"Authorized Copy" Agreements Counter Law Favoring Generics
February 4, 2004
Under a 1986 law designed to encourage the manufacture of generic drugs, a generic drug maker that challenges a brand-name drug's patent in court is given six months of exclusive sales. As typically happens, this has had unintended consequences as companies adjust their behavior.
Pharmaceutical companies whose patents are about to expire on specific drugs have made agreements exclusively with certain generic companies to allow them to make what is known as an "authorized copy" of the brand-name drug in exchange for sharing revenues from its sale:
- Barr Pharmaceuticals spent five years working on a copy of the drug Ortho-Tricyclen, only to discover that its original manufacturer, Johnson & Johnson, had cut a deal with another competitor on an authorized copy of the drug, driving down Barr's revenue from its generic counterpart.
- Canadian drug company Apotex spent $13 million researching and manufacturing a generic version of the anti-depressant Paxil, only to discover that another generics company had produced an authorized copy, which was introduced at the same time.
- Patent-suit settlements involving the anti-depressant Wellbutrin and the diabetes drug Glucotrol have also resulted in the sale of authorized copies.
From an anti-trust standpoint, these agreements to produce authorized copies do not hinder the entry of generic drugs into the market, since they result in bringing two generics, not just one, to market after a brand-name pharmaceutical company's patent expires.
However, Federal Trade Commission officials are concerned that such deals will reduce the incentives for generic drug manufacturers to challenge patents in court, since they fear that once a generics manufacturer is given six-months exclusivity, they may be undercut by another generics manufacturer who contracted with a brand-name manufacturer to sell an authorized copy.
Source: Leila Abboud, "Drug Makers Use New Tactic to Ding Generics," Wall Street Journal, January 27, 2004.
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