Brand-name drug makers are using "authorized generics" to keep drug prices high and stifle competition, according to a report by Kaiser Health News.

Authorized generics are defined by the US Food and Drug Administration as brand-name drugs that are simply repackaged and marketed without the brand name. They’re made by the same company that makes the brand-name drug and usually sold at a discount relative to the brand-name version.

Traditional generic drugs, on the other hand, are versions of a drug that are equivalent to a brand-name drug in active ingredients and effects but may have slight variations, such as in inactive ingredients like fillers and flavors. Generics are made by different companies from those that make the brand-name versions.

High-profile examples of authorized generics include Mylan’s cheaper form of its EpiPen, a life-saving epinephrine autoinjector that curbs deadly allergic reactions. In 2016, under political and public pressure to lower drug prices, Mylan introduced the authorized generic of EpiPen priced at $300 for a two-pack. That’s half the price of a two-pack of the brand-name version, which has a list price of around $600. But it’s still a staggering hike from EpiPen’s original cost of around $50 per injector in 2007. That year, Mylan bought the rights to EpiPen and then raised the price more than 400% in the years that followed. The authorized generic is essentially triple the price of what two injectors used to cost.

Drug companies argue that because authorized generics are priced lower than brand-name drugs, the faux generics lower overall prices and spur competition. But critics note that the prices can still be inflated, as in the EpiPen case. Moreover, because brand-name drugs’ list prices are often subject to rebates and discounts by middlemen, the authorized generics’ lower prices sometimes have no impact on how much drug companies net for their drugs.

Tricks and games

Another example is Eli Lilly’s authorized generic form of Humalog insulin, as Kaiser Health News points out. In March, Eli Lilly announced it would sell the authorized generic for $137 a vial, about half the price of the brand-name version’s $275 price. The company’s CEO reportedly said that seemingly compassionate move was made to address the “many patients [who] are struggling to afford their insulin.”

But the slashed price won’t affect Lilly’s bottom line, according to a senior pharmacy benefits executive who spoke to KHN under the condition of anonymity. After rebates, $137 is about what Eli Lilly gets for Humalog now, the executive said.

"It’s a parlor trick," the executive added. "They’re bending to political pressure, but are they taking any money out of the system? They’re not."

And, as others have noted, the price is still wildly inflated. A vial of brand-name Humalog has a list price of $55 in Germany, for instance. In 2001—before Lilly began hiking the price—the list price for a vial of Humalog in the US was $35.

While authorized generics help maintain high prices and profits for drug makers, they also choke back competition from actual generics, critics say.

When Congress set up the modern generic drug market in 1984—with the "Drug Price Competition and Patent Term Restoration Act of 1984" (aka the Hatch-Waxman Amendments)—lawmakers intended to give the first generic maker the lucrative incentive of a 180-day period of market exclusivity. That is, the FDA holds back on approving additional generic versions of a drug for that period.

But with authorized generics, brand-name drug makers can time the release of their faux generics to match the release of generic competition. That’s exactly what PDL BioPharma did with the release of an authorized generic version of its blood-pressure drug, Tekturna (generic name aliskiren).

In 2017, PDL got wind that Anchen Pharmaceuticals was planning to come out with a generic version of the blood pressure pill. PDL then cut a deal with Anchen that, in part, had Anchen agree to delay the release of its generic until at least March 1, 2019. On March 4, 2019, PDL announced the release of its authorized generic

In the announcement, PDL’s president and CEO, Dominique Monnet, noted that "We believe being first-to-market with a generic version of aliskiren provides [PDL subsidiary] Noden with a distinct competitive advantage."

Robin Feldman, a pharmaceutical policy expert at the University of California Hastings College of the Law, echoed the point to KHN, saying that such moves can "stave off generic competition and make sure that generics can’t get much of a foothold when they do get to market."

"That’s the game," she added. "And drug companies have become masters at this."

As of July 2019, there are nearly 1,200 authorized generics on the market in the US.