Patent Litigation: How Authorized Generics Affect Competition in Drug Markets
When a brand-name drug’s patent runs out, the promise of lower prices kicks in-thanks to generic competitors. But what if the brand company itself launches a generic version of its own drug? That’s not a glitch. It’s called an authorized generic, and it’s reshaping how competition works in the pharmaceutical industry.
What Exactly Is an Authorized Generic?
An authorized generic is the exact same drug as the brand-name version-same active ingredient, same dosage, same manufacturer-but sold under a generic label and usually at a lower price. It’s not a copy. It’s the real thing, just repackaged. The brand company produces it, often through a subsidiary, and releases it at the same time-or shortly after-a generic competitor enters the market. This isn’t a loophole. It’s legal under the Hatch-Waxman Act of 1984, which was meant to speed up generic drug approvals. The law gives the first generic company that challenges a patent a 180-day exclusivity period. During that time, no other generic can enter. But the law doesn’t stop the brand company from launching its own generic version. And that’s where things get complicated.How Authorized Generics Change the Game
Without an authorized generic, the first generic company gets almost the entire market during its 180-day window. It can charge 80-90% less than the brand drug and capture most of the sales. That’s the incentive: big reward for taking the legal risk of challenging a patent. But when the brand company launches its own authorized generic, everything shifts. The authorized generic doesn’t need to go through the same legal battle. It doesn’t need to prove safety or effectiveness-it already has FDA approval as the brand drug. So it enters the market fast, often within 30 to 60 days of the first generic. And here’s the catch: it’s priced higher than the true generic. Not as high as the brand, but not as low as the challenger. It sits in the middle. So now, instead of one low-price option, consumers and pharmacies get two: one slightly cheaper, one much cheaper. The first generic’s sales drop by 40-52% during those 180 days, according to the FTC. That’s not just a hit-it’s a gut punch.The Settlement Trap
The real controversy isn’t just the authorized generic itself. It’s how it’s used in patent litigation settlements. In the past, brand companies would pay generic manufacturers to delay their entry into the market. These were called "reverse payment" deals. The FTC called them anti-competitive. Courts agreed. But then companies got smarter. Instead of cash payments, they started offering something else: a promise not to launch an authorized generic. In exchange, the generic company would delay its launch by months-or even years. These deals were harder to prove, harder to track. But they worked. Data from 2004 to 2010 showed that about 25% of patent settlements involving first-filer generics included these "no-AG" clauses. One study found these deals delayed generic entry by an average of 37.9 months. That meant patients paid higher prices for years longer than they should have.
Who Benefits? Who Gets Hurt?
The brand companies say authorized generics help consumers by introducing price competition early. Scott Gottlieb, former FDA commissioner, argued that having an authorized generic on the shelf right when generics launch keeps prices down. And there’s some truth to that. Pharmacies and pharmacy benefit managers (PBMs) often prefer having an authorized generic option because it gives them leverage in negotiations. But the first generic companies? They’re the ones getting crushed. Teva Pharmaceutical reported a $275 million revenue loss in 2018 from authorized generics alone. The Generic Pharmaceutical Association (now the Association for Accessible Medicines) says this practice undermines the whole point of the Hatch-Waxman Act. The 180-day exclusivity is supposed to be a reward for taking on legal risk. If the brand company can just step in and steal your market share, why would any generic bother challenging a patent? The FTC has been clear: this isn’t competition. It’s collusion in disguise. In its 2011 report, the agency found that authorized generics reduce generic revenues so severely that they discourage future patent challenges. For drugs with low sales-under $27 million a year-the threat of an authorized generic makes it financially impossible for a generic company to justify the cost of litigation.What’s Changing Now?
The landscape is shifting. Since 2020, the FTC has opened 17 investigations into authorized generic arrangements. In 2022, the agency made it clear: any deal that delays an authorized generic to protect a brand monopoly is now a top enforcement priority. Legislation is catching up, too. Senators Amy Klobuchar and Chuck Grassley reintroduced the Preserve Access to Affordable Generics and Biosimilars Act in March 2023. This bill would make it illegal to agree not to launch an authorized generic as part of a patent settlement. And the numbers tell a story: in 2010, 42% of generic drug markets saw an authorized generic launch. By 2022, that number had dropped to 28%. Why? Because companies are learning the risks. Courts are watching. The FTC is ready to sue.
What This Means for Patients and Prescribers
For patients, authorized generics can mean more choices-and sometimes lower prices. But they can also mean less competition in the long run. If fewer generic companies challenge patents because they know the brand will just undercut them, fewer generics will enter the market over time. That means fewer price drops, slower savings. Pharmacists and prescribers are caught in the middle. They want affordable drugs. But they also need reliable supply chains. Authorized generics can help fill gaps when the first generic runs out of stock. But if they’re used to block competition, they become a tool to keep prices high. The bottom line? Authorized generics aren’t inherently bad. But when they’re used as a weapon in patent battles, they distort the system Congress designed to bring down drug prices.Is There a Better Way?
One solution is transparency. If brand companies must publicly disclose any agreements around authorized generic entry, it becomes harder to hide anti-competitive deals. Another is reforming the 180-day exclusivity rule. Right now, only the first generic to file gets the window. What if multiple generics could share it? That would reduce the incentive for collusion and encourage more challengers. The FDA could also require that authorized generics be priced at least 20% below the brand drug-not just repackaged and sold at the same price. That would make them true competitors, not just shadow versions. Until then, the system remains a balancing act. Authorized generics can bring short-term price relief. But if they’re used to kill competition before it even starts, they become part of the problem-not the solution.Are authorized generics the same as regular generics?
Yes and no. Authorized generics are physically identical to the brand-name drug-they’re made by the same company, in the same factory, with the same ingredients. The only difference is the label and packaging. Regular generics are made by different companies and must prove bioequivalence to the brand. Authorized generics skip that step because they’re already approved.
Why do brand companies launch authorized generics?
There are two main reasons. First, to capture market share early and prevent the first generic from dominating sales. Second, to use it as leverage in patent settlement deals-offering not to launch one in exchange for the generic delaying entry. While some argue it helps lower prices, most evidence shows it reduces competition and harms generic manufacturers.
Do authorized generics lower drug prices for consumers?
Sometimes, but not always. An authorized generic may be cheaper than the brand, but it’s usually more expensive than the true generic. In markets where an authorized generic enters, the first generic’s price often doesn’t drop as low as it would have otherwise. So while there’s a price drop, it’s not as steep as it should be. The real savings come when multiple true generics enter the market-and that’s what authorized generics often prevent.
Is it legal for a brand company to launch an authorized generic?
Yes, it’s currently legal under U.S. law. The Hatch-Waxman Act doesn’t prohibit it. But the FTC and courts are increasingly treating agreements to delay authorized generic entry as anti-competitive. If a brand company agrees not to launch an authorized generic in exchange for a generic company delaying its entry, that deal can be challenged under antitrust law.
How do authorized generics affect generic drug innovation?
They discourage it. Generic companies invest millions to challenge patents because they expect to earn high profits during their 180-day exclusivity. If they know the brand will launch its own generic and take half their sales, many won’t bother. Studies show this reduces the number of patent challenges, especially for lower-selling drugs. That means fewer generics overall-and less long-term price pressure.
What’s being done to stop anti-competitive use of authorized generics?
The FTC is actively investigating agreements that delay authorized generic entry. In 2022, it declared such deals a top enforcement priority. Congress is also considering the Preserve Access to Affordable Generics and Biosimilars Act, which would ban these arrangements. Some courts have already ruled that using authorized generics to block competition violates antitrust laws. The trend is moving toward stricter oversight.