Authorized Generic Pharmaceuticals: Effects on Innovation
Released: 2013-01-17T00:00:00

Summary:
The practice of "authorized generics" has recently been the subject of considerable attention by the pharmaceutical industry, regulators, and members of Congress alike. An "authorized generic" (sometimes termed a "branded," "flanking," or "pseudo" generic) is a pharmaceutical that is marketed by or on behalf of a brand-name drug company, but is sold under a generic name. Although the availability of an additional competitor in the generic drug market would appear to be favorable to consumers, authorized generics have nonetheless proven controversial. Some observers believe that authorized generics potentially discourage independent generic firms both from challenging drug patents and from selling their own products.
These perceived disincentives result from the provisions of the Drug Price Competition and Patent Term Restoration Act of 1984. Better known as the Hatch-Waxman Act, this legislation provides independent generic firms with a reward for challenging patents held by brand-name firms. That "bounty" consists of a 180-day generic drug exclusivity period awarded to the first patent challenger. During the 180-day period, the brand-name company and the first generic applicant are the only firms that receive authorization to sell that pharmaceutical. At the close of this period, other independent generic competitors may obtain marketing approval and enter the market, ordinarily resulting in lower prices for generic medicines.
Some commentators view the 180-day exclusivity period as a crucial incentive for generic firms to challenge patents held by brand-name firms. Under this view, the launch of an authorized generic during the 180-day exclusivity period makes the recovery of litigation expenses more difficult. In turn, the possibility that a brand-name firm will sell an authorized generic during the 180-day exclusivity period may decrease the incentives of generic firms to challenge patents in the first instance.
Other observers believe that authorized generics benefit consumers by increasing competition in the generic market. Because the authorized generic is manufactured by the brand-name firm and identical to its own product, consumers may be encouraged to switch to the lower-cost authorized generic alternative. Authorized generics may also facilitate the settlement of patent litigation between brand-name and independent generic firms. As an historical matter, certain of these settlement agreements have allowed authorized generics to enter the market, and therefore promoted competition, prior to the expiration of the relevant patent term.
Recent judicial opinions have upheld FDA practices allowing authorized generics. If authorized generic practice is deemed appropriate, then no action need be taken. The approach taken by legislation introduced in the 112th Congress, H.R. 741 and S. 373, presented another option. Under these bills, authorized generics may not be sold during the term of the 180-day generic exclusivity. This legislation was not enacted.

paragraphs: Rising health care costs have for many years focused congressional attention upon the development and availability of prescription drugs. Recently, the presence of "authorized generic" pharmaceuticals in the drug marketplace has been the subject of congressional concern. An "authorized generic" is a pharmaceutical that is marketed by or on behalf of a brand-named drug company, but is sold under a generic name. The brand-name firm may distribute the drug under its own auspices or via a license to a generic drug company. The price of this "authorized copy" is ordinarily lower than that of the brand-name drug. Some sources refer to authorized generics as "branded," "flanking," or "pseudo" generics." 
Authorized generics may be pro-consumer in that they potentially increase competition and lower prices, particularly in the short-term. They have nonetheless proven controversial. Authorized generics ordinarily enter the market at about the time the brand-name drug company's patents are set to expire. Some observers argue that such products may possibly discourage independent generic firms both from challenging drug patents and from selling their own generic products. The potential diminution in independent generic incentives may in turn lead to less desire on the part of brand-name firms to market authorized generics themselves.
Legal challenges to authorized generics practice have thus far been unsuccessful in the courts. Legislation has been introduced regarding authorized generic practice, however. Legislation introduced but not yet enacted in the 112 th Congress, H.R. 741 and S. 373 , proposed to prevent pharmaceutical firms from selling authorized generics.
This report presents an analysis of the innovation and public health issues relating to authorized generic drugs. The report begins with a review of the procedures through which independent generic drug companies receive government permission to market their products and resolve patent disputes with brand-name firms. It then provides detailed background information pertaining to the concept of authorized generics and assesses their potential impact upon patent challenges and consumer welfare. The report closes with a summary of congressional issues and possible alternatives.
subsections: section_title: Marketing Approval and Patent Issues for Generic Drugs
paragraphs: The practice of authorized generics has arisen within a complex statutory framework established by the Drug Price Competition and Patent Term Restoration Act of 1984, legislation more commonly known as the Hatch-Waxman Act. Under parameters established by that statute, a manufacturer that wishes to sell a generic drug must both obtain marketing approval from the Food and Drug Administration (FDA) and account for any patent rights that pertain to that product. This report first addresses FDA marketing approval procedures for generic drugs, and then turns to possible patent implications.
subsections: section_title: FDA Approval Procedures
paragraphs: The FDA regulates the marketing of pharmaceuticals in the interest of public health. Under this regime, the developer of a new drug must demonstrate that the product is safe and effective before it can be distributed to the public. This showing typically requires the drug's sponsor to conduct both preclinical and clinical investigations. In deciding whether to issue marketing approval or not, the FDA evaluates the test data that the sponsor submits in a so-called New Drug Application (NDA).
Prior to the enactment of the Hatch-Waxman Act, the federal food and drug law contained no separate provisions addressing marketing approval for independent generic versions of drugs that had previously been approved by the FDA. The result was that a would-be independent generic drug manufacturer had to file its own NDA in order to sell its product. Some independent generic manufacturers could rely on published scientific literature demonstrating the safety and efficacy of the drug by submitting a so-called paper NDA. Because these sorts of studies were not available for all drugs, however, not all independent generic firms could file a paper NDA. Further, at times the FDA requested additional studies to address safety and efficacy questions that arose from experience with the drug following its initial approval. The result was that some independent generic manufacturers were forced to prove once more that a particular drug was safe and effective, even though their products were chemically identical to those of previously approved pharmaceuticals.
Some commentators believed that the approval of an independent generic drug was a needlessly costly, duplicative, and time-consuming process. These observers noted that although patents on important drugs had expired, manufacturers were not moving to introduce independent generic equivalents for these products due to the level of resource expenditure required to obtain FDA marketing approval.
In response to these concerns, Congress enacted the Hatch-Waxman Act, a statute that has been described as a "complex and multifaceted compromise between innovative and generic pharmaceutical companies." Its provisions included the creation of two statutory pathways that expedited the marketing approval process for independent generic drugs. The first of these consist of Abbreviated New Drug Applications, or ANDAs. An ANDA allows an independent generic applicant to obtain marketing approval by demonstrating that the proposed product is bioequivalent to an approved pioneer drug, without providing evidence of safety and effectiveness from clinical data or from the scientific literature. The second are so-called Section 505(b)(2) applications, which are sometimes still referred to as "paper NDAs." Like an NDA, a Section 505(b)(2) application contains a full report of investigations of safety and effectiveness of the proposed product. In contrast to an NDA, however, a Section 505(b)(2) application typically relies at least in part upon published literature providing pre-clinical or clinical data.
The availability of ANDAs and Section 505(b)(2) applications often allow an independent generic manufacturer to avoid the costs and delays associated with filing a full-fledged NDA. They may also allow an independent generic manufacturer, in many cases, to place its FDA-approved bioequivalent drug on the market as soon as any relevant patents expire.
As part of the balance struck between brand-name and independent generic firms, Congress also provided patent proprietors with a means for restoring a portion of the patent term that had been lost while awaiting FDA approval. The maximum extension period is capped at a five-year extension period, or a total effective patent term after the extension of not more than 14 years. The scope of rights during the period of extension is generally limited to the use approved for the product that subjected it to regulatory delay. This period of patent term extension is intended to compensate brand-name firms for the generic drug industry's reliance upon the proprietary pre-clinical and clinical data they have generated, most often at considerable expense to themselves.
section_title: Resolution of Patent Disputes
paragraphs: In addition to being the holder of an FDA-approved NDA, the brand-name pharmaceutical firm may own one or more patents directed towards that drug product. The product described by an independent generic firm's ANDA or Section 505(b)(2) application may possibly infringe those patents should that product be approved by the FDA and sold in the marketplace. The Hatch-Waxman Act therefore establishes special procedures for resolving patent disputes in connection with applications for marketing generic drugs.
In particular, the Hatch-Waxman Act requires each holder of an approved NDA to identify patents it believes would be infringed if a generic drug were marketed before the expiration of these patents. The FDA then lists these patents in a publication titled Approved Drug Products with Therapeutic Equivalence Evaluations , which is more commonly known as the "Orange Book." Would-be manufacturers of independent generic drugs must then engage in a specialized certification procedure with respect to Orange Book-listed patents. An ANDA or Section 505(b)(2) applicant must state its views with respect to each Orange Book-listed patent associated with the drug it seeks to market. Four possibilities exist:
(1) that the brand-name firm has not filed any patent information with respect to that drug;
(2) that the patent has already expired;
(3) that the generic company agrees not to market until the date on which the patent will expire; or
(4) that the patent is invalid or will not be infringed by the manufacture, use or sale of the drug for which the ANDA is submitted.
These certifications are respectively termed paragraph I, II, III, and IV certifications. An ANDA or Section 505(b)(2) application certified under paragraphs I or II is approved immediately after meeting all applicable regulatory and scientific requirements. An independent generic firm that files an ANDA or Section 505(b)(2) application including a paragraph III certification must, even after meeting pertinent regulatory and scientific requirements, wait for approval until the drug's listed patent expires.
The filing of an ANDA or Section 505(b)(2) application with a paragraph IV certification constitutes a "somewhat artificial" act of patent infringement under the Hatch-Waxman Act. The act requires the independent generic applicant to notify the proprietor of the patents that are the subject of a paragraph IV certification. The patent owner may then commence patent infringement litigation against that applicant.
If the NDA holder demonstrates that the independent generic firm's proposed product would violate its patents, then the court will ordinarily issue an injunction that prevents the generic drug company from marketing that product. That injunction will expire on the same date as the NDA holder's patents. Independent generic drug companies commonly amend their ANDAs or Section 505(b)(2) applications in this event, replacing their paragraph IV certifications with paragraph III certifications.
On the other hand, the courts may decide in favor of the independent generic firm. The court may conclude that the generic firm's proposed product does not infringe the asserted patents, or that the asserted patents are invalid or unenforceable. In this circumstance, the independent generic firm may launch its product once the FDA has approved its ANDA or Section 505(b)(2) application. In addition, the independent generic firm may benefit from a 180-day period of marketing exclusivity, a concept this report describes next.
section_title: Generic Marketing Exclusivity
paragraphs: The Hatch-Waxman Act provides prospective manufacturers of independent generic pharmaceuticals with a reward for challenging the patent associated with an approved pharmaceutical. The reward consists of a 180-day generic drug exclusivity period awarded to the first ANDA applicant to file a paragraph IV certification. During this 180-day period, the FDA may not approve another ANDA containing a paragraph IV certification with respect to the same drug. Notably, the 180-day generic drug exclusivity applies only to ANDA applicants, and not to those filing Section 505(b)(2) applications.
Commentators have long referred to this provision as creating "generic exclusivity" or "180-day exclusivity." As originally enacted, the Hatch-Waxman Act allowed the brand-name firm and the first independent generic applicant to share the market for the first 180 days of generic competition. At the close of this period, other independent generic competitors could receive FDA marketing approval. Because market prices often drop considerably following the entry of additional generic competition, the first independent generic applicant could potentially obtain more handsome profits than subsequent market entrants.
Congressional enactment of the Medicare Modernization and Improvement Act of 2003 clarified that more than one patent challenger can enjoy "generic exclusivity," provided that certain conditions are met. Following the 2003 statute, all "first applicants" are potentially entitled to the 180-day generic exclusivity. The statute defines the term "first applicant" to mean all applicants who, on the first day on which a substantially complete generic application with paragraph IV certification is filed, did themselves file a substantially complete generic application with a paragraph IV certification. The statute therefore makes clear that multiple first applicants—that is to say, more than one generic that filed a paragraph IV generic application on the same day—may each enjoy "shared exclusivity."
The 180-day generic exclusivity period is intended to ameliorate collective action problems that may arise with regard to pharmaceutical patent challenges. Stated less technically, an independent generic firm that challenges a patent must bear the expensive, up-front cost of litigation. If the independent generic firm is successful, however, the challenged patent is declared invalid with regard to the entire pharmaceutical industry. Any firm—not just the one who challenged the patent—could then introduce a competing product to the marketplace. Understandably, this forced sharing may undermine the incentives any one independent generic firm would possess to challenge a brand-name firm's patent. The award of 180 days of generic exclusivity is therefore intended to allow a successful patent challenger to capture an individual benefit for its effort, in turn encouraging such challenges in the first instance.
section_title: The Concept of Authorized Generics
subsections: section_title: Authorized Generics Practice
paragraphs: As noted previously, an "authorized generic" is a pharmaceutical that is marketed by or on behalf of a brand-name drug company, but is sold under a generic name. Authorized generics are thus similar to "private label" products, which are manufactured by one firm but sold under the brand of another. Although private label products are commonplace in food, cosmetic, and other markets, they have only recently attracted attention in the pharmaceutical industry.
Current interest in authorized generics is largely due to a shift in corporate strategies that has been traced to the early 1990s. Until that time, many entrants in the pharmaceutical industry engaged exclusively either in selling brand-name, innovative drugs, or in selling generic drugs. Several other brand-name firms began to market authorized generics shortly before patents on their products were due to expire. Among such products were Nolvadex® (tamoxifen), authorized by the Stewart Pharmaceutical Division of ICI Americas (now AstraZeneca) and sold by Barr Laboratories; Dyazide® (triamterene/hydrochlorothiazide), marketed by SmithKline Beecham Pharmaceuticals (now GlaxoSmithKline); and Ventolin® (albuterol), authorized by GlaxoSmithKline and sold by Dey LP.
Many brand-name firms did not continue to sell authorized generics at that time, however, reportedly due to a lack of profitability. One reason for the "resurgence" of authorized generics in the early 2000's is that physicians, pharmacists and patients more rapidly switch to generic drugs upon their introduction to the marketplace than a decade ago. Because the rate of generic adoption is much greater now, brand-name firms reportedly are more willing to "genericize" their own brands in order to capture a share of that market. The expanding generic adoption rate has also reportedly led to an industry trend where brand-name houses acquire generic firms. This development too may encourage authorized generics practice in the future.
In line with current trends, a number of successful paragraph IV ANDA applicants have faced competition from authorized generics during the 180-day generic exclusivity period. These independent generic firms include Barr, for the product Allegra® (fexofenadine); Eon, for the product Wellbutrin SR® (bupropion SR); and Teva, for the product Glucophage®. Some industry analysts believe that authorized generics will form an increasingly prominent feature of the U.S. pharmaceutical market in the future. Other commentators believe that this time has already arrived: According to one account, since 2004 "authorized generic versions have appeared for nearly all drugs with expiring U.S. patents."
section_title: Authorized Generics within the Hatch-Waxman Framework
paragraphs: Authorized generics practice has proven controversial due to the Hatch-Waxman Act's architecture and incentive structures. Some commentators have voiced concerns that the introduction of authorized generics, particularly during the 180-day market exclusivity granted to the independent generic firm that brought a paragraph IV challenge, thwarts the policy goal of encouraging the introduction of generic pharmaceuticals. In particular, critics argue that the use of authorized generics may discourage firms from filing paragraph IV patent challenges if their litigation expenses cannot be recouped through the 180-day market exclusivity period. As antitrust attorney David A. Balto explains:
The bounty from challenging a patent is very important. Pharmaceutical patent litigation is a multimillion-dollar proposition. But for the potential reward of six-month exclusivity that represents the vast majority of potential profits from generic entry, many firms might forgo challenging patents.
For example, the FDA ruled that the generic manufacturer Apotex was entitled to 180-day exclusivity for its version of the anti-depressant drug Paxil® in 2003. The brand-name drug company, GlaxoSmithKline, introduced an authorized generic version of Paxil®. Although Apotex anticipated sales of up to $575 million during the 180-day generic exclusivity period, its sales were reported to be between $150 million and $200 million. In a 2004 filing with the FDA, attorneys for Apotex asserted "that the authorized generic crippled Apotex's 180-day exclusivity—it reduced Apotex's entitlement to about two-thirds—to the tune of approximately $400 million."
In addition, brand-name firms commonly introduce authorized generics on the eve of generic competition. Without an independent generic patent challenger in the first instance, brand-name firms may themselves make diminished, or delayed, use of the authorized generic strategy. As a result, the pro-competitive benefits of authorized generics may be postponed, or not realized at all, should independent generic rivals become less willing to challenge patents held by brand-name firms.
On the other hand, authorized generics potentially offer several benefits both to drug companies and to consumers. Authorized generics are commonly less expensive than the brand-name drug. The introduction of an authorized generic therefore allows a lower-cost product to be made available to the consumer. As the FDA opined in a statement issued in July 2004:
Marketing of authorized generics increases competition, promoting lower prices for pharmaceuticals, particularly during the 180-day exclusivity period in which the prices for generic drugs are often substantially higher than after other generic products are able to enter the market.
More particularly, a June 2009 study conducted by the Federal Trade Commission (FTC) found that retail prices decreased by an average of 4.2% and wholesale prices decreased by an average of 6.5% when an authorized generic competed with an ANDA generic. This level of competition led to an estimated average decline of 50% of the generic firm's revenue.
In addition, once a generic version of a drug becomes available following patent expiration, brand-name firms may lose considerable market share. Indeed, many health management organizations and insurance companies reportedly promote the use of generic substitutes for brand-name medications once they become available. Absent participation in the generic market, brand-name firms may not be able to take advantage of investments they previously made with respect to their manufacturing facilities. Authorized generics therefore allow brand-name firms to continue to employ their manufacturing facilities at or near peak capacity even following patent expiration.
Authorized generics may also support the research and development efforts of brand-name firms by providing them with additional revenue. Authorized generics may supply the brand-name firm with an additional income source, such as a royalty on sales made by its generic subsidiary or contracting partner. These funds, or some portion of them, can potentially be employed in support of pharmaceutical innovation.
Authorized generics may also facilitate settlement of patent infringement suits between brand-name and independent generic firms. A judicial holding of patent invalidity may have a severe impact upon a brand-name firm in terms of its lost revenue. Many observers also believe that patent litigation is an uncertain venture. By settling patent litigation, and allowing an ANDA applicant to produce an authorized generic, brand-name firms may potentially better manage risk. Such a technique provides a more stable revenue stream, both in support of the brand-name firm's research and development activities and for its investors. The generic company making an authorized generic can also benefit by not having to expend funds on litigation with an uncertain outcome or pursue an ANDA at the FDA, while expanding its product line, acquiring manufacturing experience, and gaining the first-mover advantage in the generic market.
The use of authorized generics as a litigation settlement mechanism also impacts consumers, but in a manner that is both less certain and likely varies on a case-by-case basis. On one hand, particular settlement agreements may provide for the sale of authorized generics years before the disputed patent is set to expire. As a result, consumers may gain early access to a lower-cost alternative to the brand-name drug. On the other hand, had the generic firm refused to settle and ultimately prevailed in the litigation, then the market would have been open to full competition even earlier. The impact upon competition of a litigation settlement likely depends upon a number of complex factors, including the strength of the patent, the number of potential generic competitors, and the precise terms of the litigation settlement agreement.
A Federal Trade Commission Report issued on August 31, 2011, addressed the topic of authorized generics and may contribute to policy debate over the impact of these products. Titled Authorized Generic Drugs—Short-Term Effects and Long-Term Impact , the report made four primary findings:
Competition from authorized generics during the 180-day marketing exclusivity period has led to lower retail and wholesale drug prices. During this time, competition by an authorized generic is associated with retail prices that are 4% to 8% lower, and wholesale prices that are 7% to 14% lower, than those without an authorized generic. Authorized generics have a substantial effect on the revenues of competing generic firms. During the 180-day exclusivity period, the presence of an authorized generic competitor on average reduces the first-filing generic's revenues by 40% to 52%. In addition, revenues of the first-filing generic are between 53% and 62% lower during the first 30 months after the exclusivity period ends, if it is facing authorized generic competition. Introduction of an authorized generic can mean hundreds of millions of dollars in lost revenue for the first generic competitor to enter the market. Lower expected profits could affect a generic company's decision to challenge patents on products with low sales. However, the reduced revenues resulting from authorized generic competition during the 180-day exclusivity period have not substantially reduced the number of challenges to branded drug patents by generic firms. Despite the presence of authorized generic competition, generic companies have continued to challenge patents, even on brand-name drugs in small markets. There is strong evidence that agreements not to compete using authorized generics have become a way that some branded firms compensate generic firms for delaying entry to the market.
The report is available on the agency's website.
section_title: Legality of Authorized Generics
paragraphs: The policy debate concerning authorized generics has been accompanied by legal challenges before the FDA and the courts concerning this practice. Opponents of authorized generics have contended that the Hatch-Waxman Act's generic exclusivity provisions should be understood as excluding authorized generics from the marketplace for the 180-day period. The FDA has taken the opposite view, however, reasoning that the Hatch-Waxman Act does not require a brand-name pharmaceutical company to file any sort of application in order to market the drug as an authorized generic. In turn, the 180-day period of generic exclusivity provided by the Hatch-Waxman Act only applies to ANDA or Section 505(b)(2) applications with paragraph IV certifications. As a result, the 180-day generic exclusivity period does not bar authorized generics from entering the market.
Two notable judicial opinions have upheld the FDA's position favoring authorized generics. In the first of these opinions, Teva Pharmaceutical Industries, Ltd. v. Crawford , the Court of Appeals for the D.C. Circuit found no reasonable reading of the Hatch-Waxman Act that would allow authorized generics to be barred by the 180-day generic exclusivity period. In that case, independent generic manufacturer Teva had previously entered into an arrangement with Purepac Pharmaceutical Co., the first paragraph IV ANDA applicant with respect to the drug gabapentin. Teva and Purepac had agreed to share the 180-day generic exclusivity period. During that period, however, Pfizer sold its own authorized generic version of gabapentin, which was priced substantially below the price of its brand-name drug.
Teva responded by petitioning the FDA to prohibit the marketing of authorized generic versions of gabapentin during the 180-day generic exclusivity period. Alternatively, Teva asserted that Pfizer should be required to file a supplemental NDA before selling an authorized generic. According to Teva, the impact of the latter proposed ruling would lead to the same outcome as the first: Pfizer would be compelled to respect the 180-day generic exclusivity period established by the Hatch-Waxman Act.
The FDA denied the petition, resulting in a Teva lawsuit against the FDA. The district court confirmed the FDA's views, concluding that "[n]othing in the statute provides any support for the argument that the FDA can prohibit NDA holders from entering the market with [an authorized] generic drug during the exclusivity period." Teva then appealed to the Court of Appeals for the D.C. Circuit, which affirmed.
Chief Judge Ginsburg began his opinion by observing that the Hatch-Waxman Act did not stipulate the manner in which the holder of an approved NDA must market its drug. Further, prior to the enactment of the Hatch-Waxman Act, nothing in the Food, Drug, and Cosmetic Act prevented the NDA holder from marketing an authorized generic. The D.C. Circuit thus saw the issue as whether it should "declare that a previously lawful practice became unlawful when the Congress passed a statute that said nothing about that practice."
The Court of Appeals further rejected Teva's "functional" interpretation of the Hatch-Waxman Act. According to Teva, the practice of authorized generics had "developed only recently as a routine brand-name business strategy" and therefore had not been anticipated by Congress. Further, authorized generics practice severely diminished generic incentives to challenge pharmaceutical patents. According to Teva, then, "adhering to the 'literal' terms of the statute would lead to an absurd result, namely, that [the Hatch-Waxman Act] grants only a 'meaningless' exclusivity against subsequent ANDA filers rather than a 'commercially effective' exclusivity that runs against the NDA holder as well."
The D.C. Circuit responded by reasoning that the balance between innovation and competition struck by the Hatch-Waxman Act was "quintessentially a matter for legislative judgment," such that "the court must attend closely to the terms in which the Congress expressed that judgment." Here, Chief Judge Ginsburg reasoned, the statute was unambiguous. Although the Hatch-Waxman Act barred the approval of subsequent ANDAs for 180 days, the statutory language simply did not speak to marketing arrangements made by the holder of the approved NDA. The court of appeals further observed that, even in the event that an NDA holder authorized a generic, the 180-day exclusivity period continued to bar other firms from marketing a generic version of the drug. As a result, authorized generic practice hardly rendered the Hatch-Waxman Act's generic exclusivity provisions "meaningless." In conclusion, because the Hatch-Waxman Act "clearly does not prohibit the holder of an approved NDA from marketing, during the 180-day exclusivity period, its own 'brand-generic' version of its drug," FDA practices concerning authorized generics were affirmed.
A second judicial opinion, Mylan Pharmaceuticals, Inc. v. U.S. Food and Drug Administration , also concluded that the Hatch-Waxman Act "does not grant the FDA the power to prohibit the marketing of authorized generics during the 180-day exclusivity period.... " That case involved the pharmaceutical nitrofurantoin, which is used to treat urinary tract infections. When the FDA approved a paragraph IV ANDA filed by Mylan Pharmaceuticals, Inc, to sell nitrofurantoin, NDA holder Proctor & Gamble Pharmaceuticals, Inc., licensed a third party generic firm to sell an authorized generic version of the drug. Mylan reportedly lost sales of "tens of millions" of dollars due to this arrangement.
Mylan challenged the FDA approval of authorized generics practice before the U.S. District Court for the Northern District of West Virginia. Mylan appealed the district court's dismissal of its case to the Court of Appeals for the Fourth Circuit, which affirmed. Citing the D.C. Circuit's decision in Teva v. Crawford with approval, the Fourth Circuit similarly concluded that the statute clearly defined the 180-day exclusivity period only with respect to other paragraph IV ANDAs, not to authorized generics. The Fourth Circuit therefore concluded that "[a]lthough the introduction of an authorized generic may reduce the economic benefit of the 180 days of exclusivity awarded to the first paragraph IV ANDA applicant, Section 355(j)(5)(B)(iv) gives no legal basis for the FDA to prohibit the encroachment of authorized generics on that exclusivity." As a result, the district court's judgment was affirmed.
It is possible to criticize the statutory construction of both Teva v. Crawford  and Mylan v. FDA . In particular, neither court of appeals stressed that the Hatch-Waxman Act describes the 180-day time frame as an "exclusivity period." The term "exclusivity" might be viewed as a curious drafting choice in view of the ruling that generic firms must potentially compete alongside authorized generics during the 180-day period.
On the other hand, the notion of "shared exclusivity" that arose following the Medicare Modernization Act amendments may be viewed as codifying congressional intent that multiple generic applicants may enter the market during the 180-day marketing exclusivity period. In addition, many prescription drugs are available in a number of different dosage forms and strengths. Under current Hatch-Waxman Act practice, each strength and dosage form is considered a separate drug product for which a distinct generic applicant can qualify for 180-day exclusivity. As a result, the term "exclusivity" may be considered to have a particular meaning in the Hatch-Waxman Act—one that does not necessarily mean that independent generic firms will not face competition during the 180-day period even in the absence of authorized generics. Of course, these provisions may also impact the incentives that independent generic firms possess to challenge pharmaceutical patents.
In any event, Teva v. Crawford  and Mylan v. FDA currently represent the law of the land. Absent further judicial developments or congressional activity, authorized generics will be judged as legitimate means for NDA holders to market their products under the Hatch-Waxman Act.
section_title: Concluding Observations
paragraphs: Although Congress made significant amendments to the Hatch-Waxman Act as recently as 2003, authorized generics were not subject to discussion at that time. The rise of this practice, as well as the vigor of the debate surrounding it, suggests both the pace of change within the industry and the prominence of the pharmaceutical industry within the national public health system.
As discussion of authorized generics continues, Congress may wish to have a sense of its legislative options. Should Congress conclude that authorized generics are appropriate, then it may simply take no action. The opinions of the D.C. and Fourth Circuits suggest that, as currently drafted, the Hatch-Waxman Act does not allow the FDA to restrict the ability of brand-name firms to sell or approve of authorized generics. Absent legislative input, the FDA may be unlikely to alter its interpretation of the Hatch-Waxman Act in this respect in the future.
Alternatively, Congress could simply disallow authorized generics practice. Unenacted bills introduced in the 112 th Congress, H.R. 741 and S. 373 , would have prohibited NDA holders from manufacturing, marketing, selling, or distributing an authorized generic drug. The term "authorized generic drug" was defined as "any version of a listed drug ... that the holder of new drug application ... seeks to commence marketing, selling, or distributing, directly or indirectly, after receipt of a notice" that an ANDA has been filed. Drugs marketed by firms eligible for the 180-day generic exclusivity, or that were sold by anyone after that exclusivity has expired, were not considered to be authorized generic drugs. 
Another option is to require brand-name firms to file a supplemental NDA, or a similar application, with the FDA when they market authorized generics. This filing would then place the brand-name firm in the same category as generic applicants who did not qualify as the first to file. In turn, the 180-day generic exclusivity period would then apply against the authorized generic. 
Notably, whether the 180-day generic exclusivity period strikes an appropriate balance between encouraging patent challenges and ensuring prompt access to generic medications is itself a contested proposition within the pharmaceutical industry. Discussion of the authorized generics issue may also prompt further reflection on the basic structure of incentives within the Hatch-Waxman Act.
Current interest in authorized generics reflects long-standing congressional concern for the appropriate balance between innovation and competition within the pharmaceutical industry. Although academic inquiry into authorized generics practice remains in its early phases, it is notable that knowledgeable commentators have reached disparate views of the benefits or detriments of this practice. Some observers stress that authorized generics benefit consumers by providing enhanced access to lower-cost alternatives to branded drugs, while others express concerns that authorized generics will defeat the incentives that independent generic firms possess to challenge pharmaceutical patents. Future studies may shed additional light on the impact of authorized generics upon consumer welfare.