INNsight articles by Peter Wittner, Interpharm Consultancy

Readers may have come across the topic of authorised generics (or authorized generics in the American spelling) and wondered what they are, why they matter and what the fuss is all about.

They matter a great deal to generic companies active in US generic markets because they represent another tool used by branded companies to prolong their period of market control as patent expiry approaches.

In simple terms, the way that it works is that a branded company that is selling its product in the US grants a generic company the right to market a generic version of its product before any competitors launch a generic. Nothing particularly special about that, except for the fact that the US legislation allows the generic company 6-months' exclusivity before any competitors can launch.

Imagine the advantages of that in a high priced market like the US! Selling your generic without being forced to discount heavily from the brands prices for 6 months so that you are making almost as much profit as the original brand sounds like a dream. It works because of an interesting aspect of the Hatch-Waxman legislation of 1984 that kick-started the US generic industry.

It is worth briefly looking back at the situation as it was before 1984. At that time, there were no mechanisms to allow quick registration of generics. Thus, any company that wanted to launch a generic copy had to produce a complete package of data almost identical to that provided by the originator company. As a result trying to launch a copy product was just too expensive.

The Hatch-Waxman changed this by trying to reconcile two opposing points of view: It introduced a way to speed up market access for low-priced generic and at the same time ensured that innovators would receive adequate return on their R&D investment by introducing improved patent protection.

The legislation is as boring as most legislation tends to be, but it included one fascinating innovation that is relevant to this article - Paragraph IV filings. Why are they called "Paragraph IV" filings? Because the alternative is to call them "applications filed under regulation CFR 314.94 (a)(12)(i)(A)(4)". According to this paragraph, as part of his filing," ...the applicant shall provide the patent number and certify, in its opinion and to the best of its knowledge, ...that the patent is invalid, unenforceable, or will not be infringed…."

In many cases, this application provokes litigation from the originator who argues that the applicant's product does indeed infringe his patents and that therefore the FDA should stop processing the application. However, some branded companies have seen a way of using the legislation to their advantage, no doubt influenced by the fact that about 70% of such cases result in a win for the generic company.

Hidden away in the text of the same bit of legislation is the following sentence: "The first company to submit an Abbreviated New Drug Application (ANDA) with the FDA has the exclusive right to market the generic drug for 180 days."

Now the strands begin to come together - if a generic company boss knows that he will not be sued by the originator but that, on the contrary, the originator will supply him with a generic copy of the brand to market for himself he will have little hesitation in making a Paragraph IV application a long time before any competitor.

Both parties benefit - the originator because he gains an extra 6 months of relatively high priced sales after patent expiry and the copier because he gains 6 months exclusivity as a high-priced generic without competition or the fear of litigation.

However, those companies that are shut out are very unhappy so this has proved to be something of a double-edged sword from the perspective of the generic industry. They like it if they are the originator's partner, but are furious if another competitor company is the one to tie up with the originator.

In fact one company, Pfizer, went one stage further by licensing the product to its own Greenstone subsidiary when it released a generic Gabapentin (Neurontin). In general, though, the beneficiaries have been independent generic companies and examples of this relationship include:

• Paxil (Paroxetine) - licensed by GSK to Par
• Prozac (Fluoxetine) - licensed by Lilly to Barr
• Augmentin (Co-Amoxiclav) licensed by GSK to IVAX

In February this year Dr. Reddy's announced a similar deal with Merck & Co. for two products Proscar (Finasteride) and Zocor (Simvastatin).

These deals are certainly within the letter of the law but run counter to its spirit and intention of promoting competition between generic companies and aggressive challenges to branded company patents.

No doubt there will be other such deals but the big question is for how long? There is a fair chance that the Federal Trade Commission, which has already made known its concerns, will ultimately try to persuade the US Senate to modify the system to try to close this loophole in the same way that it has done with other flaws in the Hatch-Waxman Act.

Peter Wittner
May 2006