Federal Trade Commission Report | June 2009

Authorized Generics:

An Interim Report
FEDERAL TRADE COMMISSION 

JON LEIBOWITZ Chairman 

PAMELA JONES HARBOUR Commissioner 

WILLIAM E. KOVACIC Commissioner 

J. THOMAS ROSCH Commissioner 

Joni Lupovitz Chief of Staff 

Charles H. Schneider Executive Director 

Richard A. Feinstein Director, Bureau of Competition 

Jeanne Bumpus Director, Office of Congressional Relations 

Susan S. DeSanti Director, Office of Policy Planning 

Joseph Farrell Director, Bureau of Economics 

David Vladeck Director, Bureau of Consumer Protection 

David C. Shonka Acting General Counsel 

Donald S. Clark Secretary of the Commission 

Report Drafters and Contributors

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

Economics 

Brett W. Wendling, Bureau of Economics 

Mark Hertzendorf, Bureau of Economics 

Cagatay Koc, Bureau of Economics 

Gregory J. Kuczura, Bureau of Economics 

Luke M. Olson, Bureau of Economics 

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, Office of the General Counsel 

Bradley S. Albert, Deputy Assistant Director, Health Care Division, Bureau of Competition 

Saralisa Brau, Deputy Assistant Director, Health Care Division, Bureau of Competition 

Ellen Connelly, Bureau of Competition 

James Rhilinger, Bureau of Competition 

Andrew Lowey, Bureau of Competition 

Divya Rao, Bureau of Competition 

Craig Menchin, Bureau of Competition 

Susan S. DeSanti, Director, Office of Policy Planning 

Inquiries concerning this report should be directed to: 

Susan S. DeSanti (202) 326-2210 or sdesanti@ftc.gov 
EXECUTIVE SUMMARY 

This Interim Report presents the first set of results from a study undertaken by the 

Federal Trade Commission of the effects of authorized generic drugs on competition in the 

prescription drug marketplace. Authorized generic drugs (referred to in this Report as “AGs”) 

are drugs that are approved by the Food and Drug Administration (“FDA”) as brand-name drugs, 

but that the brand subsequently chooses to market (or have marketed) as generic, as well as 

brand-name, drugs. The trade dress typically is different for the brand-name drug and its AG 

equivalent, but the drug products are chemically identical. 

The study was commenced 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.”1

 Representative Waxman, one of the co-authors of the 

Hatch-Waxman Act, also requested the FTC to study “the impact of so-called ‘authorized 

generics’ on competition in the prescription drug marketplace.”2

 Aspects of these issues are 

relevant to current legislative debates, and this Interim Report seeks to provide pertinent 

information in a timely fashion. 

This Interim Report provides factual information and economic analysis to date of the 

short-term effects of AGs on competition during the 180 days of marketing exclusivity that a 

generic may be awarded in certain circumstances under the Hatch-Waxman Act. This Interim 

Report does not examine long-term and/or overall effects of AGs on such competition. 

This economic analysis is based on substantial data sets obtained from governmental and 

non-governmental sources and on documentary information provided by brand and generic 

companies in response to compulsory information requests. Specifically, our preliminary 

analysis addresses the following short-term effects: 

 Effects on wholesale and retail generic prices from AG competition against one 

ANDA generic3

 during the 180 days of marketing exclusivity that an ANDA 

generic may be awarded after seeking entry prior to expiration of the 

corresponding brand-name drug’s patents. 

 Effects of AG competition on the revenues of, and quantities sold by, one 

ANDA generic during the 180 days of marketing exclusivity that an ANDA 

generic may be awarded after seeking entry prior to expiration of the 

 1

See Letter from Senators Charles Grassley, Patrick J. Leahy, and John D. Rockefeller, 

IV to Deborah Platt Majoras, Chairman, Fed. Trade Comm’n (May 9, 2005). 

2

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

Platt Majoras, Chairman, Fed. Trade Comm’n (Sept. 13, 2005). 

3

Generic drugs approved by the FDA through the filing of an Abbreviated New Drug 

Application (“ANDA”) will be referred to as “ANDA generic” drugs when necessary to 

distinguish them from AGs. 
corresponding brand-name drug’s patents. 

 Patent settlement agreements reviewed by FTC staff in which a brand has agreed 

not to compete against the generic with an AG for a certain amount of time and 

the ANDA generic has agreed to defer its entry for a certain period of time. 

Such agreements have recently become more common. 

Our initial analysis suggests 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. Consistent with 

competition to provide a relatively homogenous product, the data indicate that AG entry 

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

exclusivity period. This revenue reduction is likely to change the calculus of business decisionmaking in some circumstances for both generic and branded firms, but at this stage we have not 

analyzed whether AG entry deters generic entry prior to patent expiration that otherwise would 

take place. Finally, between FY2004-FY2008, about one-quarter of final patent settlements with 

first-filer generics involved an explicit agreement by the brand not to launch an AG to compete 

against the first filer, combined with an agreement by the first-filer generic to defer its entry past 

the settlement date. This preliminary analysis, however, describes various brand-ANDA 

agreements involving AGs but does not address whether limitations on AG entry during the 180-

day exclusivity period would have an effect on the incidence of reverse settlements that are 

harmful to consumers. 

Through enactment of the Hatch-Waxman Act,4

 Congress established the regulatory 

framework under which a generic manufacturer may obtain approval of its drug by the Food and 

Drug Administration (“FDA”) by filing an Abbreviated New Drug Application5 (“ANDA”) in 

which it is allowed to rely on the clinical data first submitted by the brand-name drug 

manufacturer to establish the safety and efficacy of the generic drug. To encourage generic entry 

as soon as warranted, that Act allows a generic drug manufacturer to file a so-called “Paragraph 

IV” ANDA certifying (a) its generic drug will not infringe patents listed in the FDA’s “Orange 

Book” (“Orange Book patents”) in regard to the relevant brand-name drug product, and/or (b) 

that the relevant Orange Book patents are invalid. Typically, patent litigation then ensues, and 

the FDA may not approve the generic drug until 30 months after the generic filed notice of the 

Paragraph IV ANDA to the brand (or after a favorable decision in the litigation, if earlier). At 

that point the FDA may authorize the marketing of the generic drug under the ANDA 

application, and the first-filed paragraph IV ANDA applicant becomes entitled to 180-days of 

marketing exclusivity. The 180 days of marketing exclusivity generally protect one first-filed 

ANDA applicant from competition with other ANDA applicants during the 180-day period. This 

180 days of marketing exclusivity was intended to provide an incentive for ANDA-filers to 

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

 4

Drug Price Competition and Patent Restoration (Hatch-Waxman) Act of 1984, Pub. L. 

No. 98-417, 98 Stat. 1585 (1984), codified as amended at 21 U.S.C. § 355. 

5

See 21 U.S.C. § 355(j) (2008). 

2
The 180-day marketing exclusivity does not, however, preclude competition from an AG. 

The courts have determined that AGs can be marketed during that period, because they are 

approved under a brand-name drug’s NDA rather than an ANDA.6 As the practice has become 

increasingly common, it has generated increasing controversy, with generic companies 

contending that AGs undermine the goals of the Hatch-Waxman Act, and brand companies 

defending AGs as procompetitive and consistent with the Act. It is in this context that the FTC 

has undertaken this study. 

The FTC’s preliminary data analysis shows the following: 

 Retail prices are on average 4.2 percent lower, relative to the pre-generic brand price, when 

an AG competes with one ANDA generic during the 180-day exclusivity period than when 

an AG does not enter. 

 Wholesale prices are on average 6.5 percent lower, relative to the pre-generic brand prices, 

when an AG competes with one ANDA generic during the exclusivity period than when an 

AG does not enter. 

 Revenues of a sole ANDA generic company during the180-day exclusivity period drop 

substantially with AG entry, with estimates of the average decline ranging from 47% to 51%. 

The revenue effect for generics is so much larger than the price effect for consumers 

primarily because the AG represents a very close substitute for the ANDA generic and 

therefore typically obtains significant market share at the expense of the ANDA generic. 

This is confirmed by an analysis of the quantities dispensed by retail pharmacies. 

 To prevent this loss of revenue, a generic may be willing to delay its entry in return for a 

brand’s agreement not to launch an authorized generic – that is, a brand’s agreement not to 

compete with the generic through an AG – during the generic’s 180 days of marketing 

exclusivity. 

 Between FY2004-FY2008, about one-quarter (38 out of 152) of the final patent settlements 

reviewed by the FTC contained provisions relating to AGs. 

 Between FY2004-FY2008, 76 final patent settlement agreements were with first-filer 

generics. About one-quarter (20 out of 76) of those patent settlements 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 past the settlement 

date by, on average, 34.7 months. With regard to these twenty settlements, branded sales of 

the affected products ranged from $12.6 million to $5.3 billion, with an average market size 

of $917 million and a median market size of $514 million. Five of the settlements covered 

products with annual sales of $1 billion, $1.1 billion, $2.1 billion, $2.5 billion, and $5.3 

billion.

 6

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

3
4

 

 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 branded drugs, 7

 overall prescription 

drug costs could be significantly increased by even a few additional months of 

branded prices in a large market. 

 Second, consumers would lose the benefit of price discounts from AG 

competition during the 180-day marketing exclusivity. The consumer harm in 

such instances arises because the brand has agreed not to compete against the 

independent generic during the exclusivity period. The consumer harm arises 

from the absence of AG competition against an ANDA generic, not from the 

presence of AG competition against an ANDA generic.8

 

 

7

See, e.g., Congressional Budget Office, How Increased Competition from Generic Drugs 

Has Affected Prices and Returns in the Pharmaceutical Industry (July 1998) at 31 (“Because 

generic drugs are priced much lower than their brand-name counterparts, they are a source of 

substantial savings.”), available at http://www.cbo.gov/showdoc.cfin?index=655&seguence=0. 

8

 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 ANDA-generic’s product and a brand’s AG. 
 CHAPTER 1: PRELIMINARY FINDINGS ON THE SHORT-TERM 

 IMPACTS OF AUTHORIZED GENERICS

 

I. Introduction 

This chapter presents the FTC’s preliminary data analysis of the impact of AGs during 

the 180-day exclusivity period that may be granted to the first challenger of a patent covering a 

brand-name drug. Given the limited scope of our preliminary analysis, this chapter makes no 

attempt to reach any conclusions about the net impact of AGs on consumers or the economy. 

 

The FTC’s preliminary data analysis shows the following: 

 Retail prices are on average 4.2 percent lower, relative to the pre-generic brand price, when 

an independent generic competes with an AG during the 180-day exclusivity period than 

when an AG does not enter. 

 Wholesale prices are on average 6.5 percent lower, relative to the pre-generic brand prices, 

when an AG competes with one independent generic during the exclusivity period than when 

an AG does not enter. 

 Revenues of a generic company during the 180-day exclusivity period drop substantially with 

AG entry, with estimates of the average decline ranging from 47 percent to 51 percent. 

 The revenue effect for generics is so much larger than the price effect for consumers 

primarily because the AG represents a very close substitute for the independent generic and 

therefore typically obtains significant market share at the expense of the independent generic. 

This is confirmed with an analysis of the quantities dispensed by retail pharmacies. 

 This preliminary analysis uses the same basic methodology as two prior studies of the 

impact of AGs during the 180-day exclusivity period, but applies that methodology to new data 

that accounts for a longer period of time and more drug products than the data used in the prior 

studies. In 2006, IMS Consulting conducted a study commissioned by the Pharmaceutical 

Research and Manufacturers of America (PhRMA) to measure the impact of authorized generics 

upon costs to the health care system through their influence on generic pricing.1

 The study 

compared two sets of drugs for which generic entry occurred via 180-day exclusivity. The first 

group included nine drugs where an authorized generic drug 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 

 1

 IMS CONSULTING, IMS HEALTH, ASSESSMENT OF AUTHORIZED GENERICS IN THE U.S.

(2006), http://www.phrma.org/files/IMS%20Authorized%20Generics%20Report_6-22-06.pdf

(prepared for PhRMA), referred to throughout this text as “the IMS Study”. 

1 
concluded that, relative to the price of the brand drug, wholesale generic prices were about 16 

percent lower when the first generic faced competition from an authorized generic. 

 A second study by Hollis and Liang2

 addressed similar questions using similar analysis 

on the same set of drugs, but with retail prices instead of wholesale prices. For reasons that will 

be discussed later in this chapter, they consider the price of generic drugs relative to the price of 

the corresponding brand drug prior to generic entry. Hollis and Liang conclude that the average 

retail generic discount off the pre-entry brand price was 15 percent without an AG and 20 

percent with an AG, which nets out to a 5 percent impact caused by AG entry.3 

The full description of the new analysis presented in this chapter spells out in more detail 

the similarities and differences between our analysis and the analysis in these two previous 

studies. Among other things, our study included at least twice the number of drugs or more, 

depending on how multiple strengths or dosage forms of the same drug are counted, than were 

included in the prior studies. Also, the statistical properties of the average discounts were not 

discussed in either prior study, while we present standard errors for all calculated averages and 

perform statistical tests when comparisons are being made between averages. In addition, we 

test our results through cross checking (e.g., comparing results for both retail and wholesale 

prices) and provide multiple estimates (e.g., unweighted and weighted averages). We also 

analyze the impact of AGs on expenditures and quantities. 

II. Preliminary Empirical Results

 The preliminary findings reported here will focus exclusively on the impact of AG 

competition within FDA- granted 180-day exclusivity periods. We do not directly address the 

impact of the presence of authorized generics on the decisions of generic companies to initiate 

paragraph IV challenges, or to seek approval of an ANDA from the FDA. However, some light 

will be shed on the facts relevant to such decision making through an analysis of the impact of 

AG entry on generic drug manufacturer revenues (as a proxy for generic manufacturer profits) 

during the exclusivity period. We start with a description of the data before turning to our 

preliminary results. 

 2

 AIDAN HOLLIS AND BRYAN A. LIANG, AN ASSESSMENT OF THE EFFECT OF AUTHORIZED 

GENERICS ON CONSUMER PRICES (2006), 

http://www.gphaonline.org/sites/default/files/GPhA_AG_Study.pdf, GPhA Study, referred to 

throughout this text as “Hollis and Liang”. 

3

 Id. at 14. Hollis and Liang go further however, and argue that even the 5% difference 

overstates the immediate benefits from authorized generics. In particular, the authors argue that 

each of 18 drugs in their analysis should be weighted by sales. When this is done, Hollis and 

Liang conclude that the average generic discount off of the pre-entry brand price is virtually 

identical with and without AGs. Id. at 15. 

2 
3 

 

 A. Description of the Data 

Our empirical analysis combines information from several different data sources. A 

license for both the retail4

 and wholesale5 sales information was purchased from IMS Health 

Services (IMS). This is the same source of data used by virtually all of the prior research 

looking at the impact of AGs, including the study sponsored by branded manufacturers (IMS 

Consulting) and the study sponsored by the generic manufacturers (Hollis and Liang). Although 

these data may not account for all factors relevant to particular questions, we know of no data set 

that captures all of the information we would like to include in this analysis. Where possible, the 

final study will use additional econometric techniques to account for factors that could not be 

directly addressed with the available data. 

Whether a drug faced a paragraph IV challenge and the dates of any 180-day exclusivity 

period arising from the challenge was determined from information from the Food and Drug 

Administration (FDA). Authorized generic drug information was based on information from the 

FDA and from press statements and was verified using data subpoenaed from the pharmaceutical 

firms. This information includes whether the brand issued an authorized generic version of the 

drug and the identity of the AG distributor. 

 A detailed description of the data and how it was processed is provided in the appendix to 

this chapter. To summarize, we used monthly wholesale and retail prices and quantities for all 

non-injectable drugs for 2003 through 2008 and limited our sample to drugs that first faced 

generic competition within that period. Throughout this text, the term “drug product” or “drug” 

refers to a full specification of active ingredient(s), dosage form, and strength. We included a 

monthly observation for a drug only if in that month, a generic manufacturer with 180-day 

exclusivity was either the only generic in the market, or was joined in the market only by an AG. 

When the independent generic manufacturer was the only generic on the market, we refer to that 

as an ANDA-Only drug. The 51 drugs that are classified as ANDA-Only drugs in our sample 

are listed in Table A5 in the appendix. When the independent generic was joined in the market 

by only an AG, the drug is referred to as an ANDA+AG drug. The 53 drugs that are classified as 

ANDA+AG in our sample are listed in Table A6 in the appendix. 

4

 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 IMS National Prescription Audit data are Chain Stores, Food 

Stores, Independents, Long-Term Care, and Mail Service. 

5

 The full reference for data that will henceforth 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 NSP sample 

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 

Non-Federal Hospitals. The analysis presented here aggregates over these channels. 
B. Empirical Analysis of Market Outcomes During Exclusivity Periods 

The Commission’s preliminary analysis provides new evidence on two fundamental 

questions pertaining to the short-term impact of authorized generics. These questions are: 

 

 Given the presence of a lone ANDA generic, what impact does AG entry have on 

retail and wholesale prices during the 180-day exclusivity period? 

 What effect does AG entry have on the revenues of the generic and brand 

companies during the exclusivity period? 

Although the full study will address additional market circumstances, this report shares the focus 

of the IMS and Hollis and Liang studies by concentrating on drugs for which one independent 

generic firm was granted 180-day exclusivity, and either was the lone generic on the market or 

was joined only by an authorized generic.6

 As in previous studies, this analysis will focus on comparisons across groups of drugs, 

distinguished by whether an AG was marketed, to estimate the effect of AG entry. Because the 

decision whether to market an AG is a choice made by a branded drug manufacturer with a good 

understanding of the market for that drug, it is not appropriate to assume that drugs are randomly 

assigned to the group with an authorized generic (ANDA+AG) or the group without (ANDAOnly). For instance, consider a drug for which consumers are thought to be very reluctant to 

switch to a generic. In this situation, the branded company may choose not to issue an AG 

because it expects the AG to have low sales. Furthermore, an independent generic company 

trying to market a generic version of this drug may find it necessary to offer deeper than average 

discounts on this drug in order to entice consumers to switch to the generic. It would be errant to 

 6

 Our analysis of the prior research on AGs suggests that gaining an accurate 

understanding of the effect during the 180-day exclusivity period is of primary importance, yet 

obviously AG entry can have impacts that extend beyond the 180-day exclusivity period. For 

instance, the IMS Study estimated the effect of AG entry on prices after the exclusivity period, as 

did a second study, Ernst R. Berndt et al., Authorized Generic Drugs, Price Competition and 

Consumers’ Welfare, 26 HEALTH AFFAIRS 790 (2007). Both studies found that the additional 

competition caused meaningfully greater discounts only when the number of independent 

generics who eventually enter is small, generally five or fewer. Another strand of research 

addresses the effect of AG entry on the decision to pursue paragraph IV challenges. The general 

take-away from these studies is that AG entry is most likely to have a consequential impact on 

challenges for drugs with relatively low sales volume. See MARC GOODMAN ET AL., MORGAN 

STANLEY, QUANTIFYING THE IMPACT FROM AUTHORIZED GENERICS (2004), and David Reiffen & 

Michael R. Ward, Branded Generics as a Strategy to Limit Cannibalization of Pharmaceutical 

Markets, 28 MANAGERIAL AND DECISION ECONOMICS 251 (2007). Not only do these studies 

point out areas for further analysis that will appear in our final report, they put into context some 

of the results reported in this preliminary study, particularly the comparisons made between 

outcomes for drugs with high and low sales volumes. 

4 
conclude that the lack of an AG caused the deep discount. This is just one example of how 

market conditions that may determine whether an AG is issued may also influence market 

outcomes in the generic market.7

 

 Our final study will include econometric analysis that attempts to account for this 

problem by controlling for factors that are strong predictors of the likelihood of AG entry. For 

instance, we have found that when generic entry occurs via 180-day exclusivity, AGs are much 

more likely to enter markets with relatively large pre-generic entry brand sales than they are to 

enter smaller markets. The final study will contain econometric analysis that controls for the size 

of the pre-generic entry branded market. However, the prior literature generally did not control 

for factors such as this, so the analysis presented below serves primarily as an update to the 

results of these prior studies. 

 1. Price Discounts 

 The price of a drug is calculated as the total dollars spent on that drug divided by some 

measure of the quantity of the drug purchased. We obtained from IMS measures of the total 

dollars in both the retail and wholesale data. For this study, absolute quantities were measured in 

terms of extended units of the drugs. An example of an extended unit is a 200mg tablet. To the 

extent that we have data on different sized bottles of 200mg tablets of a drug, we aggregated over 

the bottle sizes to state everything in terms of the 200mg tablets. 

The standard measure of price used throughout this report is the calculated monthly price 

for an extended unit of the drug (defined by active ingredient(s), strength, and dosage form8

) 

 7

 The problem of inference in this case is that the owner of the brand has a choice to 

market an authorized generic; that is, the choice to market an AG is endogenous. For this reason 

it is difficult to determine the market impact of an AG because the firm does not randomly 

choose when to offer an AG. The following analogy demonstrates the difficulty in determining 

the causal effect. Suppose we observe that when pedestrians use umbrellas, drivers turn on their 

windshield wipers. It would be incorrect to conclude that the pedestrians’ decisions determine 

the drivers’ behavior because both behaviors are typically caused by rain falling from the sky. 

The econometric problem in estimating the effect of an AG on prices, revenues, or output is that 

the analogue to "rain" in the drug example cited here is the anticipated profitability of selling the 

authorized generic, which is not observable. 

8

 Note that defining the unit of observation in this way treats blockbuster drugs and niche 

products equally. Also note that drugs that tend to be offered in multiple dosage forms or 

strengths will be more heavily represented in the data than drugs that are offered in a single 

strength and dosage form. Statistically, it may not be appropriate to treat the prices for a 100mg 

tablet of a drug and a 200mg tablet of the same drug from the same manufacturer as being 

independent observations. This statistical issue is not of a kind that is normally expected to bias 

the estimates, but it does require qualification of the calculated standard errors and statistical 

significance levels. The econometric analysis in the final study will account for these concerns. 

5 
divided by the average price of an extended unit of the branded version of that drug in the three 

months preceding generic entry. This is referred to as a relative price.9

 Normalization is 

necessary to allow comparisons and aggregation across drug products that may have very 

different nominal prices. Since differences in the competition among generics, such as may be 

caused by AG entry, may prompt different pricing responses from the brand, normalization by 

contemporaneous brand prices could confuse the brand response with differences in generic 

pricing. Furthermore, we follow the recent related literature and report these relative prices in 

terms of the percentage discount off of the pre-entry brand price, which we generally refer to as 

the “generic discount”.10

 a. Retail Generic Discounts 

 The most straightforward impact on consumers from AG entry is the effect that the 

additional competition has on the prices they pay for their prescriptions. Reported in Table 1-A 

are the mean retail generic discounts and their standard errors (abbreviated SE), throughout the 

six months of exclusivity for drugs of all market sizes. Note that the average discounts off of 

pre-entry brand prices are higher for ANDA+AG drugs than for ANDA-Only drugs in every 

month of exclusivity, and this difference is highly statistically significant in all but the first 

month.11 Averaged across all months of exclusivity, consumers receive a 13.1 percent discount 

on a generic drug with exclusivity facing no AG competition. With AG competition, discounts 

average 17.2 percent off the pre-entry brand price. Taken together, these two discounts imply 

 9

 For both the retail and wholesale analysis, the monthly generic price for an ANDAOnly drug is calculated as the total sales dollars of the generic drug divided by the extended units 

sold. The monthly generic price of an ANDA+AG drug is the sum of the total sales dollars from 

the ANDA and the AG divided by the total extended units sold of the ANDA and the AG. That 

is to say, in ANDA+AG markets, the generic price is a weighted average of the ANDA and the 

AG prices. To get relative prices, each of these are normalized by the pre-entry price per 

extended unit of the corresponding brand product. 

10 To be precise about how these are being calculated, let G be the average price of a 

generic drug in the current month, and B be the average price of the brand drug in the three 

months prior to generic entry. The relative price would be calculated as G/B. The discount off 

of the pre-entry brand price is 1-G/B. 

11 The statistical significance of these differences is reported as the p-value of a onesided difference in means Student t-test without an assumption of equal variances. For instance, 

the 6.6% p-value reported for month 1 in Table 1-A means that the probability of observing the 

ANDA-Only sample mean discount being 3.7% lower than the ANDA+AG sample mean 

discount, based on the sample size and variance observed in the data, is no more than 6.6% if the 

null hypothesis that the ANDA-Only discount is at least equal to the ANDA+AG price is true. 

(In these tests, the null hypothesis is specified as the opposite of what we expect. The 1.1% pvalue reported for month 2 means that it is considerably less likely that the month 2 data would 

be observed if the true ANDA-Only discount is higher than the true ANDA+AG discount. Put 

simply, the lower the p-value, the more statistically significant is the result. 

6 
that consumers receive a 4.2 percent greater discount off of the pre-entry brand price for drugs 

where a generic manufacturer with lone exclusivity faces competition from an AG than when no 

AG enters. This difference is close to the 5 percent Hollis and Liang found using a similar 

methodology on retail discounts for a different set of drugs over a different period of time. Also 

note that this difference stays relatively constant throughout the exclusivity period. 

 

Table 1-A: Average Retail Generic Discount: Unweighted Means

 Month of Exclusivity 

Drug Group 1 2 3 4 5 6 All 

ANDA-Only Mean 12.1% 13.1% 13.2% 13.5% 14.2% 12.4% 13.1% 

SE 2.1% 1.5% 1.4% 1.3% 1.4% 1.4% 0.7% 

ANDA+AG Mean 15.8% 17.1% 17.6% 17.9% 17.6% 17.4% 17.2% 

 SE 1.4% 0.8% 0.8% 0.8% 0.9% 1.1% 0.4% 

Difference -3.7% -4.0% -4.4% -4.4% -3.4% -5.0% -4.2% 

One sided difference 

in means test, p-value 

6.6% 1.1% 0.5% 0.3% 2.5% 0.3% 0.0% 

 

 The decision of a branded company to launch an AG depends on market characteristics, 

some of which may also have an impact on pricing in those markets. Of the 95 drugs in our 

sample—which is limited to certain drugs for which generic entry occurred by 180-day 

exclusivity after 2003—authorized generics entered into 53 of them. However, the decision to 

enter with an AG differs substantially based on the pre-generic entry sales of the branded drug. 

The results below suggest that consumers tend to receive deeper discounts with AG entry into 

higher sales drugs. 

We derived this conclusion by splitting the sample of drugs into “high sales” drugs and 

“low sales” drugs, with the dividing line determined by whether the brand sales for the three 

months preceding generic entry were above or below the median of all drugs that first faced 

generic competition in our time window and for which at least one generic firm was granted 

exclusivity by the FDA. The median drug in the retail data had pre-entry brand annual sales of 

$130 million. Authorized generics entered for only 16 of the 49 low sales drugs (or 33 percent). 

Naturally, this implies that AG entry was much more common for products with high sales, 

where AG entry occurred for 37 out of 46 drugs in our sample (80 percent).12 

 12 Since the median market size being used to distinguish high sales from low sales drugs 

is the median of all drugs that entered with exclusivity in our time frame, the number of high and 

low sales drugs in our restricted sample need not equal one another. 

7 
Considering only low sales drugs, the average generic discounts over all months of 

exclusivity were 14.1 percent (0.7 percent) and 17.6 percent (0.8 percent) in ANDA-Only and 

ANDA+AG markets respectively, with standard errors reported in parentheses as will be the 

convention henceforth. This difference is statistically significant at any standard level. On the 

other hand, for high sales drugs, the generic discounts are 9.4 percent (1.3 percent) and 17.1 

percent (0.5 percent) in ANDA-Only and ANDA+AG markets respectively, so AGs appear to 

have a larger impact on discounts in high sales markets. This difference is also statistically 

significant at all reasonable levels. 

 Another way to investigate the connection between the relative size of the markets and 

the impact of AG entry is to calculate the average discounts with more weight being put on high 

sales drugs. In Table 1-A, the average discounts were calculated by putting equal weight on each 

drug. One way to think of what this average represents is that it is the expected discount a 

consumer would receive for the generic drug if one were to randomly select one of the drugs 

from the list of drugs in our sample. In Table 1-B, each drug/month observation is weighted by 

the total dollar sales of the generics for that drug/month. One interpretation of these averages is 

that it is the discount received for a randomly selected dollar spent on the generic drugs in our 

sample. 

Table 1-B: Average Retail Generic Discount: Dollar Weighted Means

 Month of Exclusivity 

Drug Group 1 2 3 4 5 6 All 

ANDA-Only Mean 17.3% 14.9% 15.0% 14.9% 14.9% 15.4% 15.2% 

 SE 1.4% 0.8% 0.8% 0.8% 0.9% 1.1% 0.4% 

ANDA+AG Mean 14.7% 15.4% 15.9% 16.1% 16.1% 15.9% 15.8% 

SE 1.4% 0.8% 0.8% 0.8% 0.9% 1.1% 0.4% 

Difference 2.6% -0.5% -0.8% -1.2% -1.2% -0.5% -0.6% 

One sided difference in 

means test, p-value 

No test 36.0% 31.0% 23.0% 24.0% 41.0% 14.0% 

 The differences reported in Table 1-B are typically around 1% or less, and are not 

statistically significant. This is consistent with Hollis and Liang’s analysis of similarly weighted 

average retail prices. One point worth mentioning is that when weighting observations in this 

way, one drug, clopidogrel 75mg tablets, becomes very important in the ANDA-Only 

calculation, accounting for over 40 percent of the weight. The weighted-average ANDA-Only 

discount for the six months of exclusivity falls to 11.3 percent if this drug is dropped from the 

8 
weighted average, which would bring the difference between ANDA-Only and ANDA+AG 

drugs back to roughly the same level as was reported for the unweighted averages.13 

 Although retail prices may reflect the most obvious measure of impact of AG entry on 

consumers, they have several limitations. First, retail prices may not accurately reflect all of the 

payments made by consumers for prescription drugs. For instance, individuals who receive 

prescription drug benefits as part of a health insurance plan also pay premiums, some of which 

should appropriately considered to be an expenditure on drugs. To the extent that insurance 

plans can receive lower pricing for prescription drugs, some of those savings may be passed on 

through lower premiums. Also, the source of our retail data, IMS Health’s National Prescription 

Audit, only tracks sales at retail pharmacies. 

 

 b. Wholesale Price Discounts 

 

 The wholesale level transactions in our data represent purchases of drugs by pharmacies 

from manufacturers and wholesalers. To the extent that savings recognized by pharmacies filter 

through the health care system, this supplies an alternate measure of the impact of AGs on prices. 

As noted in the appendix, the data do not account for various types of discounts, and would also 

not reflect changes in the insurance premiums of consumers. To the extent that both the retail 

and the wholesale data do not include all relevant discounts, our analysis based on these data 

may overstate or understate the level of discounting. For that reason, it is particularly beneficial 

to have the wholesale data as a second source of information about pharmaceutical pricing with 

which the impact of AGs can be studied. One benefit of the wholesale data is that it contains 

information about purchases by more outlets, such as non-retail pharmacies, hospitals, and 

HMOs, for instance, than were covered by the retail data. 

 Reported in Table 1-C are the unweighted average wholesale generic discounts off of the 

pre-entry brand prices throughout the six months of exclusivity for drugs of all market sizes. As 

with the retail discounts, the average wholesale discount is higher in markets that experienced 

AG entry in each of the months, and the difference is statistically significant at any standard 

level for all but the first month of exclusivity. Averaged over all months, wholesale prices in 

ANDA+AG markets reflect a 6.5 percent deeper discount than in ANDA-Only markets. This 

difference is considerably smaller than what IMS Consulting found in their analysis of wholesale 

prices for a different set of drugs, over a different time period, using slightly different 

methodology. The final study will explore potential reasons for this divergence. 

 

 13 The circumstances surrounding the launch of generic clopidogrel are atypical. Apotex 

launched the generic “at risk,” meaning the patent litigation was still unresolved. Subsequently, 

the courts upheld the patent and prevented Apotex from continuing to sell the generic. However, 

Apotex had managed to sell several months’ supply while on the market, and these sales show up 

in our data. For the details of this situation, see Stephanie Saul, Court Upholds Plavix Patent Of 

Bristol And Sanofi, N.Y. TIMES, June 20, 2007, at C3. 

9 
10 

Table 1-C: Average Wholesale Generic Discount: Unweighted Averages

Month of Exclusivity 

Drug Group 1 2 3 4 5 6 All 

ANDA-Only Mean 21.3% 21.8% 22.4% 22.4% 22.9% 23.1% 22.3% 

SE 1.3% 1.0% 1.1% 1.1% 1.1% 1.1% 0.5% 

ANDA+AG Mean 22.8% 26.3% 28.9% 30.5% 32.4% 33.1% 28.8% 

 SE 2.7% 2.2% 2.3% 2.1% 2.3% 2.9% 1.0% 

Difference -1.6% -4.5% -6.5% -8.2% -9.5% -10% -6.5% 

One sided difference in 

means test, p-value 

30% 3.6% 0.7% 0.1% 0.0% 0.1% 0.0% 

 

 The retail data revealed differences for discounts between high sales drugs and low sales 

drugs. Those differences are present, but less pronounced in the wholesale data, though the pvalue for one-sided difference in means test is less than one percent for each of the comparisons. 

Averaged across all exclusivity months in low sales drugs, the average relative wholesale 

discount in ANDA-Only markets is 23.3 percent (0.6 percent), compared to 29.3 percent (2.1 

percent) in ANDA+AG markets. For high sales markets, ANDA-Only discounts average 19.5 

percent (0.6 percent) while average ANDA+AG discounts are 28.6 percent (1.1 percent). 

 Another distinction between the wholesale discounts and the retail discounts is that 

weighting observations by the dollar sales of the drugs caused the differences to diminish in the 

retail data. In the wholesale data, the weighted averages, reported in Table 1-D, reveal 

differences between ANDA-Only and ANDA+AG drugs that are somewhat higher than with the 

unweighted averages. Again, clopidogrel gets in excess of 40 percent of the weight for the 

ANDA-Only drugs, but dropping it from the wholesale weighted average discount calculation 

has little impact on the weighted average. 
11 

Table 1-D: Average Wholesale Generic Discount: Dollar Weighted Means

Month of Exclusivity 

Drug Group 1 2 3 4 5 6 All 

ANDA-Only Mean 15.1% 18.0% 18.8% 18.2% 20.2% 20.2% 18.3% 

SE 0.7% 0.8% 0.6% 0.7% 0.7% 0.7% 0.3% 

ANDA+AG Mean 18.7% 24.3% 26.7% 28.7% 29.8% 29.6% 26.4% 

 SE 2.6% 2.0% 2.0% 2.0% 2.0% 2.4% 0.9% 

Difference -3.6% -6.3% -7.9% -11% -9.6% -9.4% -8.1% 

One sided difference in 

means test, p-value 

9.6% 0.2% 0.0% 0.0% 0.0% 0.0% 0.0% 

 

 2. Wholesale Expenditures 

 We now turn to an analysis of total wholesale expenditures on this same set of drugs. 

The primary reason for considering these expenditures is to approximate how the revenues of a 

first-filer generic manufacturer are affected by competition from an AG. Of course, it would be 

preferable to have an estimate of the impact on profits instead of revenues, and the full study will 

address the impact on profits, not just revenues. However, some simple math tells us that the 

percentage decrease in revenues in this case understates the percentage decrease in profits.14 

Our measure of wholesale expenditures is the total dollars reported in the IMS National 

Sales Perspective database. The intent of this analysis is to use wholesale level expenditures by 

pharmacies as a proxy for the revenues of manufacturers. Because the data represent pharmacy 

purchases from manufacturers and wholesalers, our proxy is imperfect to the extent that it 

includes wholesaler margins on the drugs that pass through wholesalers. Our results could be 

 14 Revenues equal price times quantity, and in this instance, the decline in revenue is 

caused by a decline in both the price and the quantity of the independent generic with AG entry. 

To see how profits change when price and quantity drop, consider first just a price decrease. A 

1% price decline, holding quantities fixed, will cause revenues to fall by 1%, and will decrease 

the gross margin, (price minus variable cost), and thus the incremental profits (revenues minus 

variable costs) by more than 1%. The nominal decline in total profit is the same as the nominal 

decline in incremental profit, but with positive fixed costs, this would represent an even larger 

percentage change in total profits (incremental profits minus fixed costs). A 1% decrease in 

quantity, holding price fixed, will decrease revenues by 1% and will decrease incremental profits 

also by 1%, assuming constant average variable costs, which will again cause a greater than 1% 

decline in total profits. Therefore, reporting the decline in ANDA revenues caused by AG entry 

understates the impact on profits. 
12 

 

biased if the proportions of drugs going through wholesalers are systematically different between 

ANDA-Only and ANDA+AG drugs, but we have no reason to believe that is the case. 

 Just as with prices, expenditures have been normalized by corresponding data from the 

branded product prior to generic entry. Relative expenditures are expressed in terms of a fraction 

of the pre-entry brand sales, where monthly expenditures are divided by the average monthly 

expenditures on the brand for the three months prior to generic entry, and are referred to as 

relative expenditures. Again, this normalization is employed to allow aggregation across drugs. 

 

 Table 1-E presents the relative expenditures on the ANDA generic drug for both types of 

markets for drugs of all sales levels. Except in the initial month, the differences are both 

economically large and statistically significant. Averaged over all months, monthly expenditures 

on the ANDA generic in ANDA-Only markets are approximately 61.1 percent of the monthly 

expenditures on the brand drug in the months preceding generic entry. By contrast, ANDA 

generic expenditures in ANDA+AG markets are only 32.7 percent of the pre-entry brand 

expenditures. The expenditures on the ANDA generic in ANDA+AG markets are 47 percent 15

lower than in ANDA-Only markets. 

Since this data is based on calendar months, and expenditures accumulate over the 

month, the expenditure numbers for the first month could be misleading if, for example, the 

generic drug entered the market on the last day of the month. This was not a problem for prices 

because prices are reported per extended unit. On the other hand, generic sales may take some 

time to ramp up when first introduced, so there may be reason to expect first month sales to be 

lower than in later months, even when the generic enters on the first day of the first month. This 

problem cannot be resolved with the data we have, so we will estimate this important difference 

in expenditures a second way, by dropping the first month from the average. The average 

relative wholesale expenditures change to 65.6 percent and 32.1 percent for ANDA-Only and 

ANDA+AG markets, respectively, if the average is taken over months 2 through 6. That is, over 

the last five months of the exclusivity period, average relative wholesale expenditures on the 

ANDA generic drop by 51 percent when there is AG competition. 

15 This 47% difference is calculated as the difference between the independent generic’s 

relative expenditures for ANDA-Only versus ANDA+AG drugs, 61.1%-32.7%, divided by 

ANDA-Only relative expenditures, 61.1%. 
13 

Table 1-E: Average Relative Wholesale Expenditures on the ANDA Generic

Month of Exclusivity 

Drug Group 1 2 3 4 5 6 All 

ANDA-Only Mean 42.4% 71.1% 59.7% 62.8% 69.5% 65.0% 61.1% 

SE 4.9% 10.7% 6.6% 3.9% 6.0% 4.8% 2.7% 

ANDA+AG Mean 35.6% 35.0% 28.7% 32.3% 30.4% 34.4% 32.7% 

 SE 3.5% 3.0% 1.7% 1.7% 2.1% 2.6% 1.0% 

Difference 6.8% 36.1% 31.1% 30.6% 39.1% 30.7% 28.4% 

One sided difference in means 

test, p-value 

24.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 

 

 This difference may be easier to understand in the context of an example. The annualized 

pre-generic entry brand expenditures of the median drug in our wholesale sample were roughly 

$170 million, or $85 million for six months. The averages above imply that expenditures on an 

ANDA generic that obtains an exclusivity period for that drug would be 61.1 percent of that total 

over the exclusivity period if the independent manufacturer faced no AG competition; thus 

expenditures on the ANDA would be roughly $51.9 million. If an AG entered that market, the 

expenditures on the ANDA would fall to $27.8 million (32.7 percent of $85 million) assuming 

all else remains the same about the market for this drug. Therefore, expenditures on the ANDA 

generic entrant into the median sized market would be roughly $24.1 million dollars less in the 

ANDA+AG market.16 If the average expenditure estimates that excluded the first month are 

used, the difference in expenditures on this median drug becomes $28.5 million. 

 The analysis of prices for high sales and low sales drugs indicated that AG entry tends to 

have more of an impact on generic prices of high sales drugs than low sales drugs. The same is 

not true of expenditures. For high sales drugs, relative expenditures on the ANDA fall from 49.7 

percent (2.0 percent) in ANDA-Only markets to 31.4 percent (1.1 percent) in ANDA+AG 

markets, or a 32 percent decrease. In low sales markets, relative expenditures on the ANDA 

decrease more substantially, from 65.3 percent (3.6 percent) to 36.3 percent (2.5 percent) 

between ANDA-Only and ANDA+AG markets, for a 43 percent decrease. 

 This relative wholesale expenditure data can also shed some light on how the brand 

manufacturer fares in ANDA+AG markets relative to ANDA-Only markets.17 Table 1-F reports 

 16 To the extent that wholesaler margins are included in these expenditure figures, this 

estimate may overstate the impact on the first filer. 

17 Because these wholesale expenditures do not account for payments from brand 

manufacturers to third-party payers, such as pharmacy benefit managers, brand wholesale 

expenditures are best thought of as a proxy for brand gross revenues. See Chapter III of the FTC 
14 

relative expenditures on the brand drug during ANDA-Only exclusivity periods, and both brand 

and AG expenditures during ANDA+AG exclusivity periods. Notice that the brand expenditures 

drop more rapidly and to lower levels in the presence of an AG.18 It is difficult to determine 

whether this is caused by the AG or is due to other differences in these markets. We will revisit 

this question in the next section that looks at the impact of AG entry on quantities sold. In the 

ANDA+AG markets, the brand expenditures decrease so substantially that in months three 

through six, expenditures on the AG exceed brand expenditures. It is also worth noting that in 

each month of exclusivity, the brand plus the AG expenditures for the ANDA+AG drugs exceed 

the brand expenditures for the ANDA-Only drugs. If an AG is marketed by a subsidiary of the 

brand company, this evidence would suggest that the parent company makes higher revenues in 

the ANDA+AG markets than in the ANDA-Only markets during the exclusivity period. 

 

Table 1-F: Average Wholesale Relative Expenditures on Brand and AG

Month of Exclusivity 

Drug Group 1 2 3 4 5 6 All 

ANDA-Only Brand-Mean 87.5% 50.3% 39.8% 34.9% 30.4% 30.0% 47.1% 

Brand-SE 3.7% 3.2% 2.5% 2.7% 2.2% 3.2% 1.8% 

ANDA+AG Brand-Mean 79.7% 34.4% 23.8% 23.7% 18.3% 16.7% 33.0% 

 Brand-SE 3.5% 2.0% 1.0% 1.4% 1.1% 1.4% 1.5% 

AG-Mean 17.7% 24.9% 23.9% 24.6% 24.6% 25.9% 23.6% 

 AG-SE 2.1% 2.0% 2.0% 1.8% 1.8% 2.6% 0.8% 

 

 

Pharmacy Benefit Manager study for more information on these payments, FED. TRADE 

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

http://www.ftc.gov/reports/pharmbenefit05/050906pharmbenefitrpt.pdf. 18 It may seem odd that the total relative expenditures for a group of drugs typically 

exceed one hundred percent. For instance, in month one for the ANDA-Only drugs, the 

independent generic’s average relative expenditure is 84.9%, from Table 1-D, and the brand’s 

average relative expenditure is 42.4%, from Table 1-F; these sum to 127.3%. We suspect that 

some of this increase in total expenditures at the wholesale level may be due to the filling of the 

supply channel with the generic. This does not indicate a problem with using this expenditure 

data as a proxy for revenues; sales for the purpose of filling up the supply channel still represent 

revenues for the manufacturer. Data presented in the next chapter show that the quantities 

actually dispensed by pharmacies (retail quantities) during the exclusivity period by the brand 

and generics are roughly equal to brand quantities prior to generic entry. Combined with the 

evidence above about wholesale generic discounts, an implication of the retail quantity data is 

that the total wholesale value of the drugs dispensed falls upon generic entry. 
15 

 3. Retail Quantities

 Another way to see the impact of authorized generics is to consider the quantities sold by 

various types of manufacturers with and without AG entry. Because wholesale quantities 

following generic entry can reflect the filling of the supply chain with the generic, the focus here 

is on quantities dispensed by pharmacies using our retail data. In order to aggregate across a 

wide variety of drugs, quantities need to be normalized. The normalization used here is the same 

as was used for prices and expenditures, dividing current quantity of extended units dispensed by 

the pre-entry brand quantity. This normalization allows meaningful aggregation across drugs, 

reveals whether the drugs were dispensed more or less than they were prior to generic entry, and 

gives an accurate measure of the relative market presence of the various types of drugs. 

 

 Table 1-G reports the relative quantities for the brand and the ANDA generic for ANDAOnly drugs across the six months of exclusivity. The first thing to note is that the brand relative 

quantities fall very quickly, with the brand losing more than half its sales by the third month, and 

over 70 percent by the end of exclusivity. Also note that the sum of brand and ANDA relative 

quantities is slightly less than 100 percent in all but the sixth month, meaning that these drugs 

tended to be dispensed somewhat less frequently after generic entry, though typically only by a 

couple of percentage points. 

 

Table 1-G: Average Relative Retail Quantities Dispensed: ANDA-Only

Month of Exclusivity 

Manufacturer Type 1 2 3 4 5 6 All 

Brand Mean 82.1% 50.6% 38.7% 34.4% 29.8% 28.8% 46.1% 

SE 2.9% 3.1% 2.5% 2.1% 1.9% 1.7% 1.6% 

ANDA Mean 13.9% 45.5% 57.3% 62.9% 67.7% 75.9% 51.5% 

 SE 2.0% 4.0% 3.8% 3.7% 3.6% 4.8% 2.0% 

 

 Relative quantities for ANDA+AG drugs appear in Table 1-H. Just as with ANDA-Only 

drugs, the brand quantities drop off quickly. In fact, the decrease is quicker and more 

pronounced for ANDA+AG drugs. One possible explanation for this is that the added generic 

competition causes more severe erosion of brand sales. Another explanation is that branded 

companies recognize that the brand will lose relatively more sales for particular drugs, and they 

decide to try to regain some of those losses by issuing an AG. Nothing in these tables can 

distinguish between these two explanations. More sophisticated analysis in the final study will 

attempt to better control for the factors that make launching an AG attractive to shed more light 
16 

on this question.19 Though this does not help distinguish between these explanations, it is 

interesting to note that the combined quantities of the Brand and the AG in Table 1-H exceed the 

Brand quantities in Table 1-G in each corresponding month. Also note that the average AG 

relative quantity is greater than 25 percent in all but the first month, but is always substantially 

lower than the relative quantity of the ANDA generic. Finally note that the ANDA generic’s 

share drops from 51.5 percent for ANDA-Only drugs to 42.8 percent for ANDA+AG drugs, 

which is a 17 percent reduction in quantity. This illustrates the point discussed earlier that an 

important reason the independent generic makes less revenue when facing AG competition is 

that it loses sales to the AG. 

Table 1-H: Average Relative Retail Quantities Dispensed: ANDA+AG

Month of Exclusivity 

Manufacturer Type 1 2 3 4 5 6 All 

Brand Mean 80.6% 32.8% 23.8% 21.3% 17.7% 16.3% 32.4% 

SE 2.8% 1.4% 1.2% 1.2% 1.2% 1.4% 1.5% 

AG Mean 7.2% 26.7% 30.1% 33.1% 36.1% 37.5% 28.1% 

SE 1.1% 1.7% 1.9% 2.3% 2.4% 3.2% 1.0% 

ANDA Mean 12.8% 43.2% 47.4% 49.3% 50.4% 55.7% 42.8% 

 SE 1.9% 1.7% 1.8% 2.1% 2.2% 3.0% 1.2% 

 

III. Conclusion 

 The launch of an AG can have impacts that extend beyond the brand and generic 

companies to consumers and other firms. Consistent with the prior research, our initial analysis 

suggests that consumers benefit and that 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. These results also indicate that AG 

entry significantly decreases the revenues of a first-filer generic company that obtains 180-day 

exclusivity. The impact of AG entry likely changes the calculus of business decision-making for 

both the generic and brand firms. These impacts will be explored further in the final report. 

 

 

 19 One such factor discussed above was the size of the market for the branded drug, prior 

to generic entry. However, relative retail quantities do not differ systematically between high 

sales and low sales drugs. 
CHAPTER 2: THE USE OF AUTHORIZED GENERICS IN 

 PATENT SETTLEMENT AGREEMENTS 

 As reported in the prior section, AG competition typically reduces a first-filer generic’s 

revenues during the 180 days of marketing exclusivity by approximately 50 percent. To prevent 

this loss of revenue, a generic may be willing to delay its entry in return for a brand’s agreement 

not to launch an authorized generic – that is, a brand’s agreement not to compete with the generic 

through an AG – 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 branded drugs, 1

 overall prescription 

drug costs could be significantly increased by just a few additional months of 

branded prices in a large market. 

 Second, consumers would lose the benefit of price discounts from AG competition 

during the 180-day marketing exclusivity. The consumer harm in such instances 

arises because the brand has agreed not to compete against the independent 

generic during the exclusivity period. The consumer harm arises from the absence 

of AG competition against an independent generic, not from the presence of AG 

competition against an independent generic.2

 

 Between FY2004–FY2008, about one-quarter (38 out of 152) of the final patent 

settlements reviewed by the FTC under the MMA contained provisions relating to 

AGs. 

 Between FY2004–FY2008, 76 final patent settlement agreements were with firstfiler generics. About one-quarter (20 out of 76) of those patent settlements 

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 

delay its entry past the settlement date by, on average, 34.7 months. Branded 

sales of the affected products ranged from $12.6 million to $5.3 billion, with an 

average market size of $917 million and a median market size of $514 million. 

Five of the settlements covered products with annual sales of $1 billion, $1.1 

 1

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

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

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 independent generic’s product and a brand’s AG. 

1 
billion, $2.1 billion, $2.5 billion, and $5.3 billion. 

I. The Problem of Anticompetitive Brand-Generic Patent Settlement 

Agreements. 

 

Patent litigation between a brand and a generic typically occurs when a generic seeks entry 

prior to expiration of the patents on a corresponding branded drug by alleging that such patents are 

invalid or not infringed by the generic’s drug product. That litigation often is settled rather than 

litigated to conclusion. Such settlements do not necessarily implicate 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, 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, do not generally raise competition concerns. 

 Other settlements in this context can raise serious competition concerns, however, because 

they appear to 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 settlements, known as “exclusion payment” or “pay for delay” settlements3

, thwart the goal 

of the Hatch-Waxman Act to encourage generic companies to challenge questionable patents and 

promptly “make available more low cost generic drugs,” while protecting legitimate patent claims 

covering innovator drugs.4 Settlements potentially raising “exclusion payment” issues are now 

common.5 Congress is now considering a variety of legislative proposals regarding “pay for 

 3

 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). 

4

 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 In re Ciprofloxacin Hydrochloride Antitrust Litig.,

544 F.3d 1323, 1336 (Fed. Cir. 2008); 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 FTC v. Cephalon, Inc., No. 08-cv2141 (E.D. Pa. complaint filed Feb. 13, 2008), available at 

http://www2.ftc.gov/os/caselist/0610182/080213complaint.pdf; FTC v. Watson Pharmaceuticals, 

Inc., No. 09-00598 (C.D. Cal. first amended complaint filed Feb. 12, 2009), available at

http://www2.ftc.gov/os/caselist/0710060/090212amendedcmpt.pdf. 5

 In the two most recent years for which data has been compiled, nearly half of all of the 

final settlements filed under the MMA involved compensation to the generic patent challenger and 

2 
delay” settlements, and the Commission supports restricting such settlements.

 Most recently, some brand-generic patent settlement agreements filed under the MMA 

appear to use provisions relating to authorized generics – instead of monetary payments – as a 

means 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 Section 6(b) 

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 and generic 

products. In one case, documents from the brand showed how an agreement not to compete with 

an AG increased both the brand-name and generic companies’ revenues. This was true because of 

(1) the overall drop in brand revenues that would occur at generic entry, and (2) the generic’s drop 

in revenues due to AG competition from the brand.6 Indeed, the branded firm projected 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 authorized generic, 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, according to the brand company’s documents.7

 

The combination of documents such as this, along with increased numbers of MMA filings 

including provisions relating to AGs, prompted staff to examine the role of AGs in Hatch-Waxman 

settlements.8

 

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: SUMMARY OF AGREEMENTS FILED IN FY 2006 (2007), 

http://www.ftc.gov/reports/mmact/MMAreport2006.pdf (14 of 28 final settlements involved 

compensation to the generic patent challenger and a restriction on entry); 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:

SUMMARY OF AGREEMENTS FILED IN FY 2007 (2008), http://www.ftc.gov/os/2008/05/mmaact.pdf

(14 of 33 final settlements involved compensation to the generic patent challenger and a restriction 

on generic entry). 

6

 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, 19 J. ECON. PERSPECTIVES 75, 91 n.15 (2005). 

7

 See Confidential Company Document (comparing forecasted net present values for early 

and late launches, with and without an AG). 

8

 This report cites all agreements arising from settlements or patent litigation, including 

settlements, licenses and supply and distribution agreements as “Settlement Agreements” (SA). 

3 
4 

 

II. The Possible Use of AGs to Compensate Generics for Deferring Generic Entry. 

 To examine the role of AGs in Hatch-Waxman settlements, staff categorized the final patent 

settlement agreements that the FTC has received under the Medicare Prescription Drug, 

Improvement, and Modernization Act of 2003 (“MMA”) for fiscal years 2004 through 2008, along 

with one additional agreement received outside the MMA framework.9 During that period, there 

were 38 final patent settlement agreements with provisions involving AGs.10

 

A. Agreements Involving AGs 

 

Thirty-eight final patent settlement agreements from FY2004-FY2008 contained provisions 

that involved AGs. These agreements fall into four basic categories: 

(1) As to 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 for a period of time (20 agreements); 

(2) As to the litigated product, either (a) there is no explicit promise not to compete, 

but the agreement incentivizes the brand not to use an AG to compete against 

the first-filer (6 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 (4 agreements); 

(3) As to the litigated product, the brand appoints a subsequent-filer generic as the 

brand’s AG to compete with the first filer (2 agreements); or 

(4) As to a different product that is not the subject of litigation between the brand 

and the generic, the brand appoints the generic as the brand’s AG (6 

agreements). 

 Figure 1 breaks down these agreements by type of AG provision. 

9

 The numbers set forth in this Section and in the accompanying charts reflect preliminary 

analysis and may be subject to minor changes. 

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 branded firm promising not to offer AG competition for 

a period of time. 
5

38 Final Patent Settlements 

Involving Authorized Generics

Brand 

Grants Generic 

Exclusive License

Brand Agrees to 

Exclusively Supply 

Generic

Figure 1: Overall Breakdown of Final Patent Settlement Ag

Involving Provisions on Authorized Generics: Fiscal Years 

11 9

1. Four of these agreements also involve the b

Brand Promises First-Filer 

not to Compete with AG on 

Litigated Product1

20

Other Promises by Brand 

not to Compete with AG on 

Litigated Product

Brand Appoints 

Subsequent Filer as AG o

Litigated Product

Incentive for 

Brand not to 

Compete with AG

Generic not 

Eligible for 180- 

Day Exclusivity

6 4

10 2 6
A. Type (1) Agreements: Explicit Commitments Not to Compete with an AG.

Twenty settlement agreements with a first-filer involved an explicit commitment by the 

brand not to use an AG to compete with the first-filer for all (or at least a portion) of the first filer’s 

180 days of marketing exclusivity.11 Brands explicitly agreed not to compete with an authorized 

generic only in patent settlements involving a first filer. A first filer is defined as a generic entitled 

to the 180 days of marketing exclusivity at the time of the settlement agreement.12 Agreements 

with first-filers are particularly attractive because the first-filer may control generic entry.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 twenty settlements involving explicit brand promises not to compete with an AG 

were not evenly distributed over the five-year period. The number increased from zero in FY 2004 

 11 A brand can compete with an AG either through launching it on its own or by 

authorizing another firm to market the brand’s AG. 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. 

12 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) (2008) (providing that 

exclusivity may be shared by applicants filing on the same day). 

13 Hatch-Waxman rewards the first filer to challenge a branded 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). Although Hatch-Waxman has 

been amended to address this problem, by providing that first-filers forfeit their exclusivity under 

certain circumstances, settlement agreements still have the 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) (prepared statement of the Fed. Trade 

Comm’n) (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 non-infringement), available at

http://www.ftc.gov/os/2009/03/P859910payfordelay.pdf; 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) (noting 

that when a first-filer enters a settlement agreement without a final judgment of invalidity or noninfringement, the “inability to force a forfeiture of 180-day exclusivity could result in delays in the 

approval of otherwise approvable ANDAs”) 

http://www.fda.gov/ohrms/dockets/DOCKETS/07n0389/07n-0389-let0003.pdf. 

6
to nine in FY 2007. In FY 2008 there were five such agreements. Figure 2 presents the data for 

each fiscal year. 

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 half – 11 out of 20 – allowed the generic to offer its own product 

without facing competition from the brand’s AG for some period of time. In the other 

nine cases, either the brand agreed exclusively to supply the generic with the brand’s 

AG, or the generic could choose whether to market its own product or the brand’s 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 13.5 months, and the median was six 

months. 

• Branded sales of the affected products ranged from $12.6 million to $5.3 billion, 

with an average market size of $917 million and a median market size of $514 

7
million.14 Settlements between FY 2004 and FY 2008 included settlements 

covering products with annual sales of $1 billion, $1.1 billion, $2.1 billion, $2.5 

billion, and $5.3 billion. 

• For these particular agreements, agreements not to offer a competing AG generally 

governed products with relatively low sales. In larger markets, the restriction on 

AG competition rarely lasted more than six months. Figure 3 plots the duration of 

agreements not to offer competing AGs against sales levels. 

 

 • The length of time between the settlement and the date when generic entry was 

allowed to commence ranged from 1.75 months to 101 months. For six products, 

the time from settlement to allowable entry was more than four years.15 Under the 

terms of eight agreements, generic entry was prohibited for at least three years. The 

average interval from settlement to allowable generic entry was 34.7 months, and 

the median was 30.1 months. 

 14 The annual sales data are from IMS Health, IMS National Prescription Audit Plus 7TM, 

Years 2003 to 2008, Data Extracted January 2009. In one instance, when IMS data for the product 

at issue was unavailable, information was drawn from Top 200 Drugs for 2005 by Sales, 

http://www.drugs.com/top200_2005.html (last visited June 19, 2009). All sales figures are for the 

full calendar year prior to the settlement agreement or for the last full year prior to generic entry. 

15 One of these settlements barred entry until 6–8 months before expiration of late-issued 

patents confined to a single form of the drug’s active ingredient. See [Redacted] SA (permitting 

entry six months before patent expiration). Under another settlement, the agreed-upon entry date 

gave the brand the full length of the primary composition-of-matter patent on the drug. 

8
Four of the Type (1) agreements filed under the MMA provided for AG competition, and 

consumer discounts, on a different product, however. In these agreements, although the brand 

agreed not to compete with an AG against the first filer’s generic product, the brand appointed that 

generic firm as the brand’s AG to compete against a different generic product. Such agreements 

typically offer the generic a certain percentage of the revenues from sales of the brand’s AG in the 

other product market, and they can provide consumer discounts through AG competition on the 

other product, assuming the royalties or supply price to the generic is not too high. 

At the same time, such an agreement also 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 brand’s AG for the product strength for which the generic was not the 

first-filer, in addition to agreeing that the brand would not compete with an AG for the product 

strengths for which the generic was the first filer. This agreement ensured that the generic would 

have sole 180-day exclusivity on the 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 have a full line of strengths at generic entry, 

giving it an advantage over the first-filer on the third strength. 

A. Type (2) Agreements: Other Promises by Brand Not to Compete with AG on 

Litigated Product. 

Type (2) agreements are difficult to categorize. In six of these agreements, there was no 

explicit promise by the brand not to compete with an AG. Instead, each of the agreements 

included provisions under which either royalties due to the brand dropped significantly if the 

generic faced competition within a specified period of time or some other provision discouraged 

the brand from offering a competing AG. These agreements actually may operate as promises by 

the brand not to launch or sponsor an authorized generic for a period of time, but their effect is 

difficult to judge. 

Four of the Type (2) agreements involved an explicit promise from the brand not to 

compete with an AG, but the generic did not have the right to 180-day marketing exclusivity. In 

one of these cases, the first-filer waived its exclusivity rights to allow another generic, with which 

the first-filer had a contractual relationship, to market the product at issue in the litigation. The 

settlement agreement restricted the brand’s ability to launch an AG for that product and indicated 

that the parties expected that the generic that was to market the product would be the only generic 

in the marketplace for at least the 180-day period. In a second case, the generic had been deemed 

by the FDA to have forfeited its exclusivity. Under the settlement, the brand granted the generic 

an exclusive license to market the generic’s product as of a specified date. In a third case, the 

generic had entered “at-risk,” thus triggering the exclusivity period. The settlement, which 

occurred after the triggering of the exclusivity period, involved the generic’s promise to exit the 

market for a period of time. Upon re-entry by the generic, the brand agreed to exclusively supply 

the generic with product. The last agreement involved an explicit promise by the brand not to 

9
compete with an AG for the life of the patent, but the generic was not eligible for the 180-day 

exclusivity period. 

C. Type (3) Agreements: Brand Appoints Subsequent Filer as AG on Litigated 

Product. 

 

 Settlements with subsequent filers involving AG provisions raise complex issues. In one 

of the two Type (3) agreements filed under the MMA, the brand agreed to supply the subsequent 

filer with product to market as an AG and continued litigating with the first-filer. The other 

agreement would allow the subsequent filer to market the brand’s AG for the litigated product 

during the first filer’s exclusivity, but only if the first filer did not settle its litigation. Otherwise, 

the subsequent filer could market the brand’s AG 181 days after the first filer’s launch. 

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 affect generic entry by 

eliminating a patent challenge that could have precipitated generic competition. For example, a 

subsequent filer may obtain a court decision of patent invalidity that would allow the first filer to 

market its product,16 or a subsequent filer could obtain a court decision of invalidity or noninfringement that would trigger the first-filer’s exclusivity period or its forfeiture.17 The Federal 

Circuit has recognized that brand name companies may seek to settle with subsequent filers, 

because branded 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.18 

D. Type (4): Brand Appoints Generic as AG on Another Product. 

In six agreements, the brand appointed the generic as the brand’s AG for another product. 

Type (4) agreements can provide AG competition, and consumer discounts, during an 180-day 

marketing exclusivity period for a different drug – not the drug whose patents are being litigated 

by the brand and generic. Consumer discounts on the second drug may result from the first-filer 

generic’s agreement to delay its entry on the litigated product. 

 16 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). Although this court-judgment trigger has 

been eliminated and does not apply to ANDAs filed after December 2003, a judgment of invalidity 

won by the subsequent filer would typically speed resolution of the first-filer’s case. 

17 Pursuant to amendments contained in the MMA, a court decision now triggers a 

forfeiture provision: if the first-filer 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). 

18 Caraco, 527 F.3d at 1284. 

10
III. More Complex Possible Strategies to Forestall Generic Entry through Agreements 

Involving Authorized Generics. 

Some of the patent settlement agreements reviewed by staff, and discussed in Section II 

above, revealed more complex strategies used in agreements involving AGs; these strategies 

depend on the presence of certain factors. Two types of these more complex strategies are 

discussed below. 

A. Multiple Dosage Forms/Products and Exclusive Agreements Relating to AGs. 

 Several recent settlement agreements reflect terms regarding two products (including, for 

these purposes, two dosage forms) involving an agreement not to compete with an AG for one 

product and an agreement exclusively to supply an AG for the other product. The essence of these 

arrangements is that the generic company is permitted to market an AG or ANDA-generic for one 

product soon after settlement, but entry is deferred for the other product, which usually has much 

higher sales.19 Such a package of commitments could induce the generic to defer entry on the 

high-sales product by promptly providing it with revenues on the low-sales product, and shielding 

it from a competing AG with respect to one or both of the products. 

 

 B. Strategic Information Disclosures. 

 Another category of settlements between brand-name companies and subsequent filers 

could operate to induce the first-filer to delay entry. In these agreements, the subsequent filer’s 

ability to market an AG during the first-filer’s 180-day exclusivity depends on whether the first 

filer does or does not take certain actions. By ensuring that those terms, normally kept 

confidential, become known by the first-filer, the branded firm may induce the first-filer to delay 

entry to avoid triggering the subsequent filer’s right to enter as an AG during the first filer’s 180 

days of marketing exclusivity. 

 

 For example, one agreement provided that if the first-filer launched its ANDA-generic 

 19 See [Redacted] SA (entry on low-sales product, about 2 months after settlement; on 

blockbuster product, more than 3 years ); [Redacted] SA (entry on low-sales product, about 7 

months after agreement; on blockbuster product, nearly 5 years); [Redacted] SA (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. (In one case, the 

paragraph IV certification was made after the agreement.) A fourth agreement, involving highand low-sales drugs that are unrelated, raises similar issues. See [Redacted] SA (prohibition on 

competing AG with respect to only the low-sales product, with ANDA entry for that product 

permitted upon execution of the agreement; entry of the high-sales product about 17 months from 

execution). There was no paragraph IV certification with regard to the high-sales product in this 

agreement because it is an old antibiotic. 

11
product without entering a settlement with the brand, the subsequent filer would be allowed to 

market the AG during the first-filer’s 180-day exclusivity.20 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.21 

 Another agreement allowed a subsequent filer to market the AG during the first-filer’s 180-

day exclusivity if the first-filer launched its ANDA-generic product “at risk,” after a district court 

determination that the challenged patents were invalid, unenforceable, or not infringed. However, 

if the first-filer deferred entry until after a decision by a court of appeals, the agreement provided 

for launch of the AG six months after the first-filer’s launch, i.e., after its 180-day exclusivity.22 

Making the relevant terms of this agreement known to the first-filer could deter it from launching 

“at risk” after a district court win. 

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 

the agreement as a tool in settlement negotiations with the first-filer; or even by making the 

agreement available in a public forum. Indeed, one of the described agreements was made 

publicly available in the branded firm’s 8-K filing with the Securities and Exchange 

Commission.23 If interpreted as an offer not to compete, an inappropriate disclosure could raise 

competition concerns.24

 20 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. 

[Redacted] SA. If the first-filer launches its ANDA-generic product at risk, the agreement 

provides that the brand and the subsequent filer will mutually decide whether to launch the AG 

during the first-filer’s 180-day exclusivity. Id. 21 See [Redacted] SA (appointing the first-filer the exclusive AG distributor but requiring 

the brand to supply the AG only if the first-filer was unable to obtain final FDA approval of its 

ANDA). 

22 [Redacted] SA (definition of Authorized Generic Launch Date). 

23 See [Redacted] SA. Most AG supply agreements are not publicly available. 

24 Invitations to collude have been judged unlawful under Section 2 of the Sherman Act, 

United States v. Amer. Airlines, 743 F.2d 1114 (5th Cir. 1984), and the Commission has issued 

consent orders in several cases involving allegations that an invitation, even when unaccepted by 

the competitor, violated Section 5 of the FTC Act. See, e.g., In re Valassis Commc’ns, No. C4160 (F.T.C. Apr. 28, 2006) (consent order resolving allegations of an invitation to collude in 

dividing the market made by one company during a public conference call with securities 

analysts); see also Analysis of Agreement Containing Consent Order to Aid Public Comment, In 

the Matter of Valassis Communications, Inc., available at 

12
13

 

V. Conclusion

 Review of recent brand-generic settlements reveals that agreements not to compete with 

authorized generics have a significant potential for use as exclusion payments in patent settlement 

agreements. 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. 

 

http://www.ftc.gov/os/caselist/0510008/060314ana0510008.pdf. 
A-1 1

Appendix 

Description of Data

 

 Our data was acquired from several sources. The retail and wholesale price, expenditure, 

and quantity data were licensed from IMS Health, Inc. Authorized generic drugs 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

1. IMS Health Inc. 

 The Federal Trade Commission (FTC) purchased a license for information representing 

nationally aggregated, monthly sales information for each non-injectable prescription medication 

distributed in the United States over the period 1/2003-12/2008 from IMS Health. This 

information included: (1) the National Sales Perspective (NSP) Survey which represents 

wholesale level quantity and dollar sales2

 information for drugs purchased by retail and nonretail pharmacies; and (2) the National Prescription Audit (NPA) Survey which represents retail 

quantity and dollar sales3 information for prescriptions dispensed primarily at retail pharmacies. 

All sales information in both sets of data is reported in aggregate form within channels, and for 

the analysis presented here, the data have been aggregated across channels. 

 1

 The Federal Trade Commission received prescription sales information from over 100 

drug firms representing drug-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 drugs 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 drug. 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. Some analysis of the sales information obtained from the manufacturers will likely 

appear in the final study, but the sales information reported here comes entirely from the data 

purchased from IMS Health. 

2

 It should be noted that certain discounts may not be accounted for in this data. 

According to the IMS Study, “Assessment of Authorized Generics in the U.S.” at 19, prepared 

by IMS Consulting, IMS Health in 2006 for PhARMA, and available at 

http://www.phrma.org/files/IMS%20Authorized%20Generics%20Report_6-22-06.pdf, 

“However, prompt 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 generics and independent generics, not having information on 

these discounts should not bias our findings. 

3

 IMS refers to these dollar amounts as the “cost to consumers.” 
In addition to monthly sales information, both surveys provided detailed information 

about each drug. This information included the National Drug Code (NDC), strength, dosage 

form, manufacturer and name of the active ingredient(s) in a single dose. Taken together, this 

information gave us data on each drug at the 11-digit NDC level of specificity, broken down by 

channel. We used this information to define a single observation in the analysis as an active 

ingredient(s)-dosage form-strength-manufacturer combination.4

 IMS also provided the date the 

drug was first recorded as having sales (dates as early as 1950 are reported), the therapeutic class 

of the drug, whether the medication was sold over-the-counter or as a prescription, and whether 

the manufacturer of the drug is a generic or a brand manufacturer.5

 

 Our sample is limited to tablet and capsule dosage forms of prescription drugs. It 

excludes all products that are not oral solids, including syrups, ointments, liquids of any kind, 

over-the counter medications, vitamins and decongestants. We exclude anything that is not an 

oral solid because extended quantity units are difficult to compare across medications of 

different forms. We also excluded over-the-counter medications and vitamins because they were 

often sold in different venues than is collected by IMS. We excluded decongestants because the 

set of active ingredients included in decongestant combinations was very large, and often 

changes over time.6 Finally, we excluded all drugs that did not first face generic competition 

during the period 4/2003 - 11/2008.7 Drugs were defined as facing generic competition during 

the period if the earliest producer of the drug was a brand manufacturer as identified by IMS, and 

the drug was observed with positive sales of a second manufacturer who IMS indicated did not 

have positive sales prior to 4/2003. 

 

 We used the manufacturer and brand status information provided by IMS to classify each 

drug into one of two types: brand and generic. Company and FDA information was used to 

further classify the generic drugs as either independent generics or authorized generics. The date 

 4

 Dosage forms are 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 A1. This mapping 

was necessary in order to match the IMS and FDA data. 

5

 One relevant molecule, Bupropion, is associated with multiple therapeutic classes for 

each strength and dosage form. We exclude it from the analysis. In addition, Nitrofurantoin had 

several molecular names listed in the FDA data, and was therefore excluded from the analysis. 

6

 The lists of USC codes used to define whether a medication is a decongestant or a 

vitamin are provided in Tables A2 and A3. 

7

 We normalized several market outcomes, such as prices, based on the market 

conditions that existed prior to generic entry. Consequently, even though we have data for the 

first three months of 2003, it was used only to calculate pre-generic entry market characteristics 

for drugs that experienced generic entry early in 2003. 

A-2 
of generic entry was defined as the first date in which a manufacturer other than the brand was 

first observed with positive sales.8

 

 The number of generic manufacturers producing each drug was also constructed from the 

IMS data using information about the manufacturer identified therein. The number of 

manufacturers producing a product was defined as the count of manufacturers observed with 

positive sales during the month and includes the authorized generic marketer. Our IMS data does 

not differentiate between true pharmaceutical manufacturers and repackagers. Repackagers 

purchase supply from true manufacturers, and typically sell them in some alternate form of 

packaging, such as blister packs.9 Our manufacturer count excluded firms that we determined 

were highly likely to be repackagers.10 The indicator of whether the molecule faces an 

authorized generic competitor was defined by whether the authorized generic manufacturer has 

positive sales during the month. 

 The sample was then further refined to include monthly observations for a drug only if a 

generic manufacturer with FDA-granted exclusivity was either (i) the sole generic marketed that 

month or (ii) faced generic competition only from an AG. When the independent generic 

manufacturer was the only generic on the market, we refer to that as an ANDA-Only drug. The 

51 drugs that are classified as ANDA-Only drugs in our sample are listed in Table A5. When the 

independent generic was joined in the market by an AG, the drug will be referred to as an 

ANDA+AG drug. The 53 drugs that are classified as ANDA+AG in our sample are listed in 

Table A6. Nine drugs11 show up in both lists, so there are a total of 95 unique drugs in our 

sample.12 A drug can show up in both lists when, for instance, the authorized generic enters 

several months after the independent generic. In that situation, the drug would be ANDA-Only 

for the first several months, then switch to ANDA+AG when the authorized generic enters. 

 8

 On occasion, positive but small sales figures were observed for a generic firm earlier 

than our information suggests they could be on the market. Therefore, we excluded generic sales 

that occurred prior to the FDA-defined exclusivity period and represented less than 0.5% of preentry brand sales. 

9

 See FED.TRADE COMM’N, PHARMACY BENEFIT MANAGERS: OWNERSHIP OF MAILORDER PHARMACIES (2005) at ch. VI (for more information on repackagers), 

http://www.ftc.gov/reports/pharmbenefit05/050906pharmbenefitrpt.pdf. 10 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 we 

judged to be repackagers is provided in Table A4. One potential source of error in our data is 

incorrectly identifying the repackagers, which could cause us to overstate or understate the 

number of active generic manufacturers of a drug. 

11 These nine drugs are comprised of the four strengths of Amlodipine/Benazepril, two 

strengths each of Eplerenone and Moexipril, and one strength of Omeprazole. 

12 These 95 drugs include multiple strengths and dosage forms of some drugs. These 95 

drugs represent 35 unique molecule combinations. 

A-3 
2. FDA and Company Data 

 Sales information from IMS was supplemented with data collected from the FDA and the 

drug manufacturers. These sources were used to identify whether a firm issued an authorized 

generic and the name of the authorized generic marketer when applicable. Details about relevant 

Hatch-Waxman related legal actions associated with each drug, including whether the drug faced 

a paragraph IV challenge and the end date of exclusivity periods associated with paragraph IV 

challenges, were collected from the FDA. 

 We identified AGs from information produced by pharmaceutical companies pursuant to 

the Special Orders and from information provided by the FDA. 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 

authorized generic. This information was collected from both the generic and brand 

manufacturers. In addition, we requested that the brand manufacturers provide the name of the 

entity associated with each NDC labeler code so that we could identify the distributor of the 

authorized generic. 

 The most relevant Hatch-Waxman related information was whether the drug faced a 

paragraph IV patent challenge, and whether a generic manufacturer was granted exclusivity 

related to a paragraph IV challenge. The FDA provides a list of drugs facing paragraph IV 

challenges on its website.13 For all drugs associated with a 180-day exclusivity period, we 

identified the date that generic exclusivity ended for the drug. These dates were determined from 

information provided by the FDA. We defined a month to be a part of the exclusivity period if 

the 28th of the month occurred prior to the exclusivity end date.14

 13 See U.S. Food and Drug Admin., Paragraph IV Patent Certifications (June 15, 2009) 

http://www.fda.gov/downloads/Drugs/DevelopmentApprovalProcess/HowDrugsareDevelopedan

dApproved/ApprovalApplications/AbbreviatedNewDrugApplicationANDAGenerics/UCM1543

50.pdf (list is updated twice a month). 

14 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–May 2005 but would 

exclude June from the exclusivity. However, if the end date of the exclusivity was identified as 

June 30th then the month of June would also be included in the exclusivity period. 

A-4 
A-5 

Table A1: Dosage-Form Mapping

Three-Lettered Code (as provided by IMS) Analysis Dosage Form 

ABA Tablets Uncoat Regular Ordinary Tablet 

ACA Tablets Coated Regular Ordinary 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 Reg Buccal/Sub-Lingual 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 Oth Orally Disintegrating/Ecteric Coated 

ACZ Tab Coated Regular Othr 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 Sol 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 

RB Mouth Throat Lozenges Lozenge 

BGA Lozenge Long Acting Ordinary Extended-Release Lozenge 

BDA Granulate Long Acting Ordinary Extended-Release Granule 

Doseform=Tablet/Capsule Other 
Table A2: USC5 Therapeutic Categories Eliminated as Decongestants

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 

A-6 
Table A3: USC5 Therapeutic Categories Eliminated as Vitamins

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 

A-7 
Table A4: Firms Counted as Repackagers

Allscripts Pharm 

American Hlth Pkg 

DHS Incorporated 

Dispensexpress 

Drx 

Innoviant Pharmacy 

Keltman Pharmaceutical 

Major Pharm 

Nucare Pharmaceutical 

PD-RX Pharmaceutical 

Pharma Pac 

Pharmpak 

Phys Total Care 

Physician Partner 

Physician Therapeutics 

Quality Care Pharmaceutical 

Repackager 

Southwood Pharm 

Unit Dose Labs (UDL) 

A-8 
Table A5: ANDA-Only Drugs

Alendronate 5mg, 10mg, and 40mg Tablets 

Amlodipine/Benazepril 2.5-10mg, 5-10mg, 5-20mg, and 10-20mg Capsules 

Ciprofloxacin 100mg Tablets 

Clopidogrel 75mg Tablets 

Colestipol 1000mg Tablets 

Desmopressin 0.1mg, 0.2mg Tablets 

Dexmethylphenidate 2.5mg, 5mg, and 10mg Tablets 

Didanosine 200mg, 250mg, and 400mg Extended-Release Capsules 

Eplerenone 25mg and 50mg Tablets 

Famciclovir 125mg, 250mg, and 500mg Tablets 

Fenofibrate 54mg and 160mg Tablets 

Fosinopril/Hydrochlorothiazide 10-12.5mg Tablets 

Ganciclovir 250mg and 500mg Capsules 

Hydrochlorothiazide/Quinapril 10-12.5mg, 20-12.5mg, and 20-25mg Tablets 

Lamotrigine 25mg, 100mg, 150mg, and 200mg Tablets 

Metformin 750mg Extended/Sustained-Release Tablets 

Mirtazapine 15mg and 30mg Orally Disintegrating Tablets 

Moexipril 7.5mg and 15mg Tablets 

Paroxetine 12.5mg and 25mg Extended/Sustained-Release Tablets 

Ramipril 1.25mg, 2.5mg, 5mg, and 10mg Tablets 

Venlafaxine 25mg, 37.5mg, 50mg, 75mg, and 100mg Tablets 

 

A-9 
A-10 

Table A6:ANDA+AG Drugs 

Acetaminophen/Tramadol 37.5-325mg Tablets 

Alendronate 35mg Tablets 

Amlodipine/Benazepril 2.5-10mg, 5-10mg, 5-20mg, and 10-20mg Capsules 

Eplerenone 25mg and 50mg Tablets 

Fexofenadine 30mg, 60mg, and 180mg Tablets 

Finasteride 5mg Tablets 

Fosinopril 10mg, 20mg, and 40mg Tablets 

Glyburide/Metformin 1.25-250mg, 2.5-500mg, and 5-500mg Tablets 

Metformin 500mg Extended/Sustained-Release Tablets 

Metoprolol 100mg and 200mg Extended/Sustained-Release Tablets 

Moexipril 7.5mg and 15mg Tablets 

Omeprazole 40mg Extended-Release Capsules 

Ondansetron 4mg and 8mg Tablets; 4mg and 8mg Orally Disintegrating Tablets 

Oxybutynin 15mg Extended/Sustained-Release Tablets 

Oxycodone 10mg, 20mg, and 40mg Extended/Sustained-Release Tablets 

Paroxetine 10mg, 20mg, 30mg, and 40mg Tablets 

Pravastatin 10mg, 20mg, 40mg, and 80mg Tablets 

Risperidone 0.25mg, 1mg, 2mg, 3mg, and 4mg Tablets 

Sertraline 25mg, 50mg, and 100mg Tablets 

Simvastatin 5mg, 10mg, 20mg, 40mg, and 80mg Tablets