANDA-generic

development was put on hold.48 The findings of potential impact on Paragraph IV challenges in

small markets are very much in line with the results of this Report’s break-even analysis, infra in

Chapter 6.

 

B. Documents Suggesting that Impacts of AGs on Generic Entry through Patent

Challenges May Be Overstated

Several generic companies produced documents that took issue with the contention that

AGs would create significant disincentives to future patent challenges. Thus, the general

counsel of one generic firm observed:

Theoretically the possible availability of an “authorized” generic might make a

generic company hesitate in filing and then defending a Paragraph IV litigation. 

However, will that occur in reality. I tend to doubt that the possibility will deter

Paragraph IV litigation. Look at the myriad of suits on the blockbusters and then

say that if there were an authorized generic all of the claimants would not have

filed their Paragraph IV. However is it fair that after spending millions they have

an authorized generic to deal with. Yes, at least in my opinion, it is fair!. Look at
49 CD, Apr. 9, 2004 (exclamation marks in original); see also CD, July 9, 2005 (deciding to launch an

ANDA-generic despite anticipated presence of AG).

50 CD, Mar. 26, 2004.

51 CD, Dec. 8, 2004. In support of AGs, the document cites “Increased competition; Decreased prices;

Pro-consumer; Additional tool for generic companies to fill ‘holes’ in their pipeline or to enter new

treatment areas; Respects innovator marketing rights; Support generic industry reputation of access to

lower cost pharmaceuticals.” The points cited in opposition are: “Potential disincentive to file

Paragraph IV’s; Long term financial impact on generic industry; Arguably not in ‘spirit’ of HatchWaxman; Reduced value of 180-day exclusivity to those who have it.”

52 Id. (“Brand companies may choose to launch an authorized generic via a generic partner to: Settle

patent litigation; Maximize profits by participating in the generic market once generic competition

starts; Solve a manufacturing capacity issue.” “Generic companies may choose to launch an

authorized generic to: Settle litigation; Compete in a market they otherwise could not have entered;

Quickly add additional products to portfolio; Add new source of business.”).

53 Id.

90

the price that the holder of an exclusive generic sells the product for, i.e. say 20%

less than the brand. A great profit. If there were an “authorized” generic also,

perhaps they will have to discount 30–40% – still a great profit. A profit well

worth the expense of the Paragraph IV suit!49

Moreover, the general counsel shared his concerns with GPhA:

While I do not wish to be seen as a “rabble rouser” or a malcontent, I do have a

few concerns and questions regarding the GPHA position on “Authorized 

Generics” . . . . [W]hile it is obvious to me that the authorized generic would

“skim” some of the profits the first to file would get during a period of generic

exclusivity, is there proof that the GPHA position, in the real world, is true, i.e.,

would many, if not most, Paragraph IV filings not be undertaken if the Paragraph

IV filer thought that an authorized generic would be marketed before or during a

period of generic marketing exclusivity. Actually I do not believe that is true. . . .

I believe that there are many members that are “suspicious” of the GPHA

position.50

Similarly, a 2004 document produced by a generic company that is a subsidiary of a

brand-name company questions the seriousness of the AG threat. After setting out the basic

arguments for and against AGs,51 that document catalogues the benefits of AGs to both brandname companies and generic companies.52 It notes that “[g]enerics are perceived as proconsumer and part of the solution to increasing drug costs”;53 questions whether “the generic

industry [is] entitled to have the value of 180-day exclusivity frozen in time as a matter of
54 Id.

55 Id.; see also id. (finding “[f]ewer opportunities to earn an exclusivity [– ] NCE-1 products now have

shared exclusivity in most cases” and noting that “[f]orfeiture events could cause a loss of

exclusivity”).

56 Id. (“Authorized generic products have effectively ended the sole exclusivity product launch for all

high-value innovator products. All launches face price competition.”); id. (AG marketing “[h]as

become a common industry practice diluting value of 180-day exclusivity; [r]educes value of all

competing generic products”).

57 Id. (concluding, in an example showing nearly $200 million of annual profit on a drug with $1 billion

of annual sales, “[v]alue of generic product is reduced during the 6 month exclusivity period;

[h]owever, considerable value is still generated when competing with an authorized generic”); see also

id. (chart showing an average $42 million pre-manufacturing profit (after legal expenses and other

costs of bringing the product to market) for six Paragraph IV entrants facing AG competition during

180-day exclusivity). Similarly, other firms provided projections showing ANDA-generics operating

profitably in competition with AGs. See, e.g., CD, Aug. 2, 2005 (projecting, over the first ten months

following launch, a gross profit margin of $170 million for a drug strength with almost $500 million in

annual brand sales and a $240 million margin for a drug strength with approximately $700 million in

annual brand sales, despite AG competition).

58 CD, Dec. 8, 2004.

59 CD, June 27, 2005.

60 Id.

91

right”;54 and observes that other factors, including “[c]oexclusivity or patent-by-patent

exclusivity” and the forfeiture provisions of the MMA, also may reduce the value of

exclusivity.55 While observing that AGs, along with other factors, had diminished the value of

exclusivity,56 it nevertheless concludes that “P-IVs with AG [Are] Still Valuable to Filer.”57

Hence, it concludes that, “[the] Generic Industry will survive and adapt; Pro-consumer approach

with lower costs product consistent with generic industry sense of purpose; P-IV value in the

future not as assured as before” and goes on to question, “Is this an issue the industry wants to

push? . . . Are there higher priorities?”58

Some third-party investor reports produced by generic companies likewise express

serious doubts about the significance of any disincentive effect of AGs on patent challenges by

generic firms. One such report, while indicating that “authorized generics have eroded a

significant financial incentive for the industry,”59 nevertheless projected substantial profits from

the exclusivity opportunities studied “even after adjusting for likely competition from authorized

generics.”60 Another, after observing that in theory decreased incentives could make generic

companies less willing to pursue at-risk launches, stated, “[w]e can’t think of a case where the
61 CD, Mar. 3, 2005. Similarly, a study, commissioned and reported publicly by a generic firm that often

has partnered with brand-name companies to market AGs, observes that “[t]he literature contains no

empirical evidence that the prospect of competition from authorized generics has reduced either patent

challenges by other generic manufacturers or the development of new generic products.” CD, Apr.

2007 (providing Kevin A. Hassett & Robert J. Shapiro, The Impact of Authorized Generic

Pharmaceuticals on the Introduction of Other Generic Pharmaceuticals (2007),

http://www.authorizedgenerics.com/downloads/ImpactofAuthorizedGenericPharmaceuticals.pdf

(written for Prasco)). With respect to the latter point, the authors present their own quantitative

analysis, concluding that “competition from authorized generics does not reduce R&D by generic

manufacturers, and therefore should not reduce or delay the introduction of future generic products.” 

Id.

92

threat of an authorized generic resulted in a generic company deciding not to launch at risk.”61 

III. Conclusion

The generic company documents confirm that competition from an AG substantially

reduces the revenue of ANDA-generics during 180-day exclusivity and speak to the importance

some generic companies place on first-to-file opportunities. One generic firm produced

contemporaneous financial forecasts and a subsequent interpretive analysis that, together,

suggest that an expectation of AG competition tipped the balance against that firm’s entry via a

patent challenge for two drugs in small markets. On the whole, however, the internal company

documents lend little support to the contention that AGs have created significant disincentives to

generic firms’ filing of Paragraph IV ANDAs. None of the internal company documents

expressly discusses AGs as a factor in deciding whether to file a particular patent challenge. The

document submissions provide scattered indications that some firms have become more selective

in pursuing first-to-file opportunities but no evidence that any firm has substantially abandoned

its basic Paragraph IV business strategy because of the proliferation of AGs.

While findings based on the limited evidence derived from generic firms’ document

productions cannot by themselves yield firm conclusions, they provide another piece of evidence

for assessing the competitive impact of AGs. In the next chapter we examine the quantitative

data for further insights into their long-term competitive effects.
93

CHAPTER 6 LONG-TERM EFFECTS OF AUTHORIZED GENERICS:

PRICE, REVENUE, AND BREAK-EVEN EFFECTS

This chapter extends the analysis of Chapter 3, which considered the impact of

authorized generic drugs during the exclusivity period, to time periods in which generic versions

of the drug are on the market but no exclusivity applies. The analysis in this chapter is based on

two samples of market outcomes: one drawn from drugs for which an exclusivity period was

granted but has expired and another based on drugs for which no exclusivity was ever granted.

These two scenarios will collectively be referred to as non-exclusivity situations.

The principal difference between the competitive environment outside of exclusivity, as

compared to during exclusivity, is the potential for entry by ANDA-generic firms. Firms with

tentative FDA approval that are not first-filers are barred from entry during exclusivity. 

However, firms with approved ANDAs are free to enter at any time outside the exclusivity

period. Only one or two generics are typically on the market during exclusivity. In contrast, the

number of manufacturers actively selling a generic version of a drug can range from one to more

than fifteen outside of exclusivity. Consequently, one may expect an AG to have a greater

impact during exclusivity, when it can be one of only a few competitors, rather than one of

many. 

Chapter 3 showed that introduction of an AG during exclusivity tended to be associated

with lower prices, decreased first-filer revenues, and increased brand-name firm revenues. This

chapter presents similar analysis using market data from non-exclusivity situations. In general,

the results of the analysis of drugs with expired exclusivity periods are remarkably consistent

with the exclusivity-period analysis: prices for generic drugs tend to be lower in markets where

an AG was launched than in markets without AGs. For markets in which no generic

manufacturer was granted an exclusivity period, the estimated effect on generic price of entry by

an AG is not consistently different from the effect of entry by an additional ANDA-generic.

In Chapter 3, the analysis of wholesale expenditures demonstrated that introduction of an

AG can substantially reduce the revenue of the first-filer generic manufacturer during

exclusivity. The new evidence in this chapter suggests that early generic entrants, whether firstfilers or AGs, are able to retain a large portion of their market shares even after potentially many

other ANDA-generics enter following the 180-day exclusivity period. This first-mover

advantage seems to be an important benefit of introducing a product during the exclusivity

period. Because the average first-filer who faced an AG during exclusivity begins postexclusivity competition with a smaller market share, and thus holds on to a portion of this

smaller share, the impact of the AG on first-filer revenues persists beyond the 180 days. This

result is important because it will be utilized, along with similar estimates from the exclusivity

analysis, to calibrate a simple analysis of how the anticipation of facing AG competition may

impact the incentives of ANDA-generic manufacturers to pursue Paragraph IV challenges.
1 IMS CONSULTING, IMS HEALTH, ASSESSMENT OF AUTHORIZED GENERICS IN THE U.S. 11 (“IMS

Study”) (2006) (written for the Pharm. Research and Mfrs. of Am. (“PhRMA”)),

http://replay.web.archive.org/20061009134405/http://www.phrma.org/files/IMS%20Authorized%20G

enerics%20Report_6-22-06.pdf.

2 Id. at 14–15.

3 Ernst R. Berndt et al., Authorized Generic Drugs, Price Competition and Consumers’ Welfare, 26

HEALTH AFF. 790 (2007).

4 Id. at 792–93. The study did not distinguish AGs from other generic competitors.

94

This chapter first reviews prior studies that address some of these same issues. It next

discusses data sources and analytical methodology, explaining that the data derive from the same

sources as in Chapter 3 but that the analysis needs to be tailored to account for differences

between exclusivity and non-exclusivity periods. The chapter then presents an econometric

analysis of prices and expenditures. It concludes with analysis focused directly on the impact of

AGs on the profitability of filing Paragraph IV challenges.

I. Prior Studies

As summarized below, two studies examined the impact of additional generic

competitors on price levels after the 180-day exclusivity period. Both show that the marginal

impact of an additional generic, whether an ANDA-generic or an AG, is small when more than

four or five generics are already on the market. Furthermore, two additional studies considered

the impact of AGs on Paragraph IV challenges. Taken together, they suggest that the increased

popularity of AG launches has not substantially deterred Paragraph IV challenges and that

whatever effects do exist are likely most important with regard to decisions on relatively smallmarket drugs.

As discussed in Chapter 3, an IMS Study finds that AGs have large price effects during

180-day exclusivity.1

 It extends analysis beyond the exclusivity period by dividing its 18-drug

sample into two groups: one comprised of drugs that had 2–5 generics post exclusivity and

another for drugs with six or more generic competitors, post exclusivity. The study finds that

when 2–5 generics compete, discounts are larger when an AG is also in the market. However,

the study finds no long-term price impact from the presence of an AG in markets with six or

more competitors.2

Using IMS wholesale price data for all drugs that faced new generic competition between

January 1999 and December 2003, Berndt et al.3

 plot the relationship between the ratio of

contemporaneous generic to brand prices and the number of competitors at 24 months following

initial generic entry. Consistent with earlier literature, the authors discover that at 24 months

after generic entry “. . . the impact of an additional generic [entrant] is negligible after the fourth

or fifth entrant . . . .”4

 While this does not directly address the specific competitive influence of
5 Ernst R. Berndt, Richard Mortimer & Andrew Parece, Do Authorized Generic Drugs Deter Paragraph

IV Certifications? Recent Evidence (2007) (working paper written for PhRMA),

http://www.analysisgroup.com/uploadedFiles/Publishing/Articles/PhRMA_Authorized_Generic_Entry

.pdf.

6 Id. at 4.

7 Id. at 4. Chapter 7, infra, presents findings based on our own analysis of Paragraph IV certifications.

8 MARC GOODMAN, GARY NACHMAN & LOUISE CHEN, MORGAN STANLEY, QUANTIFYING THE IMPACT

FROM AUTHORIZED GENERICS (2004). 

9 Id. at 8–9.

10 David Reiffen & Michael R. Ward, Branded Generics as a Strategy to Limit Cannibalization of

Pharmaceutical Markets, 28 MAN. & DEC. ECON. 251, 263 (2007).

95

authorized generics, it does suggest that an AG’s long-term impact on prices may be small once

regulatory restrictions on entry lapse, and conditions are such that many competitors enter.

To the extent that an AG takes sales away from a first-filer generic, expectations about

the likelihood of facing AG competition may impact decisions by ANDA-generics about

whether to attempt Paragraph IV challenges. One study summarized here finds no support for

this hypothesis when analyzing the number of Paragraph IV challenges over time, while AG

launches were becoming more prevalent. A second study, using a break-even analysis, finds that

the expectation of AG entry may deter Paragraph IV challenges for small-market drugs. 

Berndt, et al.5

 analyze whether the upward trend in AG launches over time has had any

apparent impact on the number of Paragraph IV certifications. The authors note: “If incentives

to file paragraph IV certifications are reduced to the point that no generic manufacturer files a

paragraph IV certification against a drug that otherwise would have been successfully

challenged, then generic entry could be delayed.”6 However, the authors go on to note that while

the “prevalence of authorized generic entry has increased, there has been little overall change in

the number of drugs facing paragraph IV certifications, the number of paragraph IV

certifications filed per drug, or the timing of paragraph IV certifications relative to NCE [new

chemical entity] approval.”7

 The authors, therefore, infer that consumers have not borne higher

costs as a result of forgone Paragraph IV challenges. 

Another analysis conducted by Morgan Stanley8 attempted to infer how AGs would alter

the minimum market size in which it would be profitable to successfully pursue a Paragraph IV

challenge. The analysis concludes that the anticipated introduction of an AG would increase the

break-even market from one in which the brand had pre-generic-entry sales of $48 million to one

in which pre-entry brand sales were $110 million.9

 Hence, the study concludes that to the extent

that AGs discourage first entry, they would tend to do so in moderately sized markets. This is

consistent with another study that addresses this issue and concludes that the introduction of

authorized generics is “least problematic . . . in relatively large markets.”10
11 As in Chapter 3, the data analyzed in this chapter consist of monthly observations of market outcomes

for “products,” which are defined as a full specification of active ingredient(s), dosage form, and

strength. Each product accounts for a number of observations equal to the number of months the

product is observed in the data, so the results reported may differ substantially from a listing that

combined all observations for the same drug. For instance, suppose 600mg Gabapentin tablets account

for an observation in the three-manufacturer row of Table 6-1 in a particular month. Then if another

manufacturer enters, that product accounts for one of the observations in the four-manufacturer row for

the next month. If the number of manufacturers stays at four for several months, each of those months

counts as another observation in the four-manufacturer row. In some of those months, there are also

four manufacturers selling 800mg Gabapentin tablets, which also would be counted in the fourmanufacturer row.

96

II. Data and Methodological Approach

The data analysis presented below has two main goals. First, it seeks to determine the

impact of AGs on important market outcomes, such as prices, in situations where market

conditions rather than regulatory constraints (apart from FDA ANDA approval) are likely to be

the key determinant of the number of competitors in the market. Second, it picks up where

Chapter 3 left off, by determining the impact of AGs on first-filer generics in the months

following an exclusivity period. 

Because markets for drugs that once had an exclusivity period may evolve very

differently from markets that never had an exclusivity period, the analysis separately considers

the effect of AG entry for drugs that had an exclusivity period at some point and drugs that never

had an exclusivity period. In the first instance, the period of study begins immediately following

expiration of the exclusivity period (typically six months after initial entry), and includes the

same set of products investigated in Chapter 3. In the second instance, analysis begins on the

date that any generic competitor entered the market with positive sales, and includes any

products that first faced generic competition from 2003 to 2008, and on which no generic

manufacturer ever had an FDA-granted exclusivity period. Because of sample attrition over

time, only the first 36 months following generic entry are included in the sample used for the

analysis in this chapter.

 The analysis outside of exclusivity controls for the number of generic manufacturers

providing the product. Table 6-1 summarizes some key statistics related to this variable outside

of exclusivity. The table reports the number of observations and the percent of observations

with an AG for those products that “Had Exclusivity” and products with “No Exclusivity.”11 It

reveals that AGs almost always enter some types of markets, while in other markets AGs are

rare. For example, markets with a single manufacturer are the most commonly observed

competitive arrangement in the data, accounting for approximately 22% of observations. 

Relatively few of these markets have an AG in either the “Had Exclusivity” or the “No

Exclusivity” sample. However, observations of markets with a large number of manufacturers

almost always include an AG. For example, the roughly 7% of observations with more than 10

manufacturers include an AG more than 95% of the time. The observation that AGs are

normally present when a large number of ANDA-generic manufacturers have decided to enter
12 This decline does not necessarily indicate that firms exited the market; it is in part due to some of the

products with a relatively high number of competitors experiencing first generic entry with less than

30 months left in our data window, so that we do not observe the 30th month of generic competition for

these products. 

97

outside of exclusivity is probably a reflection that these are simply attractive markets in which to

participate, rather than an indication of any causal relationship between ANDA-generic entry

and AG entry.

Table 6-1: Summary of Number of Generic Manufacturers and Frequency of AG Launch

No Exclusivity Had Exclusivity

Number of Number of Percent with Number of Percent with

Manufacturers Observations AG Observations AG

1 1,241 5.2% 430 7.9%

2 1,092 30.3% 302 85.1%

3 651 74.3% 336 50.9%

4 566 59.5% 286 84.3%

5 289 58.1% 154 100.0%

6 282 83.0% 136 97.1%

7 400 74.8% 96 87.5%

8 172 52.3% 96 62.5%

9 92 51.1% 160 95.6%

10 210 51.0% 92 94.6%

>10 371 95.4% 124 97.6%

Total 5,366 46.9% 2,212 67.5%

Figures 6-1 and 6-2 provide a graphical representation of how the number of

manufacturers is related to product prices for products in the “Had Exclusivity” group. Figure 6-

1 plots the number-of-manufacturers series and the relative price series over time for markets in

which an AG was present. Figure 6-2 shows the same information for markets in which no AG

was present. The measure of price in these figures is the average wholesale generic relative

price, derived, as in Chapter 3, by dividing the generic price by the average price of the branded

version of the product in the three months preceding generic entry. The average relative price in

Figure 6-1 falls from roughly 0.75 in month 0, the first month of exclusivity, fairly steadily to

just over 0.30 in month 20, then oscillates around 0.32 through the 36th month after generic

entry. 

The price decline observed over this period occurs alongside a fairly steady increase in

the number of manufacturers over time. The average number of generic manufacturers, including

the AG manufacturer (measured on the right vertical axis in Figure 6-1) increases from two in

month zero to almost seven in month 28, before it falls to about five by the end of the sample.12

Note that the number of manufacturers increases slowly in the first several months, indicating
98

that some exclusivity periods did not cover the full 180 days, perhaps because the first-filer

faced some difficulty getting the product to market at the start of the exclusivity period. The

number of manufacturers increases very substantially after month 5, which would correspond to

the end of a typical 180-day exclusivity period.

Figure 6-1: Average Generic Wholesale Relative Price and Number of Generic

Manufacturers: Products That Had Exclusivity With an AG 

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0 5 10 15 20 25 30 35

Months Since Generic Entry

Relative Price

0

1

2

3

4

5

6

7

8

Number of Manufacturers

Price (Left Axis) Manufacturers (Right Axis)

By contrast, the average relative price in Figure 6-2, which depicts markets without an

AG, starts just above 0.8 and declines slowly down to about 0.65 by month 36. It would be

erroneous to attribute the differences between the price series in these two figures as being

caused entirely by the presence or absence of an authorized generic. Notice that the average

number of manufacturers in Figure 6-2 starts out just a little above one, climbs almost to three

after the exclusivity periods have expired, but never rises above three, whereas the number of

manufacturers in Figure 6-1 climbs to almost seven. The econometric analysis presented below

attempts to disentangle the effect of an AG from the effect of the level of competition provided

by varying numbers of generic competitors.
13 Some of the steps leading up to generic entry often occur years in advance of actual entry. Therefore,

some of the costs associated with entry will have been sunk long before the entry actually occurs. 

Potential entrants presumably use their expectations about the competitive environment before sinking

these costs for a particular product, but they may not know with certainty whether an AG will enter

when making some of these decisions.

14 In technical terms, the problem is that both the decision to issue an AG and the entry decisions of

ANDA-generic manufacturers are endogenous, i.e., they have causal links with other variables in the

model. An instrumental variables regression analysis utilizing market size and brand-name firm

identity as instruments to control for this endogeneity was investigated. The results suggested that

99

Figure 6-2: Average Generic Wholesale Relative Price and Number of Generic

Manufacturers: Products That Had Exclusivity Without an AG

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0 5 10 15 20 25 30 35

Months Since Generic Entry

Relative Price

0

1

2

3

4

5

6

7

8

Number of Manufacturers

Price (Left Axis) Manufacturers (Right Axis)

These graphs also suggest that the question about the impact of an AG needs to be

framed somewhat differently in the non-exclusivity analysis. In Figure 6-1, the number of

manufacturers in the first several months was a little above two, whereas in Figure 6-2, it was

just greater than one. This difference is easily explained by the AG itself accounting for the one

additional manufacturer in Figure 6-1. In exclusivity, it was appropriate to think of the AG as an

additional competitor. However, outside of exclusivity, ANDA-generic manufacturers can

observe the presence or absence of an AG,13 and can adjust their entry decisions accordingly.14
these instruments did not control well for the endogeneity of the number of ANDA-generic

manufacturers, so the results are not reported here. 

15 For concreteness, the effect of an AG during exclusivity typically was characterized as the impact of

going from just one ANDA-generic competitor to an ANDA-generic plus an AG. Outside of

exclusivity, the analysis will estimate the impact of switching from five ANDA-generic competitors,

for example, to four ANDA-generics plus an AG. One piece of evidence supporting this approach is

provided by an examination of market shares of generic competitors in the first several months

following generic entry in “No Exclusivity” markets that experienced AG entry. (“No Exclusivity”

markets are considered because no competitor enjoys a first-mover advantage from an FDA-granted

exclusivity period in them, so generic competitors can enter on equal ground.) The average market

share of AGs in these situations is similar in magnitude to the average market share of individual

ANDA-generic competitors, and the difference is not statistically significant. This is consistent with

treating an AG as equivalent to a typical generic competitor. Further support for this assumption

comes from analyzing data on the number of generics present in markets two years after first generic

entry to determine whether the eventual number of generic competitors differed in AG markets. 

Controlling for pre-entry brand sales, the number of generic competitors present in the market after

two years, including the AG, was not statistically different between markets with an AG and those

without. 

16 A second model was estimated in which the effect of the AG also was allowed to vary flexibly across

the observed number of manufacturers. The estimated effects from this model are difficult to interpret,

not robust across specifications, and hard to identify because products facing a large number of

manufacturers are rarely observed without an AG. Although the results of this model were somewhat

erratic, the overall inferences about the impact of an AG did not differ from those produced by the

basic model reported here.

100

Consequently, instead of considering the AG to be an additional competitor outside of

exclusivity, the analysis will essentially assume that the AG displaces an ANDA-generic

manufacturer.15

The analysis of market outcomes outside of exclusivity reported here rests on one basic

model. This model accounts for the direct effect of the number of manufacturers by flexibly

allowing prices to vary with the number of competitors, but it assumes that the marginal impact

of switching one of those manufacturers from an ANDA-generic competitor to an AG is the

same regardless of the number of generic competitors. The results provide an estimate of the

average AG effect.16 The regressions reported in this chapter employ the full set of controls

utilized in Chapter 3, namely months since generic entry, dosage form, and therapeutic class.

III. Market Prices of Generic Drugs

The analysis outside of exclusivity begins by considering price effects of AG

competition. Using the same IMS data sets discussed in Chapter 3 and described in detail in

Appendix I, this section analyzes both wholesale and retail prices under several different

methodologies. As in Chapter 3, the price measure is relative price, constructed as the generic

price of an extended unit normalized by the average price of the brand-name version of the

product during the three months preceding generic entry.
101

A. Retail Prices

Table 6-2 displays estimates of the effect of an AG on relative generic retail price outside

of the exclusivity period. This table reports the percentage change in relative price due to

substitution of an AG for an ANDA. The first two columns, labeled (i) and (ii), report estimates

based on products that never had an exclusivity period; the last two columns, (iii) and (iv), report

estimates based on data for products that previously had an exclusivity period. Two regressions

are run on each of these data sets. The Unweighted regression treats each monthly observation

of an average generic price equally. The Sales Weighted regression weights each observation

proportionate to the sales of the brand-name product prior to generic entry.

The estimated effect is the percentage change in generic relative prices due to

substituting an AG for an ANDA-generic competitor. A concern that might arise from the

relationship between the brand and the AG is that the AG may be a less fierce competitor than an

ANDA-generic firm. In such a case, the price of generic products would be higher in markets

where an ANDA-generic is replaced by an AG. The results provide little evidence supporting

this concern. The AG effect estimates are negative in three of the four models, implying that

prices would be lower in a market with an AG than in a market without an AG, holding the total

number of generics on the market fixed. For products that had exclusivity, the estimates are

between -10.8% and -10.0%. These estimates are large and statistically different from zero at

the 1% level. Only the sales-weighted model for products without an exclusivity period finds

that markets with AG competitors have higher prices than markets without AG competitors. 

Neither estimate for the sample without exclusivity is statistically significant at even the 10%

level. This is evidence that consumer benefits from AG introduction during exclusivity periods

persist beyond the first 180 days, but that there is no similar benefit when an AG is launched

outside of exclusivity. 

Table 6-2 also reports estimated mean relative prices for ANDA-Only markets. As in

Chapter 3, where similar counterfactual means were calculated, these are estimated by starting

with the average relative prices in AG markets, then pulling out the impact of the AG using the

regression parameter estimates of AG impact to arrive at the counterfactual No-AG price in

these markets. Again, the reason for estimating the counterfactual relative prices is to focus the

analysis on markets in which AGs have been introduced, and to estimate the market impact of an

AG not being present in those markets. For example, the ANDA-Only mean relative price

reported in column (iii) is 0.76. The AG Effect reported in that column is -10.8%, which means

that replacing one of the ANDA competitors with an AG would cause the average relative price

to fall from 0.76 to 0.68 (=0.76×(1-0.108)).
102

Table 6-2: Average Effect of Substituting an AG for an ANDA on Retail Relative Price

Outside of Exclusivity

No Exclusivity Had Exclusivity

 (I) (ii) (iii) (iv)

Unweighted Sales Weighted Unweighted Sales Weighted

AG Effect -2.3% 2.1% -10.8%*** -10.0%***

(Standard Error) (3.0%) (2.3%) (3.0%) (3.3%)

ANDA-Only Mean

Relative Price 0.66 0.59 0.76 0.65

Sample Size 5,337 5,337 2,207 2,207

*** Statistically different from zero at the 1% level

B. Wholesale Prices

Using the same model and sampling strategy as with the retail data, the competitive

effects of AGs on wholesale relative prices are estimated. The goal is to allow a valid

comparison of the prices plotted in Figures 6-1 and 6-2 by controlling for the differences

between markets that experienced an AG launch and those that did not. 

Table 6-3 summarizes the results for wholesale data. The estimates of AG effects on

wholesale prices match the direction of the estimates from each corresponding regression in

Table 6-2. The AG Effect is statistically significantly different from zero in only the

Unweighted regression using data for No Exclusivity drugs, in which case the presence of an AG

lowers the average generic price by 19.6%. 

Table 6-3: Average Effect of Substituting an AG for an ANDA on Wholesale Relative

Price Outside of Exclusivity

No Exclusivity Had Exclusivity

 (I) (ii) (iii) (iv)

Unweighted Sales Weighted Unweighted Sales Weighted

AG Effect -19.6%** 3.2% -13.0% -6.0%

(Standard Error) (8.3%) (5.7%) (10.8%) (20.4%)

ANDA-Only Mean

Relative Price 0.39 0.25 0.39 0.27

Sample Size 5,366 5,366 2,212 2,212

** Statistically different from zero at the 5% level
17 See Company Document (“CD”), undated (“historically the first generic to market . . . gains a

significant foothold in market share”); cf. supra Chapter 4, note 36 and accompanying text (discussing

potential first-mover advantages in connection with AG launch timing). 

103

IV. Wholesale Expenditures

This section presents an analysis of wholesale expenditures, which, as discussed in

Chapter 3, serve as a proxy for firm revenues. This analysis extends Chapter 3's discussion of

the impact of AG launches on the revenues of first-filer generic companies and brand-name

manufacturers beyond the exclusivity period. It starts by looking at the dynamics of expenditure

shares as additional generic competitors enter the market. It then presents econometric analysis

of the impact of AG entry on post-exclusivity expenditures on first-filer generics, on the brandname product, and on the brand-name and AG products combined. Because this section

primarily focuses on the long-term impact of decisions to launch an AG during exclusivity, it

considers only the set of products that had an exclusivity period. 

A. Evolution of Revenue Shares in Markets with and without AGs

Figure 6-1 shows that AG markets experience a great deal of generic entry at the end of

the exclusivity period. If the first-filer becomes just one typical generic manufacturer in a

market filled with many such competitors, it is possible that the short-term effects of AG entry

on first-filer revenues reported in Chapter 3 will dissipate after the exclusivity period, as the

markets quickly become much more competitive. Another possibility is that the added

competition causes the first-filer to lose some proportion of its current sales, and that having

faced competition from an AG during exclusivity, the first-filer is simply competing to hold on

to an initially smaller share of the pie.

Initial insights flow from considering the dynamics of expenditure shares in markets with

and without AGs. Shares of wholesale expenditures are calculated for up to four types of

manufacturers – first-filer generic(s); other ANDA-generic(s); an AG, when appropriate; and the

brand -- for each product in each month. Then these shares are averaged across products for

each month. Figure 6-3 shows the shares of wholesale expenditures for products with an AG

from the first month of generic entry through the third year of generic competition.

The average first-filer quickly takes a share of 40%, but that share falls to just over 30%

in the months following the end of the exclusivity period, as the share of other generics

increases. As seen in Figure 6-1, the number of generic competitors increases from just over two

to almost seven roughly two years after first generic entry. In that light, it is perhaps surprising

that the first filer retains as much expenditure share as indicated. Apparently, the first-filer has a

first-mover advantage, which may derive from establishing itself as the incumbent supplier to

purchasers while facing relatively little competition during the exclusivity period.17 
Because these are shares of current-month expenditures, and as shown in Figure 6-1, the generic price is 18

declining, these are shares of a pie that typically is shrinking over time.

104

The average AG also quickly captures significant expenditure share, and holds onto a

significant part of it up through month 36. The brand’s share, which was obviously 100% prior to

generic entry, drops below 30% during the first several months after generic entry and continues

to slowly decline over the following months. 18

Figure 6-3: Wholesale Expenditure Shares in Markets With an AG

Figure 6-4 shows similar wholesale expenditure shares for products without an AG. The

average first-filer obtains a large share during the exclusivity period and tends to retain that share

following exclusivity. Figure 6-2 demonstrated that between one and two generics entered these

markets following the exclusivity period, on average. Figure 6-4 indicates that these additional

entrants typically were able to acquire expenditure shares of only around 10%, in contrast to the

first-filer generic, which retained between 60% and 70%. In AG markets subsequent entrants

were able to obtain an aggregate expenditure share of approximately 20% following exclusivity,

but those markets experienced more generic entry than the non-AG markets of Figure 6-4. With

regard to brand expenditures, the pattern of expenditure shares is nearly identical in Figures 6-3

and 6-4. Just as in AG markets, brands in non-AG markets saw their average share of

expenditures fall to as little as 30% during exclusivity, though this appears to happen somewhat

quicker in AG markets, and then the brand share generally hovers in the 20%-30% range in the

months following exclusivity.
The sample is limited to first-filer firms. A firm is identified in the data as a first-filer for a product if it 19

is an ANDA-generic firm and had positive sales during exclusivity. The sample of products is therefore

implicitly limited to products with an exclusivity period. In the uncommon case in which the product

has multiple first-filers, expenditures on the products produced by these firms are aggregated. Revenues

of known re-packagers are excluded.

105

Figure 6-4: Wholesale Expenditure Shares in Markets Without an AG

Taken together, Figures 6-3 and 6-4 indicate that the expenditure shares obtained by

generic manufacturers that enter during the exclusivity period, whether first-filer ANDA generics

or AGs, tend not to dissipate quickly when the end of exclusivity allows additional generic entry. 

Consequently, it is possible that AG effects on first-filer and brand expenditures during

exclusivity, as estimated in Chapter 3, may extend beyond the exclusivity period. The remainder

of this section presents estimates of those effects.

B. Wholesale Expenditures on the First-Filer’s Product

This analysis begins by considering the effect of an AG on first-filer revenues. Although 19

the extra revenue earned during the180-day exclusivity period is likely the primary motivation of a

Paragraph IV application, a secondary motivation could be the higher revenues outside of

exclusivity that the successful applicant might gain from a first-mover advantage. This advantage

may be undercut if an AG is introduced, reducing the incentives of an ANDA-generic firm to

bring patent challenges.
106

The analysis focuses on the relative wholesale expenditure on the products of first-filers,

which are calculated as the expenditures on the first-filer product in a given month divided by

the average expenditures on the corresponding brand-name product in the three months prior to

generic entry. This is the same measure of relative expenditures utilized and described in

Chapter 3. The average AG impact on relative expenditures is estimated using the same model

employed to analyze prices in Section III.

Table 6-4 shows the estimated average AG effect on first-filer expenditures in the months

following the 180-day exclusivity period. The estimate from the Unweighted regression should

be interpreted to mean that the presence of an AG, on average, is associated with a 52.5%

reduction of wholesale expenditures on the first-filer’s product. This estimate is statistically

significant at the 5% level. When weighting by pre-entry brand sales, the magnitude of the

estimated effect increases, to 62.3%. This table also presents estimates of the counterfactual

first-filer relative expenditures by using the regression results to predict what those expenditures

would have been in AG markets if an AG had not been introduced. The unweighted average

mean relative expenditure is 0.31 and the sales weighted average is 0.24. These may seem low

relative to the expenditure shares in Figures 6-3 and 6-4, but those graphs depict the revenue

shares of the current market, whereas this table reports relative expenditures. Relative

expenditures are measured relative to the pre-entry brand sales, so as the market shifts to the

lower priced generics, the total relative expenditures on the brand, AG, and ANDAs will be

substantially less than one because the pie is shrinking. 

Table 6-4: Average Effect of Substituting an AG for an ANDA on First-Filer

Wholesale Relative Expenditures

 

 (I) (ii) 

Unweighted Sales Weighted 

AG Effect -52.5%** -62.3%** 

(Standard Error) (22.8%) (29.5%) 

 

ANDA-Only Mean Relative Expenditure 0.31 0.24 

Sample Size 2,070 2,070

** Statistically different from zero at the 5% level

These results imply that the impact of AG entry on first-filer revenues persists beyond

the exclusivity period. This is consistent with the story told by Figures 6-3 and 6-4, which show

first-filers holding on to market share even when faced with more generic competitors after

exclusivity, but starting out with a lower baseline market share when having to compete with an

AG during exclusivity. 
107

C. Wholesale Expenditures on The Brand-Name Firm’s Products

The analysis now shifts to consideration of the brand-name firm, first estimating the

effect of an AG launch on expenditures on the brand-name product itself, then considering the

combined impact on the brand and the AG. This enables exploration of whether there is

evidence that launching an AG is in the near-term interest of the brand-name company. If

combined revenues declined, one explanation might be that the brand-name company is pursuing

an unprofitable strategy in order to punish generic companies that pursue Paragraph IV

challenges and thereby deter future challenges.

Table 6-5 reports the estimates for brand-name product revenues. The AG Effect

estimates are negative, and large in magnitude, but smaller than the estimated impact on firstfiler revenues. The estimates range from -21.8% to -15.9%, though the standard errors are quite

large, so that one cannot conclude that the real impact is different from zero at any reasonable

level of significance. The very large standard errors on the estimated AG Effect imply that

brand-name product wholesale relative expenditures vary substantially, and that controlling for

the presence of an AG does not consistently account for this variation. Although the estimated

impact of negative 21.8% reported in column (I) may appear large, the estimate implies that

rather than earning revenues equivalent to 11% of pre-entry brand revenues when no AG was

launched, the brand-name product earned revenues equivalent to 8.6% of pre-entry brand

revenues when an AG was launched. The main finding here is that brand-name product

revenues are much lower than they were prior to generic entry, and the presence of an AG has no

statistically significant impact on that result.

Table 6-5: Average Effect of Substituting an AG for an ANDA on Brand-Name

Product Wholesale Relative Expenditures

 

 (I) (ii) 

Unweighted Sales Weighted 

AG Effect -21.8% -15.9% 

(Standard Error) (23.9%) (23.0%) 

ANDA-Only Mean Relative Expenditure 0.11 0.07 

Sample Size 2,077 2,077

Table 6-6 shows the estimates of AG effects on brand-name firm revenues, i.e., the

combined revenues from brand-name products and AGs. Average AG effects are large and

positive, ranging from 33.3% to 54.1%, though they are not precisely estimated and are not

statistically different from zero. The positive results suggest that marketing an AG that

substitutes for an ANDA-generic increases the brand-name firm's revenue on average, but the

large standard errors suggest that this impact varies substantially across products. This is in line

with our prior analysis of brand-name firm wholesale expenditures during exclusivity, which
20 See supra Chapter 3, Table 3-9.

21 This rough calculation assumes that drug prices increase at a rate consistent with the rate at which the

brand-name company discounts future revenue streams.

108

also found positive, but sometimes statistically insignificant, effects of AG introduction.20

Table 6-6: Average Effect of Substituting an AG for an ANDA on Brand-Name Firm

(Brand plus AG) Wholesale Relative Expenditures

 

 (I) (ii) 

Unweighted Sales Weighted 

AG Effect 54.1% 33.3% 

(Standard Error) (34.4%) (38.1%) 

ANDA-Only Mean Relative Expenditure 0.11 0.07 

Sample Size 2,077 2,077

 Neither effect is statistically different from zero at the 10% level 

 This analysis, along with corresponding results from the exclusivity period presented in

Chapter 3, allows for a very rough approximation of the magnitude of the impact of AG

introduction on brand-name company revenues relative to the revenue stream generated over the

life-span of a brand-name drug. Figure K-3 in Appendix K demonstrates that the average

number of years between NDA approval and the first generic entry for brand-name drugs that

experienced generic entry by 180-day exclusivity from 2001 through 2008 was roughly ten

years, during which time the brand-name company would earn relative expenditures of 1.0 per

year. When a brand-name drug faces generic competition during a 180-day exclusivity period, it

has the option to launch an AG. Table 3-9 reported that the brand-name firm’s relative

expenditure averages 0.49 when no AG is launched and increases by 5.9% to 0.52 with an AG. 

Following exclusivity, Table 6-6 reports the brand-name firm’s average relative expenditure in

ANDA-Only markets is 0.11 and increases by 54.1% to 0.17 with the introduction of an AG. 

This effect was estimated using only the data up through 36 months following the first generic

entry, so the analysis below also stops at that same time. It is possible that the impact of the AG

could persist longer than that, so this may understate the impact somewhat. Table 6-7 adds up

these relative expenditures over the first thirteen years after introduction of the brand-name

product. The difference between the values in the “Total” column indicates that launching an

AG gives the brand-name company the equivalent of an additional 0.16 years (or 1.9 months) of

pre-entry brand revenues, which is a 1.5% increase over the first thirteen years the brand-name

drug is on the market.21
109

Table 6-7: Impact of AG Introduction on Brand-Name Firm Revenues

Year: 1 2 3 4 5 6 7 8 9 10 11 12 13 Total

No-AG 1 1 1 1 1 1 1 1 1 1 0.49/2 + 0.11/2 0.11 0.11 10.52

AG 1 1 1 1 1 1 1 1 1 1 0.52/2 + 0.17/2 0.17 0.17 10.68

 Generic Competition

V. Incentives to File Paragraph IV Challenges

The estimated effects of AG launches on first-filer generic expenditures, presented above

and in Chapter 3, suggest that anticipation of AG competition during exclusivity might

substantially impact a generic company’s calculus about whether to pursue a Paragraph IV

challenge. This section uses those estimates in a simple break-even analysis to gauge that

potential impact. It first presents a calculation of the expected profits for a first-filer from

pursuing a Paragraph IV challenge. This is a model of whether to pursue a Paragraph IV

challenge when the only resolution of such a challenge is via litigation; agreements to settle the

dispute are not considered. This model is calibrated using the estimates from this chapter and

Chapter 3 to investigate the impact of AG entry on the decision to file a Paragraph IV challenge. 

Such decisions, however, are highly idiosyncratic, and it will never be possible to identify from

averages and regression estimates how changed expectations regarding the launch of an AG

would have affected decisions regarding any particular drug.

A. The Profit Calculation

The model assumes that the potential Paragraph IV challenger expects that if it spends a

certain amount of money to pursue a patent challenge on a particular drug, it will win the

challenge with some probability, where a win means that the generic is given approval to

immediately market a generic version of the drug during a 180-day exclusivity period. The level

of anticipated legal expenses and the probability of winning the challenge could certainly vary

across drugs, but this analysis will start by thinking in terms of a given drug for which these

numbers could readily be estimated by the generic company. Independent of the legal costs, the

company also must pursue research and development in order to be in position to file and win

approval of its ANDA. In the event that the Paragraph IV challenge fails, this R&D will still

allow the challenger to enter, only not with an exclusivity period, and not until the brand no

longer has patent protection.

The expected profit of a Paragraph IV challenger can be written as follows:

(Profit of Challenge) = P(win)[(Profit during Exclusivity)+(Profit Post-Exclusivity)]

 + [1-P(win)](Profit of Non-Exclusive Entry)

 - (Legal Costs) - (ANDA Costs) 

Each of the profit terms on the right side of this equation needs to be estimated. One potential
22 See GOODMAN ET AL., supra note 8.

23 See infra Appendix E, ¶ 17, at E-4. 

24 The Morgan Stanley analysis assumed that pre-entry brand profit margins were 90%, which is to say

that the brand’s marginal cost is equal to 10% of its price, and that generics had the same marginal cost

as the brand. This is consistent with our use of the generic price following extensive generic entry as

an estimate of marginal costs.

25 To see this, start with the initial expression for annual profits, and perform the following steps:

( ) ( .) ( .) (  .) (  . ) (  . )  p cq p pq

p p

p

qp p qp p

q p

q p

p

p

qp p r

p

g gg g bg r

g b

b

gb g gb g

g g

b b

b

g

bb g g

g

  b

    01   01

01 01 01

1

This must be divided by two in order to account for the exclusivity period lasting only half a year.

110

problem with trying to analyze this equation is that it rests on estimates of profits, and as noted

in Chapter 3, this Report produces only estimates of revenues through the expenditure analysis.

An estimate of operating profits is derived by applying a calibration similar to one used in the

Morgan Stanley analysis22 to estimates of relative prices and expenditures. Legal costs and

ANDA costs are estimated based on the generic manufacturers’ responses to Special Order

specifications that called for data on legal expenditures related to Paragraph IV challenges and

on R&D expenditures associated with ANDA filings.23

The operating profit of a successful Paragraph IV challenger during the exclusivity

period can be calculated using some of the estimates presented in Chapter 3, plus an assumption

about profit margins. Assuming constant marginal costs, the operating profits during exclusivity

are simply the price of the first-filer generic minus its marginal cost, times the quantity it sells

during exclusivity, or (pg-cg)qg/2, where quantity is measured in annual sales. An unreported

parameter estimate from the wholesale price regressions underlying Table 6-5 is used to estimate

the marginal costs of generic manufacturers. The parameter estimates the generic relative price

when the number of manufacturers exceeds ten. Assuming that generic prices decline toward

marginal costs as the number of competitors grows, the parameter provides a crude estimate of

the marginal cost. Depending on model specification, the wholesale relative price with a large

number of manufacturers is generally near 0.10, which implies a pre-entry brand profit margin of

90%.24 The results of this analysis, in any case, are not very sensitive to the assumed marginal

cost. 

Using this approximation of marginal cost, and some algebraic manipulation, profit can

be rewritten as

(  . ) 



p rr

p

g gb

g

  



01

2

where the p and r variables are measures of price and revenue, the g and b subscripts indicate

whether the generic or pre-entry brand level of the variable is being measured, and anything with

a hat on top of it is measured relative to pre-entry brand levels.25 So the expression for first-filer

profits during exclusivity can be re-written as a proportion of pre-entry brand sales, where the

proportion is a function of the generic relative price and the generic relative revenue during

exclusivity, both of which were estimated in Chapter 3.
26 Because it was not possible to reliably estimate effects more than three years after first generic entry,

analysis is truncated at the three-year mark. This almost certainly causes some understatement of the

profits associated with generic entry. However, the bulk of the AG effect likely is recognized during

the exclusivity period and the few years that follow, so ignoring the impact past three years probably is

not a significant source of error. Furthermore, future profits are not discounted: assuming that the

inflation rate in a given drug market will roughly equal the discount rate of market participants, the use

of current dollars in the analysis is appropriate.

27 HOWREY LLP, THE SHORT-TERM AND LONG-TERM COMPETITIVE IMPACT OF AUTHORIZED GENERICS

22–23 (2009) (written for PhRMA),

http://www.ftc.gov/os/comments/genericdrugstudy3/091028pharmresearch.pdf. Also, Morgan Stanley

used an estimate of $10 million per challenge, which includes $1–2 million in costs associated with the

ANDA approval process. See GOODMAN ET AL., supra note 8, at 8. That is within the range of

expenditures observed in the data, and, given the relatively low rate of usable responses, the evidence

does not suggest that Morgan Stanley’s estimated $8–$9 million of challenge expenses was inaccurate. 

111

Similar algebra yields the following estimate for the first filer’s profit during the 2.5

years26 after the exclusivity period:

2 5

01 . ( .)



p rr   

p

g gb

g

where variables covered with a bar represent estimated relative statistics from outside of

exclusivity, which were estimated previously in this chapter.

Finally, the profitability of entering the market without an exclusivity cannot easily be

derived from statistics estimated in this Report. Initially, it is assumed that the patent challenge

succeeds with certainty, so this term drops out of the expected profit calculation. However,

some of the analysis that follows considers the possibility of unsuccessful challenges. For those

situations, a zero-profit entry condition is employed, meaning that outside of exclusivity, generic

firms enter until the net present value of the profits from entering equals the costs of obtaining

the ANDA, which may include opportunity costs of the manufacturer’s time and effort in

addition to actual R&D and regulatory filing expenditures. This assumption implies that the

expectation of the (Profit of Non-Exclusive Entry) term is equal to the (ANDA Costs) term.

With regard to the cost of Paragraph IV challenges, many respondents to the Special

Orders indicated that they did not track these costs on a drug-by-drug basis or could not report

the information for similar reasons. For responses that were provided at the drug level, the mean

expenditure on a Paragraph IV challenge was approximately $5 million. Expenditures ranged

from very low amounts to many multiples of the $5 million mean, and the inter-quartile range

was roughly $2 million to $6 million. Similarly, responses to information requests regarding

expenditures on R&D and other expenses related to filing an ANDA often were not sufficiently

detailed to be useful. However, the responses that did lend themselves to this analysis showed

relatively little variation. The inter-quartile range goes from $900,000 to $1.2 million, with a

mean of approximately $1 million. Estimates of these costs can vary. An analysis submitted to

the FTC by Howrey LLP on behalf of PhRMA utilized an estimate of $5.5 million for litigation

costs and $2.5 million in development costs.27 The robustness of the results to different cost
However, there is no apparent reason to believe that any accounting idiosyncrasies that may have

affected responses to the Special Orders produced a biased sample, so the $5 million estimate of

typical expenditures on a Paragraph IV challenge will be used as the baseline here. 

28 Because this analysis is meant to apply to small drugs as well as large drugs, it relies on estimates from

unweighted regressions from Chapter 3 and earlier in this chapter.

112

estimates will be explored.

Given estimates of the legal challenge and ANDA costs and the relative prices and

relative expenditures estimated previously in this Report, the expected profitability of a

Paragraph IV challenge can be expressed entirely in terms of the pre-generic-entry brand sales of

the drug and the probability of winning the Paragraph IV challenge. The next section presents

break-even analyses focused on these variables.

B. Break-Even Analysis

Suppose a potential Paragraph IV challenger knew with certainty that a challenge would

succeed and an exclusivity period would be granted if the company invested $5 million on the

challenge in addition to $1 million on developing the ANDA. How big would the market for the

drug need to be to make such a challenge profitable? How would that market size change

depending on whether or not the challenger expected to face AG competition? To start to

answer these questions, the profit function developed above is calibrated with estimates based on

the expectation of no AG entry.

1. Markets without an AG

The first step is to insert estimates derived from the regression analyses of this chapter

and Chapter 3 into the expression representing profit during exclusivity.28 Table 3-2 reported

that the average wholesale generic relative price for a drug in a non-AG market during

exclusivity is 0.80; which will serve as the estimate of the relative price of the generic during

exclusivity, . Similarly, Table 3-7 reports p g that, without an AG, the average wholesale

relative expenditure on the first-filer’s product during exclusivity is 0.70. Plugging these

numbers into the expression for profit during the exclusivity period yields 

( . .) .

. . . 080 01 0 702 080 0 31

  



 

r

r

b

b

As reported in Table 6-3, the average ANDA-Only wholesale relative price post-exclusivity is

0.39, and the average ANDA-Only wholesale relative expenditure post-exclusivity is reported to

be 0.31 in Table 6-4. Thus, the profits of the first-filer in the 2.5 years following the exclusivity

period are 
113

2 5

0 39 01 0 31

0 39 . 058 ( . .) ..  . .   

 

r

r

b

b

This implies that the first filer revenues in the exclusivity period are a little over half of the sum

of their revenues over the 30 months that follow.

The expected profit calculation can now be expressed entirely in terms of the pre-entry

brand sales: 

(Profit of Challenge) = P(win)[(Profit during Exclusivity)+(Profit Post-Exclusivity)]

 + [1-P(win)](Profit of Non-Exclusive Entry)

 - (Legal Costs) - (ANDA Costs)

=1.0×(0.31 × rb + 0.58 × rb ) - $5 million - $1 million

=0.88 × rb - $6 million.

If the challenger is expected to just break even on the patent challenge, the annual revenues of

the brand-name drug would need to be $6.8 million. If instead of the $5 million estimate of the

cost of pursuing a Paragraph IV challenge a $10 million estimate was used, expected profits of

the first filer would need to total $11 million instead of $6 million, and the break-even brand

market size would be $12.5 million.

2. Markets with an AG

Alternatively, a Paragraph IV challenger might expect to face AG competition, both

during the exclusivity period and in the years that follow. Table 3-2 reports that the addition of

an AG causes average generic wholesale relative prices to fall by 12.8%, so the average relative

price during the exclusivity period would be the 0.80 used above times (1 - 0.128), or 0.70. 

Table 3-7 estimates that average relative expenditures fall by 52.0% when an AG is launched, so

the average relative expenditure during exclusivity would be the 0.70 used above times (1 -

0.52), or 0.34. 

Similarly, the presence of an AG causes the post-exclusivity relative price to fall by

13.0%, according to Table 6-3, so the mean relative price falls to 0.34. Table 6-4 indicates that

the post-exclusivity relative expenditures on the first-filer’s drug fall by 52.5% when an AG is

present, so relative expenditures fall to 0.15. Plugging these estimates into the expected profit

formulas yields: 

(Profit of Challenge) =1.0×(0.14 × rb + 0.26 × rb ) - $5 million - $1 million

= 0.40 × rb - $6 million.

The pre-entry brand revenues would need to be $14.9 million in order for the challenger to have

expected profit of exactly zero. Using the $10 million estimate of challenge expenses, breakeven market size increases to $27.3 million.

Two observations warrant emphasis. First, the estimated break-even market is more than
29 The lower break-even market sizes reported here are consistent with evidence presented in Chapter 7,

that drugs with market sizes smaller than $50 million do attract Paragraph IV challenges.

30 The market sizes reported here are aggregated over strength and dosage form. In other words, market

size is calculated for all strengths and forms of a particular combination of active ingredients.

114

twice as large when the first filer must compete with an AG. This is not surprising: the AG takes

share from the first filer during the exclusivity period, that effect persists after exclusivity, and

prices are lower in the presence of an AG. Second, break-even levels are satisfied by very lowsales drugs. The break-even market sizes reported here are much smaller than the break-even

market sizes estimated by Morgan Stanley. The main reason for this difference is that the

Morgan Stanley analysis only accounted for the benefits of a successful Paragraph IV challenge

that accrue during the exclusivity period. The analysis of this chapter suggests that the benefits

from being a first-filer persist well after the end of the exclusivity period, thus making

challenges in smaller markets more attractive.29 

Comparing these market sizes to the market sizes of the drugs30 included in the empirical

analysis of this chapter puts this result into perspective. Suppose that all drugs first experiencing

generic entry in 2003 through 2008 are ranked from the drug with the smallest annual brand

sales, or market size, prior to generic entry to the drug with the largest. Then for each drug, add

up the total market size attributable to that drug and all smaller drugs, and divide by the sum of

market sizes for all drugs, which is $68 billion. This produces what is referred to in Figure 6-5,

on the vertical axis, as the cumulative density of market size, measured as annualized wholesale

expenditures on the brand-name product prior to generic entry. The horizontal axis, for instance,

indicates that 10% of the drugs have sales of $5.4 million or less. The graph shows that these

10% of drugs account for a negligible portion of the total market share; less than 0.01%. The

median drug has annual pre-entry brand sales of approximately $129 million, which is indicated

in the exact center of the horizontal axis. Since this is the median, 50% of the products in the

sample have pre-entry annual brand sales below $129 million, and these account for only 3.3%

of the cumulative market size in the sample, as indicated by the curve. Continuing along the

curve to the right, the smallest 70% of drugs (with sales of up to $454 million) account for only

about 12% of the dollars. Even the smallest 90% of the drugs (with sales of up to $1.8 billion)

account for less than half (49%) of the dollars.
31 Some drugs, with very small market sizes, may not have drawn Paragraph IV challenges even if there

had been no prospect of AG competition.

115

Figure 6-5: Cumulative Share of Pre-Entry Wholesale Sales For Drugs Experiencing First

Generic Entry from 2003 through 2008

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0%

10% ($5.4 million)

20% ($18 mi ll ion)

30% ($34 million)

40% ($71 million)

50% ($129 million)

60% ($232 million)

70% ($454 million)

80% ($792 million)

90% ($1.8 billion)

100% ($5.5 billion)

Cumulative Density of Drugs (Market Size)

Cumulative Density of Market Size

Using the higher cost estimates, the break-even analysis above identifies drugs with sales

below $27.3 million as those for which an expectation of an AG would deter a Paragraph IV

challenge. Figure 6-5 indicates that drugs of this magnitude constitute between 20% and 30% of

the drugs in the sample, but account for less than 1% of the total sales. Using the lower cost

estimates, expected AG entry would deter Paragraph IV challenges affecting drugs with sales

below roughly $15 million, representing a little under 20% of the drugs in the sample but less

than 1% of total sales.31 However, this analysis was based on the presumption that the Paragraph

IV challenge will succeed with certainty. Challengers, of course, almost never are 100% certain

to succeed. The analysis below further explores the relationship between market size and

probability of winning the Paragraph IV challenge.

3. Effect on Threshold Probability of a Successful Challenge

Another way to think about the effect of AG competition on the decision to bring a

Paragraph IV challenge is to fix the drug’s market size and to consider how the probability of

winning the challenge necessary to justify pursuing it changes when an AG is launched. As
32 Again, the calculation of market size aggregates all strengths and dosage forms associated with a

particular combination of active ingredients. See supra note 30.

116

noted above, this analysis must account for the impact on profits when the challenge is

unsuccessful and the generic enters only in a non-exclusivity situation. Given that any generic

firm can pursue the R&D to enter in a non-exclusivity market, we impose a zero profit entry

condition implying that the operating profit from entering a non-exclusivity market must equal

the cost of obtaining the ANDA. Plugging the estimated relative prices and revenues from the

markets without AGs into the expression for expected profit from a Paragraph IV challenge

yields:

(Profit of Challenge) = P(win)[(Profit during Exclusivity)+(Profit Post-Exclusivity)]

 + [1-P(win)](Profit of Non-Exclusive Entry)

 - (Legal Costs) - (ANDA Costs)

= P(win)×(0.31 × rb + 0.58 × rb ) + [1-P(win)]($1 million)

 - $5 million - $1 million

= P(win)× (0.88 ×rb - $1 million)- $5 million.

Setting this expected profit to zero implies a relationship between the probability of winning the

challenge and the pre-entry brand sales of the drug. Figure 6-6 plots this relationship, along with

the corresponding relationship calibrated with price and revenue information from AG markets. 

This graph again assumes a $5 million cost for the patent challenge and $1 million for obtaining

the ANDA. 

To understand this graph, start by considering a challenge that has 100% chance of

success. The “No AG” curve crosses 100% at a market size of $6.8 million – exactly the breakeven market size calculated above for markets without an AG under the assumption that the

challenge would be successful. Similarly, the “AG” curve crosses 100% at a market size of

$14.9 million, which is the break-even AG market calculated above.

The new question this graph answers is how much the presence of an AG would change

the calculus surrounding a Paragraph IV challenge that may or may not succeed. For example,

consider a drug with pre-generic-entry brand sales of $130 million, which is about the median

market size for drugs that faced first generic entry from 2003 through 2008, as depicted in Figure

6-5.32 The “No AG” curve on the graph shows that at $130 million, the challenger would have to

believe it has at least a 4% chance of winning in order to expect the challenge to be profitable

even if an AG will not enter. If the challenger thinks it has less than a 4% chance of being

successful, this model suggests the challenge would not be profitable regardless of whether an

AG enters. The AG curve in this graph shows that for a $130 million drug, that chance of

winning has to increase to approximately 10% in order for the challenge to be profitable, in

expectation, when it is anticipated that an AG will enter. If the challenger believes it has better

than a 10% chance of winning, this model suggests the challenge is expected to be profitable

regardless of whether an AG enters. If the challenger thought it had between a 4% and a 10%

chance of winning a Paragraph IV challenge on a $130 million drug, the expected profitability of
33 To the degree a generic company is overly optimistic about its challenge, however, AG

competition would deter challenges when the generic’s actual chance of winning was even

lower than four to ten percent. Conversely, if the generic were overly pessimistic about its

chances, AG competition would deter challenges when the real chance of success was higher

than the subjective assessments shown in Figure 6-6.

34 In this analysis, future profits are not discounted. Firms do not typically use the same

discount rates when making entry decisions, and therefore the choice of any specific discount

rate is admittedly arbitrary. The effects of a higher discount rate would likely shift the

profiles of the break-even drugs towards larger drugs. However, changing the discount rate

by any reasonable amount would not drastically alter the basic conclusions of the analysis: an

AG would affect the profitability of a paragraph IV filing only where the brand sales are

small.

117

the challenge would depend on the likelihood of AG entry. More generally, the area between

these two curves depicts the situations where the perceived likelihood of AG entry can impact

whether or not a Paragraph IV challenge can be expected to be profitable. 

Without data on how generic companies perceive their probabilities of success for

Paragraph IV challenges, it is not possible to determine how many additional challenges would

be pursued if expectations shifted from expecting an AG to not expecting one, though

consideration of a few examples can be instructive. For the median drug, it was shown above

that the range of probabilities over which an AG could impact whether a challenge is expected to

be profitable or not is narrow. However, for some drugs just below the median, the range can be

quite substantial. For instance, the 30th percentile drug shown in Figure 6-5 has $34 million in

annual sales. For a drug of that size, Figure 6-6 shows that expectation of an AG launch can be

pivotal for success probabilities from 17% to 39%. Although a substantial number of drugs of

this approximate size are on the market, Figure 6-5 indicates that these drugs account for less

than 1% of the dollars. On the other hand, drugs the size of the 70th percentile drug or larger,

with annual sales in excess of $454 million, account for 87% of the expenditures. For this 70th

percentile drug, the AG is pivotal only for success probabilities between 1.3% and 2.7%, and

that range shrinks for even larger drugs. For these bigger drugs, the 180-day exclusivity period

is so profitable, even if shared with the AG, that the probability of success need not be very high

for a challenge to be profitable in expectation.

At stake, however, is not the number of generic challenges but an authorized generic’s

potential to reduce or delay actual competition. Although many factors affect a decision to file a

Paragraph IV ANDA, Figure 6-6 provides a rough sense of when the expectation of an

authorized generic could deter actual generic competition. For example, on the median-sized

drug, with annual sales of about $130 million, the expectation of AG competition would deter a

generic challenger with a four to ten percent chance of winning the patent litigation.33 The only

challenges that would be deterred by expectation of an AG and have a reasonably large

probability of being successful are on the relatively small drugs.34 If a challenger anticipates a

50 percent chance of success, an expectation of AG competition could tilt the balance against
118

bringing a patent challenge in markets with brand sales between $12 million and $27 million, a

range that accounts for 13 percent of drugs, but, given their low sales, approximately one percent

of total prescription drug expenditures.

Figure 6-6: Break-Even Market Sizes for Varying Probabilities of Successful Paragraph IV

Challenge

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

$1,000,000 $10,000,000 $100,000,000 $1,000,000,000 $10,000,000,000

Pre-entry Brand Sales (Note: Values Plotted on a Logarithmic Scale)

Probability of Winning the Paragraph IV Challenge

No AG AG

VI. Conclusion

This chapter reports analysis of the impact of authorized generics outside of 180-day

exclusivity periods. The results are generally consistent with those obtained in Chapter 3 for the

exclusivity periods. To the extent that AG presence in a market had an impact on prices, it

tended to be associated with lower prices in markets where an exclusivity period had expired. 

No consistent price effect of replacing an ANDA-generic with an AG was found when no

generic had entered the market with an exclusivity period. Across both types of markets, none

of the estimated effects provided statistically significant evidence of AG entry causing higher

prices. Furthermore, there was strong evidence that first-filer generics continued to earn less

revenue in markets where an AG had been launched. Brand-name companies tended to make

greater revenues when they launched an AG, though this result was not statistically significant. 

Given that an AG launch has a large and lasting impact on the revenues of first-filers, it

is perhaps not surprising that analysis of incentives to file Paragraph IV challenges finds that the

expectation of AG competition could potentially influence some marginal challenge decisions. 
119

These effects appear unlikely to impact decisions on high-sales drugs, but could potentially play

a role in decisions to challenge small and medium market drugs. The only challenges that would

be deterred by expectation of an AG and have a reasonably large probability of being successful

are on the relatively small drugs.

1 Unlike Chapter 3 and Chapter 6, where analysis examined different “products,” see supra Chapter 3,

note 16 and Chapter 6, note 11, this chapter focuses on “drugs,” which include all strengths covered by

an NDA. This unit of observation is most appropriate for an analysis of patent challenge data because

Paragraph IV challenges typically target all strengths of a drug. In addition, ANDA records in the

relevant FDA database were organized by application number, and usually included all strengths of a

drug in a single application. The chief consequence is that different strengths, which had been treated

as separate observations in Chapters 3 and 6, here are treated together as a single observation. 

121

CHAPTER 7 ASSESSING THE IMPACT OF AG COMPETITION

FROM PATENT CHALLENGE DATA

The financial analyses of Chapters 3 and 6 show that AG marketing during exclusivity

has a large and lasting effect on the revenues of first-filers that could influence some marginal

decisions as to whether to challenge a patent. This chapter examines whether there have been

fewer patent challenges since 2003, as AGs have become more common. 

In particular, this chapter examines (1) the relationship between patent challenges and the

sales levels of brand-name drugs;1

 (2) trends in the prevalence of such challenges, as manifested

by ANDA filings and by drugs for which patent challenges were or were not made; and (3)

generics’ willingness to bring patent challenges under circumstances when they are likely to

share exclusivity with ANDA generic competitors (i.e., situations analogous to sharing

exclusivity with an AG).

Some caveats are important. To begin with, the chapter identifies relationships between

various factors and the levels of patent challenges, but does not demonstrate cause and effect. 

Indeed, many factors may influence a generic company’s decision to file an ANDA or to

challenge a patent, and the measures of the prevalence of patent challenges in this chapter reflect

their aggregate force. For example, it is possible that disincentives to patent challenges arising

from the marketing of AGs during exclusivity might be masked by other factors that encouraged

such challenges. Moreover, the data cannot directly answer whether there would have been

more challenges in the absence of authorized generics. Finally, although this chapter quantifies

challenges in various ways, it does not purport to address the appropriate level of incentives or to

determine whether the number of challenges is normatively sufficient or appropriately matched

to the set of drugs available for such challenges. 

With these caveats, the chapter presents analyses that consistently find that despite AGs

and other trends that could reduce a generic’s revenues from 180-day exclusivity, patent

challenges have increased in recent years for both large- and small-revenue drugs. This evidence

is inconsistent with the concern that AG competition has deterred Paragraph IV challenges.
2 See supra Chapter 6, Section V.

3 See, e.g., David Reiffen & Michael R. Ward, Branded Generics as a Strategy to Limit Cannibalization

of Pharmaceutical Markets, 28 MAN. & DEC. ECON. 251, 263 (2007) (concluding that the introduction

of AGs is “least problematic . . . in relatively large markets”).

4 The dates of the first Paragraph IV certifications made in ANDAs for a particular drug (i.e., for a

particular dosage form and NDA) were obtained from the U.S. Food and Drug Administration’s

(“FDA”) Paragraph IV Patent Certifications website. See Paragraph IV Patent Certifications, FDA,

http://www.fda.gov/Drugs/DevelopmentApprovalProcess/HowDrugsareDevelopedandApproved/Appr

ovalApplications/AbbreviatedNewDrugApplicationANDAGenerics/ucm047676.htm (last updated

May 11, 2011) (reporting the dates of first challenges after March 2, 2004). When Paragraph IV

certifications for different strengths were made on different dates, the earliest date was used. For

more details, see infra Appendix H.

5 The table shows the number of drugs subject to first patent challenges, not the number of challenges

per drug. Because certain dosage forms, such as injectables, are sold primarily outside the retail

channels included in National Prescription Audit sales data from IMS Health, the table is limited to

tablet and capsule forms.

122

I. Patent Challenges by Sales Level

Concern regarding the possible impact of AGs on patent challenges has focused most

intensely on smaller drugs. Generic companies might have sufficient incentive to challenge

patents on high-sales drugs regardless of whether an AG might be marketed, because the returns

from 180-day exclusivity could still be substantial. However, the profits from marketing a

generic version of a small-market drug could be insufficient to cover the costs of filing an

ANDA and litigating an infringement suit, especially if an AG reduces the generic’s profits.2

Thus, in theory, if AGs have a deterrent effect on patent challenges, it likely would be greatest

for drugs with low sales.3

 

A. Challenges to Patents on Low-Sales Drugs

Analysis shows that generic companies challenged patents covering drugs with both large

and small markets, including drugs with sales below $50 million. Tables 7-1 and 7-2 present

data on sales levels for the year that the first Paragraph IV certification was made for a particular

drug (i.e., the year that the drug was “subject to a first patent challenge”).4

 Table 7-1 shows the

number of brand-name drugs subject to a first patent challenge from 2003 through 2008, by the

level of the brand’s retail sales at the time of the challenge.5 Twenty-six percent of such drugs

had sales above $500 million, while 17% had sales below $50 million. 
6 See HOWREY LLP, THE SHORT-TERM AND LONG-TERM COMPETITIVE IMPACT OF AUTHORIZED

GENERICS 26 (2009) (written for Pharm. Research and Mfrs. of Am. (“PhRMA”)),

http://www.ftc.gov/os/comments/genericdrugstudy3/091028pharmresearch.pdf (finding break-even

points of $50.2 million without an AG and $110 million with an AG); MARC GOODMAN, GARY

NACHMAN, & LOUISE CHEN, MORGAN STANLEY, QUANTIFYING THE IMPACT FROM AUTHORIZED

123

Table 7-1: Number of Drugs Subject to First Patent Challenges, by Sales Level

Year <$50M $50-100M $100-500M >$500M

2003 2 1 7 10

2004 2 3 10 8

2005 6 3 11 7

2006 6796

2007 8 5 19 9

2008 6 11 15 7

SUM 30 30 71 47

The table shows, by sales level, the number of drugs for which the

first Paragraph IV certification was made from 2003–2008. 

Limited to tablet and capsule dosage forms.

Indeed, as shown in Table 7-2, for each year from 2003 through 2008, the low end of sales of

drugs subject to first patent challenges was less than $25 million. 

Table 7-2: Sales Level of Drugs Subject to a First Patent Challenge

Year Mean Median High Low

2003 $843,642,560 $552,932,201 $2,744,362,983 $14,233,749

2004 $516,485,864 $263,147,176 $2,660,862,609 $19,038,498

2005 $638,065,023 $140,743,745 $4,586,054,348 $6,062,011

2006 $470,661,254 $139,450,992 $4,104,412,829 $898,843

2007 $393,678,636 $176,808,691 $2,865,218,782 $3,796,938

2008 $358,240,772 $130,728,844 $2,769,467,688 $22,304,549

Mean, median, high, and low sales of drugs for which the first

Paragraph IV certification was made from 2003–2008. Limited to

tablet and capsule dosage forms. 

The finding that patent challenges for brand-name drugs with sales below $50 million

were relatively common was not anticipated in view of prior break-even studies suggesting that

the minimum market size necessary to profitably pursue a successful patent challenge is

approximately $50 million, and even more when an AG is present.6

 It appears more consistent
GENERICS 6–9 (2004) (break-even point of $48 million without an AG and $110 million with an AG);

see also Pfizer, Do Authorized Generics Benefit Consumers? (2005) (presentation slides showing

break-even points of $48 million without an AG and $89 million with an AG). The analysis in

Chapter 6 suggests that for a drug with $50 million in pre-entry brand-name sales, a generic firm that

does not expect AG competition would expect that a patent challenge would be profitable if it

anticipated a 12% probability of winning; however, if the firm expected to face an AG, it would

require at least a 26% probability of winning to expect profitability. See supra, Chapter 6, Figure 6-6.

7 See supra Chapter 6, Figure 6-6. For higher probabilities of winning, the break-even level is even

lower, e.g., $6.8–$14.9 million when the generic believes it has a 100% probability of winning,

depending on whether or not it anticipates AG competition. 

8 See supra Chapter 2, Figure 2-9 and accompanying text. Between April 2003 and December 2008,

there were six exclusivity periods on products with sales below $50 million; in none of those situations

did the brand launch an authorized generic during the exclusivity period. But cf. supra Chapter 5, note

14 and accompanying text (noting that some generic companies produced documents indicating that

the firms always assume AG competition).

9 Even assuming companies are less likely to challenge patents on low-sales drugs, similar numbers of

low- and high-sales drugs subject to a first patent challenge could arise if there are more low-sales

drugs available for first challenge than high-sales drugs.

10 See infra Appendix I, Figure I-1 (frequency of Paragraph IV challenges increases as pre-entry brand

sales increase).

11 The data are based on sales at the time of certification rather than at generic entry. (Because the length

of time between certification and generic entry is often many years, generic entry has not yet occurred

for many of the drugs with first patent challenges in 2003–2008.) It is possible that a company might

have challenged a patent on a low-sales drug because it anticipated an increase in sales by the time of

generic entry. If so, a low sales level at certification might not represent the company’s view of the

financial incentive underlying its challenge.

124

with the finding in Chapter 6 that break-even levels for entry via a patent challenge that the

generic believes it has a 50% probability of winning may be satisfied in markets with annual

sales of $27.3 million when an AG is anticipated, and $12.4 million without an AG.7

 AGs have

been very uncommon for drugs with sales of less than $50 million8

 and consequently may have

played a reduced role in decisions regarding patent challenges for such drugs. 

The sales-level data thus suggest that many low-sales drugs receive patent challenges,

notwithstanding potential AG competition. This is not to say that patent-challenge incentives are

adequate for all small-market drugs. Nor does it suggest that patent challenges are as likely for

small-revenue drugs as for large-revenue drugs.9 Indeed, as a general matter, the reverse is

true.10 The challenges to some small-revenue drugs could be explained by factors that made the

drug more valuable to the company than the brand’s sales level would suggest. For example,

challenges may have occurred in settings where the generic company anticipated a future

increase in the drug’s sales11 or had a special interest in a particular drug because of its

therapeutic class, or where the generic company was already challenging the same patent with

respect to another drug or perceived infringement litigation (or successful infringement

litigation) to be unlikely. 
12 For example, patent challenges for a new formulation of a blockbuster drug (sales greater than $2

billion) began less than a year after approval of the new formulation, when annualized sales were

about $14 million. Five years later, the year before generic entry, sales of the new formulation had

risen to about $90 million. See infra Appendix H, Section IX, regarding annualization of sales.

13 This might have contributed to two companies’ patent challenges regarding three contraceptives; the

companies offer a number of estrogen hormone-related drugs.

14 The most dramatic example of such a strategy concerned a company’s challenge to patents on a drug

with sales under $1 million, which could be explained by its simultaneous challenge to the same

patents listed for an older dosage form of the drug with sales of nearly $2 billion. The low-sales drug

was a line extension of the high-sales drug, i.e., it contained the same active ingredient, and was part of

the same “franchise” as the high-sales drug. Five other low-sales drugs involved challenges to patents

that covered other drugs with substantially higher sales.

125

To explore this issue, we examined the circumstances for challenges regarding the twelve

drugs during the 2003–2008 time frame for which sales were under $20 million. For eight of the

twelve low-sales drugs, the first ANDA with a Paragraph IV certification was filed within three

years of NDA approval, and anticipated growth in sales might have been a factor.12 For three

drugs, the therapeutic class of the low-sales drugs may have contributed to the companies’

interest in pursuing a challenge.13 In several instances economy of litigation appears to have

been a factor: the generic company challenged the same patents with regard to a related drug

with a larger market, thus reflecting an overall financial incentive greater than that of the smaller

drug.14 In other instances, the generic company might have believed that it was unlikely to be

sued. Thus, for one low-sales drug, the generic company might have thought that litigation was

unlikely because the brand-name company had not filed an infringement suit when another

generic firm challenged the same patent with regard to a different product.

Together, these facts suggest that generic companies may be more selective with regard

to low-sales drugs, bringing challenges under conditions that they consider favorable. The

combination of factors in such cases supports patent challenges even in small markets. But that

may not always be the case, and it is possible that a perception that AG competition is likely

could tilt the balance against a patent challenge in some instances.

B. Trends in Sales Levels of Drugs Subject to Challenge

The trends in 2003–2008 sales levels of brand-name drugs for which patent challenges

were made provide no suggestion that AG marketing has inhibited challenges with regard to

low-sales drugs. Table 7-2 shows the mean, median, and range of the sales of brand-name drugs

subject to a first patent challenge from 2003 through 2008. While there is some year-to-year

variation, during this period the mean and median sales level of drugs subject to a first challenge

clearly show no increase. Rather, in 2003, the mean sales level of drugs subject to a first patent

challenge was $844 million; in 2008, the mean was $358 million. The median sales level
15 The declines were statistically significant for comparisons of 2003 sales with 2007 and 2008 (5%

statistical significance level, using a two-tailed t-test, variances not assumed equal). Other pair-wise

comparisons were not statistically significant. The observed declines in the mean and median sales

levels of drugs subject to a first patent challenge could be explained by an increase in challenges to

small-market drugs or by a decrease in the market size of drugs available for challenge; the data do not

distinguish between the possibilities.

16 These graphs are based on the patent certifications entered in ANDA records maintained in the FDA’s

application database. Although patent certifications must be made with respect to every patent listed

in the Orange Book, the FDA application database lists only the highest certification made. Thus, if an

ANDA contains a Paragraph IV certification for any patent, the database shows a Paragraph IV

certification even if the applicant also made Paragraph II (the patent is expired) or Paragraph III

certifications for other patents. Changes in the FDA’s application database precluded compiling the

ANDA information through 2008.

17 See, e.g., FTC, PHARMACY BENEFIT MANAGERS: OWNERSHIP OF MAIL-ORDER PHARMACIES 15 (2005),

http://www.ftc.gov/reports/pharmbenefit05/050906pharmbenefitrpt.pdf (discussing increased

utilization of prescription drugs).

18 See PhRMA, 2007 ANNUAL REPORT 20 (2007),

http://web.archive.org/web/20080329043525/http://www.phrma.org/files/2007%20Annual%20Report.

pdf; see also GENERIC PHARM. ASS’N (“GPhA”), 2009 ANNUAL REPORT 28 (2009),

http://www.gphaonline.org/sites/default/files/gpha-low-res.pdf (also citing IMS Health data). The

126

declined 76 percent between 2003 and 2008, from $553 million to $131 million.15

If challenges below a certain sales level were unprofitable, one would anticipate that a

generic company would not undertake such challenges, and that AGs would elevate the

breakeven point. All else being equal, if AGs inhibited patent challenges on small-market drugs,

one would also expect an increase in the mean and median sales levels of drugs subject to a first

patent challenge during the period under study. The declining sales levels from 2003 through

2008 thus provide no suggestion that patent challenges have diminished in smaller markets with

the presence of AG competition. 

II. The Prevalence of Patent Challenges and Drugs Subject to Patent Challenges

Increases in both the number of ANDAs with Paragraph IV certifications and the number

of drugs for which an ANDA includes such certifications also suggest that, in aggregate, patent

challenges did not decrease after AGs became common.

A. ANDA Filings and Paragraph IV Certifications

Figures 7-1 and 7-2 show trends in ANDA filings and patent certifications from 2000

through 2007.16 Figure 7-1 shows that the total number of ANDAs filed per year increased

steadily from 362 in 2000 to 887 in 2007. The increase in ANDA filings likely reflects both

greater utilization of prescription drugs17 and growth in the market share of generic drugs, which

rose from 47% in 2000 to 67% in 2007.18 
increase from the years 2000 to 2007 in ANDA filings, including those with patent challenges, does

not appear to arise from an increase in NDAs. The number of NDA approvals varied from year to year

but did not exhibit an upward trend in this period and the years preceding it. See U.S. GOV’T

ACCOUNTABILITY OFFICE, NEW DRUG DEVELOPMENT: SCIENCE, BUSINESS, REGULATORY, AND

INTELLECTUAL PROPERTY ISSUES CITED AS HAMPERING DRUG DEVELOPMENT EFFORTS 24 (2006),

http://www.gao.gov/new.items/d0749.pdf; CTR. FOR DRUG EVAL. AND RESEARCH (“CDER”), FDA,

2007 UPDATE: IMPROVING PUBLIC HEALTH THROUGH HUMAN DRUGS 12–15 (2007),

http://www.fda.gov/downloads/AboutFDA/CentersOffices/CDER/WhatWeDo/UCM121704.pdf.

19 See 21 C.F.R. § 314.94(a)(12) (2010). 

127

Figure 7-1: Number of ANDAs Filed per Year, 2000-2007

0

200

400

600

800

1000

2000 2001 2002 2003 2004 2005 2006 2007

Number of ANDAs filed per year, including all dosage forms.

The trends in ANDAs filed with respect to patent-protected drugs are similar to the

overall increase in ANDAs. As explained above, a company that files an ANDA for a drug for

which patents are listed in the Orange Book must certify whether it intends to wait until patent

expiration to market its generic product (a “Paragraph III” or “PIII” certification) or whether it

seeks entry before patent expiration by challenging the patent on the basis of invalidity or noninfringement (a “Paragraph IV” or “PIV” certification).19 As shown in Figure 7-2, Paragraph III

and IV ANDAs increased roughly in parallel from 2000–2007, although the total increase in PIV

certifications was somewhat greater than that of PIIIs. The substantial increase in PIVs after

2004, when AGs had become common, is another piece of evidence consistent with the

conclusion that authorized generics have not noticeably deterred Paragraph IV challenges.
20 Because a drug may draw multiple ANDA filings, the relative numbers of PIII and PIV ANDA filings

(shown above in Figure 7-2) do not necessarily reflect the relative numbers of drugs for which PIII and

PIV certifications were made.

21 There is a limitation on this data. If companies wait longer to file Paragraph III ANDAs than

Paragraph IV ANDAs, it could be that there are products for which a generic would have filed a

Paragraph IV ANDA if it did not expect an authorized generic but has not yet filed its Paragraph III

ANDA. Nonetheless, this analysis is still helpful and is consistent with the other evidence examined

in this chapter.

128

Figure 7-2: Paragraph III and Paragraph IV ANDAs

 Filed per Year, 2000-2007

0

50

100

150

200

250

300

2000 2001 2002 2003 2004 2005 2006 2007

Paragraph III ANDAs Paragraph IV ANDAs

Numbers of ANDAs filed per year for which the highest patent

certification was Paragraph III or Paragraph IV. Includes all

dosage forms.

B. Drugs Subject to ANDAs with First PIV and PIII Certifications

We next examined both the number of drugs for which a first ANDA with a PIV

certification was filed and the number for which companies chose to make a PIII certification

and wait until patent expiration before entering.20 This analysis suggests that despite the

likelihood that an AG will be marketed during 180-day exclusivity, companies have not opted to

enter after patent expiration rather than to pursue a patent challenge.21

 

Indeed, as illustrated in Figure 7-3, the number of drugs subject to a first patent challenge

approximately doubled between 2003 and 2008. This increase appears as steady growth between
22 Data on yearly patent challenges were obtained from the FDA’s Paragraph IV website, see supra note

4. A previous study that examined the numbers of drugs facing a first Paragraph IV certification

observed little change from 2004 through May 2006. See Ernst R. Berndt et al., Authorized Generic

Drugs, Price Competition, and Consumers’ Welfare, 26 HEALTH AFF. 790, 794 (2007).

129

2003 and 2006 and a large increase in 2007.22

20

23

27 28

41

39

0

5

10

15

20

25

30

35

40

45

2003 2004 2005 2006 2007 2008

Year of Certification

Figure 7-3: Number of Drugs Receiving

 A First Paragraph IV Certification

Number of drugs per year for which an ANDA included a first

Paragraph IV certification. Limited to tablet and capsule dosage

forms.

The increase could be attributed to any number of factors, and analysis of causation lies beyond

the scope of this study. For present purposes, we merely recognize that during the period in

which AGs became common and disincentive effects might have been observed, the number of

drugs for which companies challenged patents increased.

While Paragraph IV certifications increased overall after AGs became common, it does

not eliminate the possibility that for some drugs, AG competition might have led generic

companies to defer entry until patent expiration rather than to challenge a questionable patent. 

To obtain additional insight into generic companies’ decision-making, we examined the relative

numbers of drugs subject to patent challenges and drugs subject only to ANDAs with PIII

certifications. Specifically, for the period from 2003 through 2007, we identified drugs for

which a first ANDA with a PIII certification was filed, and no ANDA made a PIV certification

(a “PIII drug”), and drugs for which a first ANDA with a PIV certification was filed (“PIV
23 Staff examined the FDA’s application database to determine whether a particular ANDA contained the

first PIII certification for a given drug (i.e., for a particular dosage form and NDA), and whether any

previous or subsequent ANDAs for the same drug contained a PIV certification. This allowed staff to

identify PIII drugs, for which no ANDAs with PIV certifications were filed, either before or after the

first PIII certification. Because complete PIII ANDA filing information for 2008 was unavailable,

staff limited the analysis to 2003–07. 

24 Of the 286 ANDAs with PIII certifications filed in 2006 and 2007, only four were first PIII

certifications; rather, the bulk of the ANDAs with PIII certifications were either filed after a first PIII

certification in a previous year, or were filed with regard to a drug for which another applicant made a

PIV certification. 

25 This percentage could fall if a “first PIII filer” amends its certification to PIV, or if a subsequent

ANDA makes a PIV certification for any of the four drugs. 

26 These findings are consistent with a recent industry study that concluded that “the vast majority of

products enter[] the market via paragraph IV challenges (92%).” AARON GAL & NIKHIL R. CHARI,

BERNSTEIN RESEARCH, THE LONG VIEW: U.S. GENERIC PHARMACEUTICALS - A BOTTOM-UP MODEL

130

drugs”).23

Table 7-3 shows that PIII drugs were very uncommon, both in absolute and relative

(percentage) terms. 

Table 7-3: Number of Drugs with First Paragraph III and IV Certifications, by Year

Year Number of

1st-PIIIs

Number of

1st-PIVs

2003 1 20

2004 5 23

2005 8 27

2006 2 28

2007 2 41

Number of drugs per year for which an ANDA included a first

Paragraph III certification, and no ANDAs with Paragraph IV

certifications were filed; and number of drugs per year for which

an ANDA included a first Paragraph IV certification. Limited to

tablet and capsule dosage forms.

From 2003 through 2005, there were fourteen PIII drugs, compared to 70 PIV drugs. From 2006

through 2007, the most recent period analyzed, there were only four PIII drugs, in contrast to 69

PIV drugs.24 Thus, during 2006–07, only five percent of the 73 patent-protected drugs for which

a first ANDA was filed were PIII drugs.25 Accordingly, for most patent-protected drugs for

which generic companies filed ANDAs from 2003 through 2007, at least one company chose to

make a PIV certification, despite the possibility of competition from an AG.26 
OF THE U.S. COMMODITY GENERICS MARKET IN 2009–2013, at 3 (2009); see also id. at 7, 14 (by dollar

or prescription volume, Paragraph IV drugs comprise the bulk of generic market entry).

27 The difference between the mean sales of PIII drugs ($136,245,673) and PIV drugs ($541,720,294)

was statistically significant at the 1% level, using a two-tailed t-test, variances not assumed equal.

28 In contrast, many PIV drugs had sales above $500 million, while no PIII drugs exceeded that amount. 

131

The few drugs for which companies filed only ANDAs with PIII certifications could not

be fully explained on the basis of inadequate financial incentives. On the one hand, Table 7- 4

shows that both average and median sales of PIII drugs were substantially less than those of PIV

drugs.27 

Table 7-4: Sales Levels of Drugs with First Paragraph III and IV Certifications

Sales of 1st-PIIIs Sales of 1st-PIVs

Mean $136,245,673 $541,720,294

Median $96,476,032 $196,760,152

High $475,445,072 $4,586,054,348

Low $1,735,383 $898,843

Mean, median, high, and low sales of PIII and PIV drugs for the

year of the first such certification (2003-2007). Limited to tablet

and capsule dosage forms.

Yet a significant fraction of both PIII and PIV drugs had relatively small markets. As shown in

Figure 7-4, both PIII and PIV drugs appear with some frequency in the categories involving sales

of less that $50 million, $50–100 million, and $100–500 million.28 
132

Figure 7-4: Number of Drugs with First Paragraph III and 

Paragraph IV Certifications from 2003-2007, by Brand Sales

5

9

4

24

40

56

19

0

10

20

30

40

50

60

<$50M $50-100M $100-500M >$500M

Brand Sales in Year of Certification

Number of 1st-PIIIs Number of 1st-PIVs

Number of PIII and PIV drugs by sales level of the brand-name

drug in the year of the first such certification (2003–2007). 

Limited to tablet and capsule dosage forms.

Thirty-one percent of PIV drugs had sales under $100 million, compared to 50% of PIII drugs. 

Moreover, for all low sales levels, the number of PIV drugs greatly exceeded the number of PIII

drugs. Thus, factors other than low revenues – i.e., factors that would not have been affected by

AGs, such as patent strength – may have contributed to companies’ decisions to forgo a patent

challenge on the PIII drugs.

In sum, these data suggest that under recent market conditions, and in spite of the

possibility that an AG might substantially reduce a generic’s revenues during 180-day

exclusivity, most patent-protected drugs for which an ANDA was filed were subject to at least

one ANDA with a PIV certification. This is consistent with the finding of PIV certifications for

drugs with low sales levels reported in Table 7-1, and with the apparent decrease in recent years

of the mean and median sales levels of drugs subject to a first patent challenge (Table 7-2). 

While the results cannot pin down why patent challenges increased after the marketing of AGs

became common, they indicate that in the aggregate, patent challenges did not decline after AGs

became common. Seemingly, if a drug warrants developing an ANDA and there is a credible

basis for a patent challenge, the drug likely warrants making a PIV certification rather than a

PIII, despite the burden of litigation that a patent challenge might entail.
29 In addition to an increased likelihood of sharing exclusivity with another generic competitor in the

NCE context, there is also the possibility of an authorized generic, further reducing the expected

profits from a successful Paragraph IV certification.

30 See 21 C.F.R. § 314.108 (2010). The percentage was calculated from New Molecular Entity (NME)

and NDA approvals from 2000–07, as reported by the FDA. See Summary of NDA Approvals &

Receipts, 1938 to the present, FDA,

http://www.fda.gov/AboutFDA/WhatWeDo/History/ProductRegulation/SummaryofNDAApprovalsRe

ceipts1938tothepresent/default.htm (last updated Feb 16, 2011); NME Drug and New Biologic

Approvals, FDA,

http://www.fda.gov/Drugs/DevelopmentApprovalProcess/HowDrugsareDevelopedandApproved/Drug

andBiologicApprovalReports/ucm121136.htm (last updated Feb 23, 2011); CDER, supra note 18, at

11.

31 See JOHN THOMAS, PHARMACEUTICAL PATENT LAW 432-35 (2d ed. 2010). ANDAs with PIV

certifications cannot be filed until four years and six months have elapsed if the FDA has granted

pediatric exclusivity.

32 See id.; CDER & CTR. FOR BIOLOGICS EVAL. AND RESEARCH (“CBER”), FDA, GUIDANCE FOR

INDUSTRY: QUALIFYING FOR PEDIATRIC EXCLUSIVITY UNDER SECTION 505A OF THE FEDERAL FOOD,

DRUG, AND COSMETIC ACT 13 (1999),

http://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/UCM0

80558.pdf (explaining that pediatric exclusivity attaches to NCE exclusivity).

133

III. Patent Challenges Leading to Shared Exclusivity: New Chemical Entities

To better understand how the possible entry of an AG during 180-day exclusivity affects

generic companies’ willingness to challenge patents, this section considers patent challenges

under circumstances in which multiple first-filers of ANDAs are likely to compete during 180-

day exclusivity. The possibility of such “shared exclusivity” is analogous to the possibility of

AG entry during exclusivity; in both instances the ANDA-generic must consider whether to

proceed with a patent challenge despite the prospect of enhanced price competition, reduced

market share, and diminished revenue.29 Shared exclusivity, however, is more amenable to study

because of the ability to identify a set of drugs likely to exhibit shared exclusivity and to predict

when the relevant patent challenges might occur.

Shared exclusivity occurs most frequently for challenges to patents on drugs that have

New Chemical Entity (NCE) exclusivity, a five-year marketing exclusivity granted by the FDA

with regard to approximately 25% of all brand-name drugs.30 The purpose of NCE exclusivity is

to encourage development of innovative drug products based on new active ingredients.31

Unlike other marketing exclusivities, NCE exclusivity bars not only the approval of an ANDA,

but also the filing of an ANDA during the first five years after NDA approval. There is an

exception for ANDAs with a PIV certification, however – ANDAs with PIV certifications may

be filed after four years.32 Thus, a generic company that seeks 180-day exclusivity has a strong

incentive to file an ANDA with a PIV certification after four years have elapsed, on the first day
33 See CDER, FDA, GUIDANCE FOR INDUSTRY: 180-DAY EXCLUSIVITY WHEN MULTIPLE ANDAS ARE

SUBMITTED ON THE SAME DAY 4 (2003),

http://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/ucm07

2851.pdf.

34 This practice began in July 2003, when the FDA issued its guidance on sharing 180-day exclusivity

among multiple ANDAs submitted on the first day. See id. at 6. Subsequently, the Medicare

Prescription Drug, Improvement, and Modernization Act of 2003 (“MMA”), Pub. L. No. 108-173, 117

Stat. 2066 (codified in scattered sections), defined “first applicant” in such a way that all applicants

who submit a substantially complete application containing a Paragraph IV certification on the first

day the FDA receives such an application may be granted 180-day exclusivity. See 21 U.S.C.

§ 355(j)(5)(B)(iv)(I)–(II)(bb) (2010) (awarding 180-day exclusivity to a “first applicant” as defined). 

The law also called for granting exclusivity on a product basis rather than a patent-by-patent basis,

which likely enhances a generic firm’s incentive to file an ANDA with at least one PIV certification on

the first day. See SHASHANK UPADHYE, GENERIC PHARMACEUTICAL PATENT AND FDA LAW § 13:16

(2010 ed. 2010) (observing that it may be “fruitful to file the ANDA with at least one Paragraph IV

certification to reserve [the] right to convert any Paragraph III certifications to Paragraph IV later on”). 

35 An advantage of studying decision-making for challenges of patents covering NCEs is that because the

challenges leading to shared exclusivity generally occur at a consistent time after NDA approval,

comparisons of sales levels and other factors that may reflect the attractiveness of a drug for a patent

challenge are standardized with respect to the stage of a brand’s life cycle.

134

such a filing is allowed.33 

Since 2003, the FDA has required the sharing of 180-day exclusivity among all filers that

make a PIV certification on the first day.34 This sharing of exclusivity should reduce a generic

firm’s return on a patent challenge, similar to the sharing of exclusivity with an AG. 

Accordingly, we have analyzed first-day Paragraph IV certifications for drugs with NCE

exclusivity as a model of generic company decision-making under circumstances when shared

exclusivity with a competitor is likely.35

Although shared exclusivity among first-day ANDA filers could substantially reduce the

revenues available to any given filer, first-day PIVs have become common. Generic companies’

willingness to make PIV certifications under circumstances in which they likely will share

exclusivity with other ANDA filers provides further evidence that they may be willing to

challenge patents notwithstanding potential AG competition.

Figure 7-5 presents data on the extent to which ANDAs with PIV certifications were filed

on the first possible day for NCE drugs between 2002 and 2008, a period that includes about a

year and a half before the implementation of shared exclusivity in 2003. The number of NCE

drugs eligible for challenge, those for which four years had elapsed since NDA approval, varied. 

The number of eligible NCEs was highest in 2002-2003, when there were 17-19 such drugs per

year. From 2004 through 2008 the number was lower, ranging from nine to twelve per year. 

Because of this variation, Figure 7-5 presents the data in both numerical and percentage form.
36 The increase in first-day challenges may reflect the added certainty, with shared exclusivity, that any

given first-day filer will be permitted to participate in the exclusivity period. The gradual nature of the

135

Figure 7-5: NCE Drugs with a Paragraph IV Certification

 Filed on the First Possible Day

0

2

4

6

8

10

12

14

16

18

2002 2003 2004 2005 2006 2007 2008

Number of NCE Drugs

0%

20%

40%

60%

80%

100%

1st-Day PIV filed No 1st-Day PIV filed Percentage of NCEs with 1st-Day PIV Filing

Numbers of drugs with NCE exclusivity for which an ANDA with a

Paragraph IV certification was filed on the first day such a filing is

allowed (after four years of NCE exclusivity have elapsed). The

figure also shows the percentage of NCE drugs for which an

ANDA with a Paragraph IV certification was filed on the first

possible day. The figure includes all patent-protected drugs for

which four years of NCE exclusivity elapsed between Jan. 1, 2002

and Dec. 31, 2008.

First-day patent challenges were relatively uncommon at the beginning of the period

under study, and became more frequent at the end. Although many NCEs covered by patents

were available for challenge in 2002–2003, most did not draw Paragraph IV certifications on the

first day. Only one out of 17 faced a first-day challenge in 2002, and seven out of 19 in 2003. 

From 2004 through 2007, the number of NCE drugs subject to a first-day challenge ranged from

three to five per year, and eight such challenges occurred in 2008. While 12–16 NCEs per year

were not subject to a first-day patent challenge in 2002 and 2003, only three did not experience

such a challenge in 2008. 

Accordingly, the percentage of NCEs subject to an ANDA with a first-day PIV

certification rose from a low of 6% in 2002 to 27–45% in 2003–2007, and reached a high of 73%

in 2008.36 While the yearly sample size is small, the data suggest that the possibility of sharing
increase likely reflects the time required for generic companies to take advantage of the broadened

opportunity for sharing exclusivity by developing and filing ANDAs for NCE drugs for which firstday filing opportunities were approaching. 

37 The number of first-day ANDAs with a PIV certification is based on the number of apparent first-day

ANDAs in the FDA’s application databases. Because the FDA may not deem all such filings as

“substantially complete” or approvable, these numbers should be considered estimates of the number

of companies that will compete during exclusivity. See infra Appendix H, Section X.

38 The companies likely anticipated that they would share 180-day exclusivity with several other first-day

filers. Although ANDA filings are confidential, firms would be aware of the prospect of sharing

exclusivity, both because of such sharing for a few NCEs for which generic entry already has occurred

(e.g., Protonix), and because of court documents and other sources that indicate that many companies

undertake first-day challenges. See, e.g., Company Document (“CD”), Dec. 8, 2004 (“NCE-1 products

136

exclusivity has not deterred generic companies from making patent challenges.

Furthermore, as shown in Table 7-5, the average number of first-day patent challenges

for a given NCE was particularly high in most years beginning in 2005.37 That year recorded an

average of eleven ANDAs with first-day PIV certifications per NCE, and the numbers were also

relatively high in 2007 and 2008; some NCEs have been subject to as many as sixteen first-day

ANDAs with PIV certifications.

Table 7-5: Mean Number of ANDAs with PIVs Filed on the First Possible Day, Per NCE 

Year Mean Number of First-Day

PIV ANDAs Per NCE

2002 4.0

2003 3.0

2004 3.3

2005 11.0

2006 4.0

2007 8.8

2008 5.8

For patent-protected drugs for which four years of NCE

exclusivity elapsed between Jan. 1, 2002 and Dec. 31, 2008, the

table reports the mean number of ANDAs with Paragraph IV

certifications filed on the first day such filing was allowed. The

table does not include NCEs for which no ANDA was filed on the

first day. 

The data in Table 7-5 and Figure 7-5 indicate that companies have been willing to

undertake patent challenges despite the known likelihood of sharing 180-day exclusivity with

other ANDA filers.38 By analogy, the data provide some indication that companies may be
now have shared exclusivity in most cases”); Sara Stefanini, The Best and Worst Patents for Generics

To Fight, IP Law360, at 1, 4, May 6, 2008 (“People are going to be filing on that four-year date, and

everybody knows that everybody is going to file . . . .”).

137

willing to undertake patent challenges despite the prospect of sharing exclusivity with an AG.

IV. Conclusion

Analysis of a number of measures of the frequency and scope of challenges to

pharmaceutical patents suggests that patent challenges continue to be induced for most drugs,

even though AGs substantially diminish generic revenues during 180-day exclusivity. Despite

concerns that challenges to patents on small-market drugs might be inhibited, such challenges do

occur, and the surge in AG marketing has not been accompanied by any observed increase in the

sales level of drugs for which patents are challenged. 

In addition, the number of ANDAs with Paragraph IV certifications rose dramatically in

recent years, and the number of drugs with such certifications also increased. By contrast,

generic companies rarely have chosen to wait until patent expiration to enter the market; drugs

for which only ANDAs with Paragraph III certifications are filed have been very uncommon in

recent years. And even at the lowest sales levels, the number of Paragraph IV drugs greatly

exceeds the number of Paragraph III drugs. Moreover, examination of the analogous situation

posed by first-day Paragraph IV certifications for new chemical entities, for which the generic

company is likely to share exclusivity with other ANDA applicants, suggests that generic

companies are nonetheless willing to undertake patent challenges. Thus, a variety of findings

point to the conclusion that generic firms continue to bring patent challenges for most drugs,

even though AGs are now common.

1 See, e.g., CONG. BUDGET OFFICE, HOW INCREASED COMPETITION FROM GENERIC DRUGS HAS

AFFECTED PRICES AND RETURNS IN THE PHARMACEUTICAL INDUSTRY 31 (1998),

http://www.cbo.gov/ftpdocs/6xx/doc655/pharm.pdf.

2 In some cases, the brand appoints the generic to distribute the brand’s AG during the 180-day period

of marketing exclusivity. In such circumstances, there is still no competition between an ANDAgeneric’s product and a brand’s AG.

139

CHAPTER 8: THE USE OF AUTHORIZED GENERICS IN PATENT

LITIGATION SETTLEMENT AGREEMENTS

As reported in Chapter 3, AG competition typically reduces an ANDA-generic’s revenues

during the 180 days of marketing exclusivity by approximately 50 percent. To prevent this loss of

revenue, the ANDA-generic may be willing to delay its entry in return for a brand’s agreement not

to launch an authorized generic during the generic’s 180 days of marketing exclusivity. 

Such agreements can harm consumers in two ways:

 First, generic entry, and the accompanying discounts, would not be

available to consumers as soon as otherwise would be the case. Because

generic drugs often are priced substantially below the price of brand-name

drugs,1

 overall prescription drug costs could be significantly higher with just

a few additional months without generic competition in a large market.

 Second, consumers would lose the benefit of additional price discounting

resulting from AG competition during the 180-day marketing exclusivity, as

discussed in Chapter 3, Section III.A. This consumer harm arises because

the brand has agreed not to compete against the ANDA-generic during the

exclusivity period, i.e., from the absence of competition between the AG

and the ANDA-generic.2

Analysis shows:

 About one-quarter (75 out of 333) of the final patent settlements filed with

the FTC under the Medicare Prescription Drug, Improvement, and

Modernization Act of 2003 (“MMA”) between FY 2004 and 2010 contained

provisions that involved AGs in ways that raised potential competitive

concerns. 

 Of the 333 final patent settlements filed during this period, 157 were with
3 In this chapter, when used in the context of categorization of an agreement, a “first-filer” is defined as

a generic entitled to 180 days of marketing exclusivity at the time of the settlement agreement. Under

some circumstances, there can be competition from other first-filers during the 180-day exclusivity

period. See 21 U.S.C. § 355(j)(5)(B)(iv)(II)(bb) (2010) (providing that exclusivity may be shared by

applicants filing on the same day). 

140

first-filer generics.3

 About one-quarter (39 out of 157) of those involved (1)

an explicit agreement by the brand not to launch an AG to compete against

the first-filer, combined with (2) an agreement by the first-filer generic to

defer its entry. On average, the entry date specified in the agreement was

37.9 months after the settlement date. 

" Annual brand sales of the affected products ranged from $7.1

million to $5.3 billion, with an average market size of $616 million

and a median market size of $245 million. Seven settlements

covered products with annual brand sales between $1 billion and

$5.3 billion. 

" Over the seven years studied, settlements that combined deferred

entry with “No AG” promises governed the sales of drugs with a

total market exceeding $23 billion.

This chapter describes and analyzes the various types of agreements that involved AGs in ways

that raised potential competitive concerns.

I. The Problem of Anticompetitive Brand-Generic Patent Settlement Agreements

Under Hatch-Waxman, patent litigation between a brand and a generic typically occurs

when a generic seeks entry prior to expiration of the patents on a corresponding brand-name drug

by alleging that such patents are invalid or not infringed by the generic’s drug product. The

parties often settle rather than litigate the case to its conclusion. Such settlements do not

necessarily raise concerns under the antitrust law. For example, if the brand and generic settle the

litigation simply by agreeing on a time for generic entry that is prior to patent expiration but later

than immediate entry without any compensation, such a settlement most likely reflects the parties’

views on the likelihood of success of their respective patent challenges and patent defenses, as

well as their respective tolerances for risk. These types of simple settlements, with no other

provisions, generally do not raise competition concerns.

Settlements in this context can raise serious competition concerns, however, when they

involve compensation from the brand to the generic to delay generic entry beyond the time of a

simple compromise date along the lines described above (hereinafter, the “simple compromise

date”). The FTC has challenged a number of these settlements as anticompetitive. Such
4 Pursuant to settlement, a generic company may pay a royalty to the brand to gain an earlier entry date

than it would get by compromising on the date alone, while an exclusion payment – a payment from

the brand to the generic – buys a later entry date. See Alden F. Abbott & Suzanne T. Michel, The

Right Balance of Competition Policy and Intellectual Property Law: A Perspective on Settlements of

Pharmaceutical Patent Litigation, 46 IDEA 1, 14 (2005). 

5 H.R. Rep. No. 98-857(I), at 14, 28 (1984), reprinted in 1984 U.S.C.C.A.N. 2647, 2647, 2661. 

Although initial judicial reactions reflected concern with such arrangements, see In re Cardizem CD

Antitrust Litig., 332 F.3d 896, 908 (6th Cir. 2003), subsequent appellate rulings adopted a far more

permissive position. See Ark. Carpenters Health & Welfare Fund v. Bayer AG (In re Ciprofloxacin

Hydrochloride Antitrust Litig.), 544 F.3d 1323, 1336 (Fed. Cir. 2008), cert. denied, 129 S.Ct. 2828

(2009); Ark. Carpenters Health & Welfare Fund v. Bayer AG, 604 F.3d 98 (2d Cir. 2010), cert.

denied, 131 S.Ct. 1606 (2011); Joblove v. Barr Labs., Inc. (In re Tamoxifen Citrate Antitrust Litig.),

429 F.3d 370 (2d Cir. 2005), amended by, 466 F.3d 187 (2d Cir. 2006); Schering Plough Corp. v.

FTC, 402 F.3d 1056 (11th Cir. 2005). Other cases remain in litigation. See King Drug Co. of Florence

v. Cephalon, Inc., 702 F. Supp. 2d 514 (E.D. Pa. 2010) (denial of motion to dismiss); FTC v. Watson

Pharms., Inc., No. 10-12729-DD (11th Cir. first notice of appeal of dismissal filed June 10, 2010); In

re K-Dur Antitrust Litig., Nos. 10-2077, -2078, -2079, -4571 (3d Cir. first notice of appeal filed Apr.

30, 2010).

6 In FY 2010 there were 31 final settlements filed under the MMA that involved compensation to the

generic patent challenger and an agreement by the generic firm to refrain from launching its product

for some period of time. BUREAU OF COMPETITION, FED. TRADE COMM’N, AGREEMENTS FILED WITH

THE FEDERAL TRADE COMMISSION UNDER THE MEDICARE PRESCRIPTION DRUG, IMPROVEMENT, AND

MODERNIZATION ACT OF 2003: OVERVIEW OF AGREEMENTS FILED IN FY 2010 (2011),

http://www.ftc.gov/os/2011/05/1105mmaagreements.pdf. These agreements involved 22 different

brand-name drugs with combined annual U.S. sales of $9.3 billion. Id.

141

settlements, known as “exclusion payment” or “pay-for-delay” settlements,4

 thwart the goal of the

Hatch-Waxman Amendments to encourage generic companies to challenge questionable patents

and promptly “make available more low cost generic drugs,” while simultaneously protecting

legitimate patent claims covering innovator drugs.5 Settlements potentially raising “exclusion

payment” issues are now common.6

 Congress is now considering a variety of legislative proposals

regarding “pay-for-delay” settlements, and the Commission supports restricting such settlements.

In recent years, a number of brand-generic patent settlement agreements filed under the

MMA appear to use provisions relating to authorized generics – instead of direct monetary

payments – to compensate a generic in return for a generic’s agreement to delay its entry beyond

the simple compromise date. Moreover, material produced in connection with the FTC’s study of

authorized generics confirms that a brand-name company may agree to refrain from offering a

competing AG to maximize the net present value of both the brand-name and generic products. 

Documents from a brand-name firm show how an agreement not to compete with an AG increases

the revenues of both the brand-name and generic companies. The brand-name company’s

revenues increase because generic entry and the accompanying drop in brand revenues occur later

than they would without the brand’s promise not to market an AG; the generic’s revenues increase
7 This reflects the fact that competition typically dissipates total profits accruing to suppliers so that the

sum of duopoly profits is less than monopoly profits. See, e.g., Mark A. Lemley & Carl Shapiro,

Probabilistic Patents, J. ECON. PERSPECTIVES, Spring 2005, at 75, 91 n.15.

8 See CD, Oct. 6, 2005 (comparing forecasted net present values for early and late launches, with and

without an AG).

9 This Report cites all agreements arising from settlements or patent litigation, including settlements,

licenses, and supply and distribution agreements as “Settlement Agreements.”

10 Agreements were counted based on the number of New Drug Applications involved in the litigation. 

For instance, if a spray formulation and a tablet formulation of a pharmaceutical involved two NDAs

and both were subject to the litigation, the settlement arrangements were considered two agreements. 

In one agreement included in the total, the brand and a first-filing generic settled their patent dispute

without litigation, with the brand-name firm promising not to offer AG competition for a period of

time.

11 Examples of the types of agreements omitted from this total include agreements that precluded launch

of an AG by a third party but allowed the brand to launch an AG and agreements that specified that the

generic could accelerate its entry upon launch of an AG but had no other provisions regarding AGs. 

142

because its ANDA-generic product does not face competition from an AG.7

 Indeed, the brandname company’s documents show that if it launched an AG to compete with the first-filer generic

during its 180 days of marketing exclusivity, the net present value of the generic’s product would

decline by nearly a third. If, however, the brand agreed not to offer an AG, and the generic agreed

to further delay its entry in exchange for that agreement, the combined net present value of both

companies’ products would be maximized.8 Thus, the company’s documents confirm that a “No

AG” provision can serve to compensate a generic for delaying entry. Indeed, “No AG”

agreements may be simply another form of pay-for-delay in which the compensated-for deferral of

generic competition benefits the settling companies at the expense of consumers.

The combination of documents such as this, along with the proliferation of MMA filings

containing provisions relating to AGs, prompted staff to examine the role of AGs in HatchWaxman settlements.9

II. The Possible Use of AGs to Compensate Generics for Deferring Generic Entry

A. Agreements Involving AGs

To examine the role of AGs in Hatch-Waxman settlements, staff categorized the final

patent settlement agreements that the FTC has received under the MMA for fiscal years 2004

through 2010, along with one additional agreement received outside the MMA framework.10

Seventy-five final patent settlement agreements from FY 2004 through FY 2010 contained

provisions that involved AGs in ways that raised potential competitive concerns.11 These

agreements fall into four basic categories:

(1) For the product whose patents are being litigated by the brand and the generic, the

brand expressly agrees not to use an AG to compete against the first-filer generic
143

for a period of time, and the generic agrees to defer entry (39 agreements);

(2) For the litigated product, either (a) there is no explicit promise not to compete, but

the agreement creates incentives discouraging the brand from launching an AG that

would compete against the first-filer (11 agreements), or (b) the brand explicitly

agrees not to engage in AG competition, but the generic is not eligible for the 180-

day exclusivity period (5 agreements); 

(3) For the litigated product, the brand appoints a subsequent-filer generic as an AG

marketer in competition with the first-filer (8 agreements); or

(4) For a different product – one that was not the subject of the underlying patent

litigation – the brand appoints the generic as the AG marketer (12 agreements). 

Figure 8-1 breaks down these agreements by type of AG provision.
75 Final Patent Settlements 

Involving Authorized Generics

Brand 

Grants Generic 

Exclusive License

Brand Agrees to 

Exclusively Supply 

Generic

Figure 8-1: Overall Breakdown of Final Patent Settlement Agreements

Involving Provisions on Authorized Generics: Fiscal Years 2004-2010

12 27

Brand Promises FirstFiler not to Compete with 

AG on Litigated Product1

39

Other Promises by Brand 

Limiting AG Competition 

on Litigated Product

Brand Appoints 

Subsequent Filer as AG 

on Litigated Product2, 3

Brand Appoints 

Generic as AG on 

Another Product

Incentive for Brand not to 

Compete with AG

Generic not 

Eligible for 180-

Day Exclusivity

5 11

16 8 12

1. Eight of these agreements also involve the brand appointing the generic as an AG on another product, 

and are not counted in the 12 agreements in that category.

2. One of these agreements also involves the brand appointing the generic as an AG on another product, 

and is not counted in the 12 agreements in that category.

3. Only agreements providing for the marketing or possible marketing of an AG by a subsequent filer 

during a first-filer’s 180-day exclusivity are included. Nine other agreements with subsequent filers provided for the marketing of an AG, but only after the expiration of 180-day exclusivity.

 144
12 A brand can compete with an AG either by launching it on its own or by authorizing another firm to

market the AG. See supra Chapter 2, Sec. I.B.2. An explicit commitment not to compete can take

different forms, for example, the brand company’s granting the first-filer an exclusive license to a

generic version of the brand. In these settlements, the brand agreed not to launch or sponsor its AG in

competition with the first-filer’s generic product for some period of time.

13 Hatch-Waxman rewards the first-filer to challenge a brand-name drug patent with 180 days of market

exclusivity, and bars the FDA from approving any later applicants until the period has expired or been

forfeited. Thus, an agreement with a first-filer that defers entry may create a “bottleneck,” blocking

the approval of subsequently filed ANDAs. See FED. TRADE COMM’N, GENERIC DRUG ENTRY PRIOR

TO PATENT EXPIRATION ch. 5 (2002), www.ftc.gov/os/2002/07/genericdrugstudy.pdf. Congress

amended Hatch-Waxman in 2003 to provide that first-filers forfeit their exclusivity under certain

circumstances, but even with the amendments, settlement agreements still have significant potential to

create bottlenecks that block subsequent applicants. See Protecting Consumer Access to Generic

Drugs Act of 2009: Hearing on H.R. 1706 Before the Subcomm. on Commerce, Trade, and Consumer

Protection of the H. Comm. on Energy and Commerce, 111th Cong. (2009),

http://www.ftc.gov/os/2009/03/P859910payfordelay.pdf (prepared statement of the FTC) (forfeiture

provisions of the MMA do not relieve bottleneck when a first generic applicant enters a settlement

agreement with the brand-name company and there is no court decision of invalidity or noninfringement); see also Letter from Gary J. Buehler, Dir., Office of Generic Drugs, U.S. Food and

Drug Admin., to Marc A. Goshko, Executive Dir., Teva Parenteral Medicines, regarding Docket No.

2007N-0389, at 5 n.6 (Jan. 17, 2008), http://www.fda.gov/ohrms/dockets/DOCKETS/07n0389/07n0389-let0003.pdf (noting that when a first-filer enters a settlement agreement without a final judgment

of invalidity or non-infringement, the “inability to force a forfeiture of 180-day exclusivity could result

in delays in the approval of otherwise approvable ANDAs”).

145

B. Type (1) Agreements: Explicit Commitments Not to Compete with an AG

Thirty-nine settlement agreements with a first-filer during the period between FY 2004 and

FY 2010 involved an explicit commitment by the brand not to use an AG to compete with the

first-filer for all or some portion of the first-filer’s 180 days of marketing exclusivity, combined

with a restriction on the generic’s ability to market its product.12 Agreements with first-filers are

particularly attractive to the brand because the actions of the first-filer may substantially affect the

timing of generic competition.13 As noted above, Type (1) agreements may be based on a promise

by the generic to delay entry, which increases the period of time that consumers are deprived of

the benefits of brand-generic competition. In addition, such agreements also deprive consumers of

AG-ANDA competition whenever generic competition does begin for the litigated product.

These thirty-nine settlements involving explicit brand promises to refrain from marketing a

competing AG for at least some period during the exclusivity were not evenly distributed over the

seven-year period. Like other settlements potentially involving pay-for-delay, “No AG”

agreements have become commonplace. Of the 39 agreements from FY 2004 to FY 2010, 24

were made between FY 2004 and FY 2009 (an average of four per year), while 15 were in FY

2010. The 15 agreements in FY 2010 in which brand-name firms agreed not to introduce an AG

were nearly 60% of the 26 agreements that year containing payments to a first-filer and a

restriction on that firm’s ability to market its product. “No AG” agreements thus have become a
14 See infra note 16 (discussing why restrictions on AG marketing usually do not exceed 180 days).

146

recognized mode of compensation to generics for restrictions on entry. Figure 8-2 presents the

data for each fiscal year.

Figure 8-2: No Authorized Generic Promises in 

Brand/First-Filer Patent Settlement Agreements

0

2

4

6

8

10

12

14

16

2004 2005 2006 2007 2008 2009 2010

Year of Settlement

The detailed terms of settlements involving a restriction on the first-filer’s ability to market

its product and an explicit promise by the brand not to launch or sponsor an authorized generic

varied.

 Slightly more than two-thirds – 27 out of 39 – allowed the generic to offer its own

product without facing competition from the brand’s AG for some period of time. 

In the other twelve cases, either the brand agreed exclusively to supply the generic

with the AG, or the generic could choose whether to market its own product or the

AG. In either case, the result would be no competition between an AG and the

first-filer’s generic product for a certain period of time.

 The length of time during which the brand agreed not to launch or sponsor an AG

ranged from 10 days to 45.5 months. The average length of the restriction on the

brand’s ability to offer a competing AG was 9.6 months, and the median was six

months. Indeed, for about half of the agreements (20 out of 39), the restriction was

six months, i.e., the length of the 180-day exclusivity period.14
15 All sales figures are for the full calendar year prior to the settlement agreement or for the last full year

prior to generic entry. The annual sales data are from IMS Health, IMS National Prescription Audit

Plus 7TM, Years 2003 to 2008, Data Extracted January 2009; and from Top 200 Drugs for 2009 by

Sales, http://www.drugs.com/top200.html (last visited June 2, 2011). In one instance, when IMS data

for the product at issue were unavailable, information was drawn from Top 200 Drugs for 2005 by

Sales, http://www.drugs.com/top200_2005.html (last visited June 19, 2009). In another instance, sales

information was obtained from a press release. Sales information could not be obtained for one drug

with an agreement in FY 2010. Accordingly, total, average, and median market size were calculated

on the basis of 38 drugs (14 for 2010). 

16 In large markets, a restriction on AG marketing of more than 180 days likely provides little benefit to

either of the settling parties; longer restrictions keep the brand from selling its AG in a valuable

market, but probably provide little compensation to a first-filer because many ANDA-generic

competitors are likely to enter upon the expiration of exclusivity. 

147

 Brand-name sales of the affected products ranged from $7.1 million to $5.3 billion,

with average market sales of $616 million and median market sales of $245

million.15 Seven settlements between FY 2004 and FY 2010 covered products with

annual sales between $1 billion and $5.3 billion. Over the seven years studied,

settlements that combined deferred entry with “No AG” promises governed the

sales of drugs with a total market exceeding $23 billion. In 2010 alone, such

settlements involved drugs with a total market size of $4.6 billion. 

 Many agreements not to offer a competing AG governed products with relatively

low sales; a few of these precluded a competing AG for two years or more. In

larger markets, the restriction on AG competition rarely lasted more than six

months.16 Figure 8-3 plots the duration of agreements not to offer competing AGs

against sales levels.
17 Under four such settlements, the agreed-upon entry date gave the brand the entire length or nearly the

entire length of a composition of matter patent covering the drug. Another provided for entry six

months before expiration of the only listed patent, which had claims to a method of use. Another

settlement barred entry until 6–8 months before expiration of late-issued patents confined to a single

form of the drug’s active ingredient.

148

Figure 8-3: Final Patent Settlement Agreements with First-Filers

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

0 5 10 15 20 25 30 35 40 45 50

Length of Promise Not to Launch Generic (Months)

Sales (Millions of U.S. Dollars)

 The length of time between the settlement and the date when generic entry was

allowed to commence ranged from 0.75 months to 101.75 months. For 12

products, the time from settlement to allowable entry was more than four years.17

Under the terms of 17 agreements, generic entry was prohibited for at least three

years. The average interval from settlement to allowable generic entry was 37.9

months, and the median was 31.3 months. 

Eight of the Type (1) agreements filed under the MMA also included an additional AG

provision, providing for AG competition on a different product (that is, not the product at issue in

the underlying patent litigation). In these agreements, the brand agreed not to compete with an

AG against the first-filer’s generic product, and in addition the brand contracted with that generic

firm to market an AG version of a different product. Such agreements typically offer the generic a

certain percentage of the revenues from sales of the AG for the other product.

These revenues can provide additional value to persuade a generic to delay its entry on the

litigated product. For example, in one situation a brand allowed the generic to launch the AG for

the product strength for which the generic was not the first-filer, in addition to agreeing that the
18 See, e.g., Settlement Agreement, 2005 (entry on low-sales product, about 2 months after settlement;

on blockbuster product, more than 3 years ); Settlement Agreement, 2005 (entry on low-sales product,

about 7 months after agreement; on blockbuster product, nearly 5 years); Settlement Agreement, 2008

(products with similar sales, one with entry about one week after execution of the agreement, the other

about 3 years). For these agreements, both products contain the same active ingredient, i.e., one is a

line extension of the other, and the generic was the first-filer for both products.

19 To avoid double counting, four agreements with declining royalties after expiration of an explicit “No

AG” provision are not included in the eleven Type (2) agreements.

149

brand would not market a competing AG for the strengths for which the generic was the first-filer. 

This agreement ensured that the generic would have sole 180-day exclusivity on the two strengths

for which it was the first-filer and that it could compete with the company that was the first-filer

on the third strength during that first-filer’s 180-day exclusivity. Thus, the settling generic would

be able to enter at the time of generic entry for each of the three strengths, giving it a competitive

advantage relative to the first-filer on the third strength, which was required to wait until 181 days

after generic entry to launch the two strengths for which it was not the first-filer.

Another arrangement found in several Type (1) agreements involves drugs with two dosage

forms; the generic is allowed to enter shortly after settlement with an AG or ANDA-generic

version of one product, but entry is deferred on the other. The second product usually has much

higher sales.18 Such a package of commitments could induce the generic to defer entry on the

higher-sales product by promptly providing it with revenues on the lower-sales product and

shielding it from a competing AG with respect to one or both of the products. 

C. Type (2) Agreements: Other Promises by Brands Limiting AG Competition on

the Litigated Product

Type (2) agreements encompass two categories of AG provisions that in some cases may

operate in a manner similar to Type (1) “No AG” arrangements. The effect of these agreements,

however, is more difficult to determine from the face of the agreement alone. First, in eleven

agreements there was no explicit brand promise to a first-filer to refrain from marketing a

competing AG, but there were provisions that could create an incentive for the brand not to market

a competing AG. These provisions either provided that royalties due to the brand would drop

significantly if the generic faced competition on the drug at issue within a specified period of time

or appeared otherwise to discourage the brand from offering a competing AG.19 These agreements

effectively could operate as promises by the brand not to launch or sponsor an AG for a period of

time. 

The second category of Type (2) agreements consists of five agreements that contain an

explicit promise by the brand not to compete with an AG, but (unlike the Type (1) agreements) at

the time of settlement the generic did not have the right to 180-day exclusivity. In some instances,

the generic was pursuing approval under a regulatory framework that does not provide a 180-day
20 One ANDA was ineligible for 180-day exclusivity because the applicant made a “Section viii”

statement explaining that it did not seek approval for a patented use. See 21 U.S.C.

§ 355(j)(2)(A)(viii); Purepac Pharma. Co. v. Thompson, 354 F.3d 877, 880 (D.C. Cir. 2004) (“a

section viii does not entitle a successful applicant to the 180-day period of exclusivity bestowed on

paragraph IV applicants.”). Another application was an NDA approved under Section 505(b)(2) of the

Federal Food, Drug, and Cosmetic Act, 21 U.S.C. § 355(b)(2), which does not provide for 180-day

exclusivity.

21 The eight Type (3) agreements include only those that provide for the marketing or possible marketing

by a subsequent filer of an AG during the first-filer’s 180-day exclusivity period. Nine other

agreements provided for the marketing of an AG by a subsequent filer, but only after the expiration of

180-day exclusivity.

22 Under the original provisions of the Hatch-Waxman Act, a victory by a subsequent filer triggered the

first-filer’s exclusivity, allowing the FDA to approve the subsequent filer’s ANDA 180 days later. 21

U.S.C. § 355(j)(5)(B)(iv)(II) (2000). This court-judgment trigger has been eliminated and does not

apply to ANDAs filed after December 8, 2003.

150

exclusivity period.20 In others, the generic had forfeited its exclusivity, selectively waived its

exclusivity in favor of a business partner, or settled after having triggered its exclusivity by an atrisk launch. The impact of the “No AG” provisions in these situations is less predictable than in

Type (1) settings. But in some cases an inquiry into the surrounding facts might reveal an effect

similar to the Type (1) scenario because no other generic rivals were in a position to compete. For

example, in one instance the first-filer no longer had the right to exclusivity because it had waived

its rights to another generic with which it had a contractual relationship. The settlement agreement

indicated that the parties expected that the latter firm would be the only competitor during the 180-

day period. 

D. Type (3) Agreements: Brand Appoints a Subsequent Filer as an AG for the

Litigated Product

From FY 2004 through FY 2010, there were eight Type (3) settlement agreements

providing for the marketing or possible marketing of an AG version of the litigated product by a

subsequent filer during the first-filer’s 180-day exclusivity.21 If the brand-name company would

have marketed the authorized generic (by itself or with another distributor), the settlement does not

alter the competitive dynamic. These agreements raise complex issues. If no AG otherwise would

have been marketed, such agreements have the potential to reduce prices to consumers through

AG competition during the 180-day exclusivity period. At the same time, they might prolong the

period without generic competition by affecting the timing of generic entry by the first-filer.

One way that an agreement with a subsequent filer could affect the timing of generic entry

is by eliminating a patent challenge that could have precipitated generic competition. By

continuing to litigate, a subsequent filer might obtain a court decision of patent invalidity that

would allow the first-filer to market its product,22 or a court decision of invalidity or non-
23 Pursuant to amendments contained in the MMA, a final court decision is a forfeiture event: if the firstfiler does not launch its product within 75 days of a court decision, it forfeits its exclusivity, and the

FDA is permitted to approve subsequent filers. See 21 U.S.C. § 355(j)(5)(D); Caraco Pharm. Labs. v.

Forest Labs., 527 F.3d 1278, 1284–88 (Fed. Cir. 2008). 

24 Caraco, 527 F.3d at 1284.

25 Under these agreements, the brand retains the ability to offer a “No AG” promise to the first-filer,

which could act as an incentive for the first-filer to settle and defer entry. 

26 Absent a settlement between the first-filer and the brand, the agreement allows the subsequent filer to

launch the AG on the day the first-filer launches its ANDA-generic product following a final court

decision of patent invalidity, unenforceability, or non-infringement. See Settlement Agreement, 2006.

27 See Settlement Agreement, 2006 (appointing the first-filer the exclusive AG distributor for 180-days

but requiring the brand to supply the AG only if the first-filer was unable to obtain final FDA approval

of its ANDA).

151

infringement that would trigger the first-filer’s exclusivity period or its forfeiture.23 The Federal

Circuit has recognized that brand-name companies may seek to settle with subsequent filers

because brand-name firms “have a strong incentive to avoid litigation that would trigger the first

Paragraph IV ANDA filer’s exclusivity period and allow the FDA to approve subsequent . . .

ANDAs 181 days” thereafter.24

Agreements with subsequent filers also might affect the timing of generic entry through

provisions that make the subsequent filer’s right to market an AG during the first-filer’s 180-day

exclusivity contingent on whether the first-filer launches at risk or has not settled its litigation with

the brand. Such agreements allow the subsequent filer to market an AG for the litigated product

during the first-filer’s exclusivity, but only if the first-filer launched at risk or had not settled its

litigation. Otherwise, the subsequent filer can market the AG 181 days after the first-filer’s

launch. By ensuring that the relevant terms, though normally kept confidential, become known by

the first-filer, the brand-name firm may induce the first-filer to delay entry, in order to avoid

triggering the subsequent filer’s right to enter as an AG during the first-filer’s 180 days of

marketing exclusivity.25 The first-filer could settle the lawsuit, accepting delayed entry to avoid

AG competition, or it could refrain from launching at risk.

Four of the eight Type (3) agreements with subsequent filers were of this type. For

example, one agreement provided that if the first-filer launched its ANDA-generic product without

settling with the brand, the subsequent filer would be allowed to market the AG during the firstfiler’s 180-day exclusivity.26 However, if the first-filer settled with the brand and launched its

ANDA-generic pursuant to a license under the brand’s patents, the subsequent filer could not

market the AG until 181 days after the first-filer’s launch. The brand and the first-filer

subsequently entered a settlement that deferred ANDA-generic entry for about three years and

confirmed that the first-filer would not face a competing AG during its 180-day exclusivity.27

Firms can make the terms of agreements with subsequent filers known to the first-filer

through a variety of means – by publicly announcing the relevant terms of the agreement; by using
28 See infra note 30 and accompanying text. 

29 For most of these agreements, the other product is a different drug (NDA), but for three agreements,

the other products are dosage strengths of the litigated drug that were not at issue in the litigation. For

two other agreements, the other products are future dosage strengths of the litigated drugs for which

the brand had requested FDA approval. In addition to the twelve Type (4) agreements appointing the

generic as the AG for another product, four Type (1) agreements and one Type (3) also contained such

provisions.

30 See Settlement Agreement, 2008 (allowing launch during 180-day exclusivity if the first-filer launches

at risk, but not if the first-filer defers entry until after a decision by a court of appeals). This agreement

was made publicly available in the brand-name firm’s 8-K filing with the Securities and Exchange

Commission. For further discussion of these issues, see FED. TRADE COMM’N, AUTHORIZED

GENERICS: AN INTERIM REPORT ch. 2, sec. III.B (2009),

http://www.ftc.gov/os/2009/06/P062105authorizedgenericsreport.pdf. 

152

the agreement as a tool in settlement negotiations with the first-filer; or even by making the

agreement available in a public forum. Indeed, a similar agreement was made publicly available

in the brand-name firm’s 8-K filing with the Securities and Exchange Commission.28

E. Type (4) Agreements: Brand Appoints Generic as AG on Another Product

In twelve agreements, the brand appointed the generic as the AG marketer for another

product.29 If the brand-name company would have marketed an AG on the other product

regardless of the settlement, the settlement would not affect the competitive dynamics. Type (4)

agreements, however, can provide AG competition, and lower prices, when there is a 180-day

marketing exclusivity period for another product – not the product whose patents are being

litigated by the brand and generic – and the brand would not otherwise have marketed an AG. At

the same time, if the generic is a first-filer on the litigated product, the agreement may serve to

compensate the generic for delaying its entry on that product. Thus, Type (4) agreements can act

as “side-deals” to compensate a generic for deferring entry on the litigated product. Also, a Type

(4) agreement might affect the timing of generic entry for the other product in a manner similar to

a Type (3) agreement by making the settling generic’s right to market an AG of the other product

during the exclusivity period of the first-filer for that product contingent on whether the first-filer

launches at risk or has not settled with the brand.30 

III. Conclusion

A review of recent brand-generic settlements reveals that agreements not to compete with

ANDA-generics through an AG have become a recognized mode for a brand to provide

compensation to generics and, therefore, can be used as exclusion payments in patent settlement

agreements. The empirical analyses in Chapters 3 and 6 suggest that the probable presence of

AGs is likely to reduce the compensation a first-filer can command because it will anticipate

considerably lower revenues when facing AG competition; such revenue impacts are well known

to both brand-name firms and their generic rivals. A promise not to launch an AG could be an

attractive and convenient way to transfer the value of this revenue impact from the brand to the
153

first-filer; negotiations over terms may be particularly easy because the cost to the brand and the

benefit to the generic are proportional to the size of the market and estimable by both. However,

numerous alternative forms of compensation exist, so it is likely that alternative settlement terms

could be reached in many circumstances, even if the parties could not have used a “No AG” clause

as a form of compensation. Any restrictions on pay-for-delay agreements should account for all

viable forms of brand-generic payments to delay entry, including an agreement not to compete

with an AG.

A-1

APPENDIX A LETTER FROM SENATORS LEAHY, GRASSLEY, AND

ROCKEFELLER

May 9, 2005

Chairman Deborah Platt Majoras

Federal Trade Commission

600 Pennsylvania Avenue, NW

Washington, DC 20580

Dear Chairman Majoras and Commissioners:

It has come to our attention that the practice of “authorized” generic

drugs may produce anti-competitive results and, thus, present an issue worthy

of study by the Federal Trade Commission.

The amendments to the Hatch-Waxman Act of 1984, enacted as part

of the Medicare Modernization Act (Title XI, PL 108-173), provide that, in

general, a generic company that successfully challenges the patent of a name

brand pharmaceutical company earns 180 days of marketing exclusivity on

that generic drug. The legislation was designed to strengthen incentives for

generic manufacturers to bring generic drugs quickly to market, and thus

promote competition and lower prices for consumers.

We have heard concerns that the practice of “authorized” generics

could have a negative impact on competition for both blockbuster and smaller

drugs, because the generic industry would be less inclined to invest in their

production. Consequently, if the generic industry were to be less incentivized

to produce such generic drugs to compete with name brand drugs, it is

possible that fewer generic drugs would come to market and the prices for

certain drugs would remain high for consumers.

We are interested in determining the short term and long term effects

on competition of the practice of “authorized” generics. Consequently, we

request, pursuant to § 6(b) of the Federal Trade Commission Act, that the

Commission conduct a study on this issue. We ask that this study look into the

short term competitive benefits of introduction of “authorized” generics

during the 180 day market exclusivity period. We also ask that the study look
A-2

into the long term impact of the practice of “authorized” generics on

competition in the drug market and on the price of drugs, as well as on the

viability of the generic drug industry.

If such a study were to prove unfeasible, we hope the FTC will be able

to conduct a workshop on this issue in the near future. If you have any

questions about this request, please feel free to contact Susan Davies of

Senator Leahy's office, Rita Lari Jochum of Senator Grassley's office, or

Jocelyn Moore of Senator Rockefeller's office. They can be reached at (202)

224-7703 (Sen. Leahy), (202) 224-5564 (Sen. Grassley), or (202) 224-6472

(Sen. Rockefeller), respectively.

Sincerely,

PATRICK LEAHY CHUCK GRASSLEY

United States Senator United States Senator

JOHN ROCKEFELLER

United States Senator

cc: Commissioner Pamela Jones Harbour

 Commissioner Thomas Leary

 Commissioner Jon Leibowitz

 Commissioner Orson Swindle
B-1

APPENDIX B LETTER FROM REPRESENTATIVE WAXMAN 

September 13, 2005

Deborah Majoras

Chairman

Federal Trade Commission

600 Pennsylvania Avenue, NW

Washington, DC 20580-0002

Dear Chairman Majoras:

I am writing to request that the Federal Trade Commission conduct a

study pursuant to section 6(b) of the Federal Trade Commission Act on the

impact of so-called “authorized generics” on competition in the prescription

drug marketplace. I recognize that the Commission may also be considering a

workshop on this subject, but rise of authorized generics raises serious

competitive issues and requires a full study.

As you know, authorized generics are generic drugs that enter the

market under aegis of the brand name drug manufacturer. There is evidence

that brand name drug companies are increasingly using authorized generics to

undermine one of the incentives to increase competition created by The Drug

Price Competition and Patent Term Restoration Act of 1984 (Hatch-Waxman

Amendments).

The Hatch-Waxman Amendments provide a special incentive to

generic companies that challenge patents on the brand name drug – in

exchange for undertaking the costs and risks of patent litigation, the

successful challenger is given 6 months of marketing without any other

generic competition. The purpose of this incentive is to encourage challenges

to patents that otherwise would inappropriately block competition. Brand

name companies, however, are now increasingly arranging for authorized

generics to enter the market during the 6-month period of generic exclusivity,

substantially reducing the value of that exclusivity to the generic drug

manufacturer who challenged the patent.

As the Commission has documented, there have been a large number
1 FTC, “Generic Drug Entry Prior to Patent Expiration: An FTC Study,” Chapter 2, July 2002.

2 Id.

B-2

of successful patent challenges since enactment of the Hatch-Waxman

Amendments, bringing generic drugs to market much earlier than would

otherwise have occurred.1

 If the rise in authorized generics causes generic

drug manufacturers to stop challenging patents for certain products, generic

competition will be significantly delayed, and consumers, businesses, and

governments will unnecessarily pay monopoly drug prices for much longer

periods.

In 2002, the Commission issued a landmark report detailing tactics

then being used by the pharmaceutical industry to delay generic competition

months and even years past the time intended by Congress at a cost of billions

of dollars.2

 Congress responded to that study by enacting legislation in 2003,

closing loopholes in the Hatch-Waxman Amendments. I do not believe it is a

coincidence that brand name companies began to exploit the practice of

authorizing generics after the closing of those loopholes.

To follow up on the Commission’s 2002 report, a study on the impact

of authorized generics on competition is urgently needed. Such a study

should examine (1) whether the 6-month exclusivity period provided by the

Hatch-Waxman Amendments to the first generic drug manufacturer to

challenge a patent is a significant incentive for patent challenges; (2) whether

the increasing use of authorized generics has reduced, or is likely to reduce,

the number of patent challenges or to otherwise delay or decrease generic

competition, e.g., by reducing the number of generic drugs brought to market;

and (3) whether prescription drug consumers benefit more from the short-term

competition offered by authorized generics or by the earlier marketing of

generic drugs that are the subjects of successful patent challenges, to the

extent that the 6-month exclusivity is responsible for such challenges.

If you have any questions about this request, please contact Ann Witt

of my staff at (202) 225-3976.

With kind regards, I am

Sincerely,

HENRY A. WAXMAN

Member of Congress
C-1

APPENDIX C LIST OF COMPANIES COVERED BY THE STUDY

Brand Companies

3M Company

Abbott Laboratories

Aqua Pharmaceuticals, LLC

Astellas Pharma US, Inc.

AstraZeneca Pharmaceuticals LP

Bayer HealthCare Pharmaceuticals

Biovail Pharmaceuticals Inc.

Blansett Pharmacal Co., Inc.

Boehringer Ingelheim Corp

Bradley Pharmaceuticals

Bristol-Myers Squibb Company

Celgene Corporation

Cephalon, Inc.

Duramed Pharmaceuticals, Inc. (Barr)

Eisai Corporation of North America

Elan Corporation

Eli Lilly and Company

Forest Laboratories, Inc.

Gate Pharmaceuticals (Teva)

GlaxoSmithKline

Hi-Tech Pharmacal Co., Inc.

Hoffmann-La Roche Inc.

Jerome Stevens Pharmaceuticals

Johnson & Johnson

King Pharmaceuticals, Inc.

K-V Pharmaceutical Co.*

Lannett Company, Inc.

Merck & Co. Inc.

MGI Pharma Inc.

Mission Pharmacal Company, Inc.

Novartis Corporation

Novo Nordisk, Inc.

Organon Inc.

Otsuka America, Inc.

PDL BioPharma, Inc.*

Pfizer Inc.

Procter & Gamble Company, The

Purdue Pharma L.P.

Reliant Pharmaceuticals, Inc.

Salix Pharmaceuticals, Inc.*

Sankyo Pharma Inc. [Daiichi Sankyo, Inc.]

Sanofi-Aventis US LLC

Savient Pharmaceuticals, Inc.

Schering-Plough Corporation

Schwarz Pharma Inc. (UCB)

Sciele Pharma, Inc.

Shire PLC

Sigma-Tau Pharmaceuticals, Inc.*

Solvay America, Inc.

Somerset Pharmaceuticals, Inc.

Stat-Trade, Inc.

Takeda America Holdings, Inc.

Tyco Healthcare Group LP [Covidien]

UCB Pharma Inc.

Valeant Pharmaceuticals International

Warner Chilcott Holdings Company III,

Limited

Watson Pharmaceuticals, Inc.

Wyeth

X-Gen Pharmaceuticals, Inc.
C-2

Generic Companies

Actavis U.S.

Akyma Pharmaceuticals LLC

Anchen Pharmaceuticals, Inc.

Andrx Corporation (Watson)

Apotex, Inc.

Aurobindo Pharma USA, Inc.

Barr Pharmaceuticals, Inc.

Biovail Pharmaceuticals, Inc.

Blu Pharmaceuticals, LLC

Boca Pharmacal, Inc.

Breckenridge Pharmaceutical, Inc.

Caraco Pharmaceutical Laboratories

Carlsbad Technology, Inc.

Cobalt Laboratories, Inc.

CorePharma LLC

DAVA Pharmaceuticals, Inc.

Deca Pharmaceuticals, LLC

Dr. Reddy's Laboratories, Inc.

Endo Pharmaceuticals

Eurand N.V.

Gedeon Richter USA, Inc

Glades Pharma (Stiefel Labs)*

Glenmark Pharmaceuticals, Inc.

Golden State Medical Supply, Inc.

Hikma Pharmaceuticals Ltd.

Hi-Tech Pharmacal Co., Inc.*

Impax Laboratories, Inc.

Interpharm Holdings, Inc.

Invagen Pharmaceuticals, Inc.

Ivax Pharmaceuticals, Inc. (Teva)

K-V Pharmaceutical Co.

Lannett Company, Inc.

Lupin Pharmaceuticals, Inc.

Major Pharmaceuticals, Inc.

Mallinckrodt Pharmaceuticals (Covidien)

Martec Pharmaceutical, Inc.

Mylan Inc.

Paddock Laboratories, Inc.

Par Pharmaceutical Companies, Inc.

Perrigo Company

Prometheus Laboratories, Inc.

Qualitest Pharmaceutical, Inc. & Vintage

Pharmaceutical, Inc.

Ranbaxy Pharmaceuticals, Inc.

Rising Pharmaceuticals

Roxane Laboratories, Inc. (Boehringer)

Sandoz, Inc. (Novartis)

Spectrum Pharmaceuticals Inc.

Sun Pharmaceutical Industries Inc.

Taro Pharmaceuticals U.S.A. Inc.

Teva Pharmaceuticals USA, Inc.

Three Rivers Pharmaceuticals, LLC

Trigen Laboratories Inc.

UCB, Inc.

United Research Laboratories, Inc. &

Mutual Pharmaceutical Co., Inc.

Upsher-Smith Laboratories, Inc.

Versapharm Inc.

Watson Pharmaceuticals, Inc.

Wockhardt USA Inc.

Zydus Pharmaceuticals (USA) Inc.

Authorized Generic Companies

Heritage Pharmaceuticals, Inc.

Prasco Laboratories

*did not receive a Special Order
1 Under the Paperwork Reduction Act, as amended, an agency may not conduct or sponsor, and a person

is not required to respond to, a collection of information unless it displays a currently valid OMB

control number.

D-1

APPENDIX D BRAND-NAME DRUG COMPANY SPECIAL ORDER

OMB Control No. 3084-0140

Expires 8/31/20101

UNITED STATES OF AMERICA

BEFORE FEDERAL TRADE COMMISSION

COMMISSIONERS: Deborah Platt Majoras, Chairman

Pamela Jones Harbour

Jon Leibowitz

William E. Kovacic

J. Thomas Rosch 

FTC Matter No. P062105

ORDER TO FILE SPECIAL REPORT

Pursuant to a resolution of the Federal Trade Commission dated March 28, 2006, entitled

“Resolution Directing The Use Of Compulsory Process,” a copy of which is enclosed, Company

A, hereinafter referred to as the “Company,” is ordered to file a Special Report with the

Commission containing the information specified herein. The enclosed Authorized Generic

Drug Study Federal Register Notice describes the purpose and scope of the information

collection. 

Please supply the following information, data, and documents, consistent with the

Definitions and Instructions contained in Appendix A:

Part I

1. State the full name of the Company and its official address, and its state of

incorporation.
D-2

2. State whether the Company is a subsidiary company; whether the Company has

subsidiary companies; and report the same information specified in Item 1

regarding each parent or subsidiary engaged in research and development,

planning and design, production and manufacturing, distribution, or sales and

marketing of any drug product.

3. Submit one copy of each organization chart and personnel directory in effect on

January 1 of each year since January 1, 2001, (a) for the Company as a whole

and, (b) for each of the Company=s subsidiaries or divisions involved in the AG

drug business, if any.

4. For each drug on “List A” provided by the FTC, state whether any orally

administered capsule or tablet form of the drug, at any strength, has been

marketed in the United States as an AG drug product (either currently or

previously), with a launch date after Jan. 1, 2001, under an NDA for which the

Company holds rights or held rights at the time of launch or any time thereafter.

5. For each drug on “List B” provided by the FTC, state whether the specified

dosage form and strength of the drug has been marketed in the United States as an

AG drug product (either currently or previously), with a launch date after Jan. 1,

2001, under an NDA for which the Company holds rights or held rights at the

time of launch or any time thereafter.

6. Submit a list of all of the Company’s orally administered prescription AG drug

products of any capsule or tablet form launched in the United States after Jan. 1,

2001 (either currently or previously marketed under a NDA for which the

Company holds or held the rights), including but not limited to the drugs on the

lists provided by the FTC, and provide the following information regarding

marketing in the United States: (a) proprietary/trade name of the AG, if any; (b)

proprietary/trade name of the brand-name drug for which the NDA authorizes the

marketing of the AG; (c) active ingredient; (d) dosage form; (e) NDA number of

the brand-name drug that authorizes the marketing of the AG (5 digits, no letter);

(f) dosage strength; (g) date of approval of the NDA for each strength; (h) the

AG’s 9-digit National Drug Code (NDC) number for each strength (labeler and

product code separated by a hyphen); (i) the date of launch for each NDC

number; (j) the date of discontinuance for each NDC number, if any; (k) the name

of the firm/business entity associated with each NDC labeler code; (l) the

relationship (or former relationship) of each labeler code firm/entity to the

Company, e.g., current or former division, subsidiary, affiliate, licensee,

contractor; (m) the address and phone number of the firm/business entity

associated with each NDC labeler code.

7. For each AG on the list provided by the Company in response to Item 6, state

whether the marketing entity is part of the Company, so that the Company will

coordinate with the marketing entity in providing complete answers to the
D-3

requests in Part III, Items 10, 15, 18, 21, 24, 27, 28, and 30 below or whether the

marketing entity is not part of the Company, so that the FTC will need to contact

the AG marketing entity identified in Item 6(k). 

Part II

8. Submit to the FTC by Jan. 31, 2008 a list of any additional AGs launched in the

United States by Dec. 31, 2007 and the information requested in Item 6.

9. For changes in the information provided to the FTC in response to Item 6 that

occur by Dec. 31, 2007, submit updated information to the FTC by Jan. 31, 2008.

Part III

10. For each AG drug on the list the Company provided to the FTC in response to

Item 6, state the date of the first public announcement of the marketing or

intended marketing of the AG in the United States.

11. For each AG drug on the list the Company provided to the FTC in response to

Item 6, state whether marketing of the AG occurred pursuant to a litigation

settlement agreement between the Company and an ANDA-generic company, or

whether at any time the Company entered into a litigation settlement agreement

not to market the AG or to market it after a specified date more than 30 days after

execution of the agreement. If so, state the names of the parties, court, case

number, date that the litigation was filed, and the date of the settlement

agreement.

12. For each brand-name drug on the list the Company provided to the FTC in

response to Item 6(b) (brand-name versions of AGs), provide the following

information in regard to marketing in the United States: (a) proprietary/trade

name of the brand-name drug; (b) active ingredient; (c) dosage form; (d) NDA

number (5 digits, no letter); (e) dosage strength; (f) date of approval of the NDA

for each strength; (g) the 9-digit National Drug Code (NDC) number for each

strength (labeler and product code separated by a hyphen); (h) the name of the

firm/business entity associated with each NDC labeler code; (i) the relationship

(or former relationship) of each labeler code firm/entity to the Company, e.g.,

Company, predecessor company, current or former division, subsidiary, affiliate,

licensee, contractor; (j) therapeutic category; (k) pharmacological class; (l) 14-

digit GPI (Medi-Span’s Generic Product Identifier); (m) date of entry by the first

competing ANDA-generic drug; (n) whether the first ANDA-generic entry

occurred pursuant to a 180-day exclusivity period, and if so, provide (o) the

names of all ANDA-generic companies that entered during such exclusivity.
D-4

13. For all strengths of brand-name drugs on “List B” that were not covered in the

response to Item 12 (i.e., brand-name drugs for which no AG was marketed),

provide the information requested in Item 12. 

14. For all strengths of brand-name drugs on “List B” listed in the response to Item

13 (i.e., brand-name drugs for which no AG was marketed), state whether a

litigation settlement agreement between the Company and an ANDA-generic

company provided that an AG would not be marketed. If so, state the names of

the parties, court, case number, date that the litigation was filed, and the date of

the settlement agreement.

15. Sales of AG drugs, by NDC. For each AG drug in the list the Company provided

to the FTC in response to Item 6, for sales in the United States from Jan. 1, 2001-

March 31, 2007, state the (a) applicable month and year; (b) the drug identifying

information described in the second paragraph of Instruction (D); (c) the AG=s 11-

digit NDC number (including labeler, product, and package size codes separated

by hyphens); (d) package size; (e) package type; total monthly sales to all

customers, net of discounts, rebates, promotions, returns and chargebacks, in (f)

units (as represented by the NDC=s package size code), and in (g) dollars.

16. Sales of brand-name drugs (AG version marketed), by NDC. For each brandname drug on the list the Company provided to the FTC in response to Item 12

(brand-name versions of AGs), for sales in the United States from Jan. 1, 2001-

March 31, 2007, state the (a) applicable month and year; (b) the drug identifying

information described in the second paragraph of Instruction (D); (c) 11-digit

NDC number (including labeler, product, and package size codes separated by

hyphens); (d) package size; (e) package type; total monthly sales to all customers,

net of discounts, rebates, promotions, returns and chargebacks, in (f) units (as

represented by the NDC’s package size code), and in (g) dollars.

17. Sales of brand-name drugs (no AG version marketed), by NDC. For all brandname drugs on “List B” that were not covered in the response to Item 16 (i.e.,

brand-name drugs listed in response to Item 13, for which no AG was marketed),

provide the information requested in Item 16.

18. Total sales/revenues from AG drugs. For each AG drug in the list the Company

provided to the FTC in response to Item 6, for sales in the United States from Jan.

1, 2001-March 31, 2007, state the (a) applicable month and year; (b) the drug

identifying information described in the second paragraph of Instruction (D); (c)

the Company=s total monthly sales/revenues attributable to all strengths and

package sizes of the dosage form under consideration, net of discounts, rebates,

promotions, returns and chargebacks, in dollars; and (e) the total monthly sales in

prescriptions.
D-5

19. Total sales: brand-name drugs (AG version marketed). For each brand-name

drug on the list the Company provided to the FTC in response to Item 12 (brandname versions of AGs), for sales in the United States from Jan. 1, 2001-March 31,

2007, state the (a) applicable month and year; (b) the drug identifying information

described in the second paragraph of Instruction (D); (c) the Company=s total

monthly sales attributable to all strengths and package sizes of the dosage form of

the brand-name drug under consideration, net of discounts, rebates, promotions,

returns and chargebacks, in dollars; and (d) the total monthly sales in

prescriptions.

20. Total sales: brand-name drugs (no AG marketed). For all brand-name drugs on

“List B” that were not covered in the response to Item 19 (i.e., brand-name drugs

listed in response to Item 13, for which no AG was marketed), provide the

information requested in Item 19.

21. Prices of AG drugs: WAC and AWP. For each AG drug in the list the Company

provided to the FTC in response to Item 6, for sales in the United States from Jan.

1, 2001-March 31, 2007, state the (a) applicable month and year; (b) the drug

identifying information described in the second paragraph of Instruction (D); (c)

the AG’s 11-digit NDC number (including labeler, product, and package size

codes separated by hyphens); (d) package size; (e) package type; (f) wholesale

acquisition cost (“WAC,” see 42 U.S.C. § 1395w-3a(b)(6)(B)); and (g) the

average wholesale price (“AWP”).

22. Prices of brand-name drugs (AG version marketed): WAC and AWP. For each

brand-name drug on the list the Company provided to the FTC in response to Item

12 (brand-name versions of AGs), for sales in the United States from Jan. 1,

2001-March 31, 2007, state the (a) applicable month and year; (b) the drug

identifying information described in the second paragraph of Instruction (D); (c)

11-digit NDC number (including labeler, product, and package size codes

separated by hyphens); (d) package size; (e) package type; (f) WAC; and (g) the

AWP.

23. Prices of brand-name drugs (no AG marketed): WAC and AWP. For all brandname drugs listed in the response to Item 13 that have been subject to ANDAgeneric competition (i.e., brand-name drugs for which a date of ANDA-generic

entry was entered in Item 13(m)), provide the information requested in Item 22

(for the period from Jan. 1, 2001-March 31, 2007).

24. Prices of AG drugs: AMP. For each AG drug in the list the Company provided to

the FTC in response to Item 6, for sales in the United States from Jan. 1, 2001-

March 31, 2007, state the (a) applicable quarter and year; (b) the drug identifying

information described in the second paragraph of Instruction (D); (c) the AG=s 9-

digit NDC number (including labeler and product codes separated by a hyphen);
D-6

and (d) the average manufacturer price (“AMP”) as defined by, and reported to,

the Centers for Medicare and Medicaid Services (CMS).

25. Price of brand-name drugs (AG version marketed): AMP. For each brand-name

drug on the list the Company provided to the FTC in response to Item 12 (brandname versions of AGs), for sales in the United States from Jan. 1, 2001-March 31,

2007, state the (a) applicable quarter and year; (b) the drug identifying

information described in the second paragraph of Instruction (D); (c) 9-digit NDC

number (including labeler and product codes separated by a hyphen); and (d) the

AMP as defined by, and reported to, the CMS.

26. Prices of brand-name drugs (no AG marketed): AMP. For all brand-name drugs

listed in the response to Item 13 that have been subject to ANDA-generic

competition (i.e., brand-name drugs for which a date of ANDA-generic entry was

entered in Item 13(m)), provide the information requested in Item 25 (for the

period from Jan. 1, 2001-March 31, 2007).

27. Submit all documents that were prepared by or for any officer(s) or director(s) of

the Company and/or, if applicable, the marketing entity, or that are in the files of

any current or prior Company (and/or marketing entity) senior vice president (or

equivalent position) with product line responsibility (during all or part of the

period from January 1, 2003-April 3, 2006) for an AG and/or a brand-name drug

in the list the Company provided to the FTC in response to Item 6 (or, in the case

of unincorporated entities, individuals exercising similar functions), as follows. 

(a) For each AG/brand-name pair identified in the list the Company provided to

the FTC in response to Item 6, submit planning, decisional, or strategy documents

prepared from Jan. 1, 2002 to April 3, 2006, including studies, surveys, analyses,

and reports (both internal and external), that evaluated, considered, or analyzed

(but did not merely refer to) the marketing or possible marketing of an AG or

AGs (as a response to current or future generic competition or for other reasons),

including but not limited to whether or not to license or otherwise market a brandname drug product as an AG drug product; reasons for marketing an AG and/or

refraining from marketing an AG; the timing of AG launch relative to a 180-day

exclusivity period; the marketing of an AG during 180-day exclusivity; the

marketing of an AG in the context of paragraph IV certifications and settlements

of litigation; the marketing of AGs upon expiration of patents or marketing

exclusivities claiming a brand-name drug product or its use; and the profitability

or other benefits of marketing an AG drug. (b) With respect to AGs in general,

submit documents as described in (a) of this Item.

28. For each AG drug identified in the list the Company provided to the FTC in

response to Item 6, submit copies of any public announcements, e.g., press

release(s) of the planned marketing or launch of the AG in the United States. 
2 Section 6003 of the Deficit Reduction Act of 2005, P.L. 109-171, which became effective on Jan. 1,

2007, amends Section 1927(b)(3)(A) of the Social Security Act (42 U.S.C. § 1396r-B8(b)(3)(A)) to

include all drugs approved pursuant to 21 U.S.C. § 355(c), including AGs, in Medicaid best price

calculations.

D-7

29. If the Company licensed or otherwise authorized the marketing by another entity

of an AG drug product in the list the Company provided to the FTC in response to

Item 6, submit the agreement that authorized marketing (including agreements

between the Company and any business entity acquired after the agreement was

executed). 

30. Submit planning, decisional, or strategy documents dated Jan. 1, 2006-April 29,

2007 that discuss the effect(s) or possible effect(s) of the enactment of Section

6003 of the Deficit Reduction Act of 2005, P.L. 109-171,2

 on the marketing of

AGs after Jan. 1, 2007.

By direction of the Commission.

Deborah Platt Majoras

Chairman

SEAL

Date of Order: September 26, 2007
3 See FDA, APPROVED DRUG PRODUCTS WITH THERAPEUTIC EQUIVALENCE EVALUATIONS v, 2-2 (27th

ed. 2007) [hereinafter Orange Book].

D-8

APPENDIX A

GENERAL INSTRUCTIONS

A. Organization of Responses and Due Dates of Parts

The Special Report consists of three parts, a Preliminary Report as specified in Part I,

which must be filed by November 5, 2007, or within 30 days of receipt of this Special Order,

whichever is later; an Updated Preliminary Report as set forth in Part II, which must be filed by

Jan. 31, 2008; and a Detailed Report as set forth in Part III, which must be filed by January 4,

2008.

B. Responses to Questions

The Special Report should be entered into the Excel spreadsheets provided with this

Order whenever possible. The FTC has entered the question numbers and the information that

must be provided in the header row of each column. To efficiently enter the requested

information, companies may wish to electronically “copy and paste” drug identifying or other

information that must be entered on more than one row or worksheet. When it is not possible to

enter the required answer or information into the applicable worksheet, or no worksheet has been

provided, restate the Item and provide the required answer or information. If any question

cannot be answered fully, give the information that is available and explain in detail in what

respects and why the answer is incomplete.

All responses to Items 1-2 and 4-13 should be submitted to the FTC in both paper and in

electronic form (as Excel, Word, or WordPerfect documents) on machine-readable CDs or

DVDs.

C. DEFINITIONS

The following definitions apply to all Items:

(1) “Active ingredient” means a drug’s nonproprietary established name, including the

established names for all active ingredients, as defined at 21 C.F.R. § 299.4 and used in

the Orange Book.3

(2) “ANDA” means Abbreviated New Drug Application, as set forth in 21 U.S.C. § 355(j). 

(3) “ANDA-generic drug” means a drug marketed or sought to be marketed pursuant an

approved ANDA and usually sold under the established name of the active ingredient(s).
4 Generally, AGs are marketed under a different product code, labeler code, trade name, trademark,

and/or packaging (other than repackaging the listed drug for use in institutions) than the listed drug. 

See Medicaid Program; Prescription Drugs, 71 Fed. Reg. 77,174, 77,183-84, 77,198 (Dec. 22, 2006). 

Typically, the name of an AG is the nonproprietary established name of its active ingredients, but in

some cases a trade name different from the brand-name of the listed drug is used. Also, AGs are

usually marketed by a subsidiary or division of the brand-name manufacturer or a third party in a

manner equivalent to the marketing practices of holders of an approved ANDA for a drug. See Letter

from William K. Hubbard, FDA, to Stuart A. Williams, Mylan Pharmaceuticals, Inc., and James N.

Czaban, Heller Ehrman White & McAuliffe 2 n.2 (July 2, 2004) (responding to the citizen petitions of

Mylan and Teva regarding AG drugs and 180-day exclusivity).

D-9

(4) “Authorized generic (“AG”) drug” means any drug sold, licensed or marketed under an

NDA approved by the FDA under 21 U.S.C. § 355(c); and marketed, sold or distributed

(directly or indirectly) without using the listed drug=s brand-name and with a different

NDC product number or labeler number (or both).4

(5) “Brand-name” drug means an innovator drug product marketed pursuant to an approved

NDA under a proprietary, trademark-protected name.

(6) “Capsule” means all dosage forms of capsules as set forth in Appendix C of the Orange

Book, including capsule; capsule, delayed release (DR); capsule, delayed release pellets

(DRP); and capsule, extended release (XR).

(7) “Company” means 3M Company, its domestic and foreign parents, predecessors,

divisions, subsidiaries, affiliates, partnerships and joint ventures, and all directors,

officers, employees, agents and representatives of the foregoing. The terms “subsidiary,”

“affiliate,” and “joint venture” refer to any person in which there is partial (50 percent or

more) or total ownership or control between the company and any other person. As used

in this definition, the term “person” includes the company and means any natural person,

corporate entity, partnership, association, joint venture, government entity, or trust.

(8) “Documents” means all computer files and written, recorded, and graphic materials of

every kind in the possession, custody or control of the Company.

(9) “NDA” means a New Drug Application, as set forth in 21 U.S.C. § 355(b) and approved

under 21 U.S.C. § 355(c).

(10) “Tablet” means all dosage forms of tablets as set forth in Appendix C of the Orange

Book, including tablet; tablet, chewable (C); tablet, coated particles (CP); tablet, delayed

release (DR); tablet, delayed release, orally disintegrating (DR OD); tablet, extended

release (XR); tablet, orally disintegrating (OD).

D. Data Submissions

Unless modified by agreement in writing with the staff of the Federal Trade Commission,

all numerical data submitted in response to Items 15-26 must be submitted in a spreadsheet
D-10

format both on paper and on machine-readable CDs or DVDs. The Commission will accept

database and spreadsheet data in the following formats: MS Excel, MS Access, tab-delimited or

fixed width text files. All financial information required to be submitted by this Order should be

in whole dollar amounts. For Items 15-26, the applicable month (quarter) and year requested

refers to each month and year for which the Company provides the information called for by the

given Item. If the information is not kept in the form requested, the Company is encouraged to

contact the Commission representative to discuss alternative formats in which the information

may be provided. 

To identify the drug for which data is being provided, for those Items requesting data on

AGs (Items 15, 18, 21, and 24) state on the applicable row or page the (b)(1) proprietary/trade

name of the AG, if any; (b)(2) proprietary/trade name of the brand-name drug; (b)(3) active

ingredient; (b)(4) dosage form; (b)(5) NDA number (5 digits, no letter); and the (b)(6) dosage

strength (except for Item 18). For Items requesting data on brand-name drugs (Items 16-17, 19-

20, 22-23, and 25-26), state the previously listed identifying information (b)(1)-(6), omitting (6)

for Items 19 and 20.

E. Document Submissions

This Special Order covers documents in the Company=s possession, custody or control,

wherever the documents are located. However, unless or until the Commission notifies

Company otherwise in writing, the Commission will not seek to enforce the Special Order to

compel the production of documents that were located outside the United States at the time

Company received the Special Order. In order to expedite the receipt of documents reflecting

the views of all recipients of Special Orders, the Commission requests your cooperation in

producing any such documents on a voluntary basis by the date specified in this Special Order.

Provide two paper copies of each document. All documentary responses should be

Bates-stamped. 

F. Responsibilities of Company and AG-Marketing Entity Officials

1. Companies that market AGs via entities that are part of the Company as defined in

definition (7) are required to coordinate with those marketing entities in the submission

of certain information on AGs in Part III, as described in the instructions to individual

Items. If the marketing entity identified in Item 6(k) is not part of the Company, the FTC

will also contact the marketing entity, and require it to submit certain information on the

AGs it markets. The Company’s response to Item 7 merely notifies the FTC, on a drugby-drug, entity-by-entity basis, whether the Company will contact the marketing entity

and coordinate with it, because it is part of the Company or whether the FTC will contact

the marketing entity, because the marketing entity is not part of the Company. For most

Items, however, the Company and any independent marketing entity (which the FTC will

contact separately) will be required to respond. The Company=s response to Item 7 does

NOT eliminate the Company’s requirement to respond to each Item, unless expressly

stated in the instructions for an Item.
D-11

2. The Special Report is required to be subscribed and sworn to by an official of the

Company who has prepared or supervised the preparation of the Special Report from

books, records, documents, correspondence, and other data and material in the

Company=s possession. In addition, if the Company indicates in response to Item 7 that it

will coordinate with its AG marketing entity, then Items 10, 15, 18, 21, 24, 27-28, and 30

must be subscribed and sworn to by an official of the subsidiary, or other entity of the

Company that markets AGs. Each subscriber to the Special Report is to give his or her

full name, title, and contact information in a notarized certification at the end of the

Special Report, as set forth in Appendix B.

G. Questions

Any questions you have relating to the scope or meaning of this Order, or suggestions for

possible modifications thereto, should be directed to Karen A. Goldman, Federal Trade

Commission, Office of General Counsel, 600 Pennsylvania Ave., N.W., Washington, DC 20580,

(202) 326-2574, kgoldman@ftc.gov.

H. Submission of Report

The Special Report must be Bates-stamped. 

You are advised that penalties may be imposed under applicable provisions of federal

law for failure to file Special Reports or for filing false reports.

Two copies of the Special Report shall be filed with the Secretary, Federal Trade

Commission, Room H-159, 600 Pennsylvania Ave., NW, Washington, DC 20580 by 5:00 PM on

the dates specified herein.

INSTRUCTIONS FOR SPECIFIC ITEMS

Part I

1-3. Self-explanatory.

4. To facilitate the Company’s response, the FTC has provided two lists of drugs marketed

by the Company in the United States during the relevant time frame. “List A” is a list of

drugs for which the available information indicates that an AG was launched by the

Company, or with its authorization, after Jan. 1, 2001 (a blank list will be provided if the

FTC is not aware of any AGs). Using the Excel spreadsheet containing List A, confirm

that at least one orally administered capsule or tablet form of each drug has been

marketed as an AG by entering “yes” in the applicable column. If the Company believes

that no orally administered capsule or tablet form of the drug has been marketed as an

AG, enter “no.”
D-12

5. “List B” is a list of the Company’s orally administered capsule and tablet dosage forms

of drugs for which at least one ANDA with a paragraph IV certification was filed and

generic competition began after Jan. 1, 2001, or for which generic competition has not

yet begun and at least one ANDA with a paragraph IV certification was filed after Jan. 1,

2001. The list contains only those strengths for which a paragraph IV certification has

been made. Some of the drugs on List B may also appear on List A. Using the Excel

spreadsheet containing List B, enter “yes” if a particular strength of a drug has been

marketed as an AG in the United States, or “no” if it has not.

6. The Company’s response to this Item must include all orally administered AGs of any

capsule or tablet dosage form launched in the United States after Jan. 1, 2001, for which

the Company holds rights to the NDA under which the AG is marketed, or held rights to

the NDA when the AG was launched or any time thereafter, regardless of whether the

AG is currently marketed by the Company. The response must address, but is not limited

to, the drugs on the lists provided by the FTC. Thus, the Company=s response must

include all orally administered capsule or tablet dosage forms of its AGs, regardless of

whether the drug was on either List A or List B, or whether the corresponding brandname drug was subject only to paragraph I, II, or III certifications.

Enter the list of the Company’s AG drugs and the required information for each on the

spreadsheet provided by the FTC. Enter the specific dosage form, e.g., capsule DR,

capsule XR, tablet DR, or tablet XR. Enter each strength for each dosage form on a

different row. If more than one entity marketed a particular drug, use different rows to

enter the information for each entity.

Item 6(h), (k), (m). The response to Item 6(h) should include all 9-digit NDC numbers

used in the direct or indirect marketing, sale, or distribution of the AG in the United

States, whether by the Company or by other entities, e.g., licensees under the Company=s

NDA. Thus, Item 6(k) should provide a complete list of entities that market the AG,

whether the marketing entity is part of the Company or independent of it. Do not,

however, include NDC numbers that cover repackaged or relabeled drug products (such

as those for use in institutions) that were previously sold under one of the aforementioned

NDCs. If the NDCs associated with the AG have changed, e.g., due to marketing by

different business entities, provide all NDC numbers that have been used. If there are

multiple NDC numbers for a given strength, each should be entered on a different row.

The address and phone number of the firm/business entity that markets the AG

(requested in Item 6(m)) need only be entered the first time that the name of the entity is

provided in response to Item 6(k).

7. If an AG is marketed via an entity that is part of the Company as defined in definition

(7), the Company must enter “yes” on the applicable spreadsheet column, and it is

required to coordinate with the marketing entity in the submission of information on that

AG. If an AG is marketed by an entity that is not a part of the Company, such as a
D-13

contractor or licensee, the Company must enter “no,” and the marketing entity will be

contacted by the FTC and asked to provide certain information. A Company’s response

of “no” to Item 7 does NOT eliminate the Company=s requirement to respond to each

Item below, unless expressly stated in the instructions for an Item. 

Because some manufacturers of brand-name pharmaceuticals also manufacture ANDAgeneric drugs, the FTC reserves the right to request additional information from the

Company, and directly from marketing entities that are part of the Company, even if the

Company has responded to this request or provided a coordinated response to an Item.

Part II

8. This Item requests the basic information in Item 6 on any AGs launched in the United

States by Dec. 31, 2007 pursuant to a NDA for which the Company holds rights that were

not included in the Company=s initial response to that Item. For the purposes of this

study, the FTC will not require any information beyond that requested in Item 6 for these

AGs.

9. This Item requests updated information on AGs identified by the Company in its initial

response to Item 6, including but not limited to, whether the marketing of the AG has

been discontinued or otherwise changed (e.g., dosage form or strength, marketing entity). 

Part III

10. On the applicable spreadsheet and column, enter the date of the first public

announcement by any entity, including but not limited to announcements made by the

Company, of the intended marketing of each AG. Documentation of the first

announcement is requested in Item 28.

11. On the applicable spreadsheet and column, enter “yes” if the marketing of the AG

occurred pursuant to a settlement agreement, or if the Company entered into a settlement

agreement not to market the AG or to market it after a specified date more than 30 days

after execution of the agreement; enter “no” if there were no such agreements. If “yes,”

restate Item 11 on a separate document, identify the AG, and provide the required

information about the litigation.

12. For identification and informational purposes, Item 12(a)-(f) repeats information

provided in Item 6(b)-(g). Each strength should be listed in a separate row, followed by

the rest of the requested information. If there are multiple NDC numbers for a given

strength, each should be entered in a different row.
5 See http://www.usp.org/pdf/EN/mmg/modelGuidelinesV2.0-2006-02-06.pdf. See also Drug List

Table, at http://www.usp.org/pdf/EN/mmg/drugListingV2.0-2006-02-06.pdf. 

D-14

Item 12(j), (k). State the therapeutic category and pharmacological class as set forth in

the U.S. Pharmacopeial Convention, Inc., U.S.P. Medicare Model Guidelines, Version 2,

Feb. 6, 2006.5

Item 12(l). When entering the 14-digit GPI, separate the two-digit fields with dashes.

Items 12(m), (n), (o). If the brand-name drug has not been subject to ANDA-generic

competition, enter “none” in response to Item 12(m), and do not respond to Items 12(n)

and (o).

13. Enter the required information for each brand-name drug on “List B” that was not

covered in the response to Item 12 on the spreadsheet provided by the FTC. Enter the

specific dosage form, e.g., capsule DR, capsule XR, tablet DR, or tablet XR. Enter each

strength, and each 9-digit NDC number related to a particular strength, in a different row. 

If the NDCs associated with the drug have changed, provide all NDC numbers that have

been used. With respect to therapeutic category and pharmacological class, follow the

instructions in Item 12. If the brand-name drug has not been subject to ANDA-generic

competition, enter “none” in response to Item 13(m), and do not respond to Items 13(n)

and (o).

14. On the applicable spreadsheet and column, enter “yes” if a litigation settlement

agreement between the Company and an ANDA-generic company provided that an AG

would not be marketed, and if not, enter “no.” If “yes,” restate Item 14 on a separate

document, identify the drug, and provide the required information about the litigation.

15. Item 15 requests monthly net sales data for AGs for all 11-digit NDCs arising from the 9-

digit NDCs provided in response to Item 6(h), i.e., including all package size codes for

those NDCs. 

If the Company answered “yes” to Item 7 with respect to a particular drug, the Company

must coordinate with its marketing entity in providing the information requested in Item

15. If the Company is not coordinating with its marketing entity with respect to a

particular drug, i.e., it answered “no” in response to Item 7 for that drug, the Company

should only submit data for Items 15(a)-(f). In such cases, the FTC will ask the

marketing entity to provide the information requested in Items 15(g).

16. Include sales for each strength provided in response to Item 12(e). Thus, the response to

Item 16 should include sales for all 11-digit NDC codes arising from the 9-digit codes

provided in response to Item 12(g).

17. Include sales for all 11-digit NDC codes arising from the 9-digit codes provided in

response to Item 13. 
D-15

18. Responses to this Item represent the Company=s combined sales or revenues from all

strengths and NDC numbers.

If the Company answered “yes” to Item 7 with respect to a particular drug, the Company

must coordinate with its marketing entity and provide the net sales for the Company

(including the marketing entity) with respect to that drug. However, the Company must

respond to Item 18 even if the Company answered “no” to Item 7 and is not coordinating

with the marketing entity. In such cases, the Company should provide its revenues

(including royalties, license fees, and transfer payments) arising from sales in the United

States, not the sales of the independent marketing entity. In calculating its net revenues,

the Company should include its own discounts, rebates, promotions, returns and

chargebacks (if any), not those of the independent marketing entity.

19, 20. Responses to these Items represent the Company=s combined sales from all strengths and

NDC numbers.

21. The referenced 11-digit NDCs should have been listed in response to Item 15(c).

22. The referenced 11-digit NDCs should have been listed in response to Item 16(c).

23. The 11-digit NDCs should be a subset of those listed in response to Item 17. Provide

data for the entire requested period, regardless of whether the drug was subject to

ANDA-generic competition for the entire time.

24. Item 24 requests the quarterly Average Manufacturer Price (“AMP,” see 42 U.S.C.

§ 1396r-8(k)(1)), for each AG listed by the Company in response to Item 6, for all 9-digit

NDCs provided in response to Item 6(h).

If the Company answered “yes” to Item 7 with respect to a particular drug, the Company

must coordinate with its marketing entity in providing the information requested in Item

24. If the Company is not coordinating with its marketing entity with respect to a

particular drug, i.e., it answered “no” in response to Item 7 for that drug, the Company

should not respond to this Item. In such cases, the FTC will ask the independent

marketing entity to provide the AMP.

25. The Company must provide the information requested in Item 25, regardless of its

response to Item 7 and whether it is coordinating with the marketing entity.

26. The 11-digit NDCs should be those listed in response to Item 23. Provide data for the

entire requested period, regardless of whether the drug was subject to ANDA-generic

competition for the entire time.

27. When responding to Item 27(b), do not duplicate documents provided in response to Item

27(a).
6 See P.L. 108-173, tit. XI, Subtit. B, § 1112, 117 Stat. 2066, 2461-2 (2003).

D-16

If the Company answered “yes” to Item 7 with respect to a particular drug, the Company

must coordinate with its marketing entity in responding to Item 27(a) with respect to that

drug. In responding to Item 27(b) in regard to documents generally about AG drugs, the

Company must coordinate with its marketing entity if it answered “yes” to Item 7 with

respect to any drug. However, the Company must respond to Items 27(a) and 27(b) even

if it answered “no” in response to Item 7 and is not coordinating with the marketing

entity. In such cases, the marketing entity will be asked to respond to Items 27(a) and

27(b), in addition to the Company.

Group the documents by drug product, and if applicable, segregate the documents

obtained from the Company from the documents obtained from the marketing entity. For

each document, indicate the name of the person from whose files the document came and

whether the document was generated within the Company or externally; if generated

externally, provide the name of the source of the document.

28. If the Company answered “yes” to Item 7 with respect to a particular drug, the Company

must coordinate with its marketing entity in responding to this Item with respect to that

drug. Group the documents by drug product.

29. The Company must respond to Item 29 with respect to all AGs for which the Company

answered “no” in response to Item 7, and is not coordinating with the marketing entity. 

Group the documents by drug product, and indicate the name of the person from whose

files the document came.

If an agreement authorizing the marketing of an AG was previously submitted to the FTC

pursuant to the Medicare Prescription Drug, Improvement, and Modernization Act of

2003,6

 do not provide another copy of the agreement. Provide the names of the parties,

the date of the agreement, and the date that the agreement was submitted to the FTC. 

30. The Company must respond to this Item, and if the Company answered “yes” to Item 7

with respect to any drug, the Company must coordinate with its marketing entity in

responding to this Item. For each document, indicate the name of the person from whose

files the document came.
D-17

APPENDIX B

Certification

This Special Report, together with any and all appendices and attachments thereto, was

prepared and assembled under my supervision in accordance with instructions issued by the

Federal Trade Commission in its Special Orders for the Authorized Generic Drug Study. 

Subject to the recognition that, where so indicated, reasonable estimates have been made

because books and records do not provide the required information, the information is, to the

best of my knowledge, true, correct, and complete. Where copies rather than original documents

have been submitted, the copies are true, correct, and complete.

____________________________________________

TYPE OR PRINT NAME AND TITLE

____________________________________________

TYPE OR PRINT COMPANY NAME AND ADDRESS

____________________________________________

TYPE OR PRINT PHONE NUMBER AND E-MAIL ADDRESS

____________________________________________

(Signature)

Subscribed and sworn to before me at the City of______________________________,

State of ________________________, this_________ day

of__________, 20____.

____________________________________________

 (Notary Public)

My Commission Expires: ________________

1 Under the Paperwork Reduction Act, as amended, an agency may not conduct or sponsor, and a person

is not required to respond to, a collection of information unless it displays a currently valid OMB

control number.

E-1

APPENDIX E GENERIC DRUG COMPANY SPECIAL ORDER

OMB Control No. 3084-0140

Expires 8/31/20101

UNITED STATES OF AMERICA

BEFORE FEDERAL TRADE COMMISSION

COMMISSIONERS: Deborah Platt Majoras, Chairman

Pamela Jones Harbour

Jon Leibowitz

William E. Kovacic

J. Thomas Rosch 

FTC Matter No. P062105

ORDER TO FILE SPECIAL REPORT

Pursuant to a resolution of the Federal Trade Commission dated March 28, 2006, entitled

“Resolution Directing The Use Of Compulsory Process,” a copy of which is enclosed, Company

A, hereinafter referred to as the “Company,” is ordered to file a Special Report with the

Commission containing the information specified herein. The enclosed Authorized Generic

Drug Study Federal Register Notice describes the purpose and scope of the information

collection. 

Please supply the following information, data, and documents, consistent with the

Definitions and Instructions contained in Appendix A:

1. State the full name of the Company and its official address, and its state of

incorporation.

2. State whether the Company is a subsidiary company; whether the Company has

subsidiary companies; and report the same information specified in Item 1

regarding each parent or subsidiary engaged in research and development,
E-2

planning and design, production and manufacturing, distribution, or sales and

marketing of any drug product.

3. Submit one copy of each organization chart and personnel directory in effect on

January 1 of each year since January 1, 2001, (a) for the Company as a whole

and, (b) for each of the Company’s subsidiaries or divisions involved in the AG

drug business, if any.

4. For each AG drug on the list of AG drugs provided by the FTC, state the (a)

proprietary/trade name of the AG, if any; (b) proprietary/trade name of the brandname drug for which the NDA authorizes the marketing of the AG; (c) active

ingredient; (d) dosage form; (e) NDA number of the brand-name drug that

authorizes the marketing of the AG (5 digits, no letter); (f) dosage strength; (g)

14-digit GPI (Medi-Span’s Generic Product Identifier); (h) the AG’s 9-digit

National Drug Code (NDC) number for each strength (labeler and product code

separated by a hyphen); (i) name of the firm/business entity associated with each

NDC labeler code; (j) date of launch for each NDC number; (k) date of

discontinuance for each NDC number, if any; (l) date of the first public

announcement of the marketing or intended marketing of the AG; and (m)

whether at any time the Company marketed the drug as an ANDA-generic drug.

5. Submit a list of the Company’s orally administered prescription AG drug

products of any capsule or tablet form that were launched after Jan. 1, 2001, but

are not on the FTC’s list of AG drugs (if any), and provide the information

requested in Item 4.

6. For each AG drug addressed in Items 4 and 5, state whether marketing of the AG

occurred pursuant to a litigation settlement agreement between the Company and

a brand-name company. If so, state the names of the parties, court, case number,

date that the litigation was filed, and the date of the settlement agreement.

7. For each drug on the list of ANDA-generic drugs provided by the FTC and any

ANDA-generic drugs identified in response to Item 4(m), state the (a) brandname of the reference listed drug (RLD); (b) NDA number of the RLD; (c) active

ingredient; (d) dosage form; (e) ANDA number (5 digits, no letter); (f) dosage

strength; (g) the ANDA-generic’s 9-digit National Drug Code (NDC) number for

each strength (labeler and product code separated by a hyphen); (h) name of the

firm/business entity associated with each NDC labeler code; (i) date of launch for

each NDC number; (j) date of discontinuance for each NDC number, if any; (k)

whether entry of the Company’s ANDA-generic drug product occurred pursuant

to a 180-day exclusivity period; and if entry occurred pursuant to 180-day

exclusivity, the (l) date the exclusivity period began, the (m) date of expiration of

the exclusivity period, and the (n) names of any other ANDA-generic companies

that entered during the exclusivity period.
E-3

8. For each ANDA-generic drug addressed in Item 7, state the (a) active ingredient;

(b) dosage form; (c) ANDA number (5 digits, no letter); (d) dosage strength; (e)

date of ANDA filing; (f) date of ANDA approval for each dosage strength; (g)

14-digit GPI (Medi-Span’s Generic Product Identifier); (h) patent numbers of

patents for which the Company made a patent certification under 21 U.S.C. §

355(j)(2)(A)(vii); (i) paragraph number of the certification for each patent

number; (j) date of each patent certification; (k) paragraph number of any

amended patent certifications; and the (l) date of amendment of the patent

certification.

9. Sales of AG drugs, by NDC. For each AG drug addressed in Items 4 and 5, for

sales in the United States from Jan. 1, 2001-March 31, 2007, state the (a)

applicable month and year; (b) the drug identifying information described in the

second paragraph of Instruction (D); (c) the 11-digit NDC number (including

labeler, product, and package size codes separated by hyphens); (d) package size;

(e) package type; total sales to all customers, net of discounts, rebates,

promotions, returns and chargebacks, in (f) units (as represented by the NDC’s

package size code), and in (g) dollars.

10. Sales and costs of ANDA-generic drugs, by NDC. For each ANDA-generic drug

addressed in Item 7, for sales in the United States from Jan. 1, 2001-March 31,

2007, provide the information requested in Item 9, and (h) the cost to

manufacture, including all direct and indirect labor, material, and overhead

expenses. If the Company does not manufacture a drug, provide the cost of

purchasing it in response to (h), and indicate that the stated amount is the cost of

purchase.

11. Total sales of AG drugs. For each AG drug addressed in Items 4 and 5, for sales

in the United States for the period from Jan. 1, 2001-March 31, 2007, state the (a)

applicable month and year; (b) the drug identifying information described in the

second paragraph of Instruction (D); (c) the Company’s total sales attributable to

all strengths and package sizes of the dosage form under consideration, net of

discounts, rebates, promotions, returns and chargebacks, in dollars; and (d) the

total sales in prescriptions.

12. Total sales of ANDA-generic drugs. For each ANDA-generic drug addressed in

Item 7, for sales in the United States from Jan. 1, 2001-March 31, 2007, provide

the information requested in Item 11.

13. Prices of AG drugs: WAC and AWP. For each AG drug addressed in Items 4 and

5, for sales in the United States from Jan. 1, 2001-March 31, 2007, state the (a)

applicable month and year; (b) the drug identifying information described in the

second paragraph of Instruction (D); (c) the 11-digit NDC number (including

labeler, product, and package size codes separated by hyphens); (d) package size;
E-4

(e) package type; (f) wholesale acquisition cost (AWAC,” see 42 U.S.C. §

1395w-3a(b)(6)(B)); and (g) the average wholesale price ( “AWP”). 

14. Prices of ANDA-generic drugs: WAC and AWP. For each drug on the list of

ANDA-generic drugs addressed in Item 7, for sales in the United States from Jan.

1, 2001-March 31, 2007, provide the information requested in Item 13. 

15. Prices of AG drugs: AMP. For each AG drug addressed in Items 4 and 5, for the

period from Jan. 1, 2001-March 31, 2007, state the (a) applicable quarter and

year; (b) the drug identifying information described in the second paragraph of

Instruction (D); (c) the 9-digit NDC number (including labeler and product codes

separated by a hyphen); and (d) the average manufacturer price (“AMP”) as

defined by, and reported to, the Centers for Medicare and Medicaid Services

(CMS).

16. Prices of ANDA-generic drugs: AMP. For each ANDA-generic drug addressed

in Item 7, for the period from Jan. 1, 2001-March 31, 2007, provide the

information requested in Item 15.

17. Cost data and documents. For each ANDA-generic drug addressed in Item 7,

state the (a) active ingredient; (b) dosage form; (c) ANDA number (5 digits, no

letter); (d) research and development costs; (e) the costs of filing the ANDA; (f)

the costs for patent-related litigation (if any). Also, submit (g) any documents

sufficient to show the identified product’s research and development costs, costs

to file the ANDA, patent-related litigation costs (if any), and any other sunk costs

allocated to the drug. In those cases in which the Company is not the sole

defendant, describe how litigation expenses have been distributed among the

defendants.

18. Submit documents that were prepared from Jan. 1, 2003 to April 3, 2006, by or

for any officer(s) or director(s) of the Company, or that are in the files of any

current or prior Company (or marketing entity) senior vice president (or

equivalent position) with product line responsibility (during all or part of the

period from January 1, 2003-April 3, 2006) for any specific ANDA-generic drug

(or, in the case of unincorporated entities, individuals exercising similar

functions) (a) that considered, evaluated, analyzed, or discussed AGs or the

possibility of AGs with regard to whether to file an ANDA and/or make a

paragraph III or IV certification with respect to any specific drug (regardless of

whether the Company filed such ANDA); (b) that considered, evaluated, analyzed

or discussed the impact that entry by an AG drug had or would have on the

profitability (during 180-day exclusivity or otherwise) of any specific ANDAgeneric drug product marketed by the Company, or for which submission of an

ANDA was under consideration; or (c) that comprise planning, decisional, or

strategy documents that discuss AGs but not in regard to a particular drug,

including documents that discuss AGs in regard to filing ANDAs, making
E-5

paragraph III or IV certifications, and/or the possible impact of AGs on the

profitability of ANDA-generic drugs during 180-day exclusivity or otherwise. 

19. For the AG drugs addressed in Items 4 and 5: Submit planning, decisional, or

strategy documents, including studies, surveys, analyses, and reports (both

internal and external), that were prepared from Jan. 1, 2003 to April 3, 2006, by

or for any officer(s) or director(s) of the Company, or that are in the files of any

current or prior Company (or marketing entity) senior vice president (or

equivalent position) with product line responsibility (during all or part of the

period from January 1, 2003-April 3, 2006) for the specified AG drug (or, in the

case of unincorporated entities, individuals exercising similar functions), that

evaluated, considered, or analyzed the marketing or possible marketing of the

AG; the timing of AG launch relative to any anticipated 180-day exclusivity

period; the effect or potential effect of the AG on ANDA-generic competition; the

marketing of the AG in the context of settlements of patent-related litigation; the

profitability or other benefits of marketing the AG; and/or whether to market an

ANDA-generic drug or an AG.

20. For the AG drugs addressed in Items 4 and 5: (a) If the Company and the brandname company entered into an agreement that licensed or otherwise authorized

the marketing of the identified drug product as an AG, submit the agreement. (b)

Submit copies of any public announcements, e.g., press release(s), of the planned

marketing or launch of each AG.

By direction of the Commission.

Deborah Platt Majoras

Chairman

SEAL

Date of Order: December 10, 2007
2 See FDA, APPROVED DRUG PRODUCTS WITH THERAPEUTIC EQUIVALENCE EVALUATIONS v, 2-2 (27th

ed. 2007) [hereinafter Orange Book].

E-6

APPENDIX A

GENERAL INSTRUCTIONS

A. Organization of Responses and Due Dates of Parts

The Company’s Special Report must be filed by March 19, 2008.

B. Responses to Questions

The Special Report should be entered into the Excel spreadsheets provided with this

Order whenever possible. The FTC has entered the question numbers and the information that

must be provided in the header row of each column. To efficiently enter the requested

information, companies may wish to electronically “copy and paste” drug identifying or other

information that must be entered on more than one row or worksheet. When it is not possible to

enter the required answer or information into the applicable worksheet, or no worksheet has been

provided, restate the Item and provide the required answer or information. If any question

cannot be answered fully, give the information that is available and explain in detail in what

respects and why the answer is incomplete.

All responses to Items 1-2 and 4-8 should be submitted to the FTC in both paper and

electronic form (as Excel, Word, or WordPerfect documents) on machine-readable CDs or

DVDs.

C. DEFINITIONS

The following definitions apply to all Items:

(1) “Active ingredient” means a drug’s nonproprietary established name, including the

established names for all active ingredients, as defined at 21 C.F.R. § 299.4 and used in

the Orange Book.2

(2) “ANDA” means Abbreviated New Drug Application, as set forth in 21 U.S.C. § 355(j). 

(3) “ANDA-generic drug” means a drug marketed or sought to be marketed pursuant to an

approved ANDA and usually sold under the established name of the active ingredient(s).

(4) “Authorized generic (“AG”) drug” means any drug sold, licensed or marketed under an

NDA approved by the FDA under 21 U.S.C. § 355(c); and marketed, sold or distributed
3 Generally, AGs are marketed under a different product code, labeler code, trade name, trademark,

and/or packaging (other than repackaging the listed drug for use in institutions) than the listed drug. 

See Medicaid Program; Prescription Drugs, 71 Fed. Reg. 77,174, 77,183-84, 77,198 (Dec. 22, 2006). 

Typically, the name of an AG is the nonproprietary established name of its active ingredients, but in

some cases a trade name different from the brand-name of the listed drug is used. Also, AGs are

usually marketed by a subsidiary or division of the brand-name manufacturer or a third party in a

manner equivalent to the marketing practices of holders of an approved ANDA for a drug. See Letter

from William K. Hubbard, FDA, to Stuart A. Williams, Mylan Pharmaceuticals, Inc., and James N.

Czaban, Heller Ehrman White & McAuliffe 2 n.2 (July 2, 2004) (responding to the citizen petitions of

Mylan and Teva regarding AG drugs and 180-day exclusivity).

E-7

(directly or indirectly) without using the listed drug’s brand-name and with a different

NDC product number or labeler number (or both).3

(5) “Brand-name” drug means an innovator drug product marketed pursuant to an approved

NDA under a proprietary, trademark-protected name.

(6) “Capsule” means all dosage forms of capsules as set forth in Appendix C of the Orange

Book, including capsule; capsule, delayed release (DR); capsule, delayed release pellets

(DRP); and capsule, extended release (XR).

(7) “Company” means Company A, its domestic and foreign parents, predecessors, divisions,

subsidiaries, affiliates, partnerships and joint ventures, and all directors, officers,

employees, agents and representatives of the foregoing. The terms “subsidiary”,

“affiliate” and “joint venture” refer to any person in which there is partial (50 percent or

more) or total ownership or control between the company and any other person. As used

in this definition, the term “person” includes the company and means any natural person,

corporate entity, partnership, association, joint venture, government entity, or trust.

(8) “Documents” means all computer files and written, recorded, and graphic materials of

every kind in the possession, custody or control of the Company.

(9) “ANDA” means a New Drug Application, as set forth in 21 U.S.C. § 355(b) and

approved under 21 U.S.C. § 355(c).

(10) “Tablet” means all dosage forms of tablets as set forth in Appendix C of the Orange

Book, including tablet; tablet, chewable (C); tablet, coated particles (CP); tablet, delayed

release (DR); tablet, delayed release, orally disintegrating (DR OD); tablet, extended

release (XR); tablet, orally disintegrating (OD).
E-8

D. Data Submissions

Unless modified by agreement in writing with the staff of the Federal Trade Commission,

all numerical data submitted in response to Items 9-17 must be submitted in a spreadsheet format

both on paper and on machine-readable CDs. The Commission will accept database and

spreadsheet data in the following formats: MS Excel, MS Access, tab-delimited or fixed width

text files. All financial information required to be submitted by this Order should be in whole

dollar amounts. For Items 9-16, the applicable month (quarter) and year requested refers to each

month and year for which the Company provides the information called for by the given Item. If

the information is not kept in the form requested, the Company is encouraged to contact the

Commission representative to discuss alternative formats in which the information may be

provided.

To identify the drug for which data is being provided, for those Items requesting data on

AGs (Items 9, 11, 13, and 15) state on the applicable row or page the (b)(1) proprietary/trade

name of the AG, if any; (b)(2) proprietary/trade name of the brand-name drug for which the

NDA authorizes the marketing of the AG; (b)(3) active ingredient; (b)(4) dosage form; (b)(5)

NDA number (5 digits, no letter) of the brand-name drug that authorizes the marketing of the

AG; and the (b)(6) dosage strength (except for Item 11). For Items requesting data on ANDAgeneric drugs (Items 10, 12, 14, and 16) state on the applicable row or page the (b)(1) active

ingredient; (b)(2) dosage form; (b)(3) ANDA number (5 digits, no letter); and the (b)(4) dosage

strength (except for Item 12).

E. Document Submissions

This Special Order covers documents in the Company’s possession, custody or control,

wherever the documents are located. However, unless or until the Commission notifies

Company otherwise in writing, the Commission will not seek to enforce the Special Order to

compel the production of documents that were located outside the United States at the time

Company received the Special Order. In order to expedite the receipt of documents reflecting

the views of all recipients of Special Orders, the Commission requests your cooperation in

producing any such documents on a voluntary basis by the date specified in this Special Order.

Provide two paper copies of each document. Group the documents by drug product. For

each document, indicate the name of the person from whose files the document came and

whether the document was generated within the Company or externally; if generated externally,

provide the name of the source of the document. All documentary responses should be Batesstamped.

F. Responsibilities of Company

The Special Report is required to be subscribed and sworn to by an official of the

Company who has prepared or supervised the preparation of the Special Report from books,

records, documents, correspondence, and other data and material in the Company’s possession. 
E-9

Each subscriber to the Special Report is to give his or her full name, title, and contact

information in a notarized certification at the end of the Special Report, as set forth in Appendix

B.

G. Questions

Any questions you have relating to the scope or meaning of this Order, or suggestions for

possible modifications thereto, should be directed to Karen A. Goldman, Federal Trade

Commission, Office of General Counsel, 600 Pennsylvania Ave., N.W., Washington, DC 20580,

(202) 326-2574, kgoldman@ftc.gov.

H. Submission of Report

The Special Report must be Bates-stamped. 

You are advised that penalties may be imposed under applicable provisions of federal

law for failure to file Special Reports or for filing false reports.

Two copies of the Special Report required by this Order should be submitted to the

attention of Karen A. Goldman, Federal Trade Commission, Room H-503, 600 Pennsylvania

Ave., NW, Washington, DC 20580 by 5:00 PM on the dates specified herein.

INSTRUCTIONS FOR SPECIFIC ITEMS

1-3. Self-explanatory.

4. The FTC has provided two lists of drugs marketed by the Company during the relevant

time frame that must be addressed in the Company’s Special Report. The first is a list of

AG drugs that were first launched in the United States after Jan. 1, 2001 (a blank list will

be provided if the FTC is not aware of any AGs). Using the Excel spreadsheet

containing this list, enter the information requested in Item 4 with regard to marketing in

the United States. Enter the specific dosage form, e.g., capsule DR, capsule XR, tablet

DR, or tablet XR. Enter each strength for each dosage form on a different row. When

entering the 14-digit GPI, separate the two-digit fields with dashes.

The response to Item 4(h) should include all of the Company’s 9-digit NDC numbers

used in the marketing, sale, or distribution of the AG in the United States. Do not include

NDC numbers that cover repackaged or relabeled drug products (such as those for use in

institutions) that were previously sold under one of the aforementioned NDCs. If the

NDCs associated with the AG have changed, provide all NDC numbers that have been

used. If there are multiple NDC numbers for a given strength, each should be entered on

a different row.

5. Add to the Excel spreadsheet containing the FTC’s list of AGs any other AGs that fit the

specified criteria but were not on FTC’s list. Follow the instructions for Item 4 for

entering the requested information on these AGs.
E-10

6. On the applicable spreadsheet and column, enter “yes” if the marketing of the AG

occurred pursuant to a settlement agreement, “no” if it did not. If “yes,” restate Item 6 in

a separate document, identify the AG, and provide the required information about the

litigation.

7. The second list provided by the FTC is a list of ANDA-generic drugs marketed by the

Company (i) for which at least one ANDA with a paragraph IV certification was filed by

any company and the first ANDA-generic launch in the United States by any company

was after Jan. 1, 2001; and (ii) for which an AG version of the applicable brand-name

drug was first launched in the United States by another company after Jan. 1, 2001. 

Using the Excel spreadsheet containing this list, enter the information requested in Item 7

with regard to in the United States. Add any ANDA-generic drugs identified in response

to Item 4(m) to the FTC’s list (if they are not already on the list), and enter the

information requested in Item 7. Enter the specific dosage form, e.g., capsule DR,

capsule XR, tablet DR, or tablet XR. Enter each strength for each dosage form on a

different row; enter all strengths marketed by the Company, even if the Company is

aware that no AG was marketed for a particular strength.

The response to Item 7(g) should include all of the Company’s 9-digit NDC numbers

used in the marketing, sale, or distribution of the ANDA-generic drug in the United

States. Do not include NDC numbers that cover repackaged or relabeled drug products

(such as those for use in institutions) that were previously sold under one of the

aforementioned NDCs. If the NDCs associated with the ANDA-generic drug have

changed, provide all NDC numbers that have been used. If there are multiple NDC

numbers for a given strength, each should be entered on a different row.

8. Enter each patent number in a separate column, followed by columns with the

information requested with respect to each patent. When entering the 14-digit GPI,

separate the two-digit fields with dashes.

9. Item 9 requests monthly net sales data for AGs for all 11-digit NDCs arising from the 9-

digit NDCs provided in response to Item 4(h) and Item 5, i.e., including all package size

codes for those NDCs.

10. Item 10 requests monthly net sales and cost data for all 11-digit NDCs arising from the 9-

digit NDCs provided in response to Item 7(g). 

11, 12. Responses to Items 11 and 12 represent combined sales from all strengths and NDC

numbers.

13, 14. Items 13 and 14 request monthly WAC and AWP for all 11-digit NDCs arising from the

9-digit NDCs provided in response to Items 4(h), 5, and Item 7(g), respectively.

15, 16. Items 15 and 16 request the quarterly AMP (see 42 U.S.C. § 1396r-8(k)(1)), for all 9-

digit NDCs provided in response to Items 4(h), 5, and Item 7(g), respectively.
4 See P.L. 108-173, tit. XI, Subtit. B, § 1112, 117 Stat. 2066, 2461-2 (2003).

E-11

17. Self-explanatory.

18. The documents requested by this Item are not limited to those that consider drugs

marketed or previously marketed by the Company, nor are they limited to those that

discuss drugs identified in the lists provided by the FTC. For example, responsive

documents might consider drugs for which the Company filed an ANDA that has not yet

been approved; drugs for which the Company considered making a paragraph IV

certification, but the ANDA that was filed did not contain a paragraph IV certification; or

drugs for which the Company considered filing an ANDA, but ultimately did not.

Do not duplicate documents when responding to Items 18(a), (b), and (c).

19. Do not duplicate documents submitted in response to Item 18.

20. For press releases, the source of the document need not be provided.

If an agreement authorizing the marketing of an AG was previously submitted to the FTC

pursuant to the Medicare Prescription Drug, Improvement, and Modernization Act of

2003,4

 do not provide another copy of the agreement. Provide the names of the parties,

the date of the agreement, and the date that the agreement was submitted to the FTC. 
E-12

APPENDIX B

Certification

This Special Report, together with any and all appendices and attachments thereto, was

prepared and assembled under my supervision in accordance with instructions issued by the

Federal Trade Commission in its Special Orders for the Authorized Generic Drug Study. 

Subject to the recognition that, where so indicated, reasonable estimates have been made

because books and records do not provide the required information, the information is, to the

best of my knowledge, true, correct, and complete. Where copies rather than original documents

have been submitted, the copies are true, correct, and complete.

_____________________________________________

TYPE OR PRINT NAME AND TITLE

_____________________________________________

TYPE OR PRINT COMPANY NAME AND ADDRESS

_____________________________________________

TYPE OR PRINT PHONE NUMBER AND E-MAIL ADDRESS

_____________________________________________

(Signature)

Subscribed and sworn to before me at the City of ,

State of , this day

of ____________, 20 .

____________________________________________

(Notary Public) 

My Commission Expires: __________________
1 Under the Paperwork Reduction Act, as amended, an agency may not conduct or sponsor, and a person

is not required to respond to, a collection of information unless it displays a currently valid OMB

control number.

F-1

APPENDIX F AUTHORIZED GENERIC DRUG COMPANY 

SPECIAL ORDER

OMB Control No. 3084-0140

Expires 8/31/20101

UNITED STATES OF AMERICA

BEFORE FEDERAL TRADE COMMISSION

COMMISSIONERS: Deborah Platt Majoras, Chairman

Pamela Jones Harbour

Jon Leibowitz

William E. Kovacic

J. Thomas Rosch 

FTC Matter No. P062105

ORDER TO FILE SPECIAL REPORT

Pursuant to a resolution of the Federal Trade Commission dated March 28, 2006, entitled

“Resolution Directing The Use Of Compulsory Process,” a copy of which is enclosed, Company

A, hereinafter referred to as the “Company,” is ordered to file a Special Report with the

Commission containing the information specified herein. The enclosed Authorized Generic

Drug Study Federal Register Notice describes the purpose and scope of the information

collection. 

Please supply the following information, data, and documents, consistent with the

Definitions and Instructions contained in Appendix A:

1. State the full name of the Company and its official address, and its state of

incorporation.

2. State whether the Company is a subsidiary company; whether the Company has
F-2

subsidiary companies; and report the same information specified in Item 1

regarding each parent or subsidiary engaged in research and development,

planning and design, production and manufacturing, distribution, or sales and

marketing of any drug product.

3. Submit one copy of each organization chart and personnel directory in effect on

January 1 of each year since January 1, 2001, (a) for the Company as a whole

and, (b) for each of the Company=s subsidiaries or divisions involved in the AG

drug business, if any.

4. For each AG drug on the list of AG drugs provided by the FTC, state the (a)

proprietary/trade name of the AG, if any; (b) proprietary/trade name of the brandname drug for which the NDA authorizes the marketing of the AG; (c) active

ingredient; (d) dosage form; (e) NDA number of the brand-name drug that

authorizes the marketing of the AG (5 digits, no letter); (f) dosage strength; (g)

14-digit GPI (Medi-Span=s Generic Product Identifier); (h) the AG=s 9-digit

National Drug Code (NDC) number for each strength (labeler and product code

separated by a hyphen); (i) name of the firm/business entity associated with each

NDC labeler code; (j) date of launch for each NDC number; (k) date of

discontinuance for each NDC number, if any; and (l) date of the first public

announcement of the marketing or intended marketing of the AG.

5. Submit a list of the Company=s orally administered prescription AG drug products

of any capsule or tablet form that were launched after Jan. 1, 2001, but are not on

the FTC=s list of AG drugs (if any), and provide the information requested in Item

4.

6. Sales of AG drugs, by NDC. For each AG drug addressed in Items 4 and 5, for

sales in the United States from Jan. 1, 2001-March 31, 2007, state the (a)

applicable month and year; (b) the drug identifying information described in the

second paragraph of Instruction (D); (c) the AG=s 11-digit NDC number

(including labeler, product, and package size codes separated by hyphens); (d)

package size; (e) package type; total sales to all customers, net of discounts,

rebates, promotions, returns and chargebacks, in (f) units (as represented by the

NDC=s package size code), and in (g) dollars.

7. Total sales of AG drugs. For each AG drug addressed in Items 4 and 5, for sales

in the United States from Jan. 1, 2001-March 31, 2007, state the (a) applicable

month and year; (b) the drug identifying information described in the second

paragraph of Instruction (D); (c) the Company=s total sales attributable to all

strengths and package sizes of the dosage form under consideration, net of

discounts, rebates, promotions, returns and chargebacks, in dollars; and (d) the

total sales in prescriptions.
F-3

8. Prices of AG drugs: WAC and AWP. For each AG drug addressed in Items 4 and

5, for sales the United States from Jan. 1, 2001-March 31, 2007, state the (a)

applicable month and year; (b) the drug identifying information described in the

second paragraph of Instruction (D); (c) the AG=s 11-digit NDC number

(including labeler, product, and package size codes separated by hyphens); (d)

package size; (e) package type; (f) wholesale acquisition cost (“WAC,” see 42

U.S.C. § 1395w-3a(b)(6)(B)); and (g) the average wholesale price (“AWP”). 

9. Prices of AG drugs: AMP. For each AG drug addressed in Items 4 and 5, for the

period from Jan. 1, 2001-March 31, 2007, state the (a) applicable quarter and

year; (b) the drug identifying information described in the second paragraph of

Instruction (D); (c) the AG=s 9-digit NDC number (including labeler and product

codes separated by a hyphen); and (d) the average manufacturer price (“AMP”) as

defined by, and reported to, the Centers for Medicare and Medicaid Services

(CMS). 

10. Submit all documents that were prepared by or for any officer(s) or director(s) of

the Company and/or, if applicable, the marketing entity, or that are in the files of

any current or prior Company (and/or marketing entity) senior vice president (or

equivalent position) with product line responsibility (during all or part of the

period from Jan. 1, 2002-April 3, 2006) for an AG drug addressed in Items 4 and

5 (or, in the case of unincorporated entities, individuals exercising similar

functions), as follows. (a) For each AG drug addressed in Items 4 and 5, submit

planning, decisional, or strategy documents prepared from January 1, 2002 to

April 3, 2006, including studies, surveys, analyses, and reports (both internal and

external), that evaluated, considered, or analyzed (but did not merely refer to) the

marketing or possible marketing of an AG or AGs (as a response to current or

future generic competition, or for other reasons), including but not limited to

whether or not to license or otherwise market a brand-name drug product as an

AG drug product; reasons for marketing an AG and/or refraining from marketing

an AG; the timing of AG launch relative to a 180-day exclusivity period; the

marketing of an AG during 180-day exclusivity; the marketing of an AG in the

context of paragraph IV certifications and settlements of litigation; the marketing

of AGs upon expiration of patents or marketing exclusivities claiming a brandname drug product or its use; and the profitability or other benefits of marketing

an AG drug. (b) With respect to AGs in general, submit documents as described

in (a) of this Item.

11. For the AG drugs addressed in Items 4 and 5: (a) If the Company and the brandname company entered into an agreement that licensed or otherwise authorized

the marketing of the identified drug product as an AG, submit the agreement. (b)

Submit copies of any public announcements, e.g., press release(s), of the planned

marketing or launch of each AG.

12. Submit planning, decisional, or strategy documents dated Jan. 1, 2006-April 29,

2007 that discuss the effect(s) or possible effect(s) of the enactment of Section
2 Section 6003 of the Deficit Reduction Act of 2005, P.L. 109-171, which became effective on Jan. 1,

2007, amends Section 1927(b)(3)(A) of the Social Security Act (42 U.S.C. § 1396r-8(b)(3)(A)) to

include all drugs approved pursuant to 21 U.S.C. § 355(c), including AGs, in Medicaid best price

calculations.

F-4

6003 of the Deficit Reduction Act of 2005, P.L. 109-171,2

 on the marketing of

AGs after Jan. 1, 2007.

By direction of the Commission.

Deborah Platt Majoras

Chairman

SEAL

Date of Order: December 10, 2007
3 See FDA, APPROVED DRUG PRODUCTS WITH THERAPEUTIC EQUIVALENCE EVALUATIONS v, 2-2 (27th

ed. 2007) [hereinafter Orange Book].

F-5

APPENDIX A

GENERAL INSTRUCTIONS

A. Organization of Responses and Due Dates of Parts

The Company’s Special Report must be filed by March 19, 2008.

B. Responses to Questions

The Special Report should be entered into the Excel spreadsheets provided with this

Order whenever possible. The FTC has entered the question numbers and the information that

must be provided in the header row of each column. To efficiently enter the requested

information, companies may wish to electronically “copy and paste” drug identifying or other

information that must be entered on more than one row or worksheet. When it is not possible to

enter the required answer or information into the applicable worksheet, or no worksheet has been

provided, restate the Item and provide the required answer or information. If any question

cannot be answered fully, give the information that is available and explain in detail in what

respects and why the answer is incomplete.

All responses to Items 1-2 and 4-5 should be submitted to the FTC in both paper and in

electronic form (as Excel, Word, or WordPerfect documents) on machine-readable CDs or

DVDs.

C. DEFINITIONS

The following definitions apply to all Items:

(1) “Active ingredient” means a drug=s nonproprietary established name, including the

established names for all active ingredients, as defined at 21 C.F.R. § 299.4 and used in

the Orange Book.3

(2) “ANDA” means Abbreviated New Drug Application, as set forth in 21 U.S.C. § 355(j). 

(3) “ANDA-generic drug” means a drug marketed or sought to be marketed pursuant to an

approved ANDA and usually sold under the established name of the active ingredient(s).

(4) “Authorized generic (“AG”) drug” means any drug sold, licensed or marketed under an

NDA approved by the FDA under 21 U.S.C. § 355(c); and marketed, sold or distributed
4 Generally, AGs are marketed under a different product code, labeler code, trade name, trademark,

and/or packaging (other than repackaging the listed drug for use in institutions) than the listed drug. 

See Medicaid Program; Prescription Drugs, 71 Fed. Reg. 77,174, 77,183-84, 77,198 (Dec. 22, 2006). 

Typically, the name of an AG is the nonproprietary established name of its active ingredients, but in

some cases a trade name different from the brand-name of the listed drug is used. Also, AGs are

usually marketed by a subsidiary or division of the brand-name manufacturer or a third party in a

manner equivalent to the marketing practices of holders of an approved ANDA for a drug. See Letter

from William K. Hubbard, FDA, to Stuart A. Williams, Mylan Pharmaceuticals, Inc., and James N.

Czaban, Heller Ehrman White & McAuliffe 2 n.2 (July 2, 2004) (responding to the citizen petitions of

Mylan and Teva regarding AG drugs and 180-day exclusivity).

F-6

(directly or indirectly) without using the listed drug’s brand-name and with a different

NDC product number or labeler number (or both).4

(5) “Brand-name” drug means an innovator drug product marketed pursuant to an approved

NDA under a proprietary, trademark-protected name.

(6) “Capsule” means all dosage forms of capsules as set forth in Appendix C of the Orange

Book, including capsule; capsule, delayed release (DR); capsule, delayed release pellets

(DRP); and capsule, extended release (XR).

(7) “Company” means Company A, its domestic and foreign parents, predecessors, divisions,

subsidiaries, affiliates, partnerships and joint ventures, and all directors, officers,

employees, agents and representatives of the foregoing. The terms “subsidiary”,

“affiliate” and “joint venture” refer to any person in which there is partial (50 percent or

more) or total ownership or control between the company and any other person. As used

in this definition, the term “person” includes the company and means any natural person,

corporate entity, partnership, association, joint venture, government entity, or trust.

(8) “Documents” means all computer files and written, recorded, and graphic materials of

every kind in the possession, custody or control of the Company.

(9) “ANDA” means a New Drug Application, as set forth in 21 U.S.C. § 355(b) and

approved under 21 U.S.C. § 355(c).

(10) “Tablet” means all dosage forms of tablets as set forth in Appendix C of the Orange

Book, including tablet; tablet, chewable (C); tablet, coated particles (CP); tablet, delayed

release (DR); tablet, delayed release, orally disintegrating (DR OD); tablet, extended

release (XR); tablet, orally disintegrating (OD).
F-7

D. Data Submissions

Unless modified by agreement in writing with the staff of the Federal Trade Commission,

all numerical data submitted in response to Items 6-9 must be submitted in a spreadsheet format

both on paper and on machine-readable CDs or DVDs. The Commission will accept database

and spreadsheet data in the following formats: MS Excel, MS Access, tab-delimited or fixed

width text files. All financial information required to be submitted by this Order should be in

whole dollar amounts. For Items 6-9, the applicable month (quarter) and year requested refers to

each month and year for which the Company provides the information called for by the given

Item. If the information is not kept in the form requested, the Company is encouraged to contact

the Commission representative to discuss alternative formats in which the information may be

provided. 

To identify the drug for which data is being provided in response to Items 6-9, state on

the applicable row or page the (b)(1) proprietary/trade name of the AG, if any; (b)(2)

proprietary/trade name of the brand-name drug for which the NDA authorizes the marketing of

the AG; (b)(3) active ingredient; (b)(4) dosage form; (b)(5) NDA number (5 digits, no letter) of

the brand-name drug that authorizes the marketing of the AG; and the (b)(6) dosage strength

(except for Item 7). See the Excel spreadsheets provided by the FTC, which should be used to

provide this data whenever possible.

E. Document Submissions

This Special Order covers documents in the Company=s possession, custody or control,

wherever the documents are located. However, unless or until the Commission notifies

Company otherwise in writing, the Commission will not seek to enforce the Special Order to

compel the production of documents that were located outside the United States at the time

Company received the Special Order. In order to expedite the receipt of documents reflecting

the views of all recipients of Special Orders, the Commission requests your cooperation in

producing any such documents on a voluntary basis by the date specified in this Special Order.

Provide two paper copies of each document. Group the documents by drug product. For

each document, indicate the name of the person from whose files the document came and

whether the document was generated within the Company or externally; if generated externally,

provide the name of the source of the document. All documentary responses should be Batesstamped. 

F. Responsibilities of Company Officials

The Special Report is required to be subscribed and sworn to by an official of the

Company who has prepared or supervised the preparation of the Special Report from books,

records, documents, correspondence, and other data and material in the Company=s possession. 

Each subscriber to the Special Report is to give his or her full name, title, and contact
F-8

information in a notarized certification at the end of the Special Report, as set forth in Appendix

B.

G. Questions

Any questions you have relating to the scope or meaning of this Order, or suggestions for

possible modifications thereto, should be directed to Karen A. Goldman, Federal Trade

Commission, Office of General Counsel, 600 Pennsylvania Ave., N.W., Washington, DC 20580,

(202) 326-2574, kgoldman@ftc.gov.

H. Submission of Report

The Special Report must be Bates-stamped. 

You are advised that penalties may be imposed under applicable provisions of federal

law for failure to file Special Reports or for filing false reports.

Two copies of the Special Report required by this Order should be submitted to the

attention of Karen A. Goldman, Federal Trade Commission, Room H-503, 600 Pennsylvania

Ave., NW, Washington, DC 20580 by 5:00 PM on the dates specified herein.

INSTRUCTIONS FOR SPECIFIC ITEMS

1-3. Self-explanatory.

4. The FTC has provided a list of AG drugs marketed by the Company during the relevant

time frame that must be addressed in the Company=s Special Report. The list is limited to

AGs that were first launched in the United States after Jan. 1, 2001. A blank list will be

provided if the FTC is not aware of any AGs. Using the Excel spreadsheet containing

this list, enter the information requested in Item 4. Enter the specific dosage form, e.g.,

capsule DR, capsule XR, tablet DR, or tablet XR. Enter each strength for each dosage

form on a different row. When entering the 14-digit GPI, separate the two-digit fields

with dashes.

The response to Item 4(h) should include all of the Company=s 9-digit NDC numbers

used in the marketing, sale, or distribution of the AG in the United States. However, do

not include NDC numbers that cover repackaged or relabeled drug products (such as

those for use in institutions) that were previously sold under one of the aforementioned

NDCs. If the NDCs associated with the AG have changed, provide all NDC numbers

that have been used. If there are multiple NDC numbers for a given strength, each should

be entered on a different row.

5. Add to the Excel spreadsheet containing the FTC=s list of AGs any other AGs that fit the

specified criteria but were not on FTC=s list. Follow the instructions for Item 4 for

entering the requested information on these AGs.
F-9

6. Item 6 requests monthly net sales data for AGs for all 11-digit NDCs arising from the 9-

digit NDCs provided in response to Item 4(h) and Item 5, i.e., including all package size

codes for those NDCs. 

7. The responses to Item 7 represents combined sales from all strengths and NDC numbers.

8. Item 8 requests monthly WAC and AWP for all 11-digit NDCs arising from the 9-digit

NDCs provided in response to Items 4(h) and 5.

9. Item 9 requests the quarterly AMP (see 42 U.S.C. § 1396r-8(k)(1)), for all 9-digit NDCs

provided in response to Items 4(h) and 5.

10. When responding to Item 10(b), do not duplicate documents provided in response to Item

10(a).

11. For press releases, the source of the document need not be provided.

12. Self-explanatory.
F-10

APPENDIX B

Certification

This Special Report, together with any and all appendices and attachments thereto, was

prepared and assembled under my supervision in accordance with instructions issued by the

Federal Trade Commission in its Special Orders for the Authorized Generic Drug Study. 

Subject to the recognition that, where so indicated, reasonable estimates have been made

because books and records do not provide the required information, the information is, to the

best of my knowledge, true, correct, and complete. Where copies rather than original documents

have been submitted, the copies are true, correct, and complete.

_____________________________________________

TYPE OR PRINT NAME AND TITLE

_____________________________________________

TYPE OR PRINT COMPANY NAME AND ADDRESS

_____________________________________________

TYPE OR PRINT PHONE NUMBER AND E-MAIL ADDRESS

_____________________________________________

(Signature)

Subscribed and sworn to before me at the City of ,

State of , this day

of ____________, 20 .

____________________________________________

(Notary Public) 

My Commission Expires: __________________
G-1

APPENDIX G LIST OF AUTHORIZED GENERIC DRUGS IN STUDY

BRAND NAME ACTIVE INGREDIENT DOSAGE FORM NDA#

Accupril quinapril hydrochloride tablets 19885

Accuretic hydrochlorothiazide; quinapril

hydrochloride

tablets 20125

Actigall ursodiol capsules 19594

Agrylin anagrelide capsules 20333

Aldactazide hydrochlorothiazide; spironolactone tablets 12616

Aldactone spironolactone tablets 12151

Allegra fexofenadine hydrochloride tablets 20872

Amaryl glimepiride tablets 20496

Ambien zolpidem tartrate tablets 19908

Amoxil amoxicillin capsules 62216

Amoxil amoxicillin tablets 50754

Amoxil amoxicillin tablets, chewable 50761

Arava leflunomide tablets 20905

Augmentin amoxicillin; clavulanate potassium tablets 50564,

50720

Augmentin amoxicillin; clavulanate potassium tablets, chewable 50726

Azulfidine Entabs sulfasalazine tablets, delayed release 7073

Biaxin clarithromycin tablets 50662

Carnitor levocarnitine tablets 18948

Ceftin cefuroxime axetil tablets 50605

Celexa citalopram hydrobromide tablets 20822

Cipro ciprofloxacin hydrochloride tablets 19537

Cleocin HCl clindamycin hydrochloride capsules 50162

Colazal balsalazide capsules 20610

Colestid colestipol hydrochloride tablets 20222

Cyclessa desogestrel; ethinyl estradiol tablets 21090

Cytotec misoprostol tablets 19268

Daypro oxaprozin tablets 18841

Declomycin demeclocycline hydrochloride tablets 50261

Desogen desogestrel; ethinyl estradiol tablets 20071

Diamox acetazolamide capsules, extended

release

12945

Diflucan fluconazole tablets 19949

DITROPAN XL oxybutynin chloride tablets, extended release 20897

Dostinex cabergoline tablets 20664

Estrostep Fe ethinyl estradiol; norethindrone acetate tablets 20130

Flexeril cyclobenzaprine hydrochloride tablets 17821

Flumadine rimantadine hydrochloride tablets 19649

Fosamax alendronate sodium tablets 20560

Glucophage XR metformin hydrochloride tablets, extended release 21202

Glucotrol XL glipizide tablets 20329
G-2

Glucovance glyburide; metformin hydrochloride tablets 21178

Imitrex sumatriptan tablets 20132

Inspra eplerenone tablets 21437

K-Dur potassium chloride tablets, extended release 19439

Lamictal CD lamotrigine tablets, chewable 20764

Lamisil terbinafine hydrochloride tablets 20539

Limbitrol amitriptyline hydrochloride;

chlordiazepoxide hydrochloride

tablets 16949

Lotensin benazepril hydrochloride tablets 19851

Lotensin HCT benazepril hydrochloride;

hydrochlorothiazide

tablets 20033

Lotrel amlodipine besylate; benazepril

hydrochloride

capsules 20364

Macrobid nitrofurantoin; nitrofurantoin,

macrocrystalline

capsules 20064

Macrodantin nitrofurantoin, macrocrystalline capsules 16620

Marinol dronabinol capsule 18651

Mestinon pyridostigmine bromide tablets 9829

Micro-K potassium chloride capsules, extended

release

18238

Microzide hydrochlorothiazide capsules 20504

Mobic meloxicam tablets 20938

Monodox doxycycline capsules 50641

Monopril fosinopril sodium tablets 19915

MS Contin morphine sulfate tablets, extended release 19516

Myambutol ethambutol hydrochloride tablets 16320

Neurontin gabapentin capsules 20235

Neurontin gabapentin tablets 20882

Nolvadex tamoxifen citrate tablets 17970

Nor-QD norethindrone tablets 17060

Norvasc amlodipine besylate tablets 19787

OMNICEF cefdinir capsules 50739

Ortho Micronor norethindrone tablets 16954

Ortho Tri-Cyclen ethinyl estradiol; norgestimate tablets 19697

Ortho-Cyclen ethinyl estradiol; norgestimate tablets 19653

Ortho-Novum 7/7/7 ethinyl estradiol; norethindrone tablets 18985

Ovcon 35 ethinyl estradiol; norethindrone tablets 17716

Oxandrin oxandrolone tablets 13718

OxyContin oxycodone tablets, extended release 20553

Pamine methscopolamine bromide tablets 8848

Parlodel bromocriptine capsules 17962

Paxil paroxetine hydrochloride tablets 20031

Paxil CR paroxetine hydrochloride tablets, extended release 20936

Plendil felodipine tablets, extended release 19834

Pletal cilostazol tablets 20863

Ponstel mefenamic acid capsules 15034

Pravachol pravastatin sodium tablets 19898

Prilosec omeprazole capsules, delayed release 19810

Proscar finasteride tablets 20180
G-3

Protonix pantoprazole sodium tablets, delayed release 20987

Purinethol mercaptopurine tablets 9053

Razadyne galantamine hydrobromide tablets 21169

Razadyne ER galantamine hydrobromide capsule, extended

release

21615

Rebetol ribavirin capsules 20903

Remeron SolTab mirtazapine tablets, orally

disintegrating

21208

Restoril temazepam capsules 18163

Retrovir zidovudine tablets 20518

Risperdal risperidone tablets 20272

Ritalin SR methylphenidate hydrochloride tablets 18029

Robinul glycopyrolate tablets 12827

Salagen Tablets pilocarpine hydrochloride tablets 20237

Seasonale ethinyl estradiol; levonorgestrel tablets 21544

Sonata zaleplon capsules 20859

Sporanox itraconazole capsules 20083

Tambocor flecainide acetate tablets 18830

Tiazac diltiazam hydrochloride capsules, extended

release

20401

Tofranil-PM imipramine pamoate capsules 17090

Toprol-XL metoprolol succinate tablets, extended release 19962

Tri-Norinyl ethinyl estradiol; norethindrone tablets 18977

Ultracet acetaminophen; tramadol hydrochloride tablets 21123

Uniretic hydrochlorothiazide; moexipril

hydrochloride

tablets 20729

Unithroid levothyroxine sodium tablets 21210

Univasc moexipril hydrochloride tablets 20312

Urocit-K potassium citrate tablets 19071

Verelan PM verapamil hydrochloride capsules, extended

release

20943

Wellbutrin SR bupropion hydrochloride tablets, extended release 20358

Xanax XR alprazolam tablets 21434

Yasmin drospirenone, ethinyl estradiol tablets 21098

Zaroxolyn metolazone tablets 17386

Zithromax azithromycin tablets 50711,

50730,

50784

Zocor simvastatin tablets 19766

Zofran ondansetron hydrochloride tablets 20103

Zofran ODT ondansetron hydrochloride tablets, orally

disintegrating

20781

Zoloft sertraline hydrochloride tablets 19839

Zyban bupropion hydrochloride tablets, extended release 20711

1 This definition, which was used in the Special Orders, is very similar to the definitions of authorized

generic drug in the Federal Food, Drug and Cosmetic Act, 21 U.S.C. § 355(t)(3), and in Centers for

Medicare and Medicaid regulations, 42 C.F.R. § 447.506.

2 See 21 C.F.R. § 299.4 (“Established names for drugs.”).

3 Generally, drugs that have AGs have them for all multisource strengths. Exceptions may involve

settlement agreements in which the generic markets its ANDA-generic product for some strengths and

AGs for others. Similarly, most ANDAs filed during the period covered by the study include all

H-1

APPENDIX H METHODS

I. General

A. Definition of Authorized Generic Drug 

For purposes of the study, “authorized generic (“AG”) drug” means any drug sold,

licensed or marketed under a New Drug Application (“NDA”) approved by the FDA under 21

U.S.C. § 355(c) and marketed, sold or distributed (directly or indirectly) without using the listed

drug’s brand-name and with a different National Drug Code (“NDC”) product number or labeler

number (or both).1 

Typically, the name of an AG is the nonproprietary established name of its active

ingredients,2

 but in some cases a trade name different from the brand-name of the listed drug is

used.

B. Timing and Dates

All chronological information is reported by calendar year.

C. Reporting by Drug

In Chapters 2 and 7, data are presented by drug (NDA), rather than by strength; a drug is

counted as having only one AG, one first patent challenge, and one entry by 180-day exclusivity

even if these conditions occur for multiple strengths. Also, a drug is counted as having an AG if

at least one strength had an AG, as having a first patent challenge if one strength had a

challenge, and as having entry by 180-day exclusivity if such entry occurs for one strength. In

addition, chronological information about AGs, patent challenges, and 180-day exclusivity is

generally presented in terms of the timing of the first such event for each drug. For example,

Figure 2-1 reports AG launches by the year of the first launch of any strength. Counting by drug

is consistent with the perception that decisions about whether to launch an AG or bring a patent

challenge are usually made on a drug basis,3

 presumably because the economic incentives for
strengths of a drug. See CTR. FOR DRUG EVAL. AND RESEARCH, U.S. FOOD AND DRUG ADMIN.,

GUIDANCE FOR INDUSTRY: VARIATIONS IN DRUG PRODUCTS THAT MAY BE INCLUDED IN A SINGLE

ANDA 1 (Dec. 28, 1998),

http://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/ucm07

2892.pdf.

4 OFFICE OF GENERIC DRUGS, U.S. FOOD AND DRUG ADMIN., APPROVED DRUG PRODUCTS WITH

THERAPEUTIC EQUIVALENCE EVALUATIONS (“Orange Book”) (31st ed. 2011),

http://www.accessdata.fda.gov/scripts/cder/ob/eclink.cfm. “Capsule” includes capsule; capsule,

delayed release; capsule, delayed release pellets; and capsule, extended release. “Tablet” includes

tablet; tablet, chewable; tablet, coated particles; tablet, delayed release; tablet, delayed release, orally

disintegrating; tablet, extended release; tablet, orally disintegrating. See id. at App. C (Uniform Terms

– Dosage Forms). 

5 IMS Health, IMS National Prescription Audit Plus 7TM, Years 2003 to 2008, Data Extracted January

2009. 

H-2

such decisions arise from the overall sales of the drug. 

Chronological information on AGs, patent challenges, and exclusivities is also presented

by drug. This captures the overall trends in a way that is compatible with company counts and

analysis of sales levels by drug. The overall trends observed when reporting by drug are very

similar to those obtained by strength.

An exception to reporting by drug is in Figure 4-1 of Chapter 4, which shows the timing

of the launch of AGs relative to the launch of bioequivalent ANDA-generic versions of the same

brand-name drug. Unlike other timing information in the report that is presented by year, Figure

4-1 considers very small differences in the timing of launch of the AG and the ANDA-generic

(in the order of days or weeks), as well as larger differences. Generally, companies launch all

strengths of an AG at the same time, but sometimes launch times differ, especially when the

launch times of first ANDA-generics of different strengths are different. Thus, to ensure that

both small and large differences in launch timing for each strength were observed and

appropriately weighted in the results, Figure 4-1 reports launch timing by strength. 

D. Dosage Forms Included in the Study

AGs and other drugs included in the study were limited to tablet and capsule dosage

forms in Appendix C of the FDA publication, the “Orange Book.”4

 This limitation facilitates the

economic analysis because certain dosage forms, such as injectables, are sold primarily outside

the retail channels included in National Prescription Audit (“NPA”) sales data from IMS Health.5

E. Inflation Adjustment

All sales were deflated to December 2008 dollars using the monthly producer price index 
6 The monthly Producer Price Index (PPI) for finished goods, seasonally adjusted (WPSSOP3000), over

the period of our data (January 2003 through December 2008) is obtained from the Bureau of Labor

Statistics. See Producer Price Indexes, BUREAU OF LABOR STATISTICS,

http://www.bls.gov/ppi/data.htm (last updated June 14, 2011).

7 The cumulative NDC database, provided by the FDA, contains all NDC records available when it was

compiled, whereas the online NDC Directory contains current but not discontinued NDC records. 

National Drug Code Directory, U.S. FOOD AND DRUG ADMIN.,

http://www.fda.gov/Drugs/InformationOnDrugs/ucm142438.htm (last updated June 15, 2011).

8 The nature of the “labeler” also helped identify AGs; NDA products with active ingredient names and

labeler codes for generic companies (including generic subsidiaries of brand-name parent companies)

or authorized generic companies were usually AGs. 

9 See FDA Listing of Authorized Generics, U.S. FOOD AND DRUG ADMIN.,

http://www.fda.gov/AboutFDA/CentersOffices/CDER/ucm126391.htm (last updated Mar. 25, 2011). 

This list became available on June 27, 2008. Because the list is based on annual reports provided by

companies to the FDA, it may not identify all recent AGs.

10 THOMPSON HEALTHCARE, RED BOOK (2010 ed. 2010).

H-3

series for finished goods.6

II. Identification of AGs, their NDA-holders, and Distributors 

A. Sources of Information

We developed a list of AGs that meet the above definition based on information from the

following sources. (1) FDA National Drug Code (NDC) database, cumulative and current

 (online) Directory.7 The NDC database was used because it provides information on two

numerical codes that are key aspects of the definition of an AG, the product and labeler numbers. 

Thus, we searched the FDA’s historical NDC database and current online information for NDAs

with some NDC numbers for which the tradename was an active ingredient or other name

different from that of the brand-name drug, and the “product code” or “labeler code” was

different from those of the brand-name drug.8 NDC information was also used to identify the

distributors of AGs when other sources identified the AG but did not provide the name of the

distributor. (2) Companies sent the Special Orders. Companies were asked to identify AGs

marketed pursuant to their NDAs and AGs distributed pursuant to other companies’ NDAs. (3)

The FDA’s List of Authorized Generic Drugs.9 After it became available, we included AGs

from the FDA’s List of Authorized Generic Drugs. Because the List does not include

information on the distributor of the AG, and its launch and discontinuance dates are often

unknown or approximate, we used other sources for this information. (4) RED BOOK.

10 The RED

BOOK includes AGs but does not identify them as such; it was used primarily to confirm

information from other sources on AGs and their distributors. In addition, since the RED BOOK

provides prices of marketed drugs, it was used to confirm that drugs identified on the basis of

NDCs or pre-launch information had entered the market. (5) Internet Information. AGs were

identified from a variety of internet sources, such as press releases, Securities and Exchange

Commission (SEC) reports, and pharmacy benefit manager lists of new generic drugs.
11 Also, one AG launched before 2001 was included in the study because a new strength was launched

after 2001.

12 One such AG was included because of competitive implications – it had been distributed by a generic

company pursuant to settlement, but not long before generic entry (including the settling generic’s

ANDA-generic) the brand-name company became the AG distributor. 

13 See ILL. DEPT. OF PUBLIC HEALTH, ILLINOIS FORMULARY FOR THE DRUG PRODUCT SELECTION

PROGRAM x–xii (21st ed. 2003), http://www.idph.state.il.us/about/fdd/Formulary21st_edition.pdf. The

21st edition was the last edition of the Illinois Formulary. Since the list of AGs in the Illinois

Formulary is cumulative, editions 14–20 (1994–2002, provided by the Division of Food, Drugs and

Dairies, Illinois Department of Public Health) were used to determine the likely year of launch. 

14 See supra Appendix C for a list of companies included in the study. Because predecessors and

subsidiaries were also considered, more companies were actually studied than Appendix C suggests. 

See infra Section IV.B.

15 Predecessor and subsidiary relationships were determined from the Directory of Corporate Affiliations

(2007), company websites, and other sources.

16 See Agency Information Collection Activities; Comment Request, 72 Fed. Reg. 25,304, 25,306 (May

4, 2007) (discussing drugs included in the study).

17 In addition, the FTC relied on a cumulative Orange Book database provided by the FDA. 

Identification of licensees is discussed infra at Section III.A.4.

H-4

B. Time of Launch of AGs Included in the Study

The list included AGs first launched between January 1, 2001 and December 31, 2008. 

Launch dates were obtained from company submissions, press releases, and other sources. To

cover all AGs that launched into markets without established AG sales during that period, the list

also included a few AGs that had been marketed during the 1990s, discontinued, and then relaunched between 2001–08 after a period off the market.11 AGs that were first launched before

the study period and re-launched between 2001–08 by a different distributor without a period off

the market were not included in the list, unless the change in distributor had competitive

implications.12 The list of AGs in the Illinois Formulary was a primary source regarding AGs

launched before the study period.13

III. Companies Included in the Study 

A. Companies that Received Special Orders

Most companies included in the study14 were sent Special Orders. Companies received

Special Orders if, based on information available at the time the Orders were prepared in 2007,

the company (or a predecessor or subsidiary)15 held an NDA or ANDA, at any time after 2001,

for a drug included in the study, or was a licensee regarding an application for such a drug.16 

Companies that held NDAs or ANDAs for drugs included in the study were identified using the

Orange Book.17 
18 For a description of the drugs covered by each type of Order, see Appendix D, at D-11, D-12 (BrandName Drug Company Special Order, Instructions for Specific Items, ¶¶ 4-6); Appendix E, at E-9, E-10

(Generic Drug Company Special Order, Instructions for Specific Items, ¶¶ 4, 5 and 7); and Appendix

F, at F-8 (Authorized Generic Drug Company Special Order, Instructions for Specific Items, ¶¶ 4 and

5).

19 Generic companies were also asked to provide information on any AGs that they distributed, but

companies were categorized as generic companies on the basis of their ANDAs, not AGs.

20 For example, licensee relationships include situations in which one company develops a drug and

holds the NDA or ANDA, and another, contractually-related company, sells or promotes the brandname or ANDA-generic drug. Assignments involve the sale of the NDA or ANDA from one company

to another. Although AGs often are distributed via licenses or assignments (e.g., an external generic

company enters into a license with the NDA holder to distribute an AG, or distributes an AG pursuant

to a mature NDA purchased from an innovator company), the licenses and assignments discussed in

H-5

Generally, companies with rights in relevant NDAs were sent Brand-Name (or

Authorized Generic) Special Orders, and companies with rights in relevant ANDAs were sent

Generic Special Orders.18 Because some companies had rights in both relevant NDAs and

ANDAs, they were sent Special Orders for both brand-name and generic companies. 

1. Brand-Name Company Special Orders 

Companies received Brand-name Special Orders if they held the NDA for (i) the brandname version of an AG included in the study or (ii) a brand-name drug that first faced generic

competition after January 1, 2001, for which at least one ANDA with a paragraph IV

certification was filed; or (iii) a brand-name drug for which at least one ANDA with a paragraph

IV certification was filed after January 1, 2001, and generic entry had not yet occurred. 

2. Generic Company Special Orders 

Companies received Generic Special Orders if they held an ANDA for (i) a bioequivalent

generic version of an AG included the study; or (ii) a bioequivalent generic version of a brandname drug that first faced generic competition after January 1, 2001, for which at least one

ANDA with a paragraph IV certification was filed.19

3. Authorized Generic Company Orders 

Two companies received AG Special Orders because they distributed an AG included in

the study, but did not hold any NDA or ANDA described in (1) or (2) above. 

4. Licenses and Assignments of NDAs and ANDAs

In addition, some companies that did not hold the relevant NDAs or ANDAs received

Special Orders based on apparent licenses regarding the brand-name and generic drugs approved

under the FDA applications described above.20 Licenses were inferred from comparisons of the
this section refer to arrangements for the distribution and sale of brand-name and ANDA-generic drugs

by a company other than the original developer, not arrangements for distribution of an AG. 

21 The RED BOOK’s “manufacturers” are actually “labelers” – a term that includes both manufacturers

and distributors of drugs. See, e.g., THOMPSON HEALTHCARE, supra note 10, at 186 (2008) (noting

that RED BOOK’s manufacturers include distributors and labelers other than the holder of the NDA or

ANDA listed in the Orange Book); National Drug Code Directory, supra note 7 (“A labeler is any

firm that manufactures . . . or distributes (under its own name) the drug.”).

H-6

company name listed for a drug (NDA or ANDA) in the Orange Book, cumulative NDC

database, and RED BOOK. For example, a licensee relationship would be inferred when a

company listed in the RED BOOK as the manufacturer of a drug differed from the NDA or

ANDA-holder listed in the Orange Book (and was there was no successor or subsidiary

relationship between the companies).21 In such cases, the NDC database typically contained

NDCs for both companies, with the application holder having the earlier record. Internet sources

such as press releases and SEC reports were used to confirm the nature of the relationship and to

identify additional licensees. 

Companies that appeared to be licensees of the NDAs described above received Brandname Special Orders; licensees of the ANDAs described above received Generic Special Orders. 

Inclusion of such licensee companies ensured that companies that sold a brand-name or ANDAgeneric drug but did not hold the relevant NDA or ANDA were included in the study. 

Orange Book-RED BOOK-NDC database comparisons sometimes led to the identification

of earlier application holders when the company presently listed as the NDA or ANDA-holder in

the Orange Book had acquired the application by assignment (there was no predecessor or

subsidiary relationship between the companies). The assignor often had discontinued NDCs in

the cumulative NDC database. Internet sources were used to confirm likely assignments.

B. Companies that Did Not Receive Special Orders

A few companies were included in the study but did not receive Orders because they

related to AGs that were identified after the Special Orders were prepared in 2007-8, or because

their relationship to AGs identified before the Orders were prepared was learned thereafter. 

Methods Related to Chapter 2

IV. Company Information 

A. Categorization of Companies as Brand-Name, Generic, or Authorized

Generic 

Generally, companies were categorized in the text or figures of Chapter 2 as brand-name,

generic, or authorized generic companies based on the type of Special Order that they received. 
22 The FDA’s List of Authorized Generic Drugs, the Orange Book, the NDC database, and the FDA’s

application databases, often list original NDA-holders that merged with, or were acquired by, other

companies; many such original NDA-holders no longer exist. Thus, the NDA-holding companies as

set forth in this study often differ from those in these sources.

23 There were few instances in which a brand-name successor company’s AG counts included AGs

launched by a company that it acquired. The most notable example is Pfizer, for which six of the 19

AGs counted in Figure 2-2 were launched by Pharmacia’s subsidiary, Greenstone, before Pharmacia

and Greenstone were acquired by Pfizer in 2003. Otherwise, inclusion of a predecessor’s AGs in a

successor company’s count had little effect on companies’ counts.

24 Assignees of NDAs are often generic companies that may market both brand-name and AG versions of

a drug.

H-7

Companies that received both Brand-Name and Generic Special Orders because they held both

NDAs and ANDAs may operate primarily as brand-name or generic companies, or have a

mixture of both businesses. Thus, Figures 2-2 and 2-3 refer to “NDA-holding” companies rather

than brand-name companies, to avoid referring to companies with primarily generic businesses

as brand-name companies because they held a few NDAs. 

B. Updating of Company Names

The companies identified in figures in Chapter 2, and in Appendix C are companies that

were sent Special Orders and other companies that were not sent Orders but were subsequently

identified as related to AGs. The company names listed are those of parent and successor

pharmaceutical companies relating to AGs or other drugs included in the study. Grouping

companies under the largest and most recent organizational unit with a pharmaceutical business

focuses the information presented on recent, rather than historical, aspects of the industry.22 

1. Brand-Name Company Names 

(a) Mergers. Whether a merger took place before or after AG launch, the predecessor

company no longer exists or exists as a subsidiary, so the companies shown in Figures 2-2

through 2-4 are successor/parent companies.23 In each figure the AGs at issue are included in the

counts of any successor/parent pharmaceutical company. 

(b) Assignments of NDAs. When an NDA was assigned to another company, the AG is

included in the count of the NDA-holder at the time of launch (or its successor or parent) in

Figures 2-2 through 2-4. Thus, when an NDA was transferred before launch, the AG is included

in the count of the assignee;24 for transfers after launch, AGs are included in the count of the

assignor.

2. Generic Company Names

Generally, the naming conventions discussed above for brand-name companies also

apply to generic companies shown in Figures 2-5 and 2-6; AG, contract, settlement agreement,
25 Information about other companies that merged later, near the end or after the period covered by the

study (e.g., Barr and Teva, which merged Dec. 23, 2008), is also presented separately.

26 For example, Figure 2-2 shows that Biovail had one AG pursuant to its NDA. Biovail, however, does

not appear in either Figures 2-3 or 2-4 because the brand-name drug under its NDA is distributed by

Forest, and the AG is distributed “in house” by Forest’s subsidiary, Inwood.

27 For example, in Figure 2-6, 7 of Teva’s 26 exclusivities are for drugs for which other companies also

earned exclusivity. 

H-8

and exclusivity counts were attributed to successor/parent pharmaceutical companies. In Figure

2-5, counts were attributed to assignees for agreements assigned before AG launch, and to

assignors when transferred after launch. However, because multiple generics (ANDAs and AGs)

can compete in regard to one drug, attribution of counts to a single successor/parent company

can sometimes obscure differences in generic practices relating to AGs and paragraph IV

certifications. Accordingly, counts for two large generic companies that were independent for

most of the study period, Ivax and Andrx, were presented separately from those of the two

companies that acquired them (respectively, Teva and Watson).25

C. Licensees of NDAs 

Companies that distributed brand-name drugs pursuant to licenses with holders of NDAs

relating to AGs are not shown in Figures 2-2 and 2-4; the AG is attributed to the holder of the

relevant NDA even when the brand was sold by another company. Figure 2-3, however, about

in-house distribution of AGs, includes such licensees (rather than the NDA-holder, to avoid

double-counting) when the licensee distributed the brand and its generic subsidiary distributed

the AG.26

D. Counts of 180-Day Exclusivities by Company

The number of exclusivities held by the seven companies in Figure 2-6 (59) is high

relative to the total number of exclusivities for all companies shown in Figure 2-7 (66) because

the latter figure reports only one exclusivity per drug, but multiple companies may hold

exclusivities for a given drug, as a result of shared exclusivity on the same strength, or different

companies holding exclusivities on different strengths.27 

V. Chronological Trends in Authorized Generic Drugs

A. AGs’ Relationship to 180-Day Exclusivity Periods

Information on 180-day exclusivity periods was obtained from historic Orange Book

records, the FDA’s letters approving relevant ANDA-generic drugs, company information, and

other sources. Information on whether an exclusivity period lacked an AG because a settlement

agreement prohibited its marketing was obtained from agreements submitted by companies

pursuant to the Special Orders or filed with the FTC pursuant to the Medicare Prescription Drug,
28 Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (“MMA”), Pub. L. No.

108-173, 117 Stat. 2066 (codified in scattered sections).

29 Rarely, the first strength with generic entry via exclusivity lacks an AG, but AGs of all strengths are

launched later, and are marketed during a subsequent exclusivity.

30 End dates for 180-day exclusivities for different strengths of a drug are usually the same, except when

different generic companies have exclusivity with respect to different strengths. The calculated start

date is generally very close (within days) to the launch date of the ANDA-generic drug(s). In the

unusual case when ANDA-generic launch was so late that it missed exclusivity altogether (e.g., when

exclusivity was triggered by court decision and the generic was not ready to launch), the “exclusivity

period” was excluded from the results.

31 Also, in one instance the first-filer marketed, and discontinued, an AG before its 180-day exclusivity

period began.

H-9

Improvement, and Modernization Act of 2003 (“MMA”).28

1. Determination by Drug

The relationship between exclusivity periods and AGs was analyzed by drug. For Figure

2-7, a drug (NDA) was counted as having generic entry by exclusivity if a generic had

exclusivity for any strength, and as having an AG during exclusivity if an AG was marketed at

any time during an exclusivity period for any strength of the drug. Similarly, for Figure 2-8, an

AG was counted as having been marketed during exclusivity if at any time it was marketed

during an exclusivity period for any strength of a drug. 

2. Time of 180-Day Exclusivity and AG Launch 

Analysis of trends in the relationship between 180-day exclusivities and AGs involves

reporting the dates of two distinct events – the onset of exclusivity and the launch of an AG. The

choice of which date to use in graphing the results depends on which condition – exclusivity or

AG – is present in all the results being presented. Figure 2-7, which analyzes the competitive

conditions of exclusivity periods, reports on exclusivity periods with and without AGs. 

Accordingly, it reports trends in the competitive conditions of exclusivity periods according to

the year an exclusivity began, which is usually, but not always, the year of any AG launch. For

exclusivities with AGs, the year the exclusivity began is that of the first exclusivity strength with

an AG;29 for exclusivities without AGs, it is that of the first exclusivity. The start date of

exclusivity was calculated as 180 days before the end date listed in the Orange Book.30

By contrast, Figure 2-8 examines the relative abundance of AGs marketed during

exclusivity and apart from exclusivity. It includes AGs launched after the conclusion of

exclusivity and AGs for drugs for which there was no exclusivity period.31 Because Figure 2-8

reports information about AGs regardless of whether there was exclusivity, it provides the

information according to the year of AG launch. For AGs marketed apart from exclusivity, the

date is that of the first launch of any strength; for AGs marketed during exclusivity, the date is
32 Rarely, the first strength of an AG is launched at the time of generic entry without exclusivity, but

subsequently AGs for other strengths enter during exclusivity periods.

33 Wholesale data are from IMS Health, IMS National Sales PerspectivesTM, January 2003 to December

2008, Retail and Non-Retail Channels, Data Extracted February 2009. 

34 See infra, note 35 and accompanying text. For each NDA, we determined the highest patent

certification as of the date the database was compiled, May 13, 2008.

H-10

that of the first launch of any strength marketed during exclusivity.32

Accordingly, yearly counts of exclusivities with AGs in Figure 2-7 and AGs marketed

during exclusivity in Figure 2-8 may differ slightly because the former is reported on the basis of

the date of exclusivity, and the latter on the basis of the date of AG launch.

3. AG Entry by Pre-Entry Brand Sales

Figure 2-9 depicts the propensity of AG introductions for drugs with various levels of

pre-entry brand sales,33 measured as the annualized expenditures on the brand drug in the three

months prior to first generic entry, broken down by whether first generic entry was by 180-day

exclusivity or not. A drug is classified as having an AG if an AG was introduced for any

strength of the drug. Similarly, if a first-filer on any strength received an exclusivity period, the

drug is classified as having had an exclusivity period.

In order to be able to calculate the pre-generic entry brand sales based on the three

months prior to generic entry, it was necessary to only consider drugs with first generic entry

starting in the fourth month after the first date for which sales data was available. Consequently,

this graph is based on data for drugs with first generic entry starting in April of 2003, unlike

other tabulations in this chapter that do not require the pre-entry sales, and can thus start earlier.

B. AG Launch by Highest Patent Certification in ANDAs

To determine the highest patent certification in ANDAs for each drug for which an AG

was marketed, we used the FDA’s application database to identify all ANDAs filed with respect

to the NDA under which the AG is approved.34 This information was graphed according to the

year the AG was launched (2001–2008), not the year of certification, which generally would

have been much earlier.

Methods Related to Chapter 7

VI. Trends in ANDA Filings and Patent Certifications

To analyze trends in ANDA filings (Figures 7-1 and 7-2), we obtained information on

ANDAs from the FDA’s application database, the Center-wide Oracle-based Management
35 COMIS was used by the FDA “to track information about the receipt and review status of

investigational new drug applications (INDs), new drug applications (NDAs), and abbreviated new

drug applications (ANDAs).” See Drugs@FDA Frequently Asked Questions, U.S. FOOD AND DRUG

ADMIN., http://www.fda.gov/Drugs/InformationOnDrugs/ucm075234.htm. The FDA provided

information from the database to the FTC in 2008, including applications filed by May 13, 2008. 

Beginning in 2009, the FDA tracked applications in its Document Archiving, Reporting, and

Regulatory Tracking System (DARRTS). Because of difficulties in working with 2008 information

that arose from two different systems, we were unable to extend most of our analyses based on

application data past the end of 2007. 

36 Paragraph IV Patent Certifications, U.S. FOOD AND DRUG ADMIN.,

http://www.fda.gov/Drugs/DevelopmentApprovalProcess/HowDrugsareDevelopedandApproved/Appr

ovalApplications/AbbreviatedNewDrugApplicationANDAGenerics/ucm047676.htm (last updated

June 10, 2011) (reporting the dates of first PIV certifications after March 2, 2004).

37 Although expressly limited to first PIV certifications after March 2, 2004, the FDA’s Paragraph IV

Patent Certification website includes two first PIV certifications between January 1, 2004, and March

2, 2004, with dates generally consistent with those we estimated from the FDA’s application database.

H-11

Information System (COMIS).35 Unlike other analyses in Chapters 2 and 7, the analysis of

trends in ANDA filings from 2000–2007 included ANDAs for drugs that were not otherwise

included in the study, including dosage forms that are not capsules or tablets. Thus, for Figure

7-1 we determined the numbers of ANDAs filed per year based on the filing (“clock”) dates of

all dosage forms of ANDAs filed during that period.

We also used the FDA’s application database to examine trends in PIII and PIV patent

certifications from 2000–2007 (Figure 7-2). Although a patent certification must be made with

respect to every patent listed in the Orange Book, the application database lists only the highest

certification made. Thus, if an ANDA contains a Paragraph IV certification for any patent, the

database shows a Paragraph IV certification even if the applicant also made Paragraph II (the

patent is expired) or Paragraph III certifications for other patents. 

VII. Drugs Subject to a First Patent Challenge 

To examine trends in drugs subject to a first patent challenge (Figure 7-3), the dates of

the first patent challenge for a given drug (i.e., for a particular dosage form and NDA) were

determined for all tablet and capsule forms of drugs for which the first challenge occurred from

2003 through 2008. We used the FDA’s Paragraph IV Patent Certifications website36 for

challenges from March 2, 2004, through the end of 2008 and the FDA’s application database for

those between January 1, 2003, and March 2, 2004.37 When using the FDA’s application

database, which lacked certification dates, we estimated the date of the first PIV certification by

assuming that the date of filing was the same as the date of certification, unless the FDA’s

Paragraph IV website showed a later certification date. Thus, we identified all drugs for which

the first ANDA with a PIV certification was filed between January 1, 2003, and March 2, 2004,

and excluded the three drugs for which the FDA’s Paragraph IV Patent Certifications website

showed a later date for the first PIV certification.
38 Analysis by drug also avoids counting repeated “first PIVs” in anomalous situations such as when the

brand adds a new strength many years after initial NDA approval, or a generic company files an

ANDA with a PIV certification for a strength not approved under an NDA.

39 Drugs not subject to a PIII or PIV may lack patent protection or may be covered by regulatory

exclusivities that extend beyond the drug’s patent protection or prohibit a challenge. 

40 Unlike PIV patent certifications, no website reports PIII patent certifications.

H-12

Similar to other analyses, the dates of first patent challenge are presented by drug (NDA),

rather than by strength. This is consistent with the observation that in most cases, the same

patents are listed for each strength of a drug, and most ANDAs include all strengths of a drug. 

When the first PIV certifications for different strengths were made on different dates, as

occasionally occurs, the earliest date was used. The use of a single PIV certification date for a

drug simplifies the determination of the sales level of a drug at the time of patent challenge, by

ensuring that the sales of a single year are used.38

VIII. Drugs Subject to a First Paragraph III Certification 

To evaluate the extent to which generic companies chose to make PIII rather than PIV

certifications and wait until patent expiration to enter the market, we examined trends in “first

PIII certifications” for drugs for which the first PIII was between 2003 and 2007 (Table 7-3). 

We define “first PIII” drugs as those for which the highest certification in all ANDAs was a PIII. 

Thus, if an ANDA with a first PIII is amended to include a PIV certification, or if a prior or

subsequent ANDA for the same drug includes a PIV certification, the drug is categorized as a

first PIV rather than a first PIII. In essence, the first PIII and first PIV drugs represent the

population of patent-protected drugs that generic companies viewed as available for patent

challenge.39 

The year of the “first PIII certification” for a given drug (i.e., for a particular dosage form

and NDA) was estimated from ANDA filing dates in the FDA’s application database.40 Using

the database, we identified all ANDAs filed from 2003–2007 for which the highest certification

was a PIII certification. Based on the established name, dosage form, and strengths, we

determined the reference-listed drug for each ANDA, and excluded those for which the drug was

listed on the FDA’s Paragraph IV Patent Certification website as of February 7, 2011. We

excluded from the remaining ANDAs those for drugs for which an earlier-filed ANDA made a

PIII certification, and thus determined, for each brand-name drug not subject to a PIV

certification, the year of filing of the first ANDA with a PIII certification. 

IX. Sales Levels of Drugs Subject to a First Paragraph III or IV Certification

To assess the financial incentives underlying decisions to attempt to enter the market

before patent expiration by making a PIV certification, or to make a PIII certification and wait to

enter after patent expiration (Tables 7-1, 7-2, 7-4; Figure 7-4), we determined the sales level of

brand-name drugs subject to first PIII or PIV certifications. The sales level used was that of the

year of the first PIII or PIV certification, according to IMS Health NPA data. 
41 The first PIV certifications for these drugs occurred 2–11 months after NDA approval, and the length

of time from NDA approval to the end of the year ranged from 6.5–11.3 months.

42 See 21 C.F.R. § 314.108. 

43 For the few instances in which more than one dosage form of the same active ingredient had NCE

exclusivity, the figure includes only the first dosage form (NDA) that was approved, for which

ANDAs with PIV certifications cannot be filed for four years after NDA approval. The figure does not

include later-approved dosage forms of the same active ingredient because NCE exclusivity for all

dosage forms of the same active ingredient ends on the same date, and the period for which ANDAs

with PIV certifications cannot be filed is less than four years for the later approved dosages forms. See

Abbreviated New Drug Application Regulations, 54 Fed. Reg. 28,872, 28,897 (July 10, 1989) (NCE

exclusivity applies to active moiety, not specific drug product).

44 Lists of NCEs with approval dates from 1998–2004 (first PIV dates from 2002–2008) were obtained

from the FDA website and from the cumulative Orange Book database obtained from the FDA. NME

Drug and New Biologic Approvals, U.S. FOOD AND DRUG ADMIN.,

http://www.fda.gov/Drugs/DevelopmentApprovalProcess/HowDrugsareDevelopedandApproved/Drug

andBiologicApprovalReports/ucm121136.htm. The set of NCEs with NDAs approved from

1998–2004 included all NCEs for which the first possible day for a challenge occurred from 2002

H-13

For ten drugs for which the first PIV certification was in the same year as NDA approval,

with less than a full year’s sales for that year, we annualized the sales based on sales from NDA

approval to the end of the year.41 Annualization based on the first year’s sales is consistent with

the limited sales data that must have been available to the generic companies at the time of PIV

certification, as well as the analysis of drugs for which a full year of sales was available for the

year of the first PIV certification. No first PIII certifications occurred in the same year as NDA

approval, so annualization was not necessary for first PIII drugs. 

X. New Chemical Entities–Shared Exclusivity 

Drugs with New Chemical Entity (“NCE”) exclusivity42 were used to examine the

frequency of patent challenges under circumstances likely to result in shared 180-day exclusivity

(Figure 7-5, Table 7-5). 

A. Percentage of NCEs that Received a First-Day PIV Certification

To ensure that each NCE analyzed was approved a full 4 years (or 4.5 years, for those

with pediatric exclusivity) before the first day an ANDA with a PIV could be filed, only the

first-approved NDA for each NCE was included in the analysis.43 Accordingly, each NCE

analyzed was at the same stage in its life cycle with respect to sales, public awareness, and other

factors that could affect a decision to challenge a patent.

For the first-approved NDA for each NCE approved from 1998–2004, we determined the

first date on which an ANDA with a paragraph IV certification could be filed, including any

pediatric exclusivity, and the date of the first PIV certification, if any, as described supra in

Section VII.44 Using the cumulative Orange Book database, we excluded from the analysis
through 2008: No NCE with an NDA approved during the last six months of 1997 had pediatric

exclusivity that made the first possible day for a patent challenge occur in the first half of 2002 instead

of the last half of 2001. Similarly, no NCE with an NDA approved during the last six months of 2004

had pediatric exclusivity that extended the first possible day for a challenge from the last half of 2008

to the first half of 2009.

45 For ANDAs filed Jan. 1, 2002–May 13, 2008, we used the COMIS database, while the DARRTS

database was used for ANDAs filed May 14, 2008–Dec. 31, 2008. See supra note 35. ANDA filings

determined with the DARRTS database were cross-checked against publicly available litigation filings

and other documents.

H-14

NDAs that were not available for patent challenge or for which a patent challenge would not

advance entry, including those that lacked listed patents on the first day on which a patent could

be challenged, or lacked patent protection after the expiration of regulatory exclusivity (e.g.,

after the expiration of NCE exclusivity or Orphan Drug Exclusivity). The remaining NCEs were

used to determine the number and percentage for which an ANDA with a paragraph IV

certification had been filed on the first possible day (Figure 7-5). 

B. Number of ANDAs Filed on the First Possible Day

We used information from the FDA’s application databases to determine the number of

ANDAs filed on the first possible day.45 Only NCEs with first-day ANDAs were included in

calculations of the mean number of first-day ANDAs per NCE (Table 7-5), so that the results

reflect the likely number of competitors during any 180-day exclusivity with respect to NCEs

that received a first-day patent challenge. Similarly, although companies occasionally submitted

multiple first-day ANDAs for the same drug (e.g., for different strengths), we counted only one

ANDA per company to ensure that the count reflects the likely number of competitors during

180-day exclusivity. However, because the FDA may not deem all such filings as “substantially

complete” or approvable, or a company may withdraw an application or decide not to market an

approved ANDA product (e.g., because of a merger of two filers), these numbers should be

considered only estimates of the number of companies that will compete during exclusivity. 
1 The Federal Trade Commission received prescription sales information from over 100 drug firms

representing product-level sales information over the period 1/1/2000–3/31/2007. Unfortunately,

much of the firm data proved intractable due in part to inconsistencies across firms, and sometimes

across products within a firm. For example, the firms often applied discounts, charge-backs, returns,

drug expirations and other product flow information as periodic accounting adjustments. These

adjustments were made on irregular bases over time and could differ in timing across dollar and

quantity sales of the same product. As a consequence, the sales adjustments frequently led to negative

sales dollars and quantities, which made calculation of meaningful prices problematic. These issues

led us to purchase sales information from a data vendor. 

2 Certain discounts may not be accounted for in this data. IMS CONSULTING, IMS HEALTH,

ASSESSMENT OF AUTHORIZED GENERICS IN THE U.S. 19 (2006) (written for the Pharm. Research and

Mfrs. of Am. (“PhRMA”)),

http://replay.web.archive.org/20061009134405/http://www.phrma.org/files/IMS%20Authorized%20G

enerics%20Report_6-22-06.pdf (“[P]rompt-payment cash discounts and bottom-line invoice discounts

are not reflected in the dollar purchase amounts. Also, it should be noted that volume purchase

estimates may not always reflect drop shipment activity.”) As long as these omitted discounts do not

vary systematically between authorized and ANDA-generic products, the absence of information on

I-1

APPENDIX I TECHNICAL DATA APPENDIX

This appendix describes the sources of data used in the analysis of Chapters 3 and 6 and

details the criteria used to construct the data sample. Additionally, it summarizes characteristics

of the sample, and discusses how the analysis was tailored to account for some of these

characteristics.

I. Data Sources

The data for this Report were acquired from several sources. The retail and wholesale

price, expenditure, and quantity data were licensed from IMS Health, Inc. Authorized generic

products and their distributors were identified based on information produced by pharmaceutical

companies pursuant to the Commission’s information requests (“Special Orders”), press

releases, and information provided by the FDA.1 The following sections describe, in detail, the

data obtained from each of these sources and how they have been combined for use in the

Report. 

A. IMS Health Inc.

The FTC purchased a license from IMS Health for information representing nationally

aggregated, monthly sales information for each non-injectable prescription medication

distributed in the United States over the period from January 2003 through December 2008. 

This information included: (1) the National Sales Perspective (NSP) Survey, which represents

wholesale level quantity and dollar sales2

 information for products purchased by retail and non-
these discounts should not bias the analysis. 

3 Most molecules were assigned to the most prevalently observed therapeutic class observed in the data. 

However, the molecule, Bupropion, represents an important exception. The molecule Bupropion must

be distinguished by whether it is used to treat smoking addiction or depression. Nitrofurantoin was

excluded from the analysis because it is associated with several molecular names in the FDA data.

4 Dosage forms were defined using the “three-lettered” code defined by IMS. The mapping of this

variable into dosage forms used in the analysis is provided in Table I-4. This mapping was necessary

in order to match the IMS and FDA data.

5 Several market outcomes, such as prices, have been normalized based on the market conditions that

existed prior to generic entry. Consequently, even though data for the first three months of 2003 were

available, that information was used only to calculate pre-generic entry market characteristics for

products that experienced generic entry early in 2003.

6 This process dropped Clopidogrel 75mg tablets, Ondansetron 24mg tablets, Fenofibrate 160mg tablets,

Fenofibrate 54mg tablets, Trimethobenzamide 300mg capsules, and Amantadine 100mg tablets.

I-2

retail pharmacies; and (2) the National Prescription Audit (NPA) Survey, which represents retail

quantity and dollar sales information for prescriptions dispensed primarily at retail pharmacies. 

All sales information in both sets of data is reported in nationally aggregated form within

channels, and for the analysis presented here, the data have been aggregated across channels.

In addition to monthly sales information, both surveys provided detailed information

about each product. This information included the 11-digit National Drug Code (NDC),

strength, dosage form, therapeutic class, manufacturer and name of the active ingredient(s) in a

single dose. IMS also provided the date the product was first recorded as having sales (dates as

early as 1950 are reported), whether the medication was sold over-the-counter or as a

prescription, and whether the manufacturer of the product is a generic or a brand-name

manufacturer.3

 Taken together, the data provide information on each product at the 11-digit

NDC level of specificity, broken down by pharmacy channel. A product is defined in the

analysis as an active ingredient(s)-dosage form-strength-therapeutic class-manufacturer

combination.4

The sample of products analyzed was limited to tablet and capsule dosage forms of

prescription products that first faced generic competition during the period 4/2003–12/2008.5 All

products that are not oral solids, including syrups, ointments, and liquids of any kind, were

excluded. Over-the-counter medications and vitamins were also excluded because they often are

sold in channels that IMS does not survey. All decongestants were excluded because the set of

active ingredients included in decongestant combinations was very large and often changed over

time, making it difficult to track a product from year to year. In addition, products that

represented outliers based on extreme values in both the quantity and revenue data have been

excluded.6 Tables at the end of this appendix list the set of products included in the sample

(Table I-3), the dosage form mapping used (Table I-4), the list of suppliers counted as

repackagers (Table I-5), and the lists of decongestant (Table I-6) and vitamin (Table I-7)

therapeutic classes excluded.
7 On occasion, positive but small sales figures were observed for a generic firm earlier than other

reliable information suggests it could be on the market. Therefore, generic sales that occurred prior to

the FDA-defined exclusivity period and that represented less than 0.5% of pre-entry brand sales were

excluded.

8 The six-month limitation on the length of the exclusivity period affects only products in “AG Only”

markets. The three-year window considered outside exclusivity is a maximum length. The analysis

considers drugs with shorter time horizons. The three-year mark was chosen because less than half of

the drugs in the sample were observed for more than three years.

9 The IMS data do not always differentiate between manufacturers and repackagers. Although

repackagers were not included in the count of manufacturers, the sales associated with them were used

to construct price and sales figures. A list of companies treated as repackagers is provided in Table I5. Incorrect identification of the repackagers could cause over- or under-statement of the number of

active generic manufacturers of a product.

10 See FED. TRADE COMM’N, PHARMACY BENEFIT MANAGERS: OWNERSHIP OF MAIL-ORDER

PHARMACIES ch. VI (2005), http://www.ftc.gov/reports/pharmbenefit05/050906pharmbenefitrpt.pdf

(providing additional information on repackagers).

I-3

Products were defined as beginning to face generic competition during the period on the

basis of the manufacturer, brand status, and sales information provided by IMS. The

manufacturer and brand status information were used to classify each product into one of two

types: brand and generic. A product was treated as facing generic competition if at least one

generic manufacturer (including the AG distributor) of the product had positive sales prior to the

end of the sample. The product was treated as having begun to face generic competition during

the sample period if it faced generic competition during the period and all generic manufacturers

had zero sales prior to April 2003. The date of generic entry was defined as the first date on

which a manufacturer other than the brand was observed with positive sales.7

 Exclusivity

periods were limited to no more than 6 months time, and the non-exclusivity period was limited

to the first three years after generic entry.8 

Company and FDA information were used to classify generic products as either ANDAgenerics or authorized generics. The number of generic manufacturers producing each product

was defined as the count of manufacturers observed with positive sales during the month. The

indicator of whether the molecule faced an AG competitor was similarly defined by whether the

AG manufacturer had positive sales during the month. The manufacturer count included the AG

manufacturer but excluded firms that were determined likely to be repackagers.9

 Repackagers

purchase supplies from manufacturers and distribute them in some alternate form of packaging,

such as blister packs.10

B. FDA and Company Data

Sales information from IMS was supplemented with data collected from the FDA and the

product manufacturers. These sources were used to identify whether a firm issued an authorized

generic and the name of the AG marketer when applicable. They were also used to determine

details about relevant Hatch-Waxman related legal actions associated with each product,
11 See, e.g., FDA Listing of Authorized Generics, U.S. FOOD AND DRUG ADMIN.,

http://www.fda.gov/AboutFDA/CentersOffices/CDER/ucm126391.htm (last updated Mar. 25, 2011).

12 See Paragraph IV Patent Certifications, U.S. FOOD AND DRUG ADMIN.,

http://www.fda.gov/Drugs/DevelopmentApprovalProcess/HowDrugsareDevelopedandApproved/Appr

ovalApplications/AbbreviatedNewDrugApplicationANDAGenerics/ucm047676.htm (last updated

June 10, 2011) (list updated twice a month).

13 For example, if the exclusivity period as identified by the FDA ended on June 15, 2005, then the

exclusivity would include the months December 2004 through May 2005 but would exclude June. 

However, if the end date of the exclusivity was June 29th, then the month of June would also be

included in the exclusivity period.

I-4

including whether the product faced a Paragraph IV challenge and the end date of exclusivity

periods associated with Paragraph IV challenges. 

AGs were identified using information produced by pharmaceutical companies pursuant

to the Special Orders and information provided by the FDA.11 The Special Orders requested the

proprietary/trade name of the AG, the proprietary name of the brand-name drug for which the

NDA authorizes the marketing of the AG, the active ingredient, the dosage form, the NDA

number of the brand-name drug that authorizes the marketing of the AG, and the strength of the

AG. This information was collected from both the generic and brand-name manufacturers. In

addition, brand-name manufacturers were requested to provide the name of the entity associated

with each NDC labeler code, enabling identification of the AG distributor.

The most relevant Hatch-Waxman related information was whether the product faced a

Paragraph IV patent challenge and whether a generic manufacturer was granted exclusivity

related to a Paragraph IV challenge. A list of drugs facing Paragraph IV challenges was

downloaded from the FDA website.12 For each drug associated with a 180-day exclusivity

period, the date that generic exclusivity ended was determined from information provided by the

FDA. A month was treated as part of the exclusivity period if the 28th day of the month occurred

prior to the exclusivity end date.13

This information was supplemented with settlement data from the company responses to

the Special Orders. The Special Orders requested all firms to identify whether the marketing of

an AG occurred pursuant to a litigation settlement agreement. The Special Orders asked brandname firms whether the firm had entered a litigation settlement agreement not to market the AG

or to delay doing so. Settlement information received from the Special Orders was confirmed

and verified using information collected by the FTC pursuant to the Medicare Modernization

Act. The data were coded to distinguish whether the settlement licensed the AG distribution

rights to the litigant, or whether the terms of the settlement restricted the distribution of an AG.

C. Bureau of Labor Statistics

All dollar values for expenditures and prices were normalized to be in December 2008

dollars using the monthly Producer Price Index (PPI) for finished goods (WPSSOP3000) over
14 See Producer Price Indexes, BUREAU OF LABOR STATISTICS, http://www.bls.gov/ppi/data.htm.

I-5

the period of our data (January 2003 through December 2008). These data were obtained from

the Bureau of Labor Statistics.14

II. Properties of the Data

As detailed above, this Report considers a very wide range of drugs, from pain killers to

anti-cholesterol drugs to antibiotics. The benefit of this approach is that the analysis can be

informed by a large sample size. A potential danger is that the analysis could produce

misleading results by comparing apples to oranges. This section describes the heterogeneity

observed in the sample and the steps that were taken to tailor the analysis accordingly.

A. Sample Characteristics

Table I-1 presents product-level information describing the variables used to construct

the regression samples. More than 60% of the products in the sample face a Paragraph IV

certification. However, less than 40% of all products, and 63% of products facing a Paragraph

IV certification, were observed with an exclusivity period. AGs were observed for roughly half

of the products in the sample, with half distributed through a licensee and half through a

subsidiary of the brand-name firm. 

Settlements between brand-name and ANDA-generic firms can be important

determinants of whether an AG is observed for a product. Table I-1 reports that 14% of products

in the sample are involved in a settlement involving an AG. Nearly two-thirds of these

settlements named the litigant as the AG distributor, whereas the rest restricted the ability of the

brand to issue an AG. 

Table I-1: Hatch-Waxman Act and Authorized Generic Statistics

Variable Obs. Mean

Hatch-Waxman and Authorized Generic Information

Paragraph IV 312 0.625

Exclusivity 312 0.394

Authorized Generic 312 0.535

AG is Distributed by a Licensee 312 0.272

AG is Distributed by a Subsidiary 312 0.263

Settlements Involving an AG

Settlements Involving an AG 312 0.138

Litigant Named the AG Distributor 312 0.087

Settlement Terms Require no AG 312 0.051
I-6

B. Heterogeneity of Products Based on Market Size

The regression analyses in Chapters 3 and 6 often include product-characteristic controls

in an attempt to control for the non-random determinants of the competitive environment, such

as the presence of an AG. The importance of controlling for the determinants of the competitive

environment can be seen in Figure I-1, which plots the pre-entry retail sales of the brand-name

product against the relative frequencies of Paragraph IV challenges, AG entry, and the maximum

number of generic competitors observed for that product in any month in our sample. 

This figure shows that all three of these competition measures are generally increasing in

pre-entry retail dollar sales. The horizontal axis measures retail sales of the brand-name product

just prior to generic entry, grouped in deciles. So, for example, the first point on the Paragraph

IV line shows that about 20% of the smallest 10% of products faced Paragraph IV challenges. 

The frequency of Paragraph IV challenges increases as the pre-entry brand sales grow (moving

to the right on the graph), with over 90% of the largest 10% of products getting challenged. The

presence of AG competitors follows a similar pattern. Less than ten percent of products in the

lowest sales deciles have an AG competitor, but nearly 90% of the products in the highest sales

decile have an AG competitor. The third statistic counts the maximum number of manufacturers

observed for each product (measured on the vertical axis to the right) over the entire sample. 

Figure I-1 shows that products with larger pre-entry brand sales tend to attract more generic

competitors. The average number of generic competitors in the lowest sales deciles is slightly

more than three per product, but products in the highest sales decile have an average of over nine

generic competitors per product by the end of the sample period. 
15 Another way to group products would be by chemical properties of the active ingredients, but the

condition treated by the product is, arguably, the single most important characteristic relating the

products in a category. For example, the molecule Bupropion is used to treat two conditions, smoking

addiction and clinical depression. Bupropion is categorized into two therapeutic codes that represent

the treatment of these conditions, despite being the exact same molecule and thus having identical

chemical properties. 

I-7

Figure I-1: The Influence of Market Size

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1 2 3 4 5 6 7 8 9 10

Retail Market Size Deciles

Percentage of Products

0

2

4

6

8

10

12

Number of Manufacturers

% Paragraph IV % AG Maximum Manufacturers

C. Controlling for Product Heterogeneity with Product Characteristic Effects

Figure I-1 demonstrates that products facing competition from an AG are potentially

different from other types of drugs with respect to the size of the market, and thus, potentially,

the attractiveness of generic entry. As noted in Chapter 3, the regression analysis includes

product characteristic controls to help control for these influences. The product characteristics

used include the dosage form of the product, therapeutic class indicator variables, and the month

since generic entry began. Table I-2 presents the relative frequencies of dosage forms and

therapeutic class characteristics observed in the sample. The vast majority of products are

immediate release tablets (67.9%) or capsules (11.5%). However, extended-release tablets and

capsules represent a non-trivial fraction of the sample, accounting together for nearly 15% of

products.

The therapeutic class indicators utilized in the analysis were provided by the data vendor,

IMS Health. The classes were used to group products treating similar conditions together.15 The

regression analysis uses therapeutic class indicators to help control for potentially unobserved
I-8

differences, between products with and without AGs, that are constant across the condition

treated. The drugs in the sample are classified into 31 different therapeutic classes. Of these 31

therapeutic classes, 15 contain drugs that are observed with an exclusivity period. Over half of

the products in the sample belong to the three largest classes, Vascular Agents,

Psychotherapeutics, and Neurological Disorders. In contrast, each of the 12 smallest classes

includes less than 1% of the products. 
I-9

Table I-2 : Product Characteristics Summary Statistics

Variable Obs. Mean Std. Dev.

Dosage Form

Tablet 312 0.679 0.467

Capsule 312 0.115 0.320

Chewable 312 0.006 0.080

Orally Disintegrating 312 0.038 0.193

Extended Release Capsule 312 0.035 0.185

Extended Release Tablet 312 0.112 0.316

Sustained-Release Tablet 312 0.013 0.113

Therapeutic Class

Allergy/Cold Preps* 312 0.013 0.113

Amebacide/Antibacterial Agent 312 0.006 0.080

Analgesics* 312 0.035 0.185

Anti-arthritics 312 0.013 0.113

Anti-Fungal Agents* 312 0.019 0.138

Anti-hyperlipidemic Agent* 312 0.032 0.176

Anti-Infectives Systemic* 312 0.074 0.262

Anti-nauseant* 312 0.016 0.126

Antineoplastic Agents 312 0.003 0.057

Anti-Obesity 312 0.003 0.057

Anti-viral* 312 0.035 0.185

Cardiac Agents 312 0.010 0.098

Contraceptives 312 0.003 0.057

Dermatologicals 312 0.003 0.057

Diabetes Therapy* 312 0.054 0.227

Diuretics & Aquaretics 312 0.010 0.098

Gastrointestinal* 312 0.022 0.148

Genitourinary* 312 0.019 0.138

Hemostatic Modifiers 312 0.013 0.113

Hormones* 312 0.026 0.158

Miscellaneous Preps 312 0.003 0.057

Musculoskeletal* 312 0.035 0.185

Neurological Disorders* 312 0.131 0.338

Ophthalmic Preparations 312 0.003 0.057

Parasympathetics 312 0.003 0.057

Psychotherapeutics* 312 0.163 0.370

Sedatives & Hypnotics 312 0.022 0.148

Smoking Deterrents 312 0.003 0.057

Thyroid Therapy 312 0.013 0.113

Tuberculosis Therapy 312 0.003 0.057

Vascular Agents* 312 0.208 0.407

*At least one drug in the therapeutic class is observed during exclusivity.
16 Even without considering dollars sold, some therapeutic classes may represent a large fraction of total

products sold in the market, but represent a small number of products beginning to face generic

competition during the time window of this analysis. 

17 The market-size metric is the ratio between the average market size of the therapeutic class against the

average overall market size. For example, a value of 3 indicates that the therapeutic class has a market

size that is three times larger than the average product.

I-10

Although a therapeutic class may contain a small fraction of the products in the sample, it

could represent a large fraction of dollars sold.16 For example, the contraceptives therapeutic

class includes among the fewest products of all therapeutic classes in the sample, but in terms of

dollars sold, contraceptives are among the largest therapeutic classes. The size of the class, as

measured in terms of dollars sold, is an important determinant of the competitive environment. 

This relationship can be seen in Figure I-2 which plots a market-size metric,17 the proportion of

products observed with an AG, and the proportion of products facing a Paragraph IV challenge

for the therapeutic classes observed in the sample of 312 products. The figure sorts the

therapeutic classes by the proportion of Paragraph IV challenges, showing those with the

smallest fraction of Paragraph IV challenges on the left and those with the highest fraction of

Paragraph IV challenges on the right. 

Figure I-2: Therapeutic Class, Hatch-Waxman Act and Authorized Generics

0

0.5

1

1.5

2

2.5

3

3.5

Parasympathetics

Thyroid Therapy

Tuberculosis Therapy

Amebacide/Antibacterial

Anti-Obesity

Cardiac Agents

Dermatologicals

Diuretics & Aquaretics

Ophthalmic Preparations

Hemostatic Modifiers

Miscellaneous

Antineoplastic Agents

Antiarthritics

Systemic Anti-Infectives

Sedatives & Hypnotics

Musculoskeletal

Hormones

Gastrointestinal

Diabetes Therapy

Genitourinary

Psychotherapeutics

Allergy/Cold Preparations

Vascular Agents

Antinauseant

Neurological Disorders

Analgesics

Anti-Viral

Smoking Deterrents

Anti-Fungal

Contraceptives

Antihyperlipidemic

Therapeutic Class

Fraction

Fraction of AG Fraction of Paragraph IV Market Size Ratio

Figure I-2 suggests that the therapeutic class indicators help to explain much of the relationship
18 For example, some of the products in the sample are ineligible to face a Paragraph IV challenge. 

I-11

between Paragraph IV challenges, AG competition and market size. The therapeutic classes

with very few Paragraph IV challenges, such as the Parasympathetics, located on the left of the

graph, are small products in terms of pre-entry sales. These small products are also unlikely to

be observed with AG competition. In contrast, the therapeutic categories with a high percentage

of products facing Paragraph IV challenges, located on the far right of the graph, are typically

very large products in terms of pre-entry sales. These categories always face Paragraph IV

challenges, are very likely to face AG competition, and include some of the largest products in

the sample. However, the therapeutic classes in the middle of the graph can fall anywhere in the

distribution of pre-entry sales. In this way, the therapeutic classes appear to be able to control

for conditions that explain Paragraph IV entry and AG competition that are not entirely

explained by market size.18 

III. Detailed Lists Describing the Sample
I-12

Table I-3: Products Used in the Analysis by Therapeutic Class

Allergy/Cold Preps

Cetirizine, 10mg Tablet

Fexofenadine, 180mg, 30mg, 60mg Tablets

Amebacide/Antibacterial Agent

Metronidazole, 375mg Capsule

Metronidazole, 750mg Extended-Release Tablet

Analgesics

Acetaminophen/Propoxyphene, 100-500mg Tablet

Acetaminophen/Tramadol, 37.5-325mg Tablet

Hydrocodone/Ibuprofen, 7.5-200mg Tablet

Ibuprofen/Oxycodone, 5-400mg Tablet

Oxycodone, 10mg, 20mg, 40mg, 80mg Extended-Release Tablets

Sumatriptan, 100mg, 25mg, 50mg Tablets

Antiarthritics

Leflunomide, 10mg, 20mg Tablets

Meloxicam, 15mg, 7.5mg Tablets

Anti-Fungal Agents

Fluconazole, 100mg, 150mg, 200mg, 50mg Tablets

Itraconazole, 100mg Capsule

Terbinafine, 250mg Tablet

Antihyperlipidemic Agent

Colestipol, 1000mg Tablet

Pravastatin, 10mg, 20mg, 40mg, 80mg Tablets

Simvastatin, 10mg, 20mg, 40mg, 5mg, 80mg Tablets

Anti-Infectives Systemic

Amoxicillin/Clavulanic Acid, 250-125mg Tablet

Azithromycin, 250mg, 500mg, 600mg Tablets

Cefdinir, 300mg Capsule

Cefpodoxime Proxetil, 100mg, 200mg Tablets

Cefprozil, 250mg, 500mg Tablets

Ciprofloxacin, 1000mg, 500mg Extended-Release Tablets

Ciprofloxacin, 100mg, 250mg, 500mg, 750mg Tablets

Clarithromycin, 500mg Extended-Release Tablet

Clarithromycin, 250mg, 500mg Tablets

Demeclocycline, 150mg, 300mg Tablets

Ofloxacin, 200mg, 300mg, 400mg Tablets

Antinauseant

Granisetron, 1mg Tablet

Ondansetron, 4mg, 8mg Orally Disintegrating/Ecteric Coateds

Ondansetron, 4mg, 8mg Tablets

Antineoplastic Agents

Mercaptopurine, 50mg Tablet
I-13

Table I-3: Products Used in the Analysis by Therapeutic Class (continued)

 Anti-Obesity

Benzphetamine, 50mg Tablet

Antiviral

Didanosine, 200mg, 250mg, 400mg Extended-Release Capsules

Famciclovir, 125mg, 250mg, 500mg Tablets

Ganciclovir, 250mg, 500mg Capsules

Ribavirin, 200mg Capsule

Zidovudine, 100mg Capsule

Zidovudine, 300mg Tablet

Cardiac Agents

Midodrine, 10mg, 2.5mg, 5mg Tablets

Contraceptives

Drospirenone/Ethinylestradiol, 3-0.03mg Tablet

Dermatologicals

Tretinoin, 10mg Capsule

Diabetes Therapy

Acarbose, 100mg, 25mg, 50mg Tablets

Glimepiride, 1mg, 2mg, 4mg Tablets

Glipizide, 10mg, 2.5mg, 5mg Extended-Release Tablets

Glipizide/Metformin, 2.5-250mg, 2.5-500mg, 5-500mg Tablets

Glyburide/Metformin, 1.25-250mg, 2.5-500mg, 5-500mg Tablets

Metformin, 500mg, 750mg Extended-Release Tablets

Diuretics and Aquaretics

Metolazone, 10mg, 2.5mg, 5mg Tablets

Gastrointestinal

Balsalazide, 750mg Capsule

Glycopyrrolate, 1mg, 2mg Tablets

Omeprazole, 10mg, 40mg Extended-Release Capsules

Pantoprazole, 20mg, 40mg Orally Disintegrating/Ecteric Coateds

Genitourinary

Butabarbital/Hyoscyamine/Phenazopyridine, 150-0.3-15mg Tablet

Finasteride, 5mg Tablet

Flavoxate, 100mg Tablet

Oxybutynin, 10mg, 15mg, 5mg Extended-Release Tablets

Hemostatic Modifiers

Anagrelide, 0.5mg, 1mg Capsules

Cilostazol, 100mg, 50mg Tablets

Hormones

Desmopressin, 0.1mg, 0.2mg Tablets

Estrogenic Sub,Conjugated, 0.45mg Tablet

Hydrocortisone, 5mg Tablet

Methylprednisolone, 16mg, 32mg Tablets

Oxandrolone, 10mg, 2.5mg Tablets
I-14

Table I-3: Products Used in the Analysis by Therapeutic Class (continued)

Miscellaneous Preps

Cabergoline, 0.5mg Tablet

Musculoskeletal

Alendronate, 10mg, 35mg, 40mg, 5mg, 70mg Tablets

Cyclobenzaprine, 5mg Tablet

Dantrolene, 100mg, 25mg, 50mg Capsules

Etidronic Acid, 200mg, 400mg Tablets

Neurological Disorder

Clonazepam, 0.125mg, 0.25mg, 0.5mg, 1mg, 2mg Orally Disintegrating/Ecteric Coateds

Divalproex, 125mg, 250mg, 500mg Tablets

Gabapentin, 100mg, 300mg, 400mg Capsules

Gabapentin, 600mg, 800mg Tablets

Galantamine, 16mg, 24mg, 8mg Extended-Release Capsules

Galantamine, 12mg, 4mg, 8mg Tablets

Lamotrigine, 25mg, 5mg Chewables

Lamotrigine, 100mg, 150mg, 200mg, 25mg Tablets

Levetiracetam, 250mg, 500mg, 750mg Tablets

Oxcarbazepine, 150mg, 300mg, 600mg Tablets

Ropinirole, 0.25mg, 0.5mg, 1mg, 2mg, 3mg, 4mg, 5mg Tablets

Zonisamide, 100mg, 25mg, 50mg Capsules

Ophthalmic Preparations

Acetazolamide, 500mg Extended-Release Capsule

Parasympathetics

Bethanechol, 5mg Tablet

Psychotherapeutics

Alprazolam, 0.5mg, 1mg, 2mg, 3mg Extended-Release Tablets

Bupropion, 300mg Extended-Release Tablet

Bupropion, 100mg, 150mg, 200mg Sustained-release Tablets

Citalopram, 10mg, 20mg, 40mg Tablets

Dexmethylphenidate, 10mg, 2.5mg, 5mg Tablets

Lithium, 300mg Extended-Release Tablet

Methamphetamine, 5mg Tablet

Mirtazapine, 15mg, 30mg, 45mg Orally Disintegrating/Ecteric Coateds

Mirtazapine, 45mg Tablet

Nefazodone, 100mg, 150mg, 200mg, 250mg, 50mg Tablets

Paroxetine, 12.5mg, 25mg, 37.5mg Extended-Release Tablets

Paroxetine, 10mg, 20mg, 30mg, 40mg Tablets

Protriptyline, 10mg, 5mg Tablets

Risperidone, 0.25mg, 0.5mg, 1mg, 2mg, 3mg, 4mg Tablets

Sertraline, 100mg, 25mg, 50mg Tablets

Tranylcypromine, 10mg Tablet

Trimipramine, 25mg, 50mg Capsules

Venlafaxine, 100mg, 25mg, 37.5mg, 50mg, 75mg Tablets
I-15

Table I-3: Products Used in the Analysis by Therapeutic Class (continued)

Sedatives and Hypnotics

Methylphenobarbital, 100mg, 32mg, 50mg Tablets

Zaleplon, 10mg, 5mg Capsules

Zolpidem, 10mg, 5mg Tablets

Smoking Deterrents

Bupropion, 150mg Sustained-release Tablet

Thyroid Therapy

Thyroid Gland, 15mg, 240mg, 300mg, 90mg Tablets

Tuberculosis Therapy

Isoniazid/Rifampin, 300-150mg Capsule

Vascular Agents

Amlodipine, 10mg, 2.5mg, 5mg Tablets

Amlodipine/Benazepril, 10-20mg, 2.5-10mg, 5-10mg, 5-20mg Capsules

Benazepril, 10mg, 20mg, 40mg, 5mg Tablets

Benazepril/Hydrochlorothiazide, 10-12.5mg, 20-12.5mg, 20-25mg, 5-6.25mg Tablets

Bendroflumethiazide/Nadolol, 40-5mg, 80-5mg Tablets

Carvedilol, 12.5mg, 25mg, 3.125mg, 6.25mg Tablets

Diltiazem, 360mg, 420mg Extended-Release Capsules

Eplerenone, 25mg, 50mg Tablets

Felodipine, 10mg, 2.5mg, 5mg Extended-Release Tablets

Fosinopril, 10mg, 20mg, 40mg Tablets

Fosinopril/Hydrochlorothiazide, 10-12.5mg, 20-12.5mg Tablets

Hydrochlorothiazide/Metoprolol, 100-25mg, 100-50mg, 50-25mg Tablets

Hydrochlorothiazide/Moexipril, 15-12.5mg, 15-25mg, 7.5-12.5mg Tablets

Hydrochlorothiazide/Quinapril, 10-12.5mg, 20-12.5mg, 20-25mg Tablets

Isradipine, 2.5mg, 5mg Capsules

Metoprolol, 100mg, 200mg, 25mg, 50mg Extended-Release Tablets

Moexipril, 15mg, 7.5mg Tablets

Nimodipine, 30mg Capsule

Nisoldipine, 20mg, 30mg, 40mg Extended-Release Tablets

Quinapril, 10mg, 20mg, 40mg, 5mg Tablets

Ramipril, 1.25mg, 10mg, 2.5mg, 5mg Capsules
I-16

Table I-4: Mapping from IMS Data to Dosage Form

Three-Lettered Code (as provided by IMS) Analysis Dosage Form

ABA Tablets Uncoat Regular Ordinary Tablet Tablet

ACA Tablets Coated Regular Ordinary Tablet Tablet

AAA Capsules Regular Ordinary Capsule

AAE Capsules Regular Soluble Capsule

AAF Capsules Regular Sprinkle Capsule

ABC Tablets Uncoat Regular Chewable Chewable

ACC Tablets Coat Regular Chewable Chewable

ABD Tablets Uncoat Regular Buccal/Sublingual

BBD Tab Uncoat Long Acting Buccal/Sub-Lingual Buccal/Sublingual

AGD Lozenge Reg Buccal/Sub-Lingual Buccal/Sublingual

ABE Tablets Uncoat Regular Sol Orally Disintegrating/Ecteric Coated

ABZ Tablets Uncoat Regular Other Orally Disintegrating/Ecteric Coated

ACZ Tab Coated Regular Other Orally Disintegrating/Ecteric Coated

BAA Capsules Long Acting Ordinary Extended-Release Capsule

BAZ Capsules Long Acting Other Extended-Release Capsule

AAZ Capsules Regular Other Extended-Release Capsule

BBA Tablets Uncoat Long Acting Ordinary Extended-Release Tablet

BBE Tablets Uncoat Long Acting Solution Extended-Release Tablet

BBZ Tablets Uncoat Long Acting Other Extended-Release Tablet

BCA Tablets Coated Long Acting Ordinary Extended-Release Tablet

BCZ Tablets Coated Long Acting Other Extended-Release Tablet

AGA Lozenge Regular Ordinary Lozenge Lozenge

RB Mouth Throat Lozenges Lozenge Lozenge

BGA Lozenge Long Acting Ordinary Extended-Release Lozenge

BDA Granulate Long Acting Ordinary Extended-Release Granule

Doseform=Tablet/Capsule Other
I-17

Table I-5: Firms Counted as Repackagers

Allscripts Pharmaceuticals

Altura Pharmaceuticals

American Generic

American Health Packager

American Pharmaceuticals

American Pref Pharmaceuticals

American Regent

American Therapeutical

American Urologic

AQ Pharmaceuticals

Blenheim Pharmacal

Blu Pharmaceuticals

Bryant Ranch Pre-packager

DHS

Dispensexpress

Dispensing Solution

Dr.X

GSMS

Keltman Pharmaceuticals

Major Pharmaceuticals

Marlex Pharmaceuticals

Mckesson Packaging Services

Nucare Pharmaceuticals

Palmetto Pharmaceuticals

PD-RX Pharmaceuticals

Pharma Medical

Pharma Pac

Pharmpak

Physicians Total Care

Physician Partner

Physician Therapeutics

Prepak Systems

Quality Care Pharmaceuticals

Repackager

Rxpak Division

Southwood Pharmaceuticals

St Marys Mpp

Stat Rx

UDL Laboratories

Vibranta
I-18

Table I-6: List of USC5 Decongestant Therapeutic Classes Excluded

14310 Anti-histamine/Decongestant

14330 Anti-histamine/Decongestant/Analgesic

14390 Comb W/O Expectorant,Other

14510 Expectorant/Decongestant

14560 Expectorant/Decongestant/Analgesic

34380 Narcotic Cough/Expectorant

34510 Non-Narcotic Cough/Decongestant

34520 Non-Narcotic Cough/Anti-histamine

34540 Non-Narcotic Cough/Decongestant/Anti-histamine

34560 Non-Narcotic Cough/Anti-histamine/Analgesic

34570 Non-Narcotic Cough/Decongestant/Anti-histamine/Anal

34590 Non-Narcotic Cough Comb W/O Expectorant,Other

34610 Non-Narcotic Cough/Decongestant/Expectorant

34650 Non-Narcotic Cough/Decongestant/Analgesic/Expectorant

34680 Non-Narcotic Cough/Expectorant
I-19

Table I-7: List of USC5 Vitamin Therapeutic Classes Excluded

11420 Vitamin K & Related, Oral

32200 Lipotropics

37340 Emollients & Protectives

43100 Enzymes, Local/Topical

48111 Ferrous, Iron Alone

48112 Ferrous, Iron Combination

48120 Liver

48130 Vitamin B12

48190 Hematinics, Other

60500 Calcium Supplements

60600 Complete Food Supplement

60700 Nutrients & Supplements

73000 Tonics

76110 Multivitamin Prenatal

76121 Multivitamin-Pediatric Chewable W/Fluoride

76122 Multivitamin-Pediatric Drops W/Fluoride

76123 Multivitamin-Pediatric Liquid W/Fluoride

76131 Multivitamin-Pediatric Chew without Fluoride

76132 Multivitamin-Pediatric Drops without Fluoride

76133 Multivitamin-Pediatric Liq without Fluoride

76140 Multivitamin General

76212 B-Complex, Plain, Oral

76222 B-Complex, W/C, Oral

76230 B-Complex, Other Combination

76310 Ascorbic Acid

76320 Vitamin A

76330 Vitamin A & D

76340 Vitamin D

76350 Niacin

76380 Vitamin E

76390 Vitamins,Other

84210 Natural Medicine Other, Herbals

84220 Natural Medicine Other, Nutritn

84230 Natural Medicine Other, Topical

1 See Omnibus Budget Reconciliation Act of 1990, Pub. L. No. 101-508, Title IV, § 4401 (a)(3), 104

Stat. 1388-143 (codified at 42 U.S.C. § 1396r-8 (2010)).

2 The program is administered by the Centers for Medicare & Medicaid Services (“CMS”) in the

Department of Health and Human Services.

3 See, e.g., Company Document (“CD”), undated (contending that “the failure of the Department of

Health and Human Services (HHS) to enforce the inclusion of authorized generics in the Medicaid

rebate calculation for the brand product is . . . depriving state Medicaid programs of hundreds of

millions of dollars in rebates”).

4 Deficit Reduction Act of 2005 (“DRA”), Pub. L. No. 109-171, 120 Stat. 4 (codified at 42 U.S.C.

§ 1396r (2010)).

J-1

APPENDIX J AUTHORIZED GENERICS AND THE MEDICAID

REBATE PROGRAM

I. Background

A. The Medicaid Rebate Program: An Overview

 In 1990, Congress established the Medicaid Drug Rebate Program.1 That program

required drug manufacturers that want to participate in the Medicaid program to agree to rebate

to the state a portion of the price of each drug provided to Medicaid beneficiaries, in accordance

with the terms of a standard national rebate agreement.2

 

The 1990 legislation set out a rebate formula for both brand and generic drugs. A brand

manufacturer was required to rebate an amount equal to the product of the total number of units

of each dosage form and strength paid for under the Medicaid state plan times the greater of (i)

either a flat rebate amount (currently 15.1% of the average manufacturer price (“AMP”)) and (ii)

the difference between the AMP and the best price (“BP”) for the drug. Additionally, brand

manufacturers had to pay a supplemental rebate for drugs that exceeded a stated percentage

increase in the cost of living index. The rebate for generic drugs was set at 11% of AMP, and

there was no supplementary inflation-based rebate.

Over time a number of issues in applying the formulas surfaced. One of these issues

concerned the treatment of authorized generics – in particular, whether brand companies had to

include AGs in their calculations of AMP and best price for the corresponding brand drug. 

Some generic companies contended that the original Medicaid rebate legislation had created a

loophole for AGs and that AGs should be included in the calculations.3

 Congress addressed the

issue in the Deficit Reduction Act of 2005 (the “DRA”).4 
5 See id. §§ 1396r-8 (b)(3)(A), (c)(1)(C)(i)(ii).

6 See Medicaid Program; Prescription Drugs, 71 Fed. Reg. 77,174 (Dec. 22, 2006).

7 Id. at 77,183–84, 77,198.

8 See Medicaid Program; Prescription Drugs, 72 Fed. Reg. 39,142, 39,151, 39,199 (July 17, 2007).

9 See id. at 39,199–200; id. at 39,243 (final rule § 447.506).

10 See, e.g., CD, July 13, 2007.

11 See Public Comment from Ronald W. Davis, Attorney, to the Fed. Trade Comm’n 3 (“Davis

Comment”) (June 4, 2006), http://www.ftc.gov/os/comments/genericdrugstudy3/060604davis.pdf

(submitted on behalf of an undisclosed client) (“Among other things, the new provision, effective in

J-2

B. The DRA and the Treatment of Authorized Generics

Section 6003 of the DRA specifically requires brand manufacturers to include authorized

generic sales in their calculations of both the AMP and best price when they report these prices

for covered outpatient drugs to the Secretary.5

 The DRA also required CMS to promulgate

regulations detailing precisely how the AMP was to be calculated. The effective date of the law

was January 1, 2007.

On December 22, 2006, CMS published proposed regulations, including rules on the

inclusion of AG prices in the calculation of AMP and best price.6

 The proposed rule would have

required the brand manufacturer to factor into its calculation of the AMP and Best Price for a

given drug all the sales of the corresponding AG, even if the AG were manufactured or marketed

by a different company.7

This drew significant adverse comments. Among other things, commenters argued that

the rule as proposed would require brand companies (the NDA holders) to obtain pricing data

from other companies marketing the AG, which could raise antitrust concerns.8

 Accordingly, the

proposal was revised when the Final Rule was promulgated on July 17, 2007. The Final Rule

does not contemplate a “blended”AMP, i.e., an AMP that reflects the price of AGs, other than in

narrow circumstances. Moreover, the Final Rule does not require the NDA holder to factor in

the AG sales of a secondary manufacturer in calculating “best price”; it, does, however, have to

factor in the transfer price of the AG to the secondary manufacturer.9 Thus, the final rule

resulted in potentially greater rebate liability to the brand companies that offered AGs than did

the proposed rule because the difference between the AMP (which would not, in most cases,

include the lower AG prices) and the best price (which would include what were expected to be

low transfer prices for the AG) would typically be greater.10

C. This Study and the Impact of the DRA

Some commenters predicted that the DRA changes would significantly increase brand

companies’ Medicaid rebates, and that this likely would result in a substantial decrease in

AGs.11 Some documents obtained from the companies offered similar projections.12 Indeed, one
2007, amends the definition of ‘best price,’ for purposes of calculating the Medicaid rebate, to include

prices charged for authorized generics sold by an affiliate or other licensee of the NDA holder. The

purpose, and the likely effect, of this amendment is to fundamentally reduce the incentives of branded

firms to introduce authorized generics.”); Public Comment from the Pharm. Research and Mfrs. of

Am. (“PhRMA”) to the Fed. Trade Comm’n 10 n.17 (June 5, 2006),

http://www.ftc.gov/os/comments/genericdrugstudy3/060605pharma.pdf (cautioning that the inclusion

of AGs in the calculation of best price “could impact . . . the incentives for brand drug companies to

introduce authorized generics”).

12 See CD, Oct. 5, 2006 (DRA a “[b]ig win for generic lobbyists . . . ; [c]ould cost [Brand Co.]

approximately $25–50 million a year in additional Medicaid rebates”); CD, Feb. 5, 2007 (DRA

provisions are “intended to discourage AG’s by increasing the Medicaid rebate liability of the brand

drugs”; “AG provisions may discourage some brand companies on some products from entering into

AG agreements due to increased Medicaid rebates on their brand sales and increased complexity of

AMP/BP price reporting requirements for AG’s.”); CD, Mar. 3, 2006 (law firm analysis predicting that

the “new [DRA] provision may significantly complicate the ability of manufacturers to enter the

generic market by use of an authorized generic”); see also CD, Sept. 28, 2006 (DRA “designed to

discourage authorized generic introduction during the Hatch Waxman 180 day generic exclusivity

period, also penalizes innovators launching authorized generics during the first quarter of generic

sales”).

13 Davis Comment, supra note 11, at 3 (“[T]he purported ‘problem’ that gave rise to the proposed study

will likely disappear, or be substantially reduced, without any further regulatory or legislative action. 

And the regulatory environment will be materially altered, so that the information sought will be of

little practical utility to any possible Commission action or change in statutory law.”).

14 The DRA became effective on January 1, 2007. As reported in Chapter 2, twelve AGs were launched

that year, and fifteen were launched in 2008. See supra Chapter 2, Section I.A.

15 See supra Appendix D, ¶ 30, at D-7 (Brand-Name Drug Company Special Order); see supra Appendix

F, ¶ 12, at F-3 to -4 (Authorized Generic Drug Company Special Order).

J-3

comment asserted that the DRA provisions would so greatly discourage the marketing of AGs

that this study, to the extent that it would be based on historical data, would not be useful.13 

These concerns appear overstated. As discussed in Chapter 2, although the number of AG

launches fell off in 2007–2008 from the high levels observed in 2003–2006, substantial numbers

of AGs continue to be introduced. The DRA clearly did not bring a halt to the introduction of

AGs.14

In order to help examine this issue further, the Commission’s Special Orders required the

brand-name companies and the specialized AG companies to produce “planning, decisional or

strategy documents . . . that discuss the effect(s) or possible effect(s) of the enactment of

Section 6003 of the Deficit Reduction Act of 2005, P.L. 109-171 on the marketing of AGs after

Jan. 1, 2007.”15 The documents that were submitted, combined with the data regarding the

number of AG launches, suggest that the DRA changes have not fundamentally undermined AG

marketing. The analysis, however, necessarily bears a caveat: the timing of the DRA changes in

relationship to this study may have shaped and limited the response to the Commission’s
16 The DRA changes were signed into law in February 2006, and had an effective date of January 1,

2007. The proposed rule was issued on December 22, 2006, but the final rule was not issued until July

17, 2007. The document request applied to documents dated January 1, 2006 to April 29, 2007. 

Accordingly, most of the financial and analytical documents that the companies produced were based

on the proposed rule rather than the final rule, which, as noted above, likely imposed significantly

higher Medicaid rebates than the proposed rule. 

17 Eighteen brand companies and one specialized AG firm that received the Special Orders provided

some documents in response to the DRA document request.

18 See, e.g., CD, Sept. 28, 2006 (noting that DRA provisions would take effect on January 1, 2007 and

that “detailed financial analysis is required on a product by product basis to determine the most

effective strategy for [company] to implement upon loss of patent or market exclusivity”).

19 See, e.g., id. (“[t]he % of Medicaid [p]articipation is key to the financial impact of [the] Authorized

Generic on [the brand company]”).

20 See, e.g., id. (“Since the Medicaid rebate is calculated on a quarterly basis, the timing of generic

launch in the quarter is also a critical factor . . . .”); CD, Oct. 5, 2006 (“launch at the end of a quarter

will cost more than at the beginning”); CD, Mar. 2, 2007 (“The amount it costs us will vary from

product to product depending on when the generic is launched in the quarter.”).

21 In one of the few post-final rule documents produced, a brand company with a substantial AG program

estimated that under the final rule, the DRA would increase its rebates for the fourth quarter of 2007

by approximately $18 million, to a total of roughly $113 million; in contrast, the firm projected that

under the proposed rule its rebates would have increased by only $1 million. CD, Sept. 21, 2007; see

also, CD, Aug. 1, 2007 (retrospective analysis of rebates using data for the first and second quarters of

2007, again finding a much greater increase under the final rule).

J-4

information request in ways that understate the changes’ effects.16 

II. Company Documents Analyzing the DRA’s Impact on AG Marketing

Although limited,17 the documents that were produced show that for most drugs the

companies expected their Medicaid rebates to increase because of the DRA changes, but that the

amount of the expected increase was expected to vary significantly from drug to drug.18 They

indicate that for any given drug, the expected financial impact of the DRA changes depended on

a variety of factors including the percentage of sales attributable to Medicaid19 and the timing of

the AG launch.20 Assessing the documents, however, is difficult because most antedate issuance

of the final version of the regulations and consequently could understate the DRA changes’

effect.21

Adding further complexity, the documents suggest that focusing narrowly on just the 

“best price” calculation and its Medicaid rebate effects may be insufficient: other regulatory

changes and effects may also be relevant. For example, the documents of several companies

observed that enactment of the Part D Medicare program would substantially decrease the

companies’ exposure to additional Medicaid rebates for certain classes of drugs used by the
22 The Part D Medicare program provides expanded Medicare coverage for prescription drugs. As part

of this program, “dual eligibles” (those who qualified for prescription coverage under both Medicaid

and Medicare) were transferred to Medicare. See, e.g., CD, Apr. 25, 2006 (noting shift of Medicaid

patients to Medicare coverage with respect to osteoporosis drugs); CD, Feb. 12, 2007 (noting

“[n]egligible Medicaid rebate impact” on osteoporosis drug since “[m]ost patients covered by

Medicare”). Accordingly, some drugs previously provided through the Medicaid program to the

elderly are now provided under Medicare, to which the DRA provisions do not apply. See CD,

undated (noting that “[t]otal payments for Medicaid rebates in 2006 fell dramatically as a result of the

conversion of Medicaid/Medicare dual eligibles to Medicare effective January 1, 2006. 

Approximately 60% of total Medicaid business converted to Medicare in 2006.”).

23 Under the 340B Program pharmaceutical companies provide prescription drugs to various types of

government-operated or assisted health care facilities at heavily discounted prices based on a formula

that takes into account the amount of the Medicaid rebate. See 42 U.S.C. § 256b (2010).

24 In fact, application of the formula can result in a negative price for some drugs, triggering the so-called

“penny pricing” policy for those drugs. See, e.g., CD, Oct. 2007. Under the penny pricing policy,

drug manufacturers are told to submit a 340B ceiling price of $0.01 whenever the ceiling price would

otherwise be negative. See, e.g., Authorized Generic Law Resulting In Growing Number of Penny

Priced Drugs, FED. DRUG DISCOUNT & COMPLIANCE MONITOR, July 2008, at 1, 8 (quoting a

representative of Schering-Plough as saying that “340B pricing for the drug [Desogen] has been, and

in all likelihood will continue to be, dramatically affected by the new CMS rule regarding the

calculation of AMP and best price for brand-name products that have authorized generic versions” and

predicting that “penny pricing would have a ‘substantial’ impact on the marketplace”).

25 See CD, Feb. 12, 2007.

26 CD, Nov. 28, 2006, Jan. 5, 2007.

J-5

elderly.22 This might reduce the impact of changes in the “best price” calculation. On the other

hand, the documents of one company in particular focused on the severe financial impact the

DRA changes would have on the prices that it could charge for oral contraceptive drugs under

the Section 340B Program.23 Because the Medicaid rebate is also a reference point for 340B

ceiling prices, a higher Medicaid rebate can also translate into a significantly lower ceiling price

for drugs sold to 340B institutions.24

With regard to operational effects, the documents show that some companies considered

whether to drop anticipated launches of new AGs or to discontinue marketing particular AGs

because of the expected negative impact of the DRA changes on profitability. In only a few

instances, however, do documents suggest that companies ultimately decided against launching

or in favor of terminating AGs because of the DRA changes. 

In only one case do the documents record a decision not to launch an AG largely because

of the DRA.25 In that case the company viewed the percentage of the drug’s sales to Medicaid

recipients as high (23%) and expected high levels of generic competition.26 Essentially the

added Medicaid rebates turned the marginal financials for the AG launch into significant losses

under all reasonable scenarios, and the company decided not to proceed with the launch. 
27 See CD, undated.

28 See CD, Sept. 25, 2007 (agreeing to “suspend” their AG contract “as a result of [the DRA] final rule”).

29 See, e.g., CD, undated; CD, Jan. 9, 2006; CD, Mar. 2007; see also, CD, Jan. 5, 2007 (deciding to

launch two AGs shortly before issuance of the final rule when AG revenues were expected to offset

increased rebates).

30 See CD, Jan. 5, 2007 (“Consider strategic implications in addition to financials (customer expectations,

inventory and production capacity utilization)”).

J-6

The documents also reveal two companies that decided to discontinue marketing a total

of three AGs largely because of the DRA. One company decided to stop marketing two AGs

(both in the same therapeutic category) when the AGs had not been profitable for the past two

years and the expected impact of the DRA changes on the amount of Medicaid rebates was

expected to be significant.27 The other case was similar: the brand company and its AG

distributor agreed to terminate their contract for the AG several days prior to the effective date of

the DRA final rule when the AG had been only marginally profitable in any event and the

additional Medicaid rebate liability would have made future marketing unprofitable.28 It thus

appears that the prospect of increased Medicaid rebates may have tipped the balance against AG

marketing on some already-marginal drugs. 

At the same time, documents produced by several companies suggest that the larger

Medicaid rebates would not lead to diminished AG marketing efforts. In many cases the AG

was profitable, and would continue to be so notwithstanding the larger Medicaid rebates. Thus,

even in some cases where the additional rebates were expected to be substantial, AG marketing

was not discontinued.29 Furthermore, in some instances other considerations may also have

shaped reactions. The documents of one company, for example, show that despite expected

losses on sales of certain AGs because of the DRA changes, customer expectations and other

strategic considerations impelled it to continue introducing AGs.30

In short, the documents do not indicate that brand companies viewed the DRA changes as

sounding a death knell for their AG programs, or that those changes caused the companies to

abandon AG marketing or even to revise their AG strategies in a fundamental way. Instead, the

companies analyzed the impact of the DRA changes on particular drugs, but ultimately decided

to make relatively few changes with respect to introducing new AGs or terminating those

already in the market. As noted above, however, this analysis is based largely on documents that

predated issuance of the final rule, and hence, could understate the financial impact of the DRA

changes and the brand companies’ response.
1 Entry by 180-day exclusivity could occur following a successful patent challenge with a court

determination of invalidity, non-infringement, or unenforceability or when a brand fails to sue the

generic or the parties enter a settlement.

K-1

APPENDIX K PATENT CHALLENGES: IMPACT ON GENERIC

ENTRY AND BRAND EXCLUSIVITY

The length of brand exclusivity – the period when generics are not available, from NDA

approval to generic entry – depends on both the length of patent protection obtained by a brandname company and the extent to which patent challenges reduce the protected period. The

following figures, which are based on the set of drugs for which generic entry took place via

180-day exclusivity from 2001–2008,1 suggest that both factors contributed to variations in the

length of brand exclusivity.

As shown in Figure K-1, the length of patent protection obtained by brand-name

companies increased from 2001–2008: the period between NDA approval and expiration of the

last-to-expire patent gradually rose by about 3–4 years.

Figure K-1: Years of Brand Patent Protection

0

2

4

6

8

10

12

14

16

18

20

2001 2002 2003 2004 2005 2006 2007 2008

Year of Generic Entry

Average Number of Years Between NDA 

Approval and Last Patent Expiration

The figure shows, by year of generic entry, the average number of years between

the NDA approval date and the last patent expiration date for 66 brand-name

drugs that experienced generic entry by 180-day exclusivity from 2001–2008. 

The drugs are limited to tablet and capsule dosage forms. See supra Appendix

H, Section I.D.
K-2

At the same time, generic companies sought to reduce the period of brand exclusivity by

challenging patents. As shown in Figure K-2, the number of years by which patent challenges

reduced the period of patent protection varied. On average, generic entry first occurred about

four years before expiration of the last patent in 2001. This average rose to about 8–10 years

before expiration from 2003–2005 but then fell back to about seven and one-half years during

2006–2008. 

Figure K-2: Years Generic Entered Before Brand Patent Expiration

0

2

4

6

8

10

12

14

16

18

20

2001 2002 2003 2004 2005 2006 2007 2008

Year of Generic Entry

Average Number of Years Between Generic Entry 

and Last Patent Expiration

The figure shows, by year of generic entry, the average number of years between

the date of first generic entry and the last patent expiration date for 66 brandname drugs that experienced generic entry by 180-day exclusivity from

2001–2008. The drugs are limited to tablet and capsule dosage forms. See

supra Appendix H, Section I.D.

The length of brand exclusivity equals the maximum length of a brand’s patent protection

minus the extent to which patent challenges reduce the period of protection. As shown in Figure

K-3, brands’ exclusivity went from a high of 11 years in 2001 to a low of 7–8 years in

2003–2005, and then rose to 10–11 years from 2006–2008. Although the change in length of

exclusivity is not statistically significant, the increase in brand exclusivity in 2006–2008 appears

to arise from both an increase in the maximum period of patent protection and a decrease in the

effect of patent challenges.
K-3

Figure K-3: Years of Brand Exclusivity

0

2

4

6

8

10

12

14

16

18

20

2001 2002 2003 2004 2005 2006 2007 2008

Year of Generic Entry

Average Number of Years Between NDA 

Approval and Generic Entry

The figure shows, by year of generic entry, the average number of years between

the NDA approval date and the first generic launch date for 66 brand-name

drugs that experienced generic entry by 180-day exclusivity from 2001–2008. 

The drugs are limited to tablet and capsule dosage forms. See supra Appendix

H, Section I.D.

1 The count of generic manufacturers in the market includes the AG and was constructed, separately, for

wholesale and retail data. Manufacturers were considered to have exited if they experienced three

consecutive months of zero sales. Discrepancies in manufacturer counts between the NSP and NPA

data were allowed to remain.

2 Pre-entry sales of the brand-name product refer to the sum total of brand-name product sales three

months prior to generic entry.

L-1

APPENDIX L TECHNICAL MODELING APPENDIX

The discussion throughout Chapters 3 and 6 refers to regression models that relate

competition variables (such as the presence of an AG) to measures of specific market outcomes,

such as generic prices and first-filer revenues. This appendix presents the details of those

regression models. The appendix begins with a detailed presentation of the models used within

the exclusivity period. The models estimated outside of exclusivity are modifications of these

initial models, and the discussion of them simply highlights the changes.

I. Models Applied During the 180-Day Exclusivity Period

The regression models employed to analyze the impact of AGs go beyond a simple

comparison of means between markets with and without an AG. The models statistically control 

for other factors that may vary across markets, and which may be correlated with the

introduction of an AG using regression analysis. This section provides a detailed description of

the chosen specification, the variables included in the model, and how the estimation results are

used to calculate the statistics of interest that are presented in the Report. The discussion begins

with the pricing models.

A. Generic Price Model

Using both the retail and wholesale data, the regression pricing models estimate the

relationship between the relative prices of all generic products, competition variables, and

product characteristic controls. Of primary interest is the relationship between the dependent

variables and the AG. The presence of an AG is represented by an indicator variable that

interacts with the total number of generic manufacturers of the product in the particular month.1

The model also includes indicator variables representing the product characteristic controls listed

in Table I-2 and indicator variables for the number of months since generic entry. As described

in Chapter 3, all models estimate standard errors that are clustered around the molecule of the

product. Identical models are estimated weighting each observation (product-month) by the preentry sales of the brand-name product.2

 The estimation equation for the full control pricing

model was
3 For the analysis reported in Table 3-1, this price, p, is the average retail price of all generic versions of

the product, including the AG. Table 3-2 is based on the same model; the only difference is that p is

the average wholesale price of all generic versions of the product. In Table 3-3, the average ANDA

price and the AG price in a given month are treated as two separate observations instead of being

combined in a weighted average, and the AG indicator is turned on when the observation is an AG

price. Tables 3-4 and 3-5 report analysis very similar to that in Tables 3-1 and 3-2, except that p is the

price of the brand-name product in the month as opposed to an average generic price.

4 Although the indicator variable for month 0 was excluded, data from month 0 were not excluded. 

When estimating a regression model that has a constant, such as α in this model, it is necessary to have

indicator variables for all but one of the possible categories. The effect of the omitted category is

picked up by the constant.

L-2

( )

( )( )( )

p

p

ag man man man

ag man ag man ag man

b

mdft mdft mdft mdft mdft

mdft mdft mdft t year df tc mdft

0

12 3 4

567

234

234

   

         

   

    

where,

Variables

p: monthly price of the product (various prices are used depending on the analysis3)

pb0: Pre-entry price of the brand-name product (three-month average)

ag: An indicator of whether an AG has positive sales during the month

man2-man4: Dummy variable indicators representing the count of generic manufacturers 2-4

and, 

Estimated Coefficients

α : Regression constant

β1 - β7 : Competition variable coefficients

δt : Vector of five month-since-entry indicator variables (month 0 is excluded4)

δdf : Vector of six dosage form indicator variables (tablets are excluded)

δyear: Vector of five calendar year indicator variables (year 2008 is excluded)

δtc :Vector of fourteen therapeutic class indicator variables (analgesics are excluded)

ε : Error term.

The left-hand side of the equation is the relative price for each product (where the

subscript mdft refers to the molecule, dosage-form-strength, and month-since-entry). For the

analysis reported in Tables 3-1 and 3-2, this price was constructed by taking the total dollars

spent on all generic products (including the AG) during the month and dividing by the total

extended units consumed during the month. The pre-entry average brand price, pb0, was

constructed to be the total expenditures on the brand over the three months prior to generic entry

divided by the total extended units of the brand sold over the same period. 
5 The results of this prediction are not very sensitive to specification or to the point of evaluation. For

example, estimation of a model with a log-linear specification that imposes a constant AG effect at any

point in the data produces effects of similar magnitudes.

L-3

The right-hand side of the equation includes the competition and product characteristic

variables. The competition variables include an indicator for whether an AG is present (ag),

indicators for the total number of manufacturers in the market (man2-man4), and interactions of

the AG with the total number of manufacturers. The product characteristic variables control for

the months since generic entry, the dosage form, and the therapeutic class. The indicator for

whether an AG is present is set to equal one if the AG manufacturer has positive sales during the

month, and zero otherwise. Similarly, the manufacturer count and product characteristic

indicators equal one if the market conditions are true, and zero otherwise. For example, man2 is

equal to one if the market has exactly two generic manufacturers, and is zero otherwise. 

Similarly, the capsule indicator is set to one if the product is a capsule, and is zero otherwise. 

The estimation equation for the models with “no controls” is identical to the model above, but

excludes the product characteristic controls represented by the vectors δt

, δdf, δyear, and δtc. 

The competition variable coefficient estimates from the regressions were used to estimate

the AG effect on price. For the exclusivity analysis in Chapter 3, the estimated AG price effect

represents the percentage change due to adding an AG to an ANDA-Only market. The

percentage price change was evaluated at the constant using the following equation:5

% ( ) / ,

* *

 P *

P P

P

AG ANDA

ANDA

     125

In the above equation, P* represents the predicted relative price from the regression. 

This price was predicted for markets with an AG and two manufacturers (P*+AG), and for markets

without an AG and only one manufacturer (P*ANDA). The percentage change in price was

calculated as the percentage difference in the predicted price of a market with two manufacturers

and an AG and a market with one manufacturer and no AG. The percentage was evaluated at the

predicted price of the market with one manufacturer and no AG.

B. Revenue Models

The modeling approach employed for the revenue analysis is very similar to that used in

the pricing equation. However, the revenue model predicts the relative revenues at the firm

level, for the first-filer ANDA-generics and brand-name firms (both on the brand-name product

only, and on the brand-name product combined with the AG), rather than market averages. As

in the pricing models, all specifications include indicator variables for each observed count of

manufacturers, and these manufacturer count variables are also interacted with the AG indicator

to allow the impact of the AG to vary depending on the number of competitors. The model with

full controls also includes indicator variables representing product characteristics. However, the

revenue estimation equations vary slightly across entities (i.e., the brand-name product, the

brand-name firm, and the ANDA-generic firm). For example, there are no first-filer revenues in
6 The mdft subscripts have been suppressed for the sake of exposition. 

7 The pre-entry brand revenue, R0, is constructed to be the total expenditures on the brand-name product

for the three months immediately prior to generic entry, divided by three. 

8 Once again, the results of this analysis displayed some robustness with respect to an alternate loglinear model specification.

L-4

months where only an AG is on the market, and thus no “AG-Only” term is estimated in the

generic revenue model. 

1. First-Filer Generic Firm Revenues

The equation for the “full control” revenue model for ANDA-generic firms is presented

below: 

R

R

man man man

ag man ag man ag man

g

b

t year df tc

0

123

4 56

234

234

  

         

  

       ( )( )( )

where,6

Variables

Rg: Contemporaneous generic revenues in market

R0: Pre-entry brand revenues (three-month average)

ag: Indicator of whether an AG has positive sales during the month

man2-man4: Dummy variable indicators representing the count of generic manufacturers 2-4

ε: Error term

and, 

Estimated Coefficients

α : Regression constant

β1- β7: Competition variable coefficients

δt: Five month-since-entry indicator variables (month 3 is excluded)

δyear: Five calendar year indicator variables (year 2008 is excluded)

δdf: Six dosage form indicator variables (tablets are excluded)

δtc: Fourteen therapeutic class indicator variables (Analgesics are excluded).

The left-hand side of the equation represents the ANDA-generic firms’ relative revenues

for each product. Relative revenues were constructed by dividing contemporaneous market

revenues for first-filer generic firms, Rg, by pre-entry brand revenue.7

 All of the other variables

are defined exactly as in the pricing equation. The AG effect was calculated analogously to the

effect in the pricing model, considering the effect of adding an AG to an ANDA-Only market. 

The first-filer revenue effect of introducing an AG to an ANDA-Only market was calculated

using the following equation:8
L-5

% ( ) /

* *

 R *

Rg Rg

Rg FF

AG ANDA

ANDA

       1 4

The same naming conventions used for the pricing regressions were also used for the

revenue equation. R* represents the predicted revenues from the regression. The predicted

revenue for markets with one ANDA and an AG is represented by Rg*

+AG, whereas the predicted

revenue for a market with one ANDA manufacturer but no AG is represented by Rg*

ANDA. The

above equation calculates the predicted revenue change from adding an AG to an ANDA-Only

market. 

2. Brand-Name Firm Revenues

The brand-name product revenue and the brand-name firm (brand-name product + AG)

revenue equations are analogous to the first-filer equation, and appear identical to each other. 

They are represented below:

R

R ag man man man

ag man ag man ag man

b

t year df tc

0

12 3 4

567

234

234

   

         

   

      

The above equation regresses relative brand revenues against product characteristic

controls and a set of competition variables that are very similar to those in the first-filer revenue

equation. The relative brand-name product revenues are constructed by dividing the

contemporaneous brand-name product revenues by the pre-entry brand revenues. Similarly, the

relative brand-name firm revenues are constructed by dividing the brand-name firm revenues,

which include the revenues from the AG product, by the pre-entry brand revenues. The primary

difference between the first-filer equation and the brand equation is the AG-only term included

in the brand equation. The brand-name product and the brand-name firm are sometimes

observed facing an AG competitor without an ANDA competitor. This coefficient identifies the

revenue for those markets with only an AG competitor. 

The effect of an AG on brand revenues is given below:

% ( ) /

* *

 R *

Rb Rb

Rb brand

AG ANDA

ANDA

     



 125

The predicted percentage change in brand revenues is the predicted revenues for markets with an

AG and an ANDA less the predicted revenues for markets with only an ANDA divided by the

predicted revenues for markets with only an ANDA.
9 The effect of the AG may depend on the number of manufacturers in the market. Interacting the AG

indicator with the number of manufacturers captures these differential effects. Because some markets

involve many manufacturers, the number of interaction terms in this model is large, producing many

estimates of the impact of an AG (one for each interaction). The effects from this model are difficult

to interpret, unstable across specifications, and difficult to estimate because products facing large

numbers of manufacturers are rarely observed without an AG. Moreover, the results do not provide

enough evidence to contradict or significantly buttress the conclusions reached from the simpler

analysis reported in the text. For all these reasons, the analysis is omitted.

10 Determining the actual number of products displaced by the AG outside exclusivity is beyond the

scope of this Report. As described in the text, in markets where no generic firm ever had an

exclusivity period, the AG takes a market share that is very close to the average market share of the

ANDA-generics that enter in the first several months of generic competition. Consequently, the AG

appears to behave similarly to ANDA-generic manufacturers in these markets, suggesting that it is

reasonable to assume that an AG displaces one, and only one, ANDA-generic manufacturer. 

L-6

II. Models Employed Outside of a 180-Day Exclusivity Period

The potential for many manufacturers to sell a product outside an exclusivity period

necessitates several modifications to the regression analysis detailed above. The main

modification is that more indicator variables are included in the regression to account for greater

numbers of manufacturers. Separate manufacturer indicators are included for up to ten

manufacturers, and a single indicator is included for all drugs with greater than ten

manufacturers. The models also include a single indicator variable representing the effect of the

AG on the variable of interest (either relative prices or relative revenues). The effect of the AG

is estimated solely through the AG indicator.9

 The models also track data on the product for a

longer period (typically 30–36 months). Consequently, the models outside of exclusivity include

a larger set of month indicators corresponding to this longer period. For the products without an

exclusivity period, month indicators are interacted with whether the product faced a Paragraph

IV challenge. 

 The AG effects are also calculated somewhat differently outside of exclusivity by

treating an AG as replacing an ANDA-generic manufacturer, rather than adding to the number of

firms. During exclusivity, entry by an AG clearly adds an additional manufacturer, because the

number of ANDA-generic manufacturers does not decrease to compensate for this entry. 

However, outside of exclusivity, ANDA-generic manufacturers that observe the presence of an

AG may adjust their entry decisions accordingly. Consequently, the analysis outside exclusivity

treats AG entry as displacing an ANDA-generic.10 For example, the analysis outside of

exclusivity addresses the question: “do markets with five ANDA-generics behave differently

than markets with four ANDA-generics and an AG?” In contrast, the analysis during exclusivity

addresses the question “do markets with an ANDA-generic and no AG behave differently than

markets with an ANDA-generic and an AG?” Using the notation from above, the price effect of

an AG outside of exclusivity is calculated using estimates from the model as:

% / .

* *

 P *

P P

P

AG ANDA

ANDA

     1
L-7

The price at which these effects are measured can be especially important outside of

exclusivity because average prices with ten manufacturers can be much lower than average

prices with two manufacturers. In exclusivity, markets were relatively homogeneous, so these

effects were evaluated at the average price for a market with only one ANDA competitor, which

happened to be estimated by the intercept term, α. Outside of exclusivity, the average number of

manufacturers is five, so this is used as the excluded category in the set of manufacturer count

indicators. Consequently, the intercept term reflects prices in markets with five manufacturers,

which is where the effect is evaluated. The other omitted categories are psycho-therapeutic

tablets and the first month of non-exclusivity. These categories represent the largest categories,

in terms of the number of products, observations, and pre-entry brand sales, in the sample.
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