“Authorized” Generics Will Be Subject To “Best Price” Calculations – CMS

The Centers for Medicare & Medicaid Services is indicating that it will consider "authorized" generics to be brand drugs for the purposes of best price reporting.

"It is CMS' position that such multiple-source drugs marketed under a new drug application approved by the Food & Drug Administration should be classified as an innovator multiple-source drug," CMS Administrator Mark McClellan said in a March 18 letter to the Generic Pharmaceutical Association.

"CMS is reviewing its policy on the calculation of prices for these drugs," the letter continues.

GPhA has been working to combat authorized generics, in which brand firms license a generic version of their product during a generic firm's exclusivity period. The association is concerned that the practice will discourage patent challenges and slow the pace of generics coming to market because it reduces the value of 180-day exclusivity.

If CMS changed its policy, it could curtail licensing of authorized generics since brand firms would be forced to pay Medicaid rebates based on the lower generic prices.

CMS' letter to GPhA follows discussions between Sen. Charles Schumer (D-N.Y.) and HHS Secretary Mike Leavitt. During a budget hearing in February, Schumer asked about the issue, and Leavitt indicated that CMS lacked the authority to change price reporting.

In a follow-up communication, however, HHS indicated that authorized generics could be counted in best price calculations, but the move would require formal rule making.

If a CMS policy resulted in brand firms eschewing authorized generics, GPhA would avoid having to seek a legislative remedy.

Sen. Orrin Hatch (R-Utah) and Rep. Henry Waxman (D-Calif.) have suggested that authorized generics warrant congressional scrutiny (¹ (Also see "Congress Needs To Review “Authorized” Generics, Hatch And Waxman Agree" - Pink Sheet, 11 Oct, 2004.), p. 33).

The generic industry has made several efforts to eliminate authorized generics through lawsuits and petitions.

Opponents of authorized generics began pursuing the "best price" strategy after FDA rejected two citizen petitions seeking to stop the practice on the grounds that they essentially constituted unapproved drugs (² (Also see "Medicaid “Best Price” May Be Avenue To Challenge “Authorized” Generics" - Pink Sheet, 12 Jul, 2004.), p. 7).

More recently, Andrx filed a citizen petition arguing that packaging of authorized generics is "fundamentally misleading," and they are therefore misbranded. ³ Andrx' petition is aimed at blocking an authorized generic of Johnson & Johnson's attention deficit product Concerta (methylphenidate extended-release).

Former FDA Chief Counsel Dan Troy questioned the generic industry's concerns about authorized generics during an April 4 address at the CIBC Biotechnology & Specialty Pharmaceuticals Conference in New York.

"I just find this hard to imagine, at least for blockbuster products, that companies aren't still going to try to innovate around or bust the patents," he said. Troy is now a partner with Sidley Austin Brown & Wood.

Because of FDA's "successful defense" policy, Troy said that there essentially was no 180-day exclusivity for the first 15 years of Hatch/Waxman. "Yet, up until 1999, the generic industry still grew to be about 50% of all prescriptions."

"I just don't see GPhA gaining much traction with their arguments on the Hill in favor of - let's be very clear - higher prices to consumers at least in the first six months," Troy said.

Troy noted that the generic drug industry seems to be doing well financially.

"Were the generic business such a bad one, it is hard to imagine that Novartis would have made the bet it just made," he said. In February, Novartis said it would pay $8.8 bil. for the privately held generic firms Eon and Hexal to supplement its Sandoz division (⁴ (Also see "Novartis Seeks To Be Generics “Powerhouse” With Eon, Hexal Acquisitions" - Pink Sheet, 28 Feb, 2005.), p. 21).

"The future of the generics industry is in companies like Teva and others that have really demonstrated manufacturing efficiencies, efficiencies that by the way exceed those of many innovator companies," Troy said.