Authorized generics allow drug manufacturers to tout a cost-conscious option—and ultimately to compete with other generics. But what does that mean for payers and consumers? Precision’s Jeremey Shafer, senior VP and director of the Access Experience Team, shares insights on the pricing intricacies in this Spotlight on Market Access article.

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Authorized generics generally don’t affect net costs much for payers, since prices are set by taking into account the average rebate for the branded product. But authorized generics may allow the manufacturer of a high-
performing product that’s facing patent expiration to keep hold of some market share, at least in the short term, experts say.

In addition, going the authorized generic route may offer that manufacturer a more intangible benefit: the chance for some positive publicity in a time when policymakers and the public are focused closely on drug costs, especially for such products as insulin, EpiPens (epinephrine) and hepatitis C antivirals.

“For them, it’s great public relations,” says Inmaculada Hernandez, Pharm.D., Ph.D., assistant professor, pharmacy and therapeutics, at the University of Pittsburgh. “They’re showing a willingness to do something about prices.”

The “willingness to do something about pricing” is somewhat deceiving, Hernandez tells AIS Health, because in most cases drugmakers have raised the price of a branded product significantly for several years while it’s still under patent protection. They then base the price of the new authorized generic on the current price of the branded product.

Nonetheless, the drug manufacturer launching an authorized generic can benefit from positive news coverage and good public relations, she says. For example, Hernandez says, “Eli Lilly [and Co.] won the PR battle by being the first one to announce” an authorized generic insulin. If insulin competitors Novo Nordisk A/S and Sanofi S.A. follow suit, they may not see as large a PR benefit, since they’ll look like copycats, she says.

Still, the benefits of offering an authorized generic may not outweigh the downsides for all pharmaceutical products, analysts say. Biologics, in particular, face a different cost-benefit calculus.

Insulin Lispro Was PR Win for Lilly

Eli Lilly announced March 4 that it will launch an authorized generic version of its Humalog (insulin lispro), which it said will be available in U.S. pharmacies at a list price that will be 50% lower than the brand name list price. The new product will be marketed by Eli Lilly subsidiary ImClone Systems and will compete directly with Humalog.

The drugmaker’s move quickly won it positive headlines, including “Eli Lilly Will Offer a Half-Off Version of Its Popular Insulin” and “Cheaper Insulin Is a Big Victory for Patients.”

But it also drew some pushback from PBM Express Scripts Holding Co., which said in a blog post that “it’s appropriate to take a moment to understand what really is happening. For years, Lilly has increased the price of Humalog. For years, Express Scripts has negotiated rebates from Lilly to bring down the net cost, making this insulin more accessible to people who need it.” Drugmakers, Express Scripts claimed, have increased prices and rebates for years, despite being asked by the PBM “to simply lower their prices.”

Hernandez is skeptical of a large effect from insulin lispro. She expects the product to benefit consumers who require insulin but who don’t have drug coverage and those people who do have coverage but who have high copayments and deductibles. Beyond those particular consumers, though, the benefits are less convincing, she says, noting, “authorized generics are a great mechanism to increase transparency in the pharmaceutical market, but I’m not sure how effective they are in decreasing drug prices.”

That’s because most manufacturers set prices for authorized generics at the difference between list price and average rebates, she notes. Therefore, it takes true generic competition to drive down prices beyond the price point set by a branded product’s average rebate, she says.

Authorized generics also may change the formulary and rebate calculus in state Medicaid programs, where by law drug companies are allowed to calculate the average manufacturer price using both branded drug and authorized generic drug prices. When authorized generics are included in this calculation, they can reduce rebates paid to the Medicaid program substantially. The Medicaid and CHIP Payment and Access Commission called on federal lawmakers last year to eliminate authorized generics from this calculation, but Congress so far has failed to act on this.

Reasoning Is Often Opaque

It’s not always clear why a manufacturer elects to launch its own authorized generic version of a drug, says Jeremy Schafer, senior vice president and director of the access experience team at Precision for Value.

“Many times, it is because the brand has gone generic, and the manufacturer still wants to compete for that molecule’s market,” Schafer tells AIS Health. “Because pharmacies generally substitute the generic for the brand, it is difficult to compete with just the brand. By having an authorized generic, the manufacturer can compete for share in the generic market and gain revenue. In addition, the manufacturer already has the production facilities set up, which makes it an easier transition.”

Authorized generics that are manufactured by the brand-name manufacturer offer consistency in quality and supply, Schafer says, and also offer more competition to the market, potentially helping to drive down prices. However, without nonauthorized generics to compete, the price reduction will be modest, he says.

The impact of an authorized generic predominantly depends on the number of generics in the market, Schafer says.

“If there is only one generic, which often lasts for a period of six months, the price reduction is usually modest — about 10% off brand — and payers may opt to support the brand or an authorized generic in exchange for rebates that bring the cost down below that of the competing generic,” he says. “However, if there are multiple generics, the price drops faster, and payers will be more likely to support a generic-first approach and leave it to the pharmacies to get better pricing. In that case, the authorized generic can compete with other generics to win business at pharmacies.”

Pricing on authorized generics is “somewhat difficult to pinpoint” because the manufacturer offers discounts to pharmacies to gain business, Schafer says. The discounts are shared with payers, and “bigger pharmacies may get larger discounts than smaller pharmacies, especially if there are multiple generics available,” he says.

“Pricing on authorized generics is “somewhat difficult to pinpoint.”

Authorized generics can work out particularly well for manufacturers when a competing company launches a generic at risk before resolving all the patent claims against it, Schafer says. When this happens, some manufacturers of the brand product will launch an authorized generic in order to compete, he says.

“In that case, the payer benefits because the resulting price war drives down prices,” he says. “However, this may be a short-term situation if the producer of the at-risk generic decides to withdraw the product. If this happens, the brand manufacturer generally pulls the authorized generic, and the market reverts to a brand-only marketplace.” All this can be very confusing to patients, Schafer points out.

In addition, authorized generics may limit competition by crowding out other generics, leading to higher prices for payers, Schafer says, noting that “it may also discourage manufacturers of generic drugs from producing a certain molecule, which leads to less competition.”

Gilead Touts Generics’ Benefits

Public pressure on pricing may have played a role in Gilead Sciences, Inc.’s decision to offer authorized generics of its top-selling hepatitis C drugs. Gilead released the authorized generics for Epclusa (sofosbuvir/velpatasvir) and Harvoni (ledipasvir/sofosbuvir) in January with list prices of around $24,000 for the typical course of treatment. That list price is in line with pricing of the branded equivalents after rebates are applied, according to the company.

“We made this unusual decision because we believe that it is the fastest way to lower list prices for our HCV cures without significant disruption to the healthcare system and our business, as a bridge to longer term solutions aimed at reducing patients’ out-of-pocket medication costs, improving access for Medicaid patients and providing greater pricing transparency,” Gilead CEO John Milligan said in announcing the new generics.

The company played up the potential positive financial benefits, saying that for those on Medicare Part D prescription drug plans, the authorized generics represent a potential savings of up to $2,500 in out-of-pocket costs per course of therapy. In addition, Gilead said, the authorized generics will offer “substantial savings” to state managed Medicaid plans. This may lead some states to loosen restrictions on coverage for these antiviral medications, said the drugmaker.

However, financial pressure from increased competition in the hepatitis C niche, plus the threat of true generics, also may have played a role in the company’s decision to compete with itself. Prices for treatment have dropped rapidly, with a 46.7% decline in per-member-per-year spending for Express Scrips members, according to the PBM’s 2018 Drug Trend Report.

“Considering that hepatitis C was a dominant spend driver only a few short years ago, this indicates that the impact of competition and generics has been substantial,” says Schafer.

Hernandez believes societal pressure was a factor both in Eli Lilly’s decision to offer an authorized generic for Humalog and in Mylan N.V.,’s 2017 decision to introduce an authorized generic for its EpiPen auto-injector. Still, she says, “it’s very hard to predict how pharma behaves sometimes.”

Are Authorized Biologics on Horizon?

Next year, the FDA will move insulin, human growth hormone and certain other biological products approved as drugs under the Food, Drug, and Cosmetics (FD&C) Act into the Public Health Service (PHS) Act, under which most biologics have been approved (SMA 5/18, p. 1). And as the FDA proceeds, there are signs that at least one manufacturer — Eli Lilly — is interested in creating authorized biologics.

Obviously, biologics aren’t treated the same way as small molecule drugs when it comes to generic approvals. The 351(k) approval pathway for biosimilars enacted in 2010 as part of the Affordable Care Act allows an applicant to rely on the FDA’s finding of safety and effectiveness for a biological reference product to support approval of a biosimilar, which should result in a lower cost for the applicant.

The FDA released a Biosimilars Action Plan last July aimed at improving the efficiency of the biosimilar and interchangeable product development and approval process, and it released additional guidelines last December describing how it intends to transition biologics from the FD&C Act to the PHS Act.

“We’re at a crucial stage in the development of a competitive market for biological products and the FDA is committed to efforts that advance the science and policies to make the development of biosimilars and interchangeable products more efficient,” said FDA Commissioner Scott Gottlieb, M.D., in revealing the new rules. “These changes and opportunities are long overdue — especially when it comes to insulin.”

Eli Lilly obviously didn’t wait for the FDA to finalize its approach to reclassifying insulin as a biologic before launching its own authorized generic for Humalog, but it has signaled that it may be interested in creating so-called “branded biosimilars” or “authorized biologics,” possibly beyond insulin lispro.

In comments on the FDA’s proposed biosimilars policy framework, Eli Lilly Senior Director Salvador Manuel Garcia de Quevedo Perez asked the FDA to clarify whether drug manufacturers can apply for approval of “second versions” of biologics.

“Clarity regarding the appropriate regulatory mechanisms for launch of these products as well as applicable naming and interchangeability policies will provide stakeholders with greater certainty, help all sponsors plan their development programs and, ultimately, help to give patients more therapeutic options,” Perez said in his comments. “Sponsors of innovative biological products already are endeavoring to market second versions of their products in ways that allow them to increase patient access. Clear direction from FDA on marketing these second versions of innovative products will help all sponsors plan their product development programs and, ultimately, benefit patients.”

Incentives Are Different With Biologics

However, it’s not clear whether authorized generics make sense for most biologics, Kirke Hasson and Maria Saigado explained in a 2016 article for the American Bar Association. “In the case of biologics, the incentives of the biologic company to launch a brand-authorized biosimilar will be different,” they wrote.

“Specifically, because a brand-authorized biosimilar would be interchangeable with the biologic, but would be priced lower than the biologic, it would take sales away from both the biosimilar (as brand-authorized generics take sales away from generics) and the biologic,” they said. “Thus, when deciding whether to launch a brand-authorized biosimilar, the biologic company would need to consider the gain from obtaining some sales from the biosimilar versus the loss from cannibalizing biologic sales.”

Hasson, a partner with the law firm Pillsbury Winthrop Shaw Pittman LLP in San Francisco, tells AIS Health that although he hasn’t evaluated the FDA’s new guidelines on biosimilars, “nothing has changed my views” on the viability of authorized biosimilars since he and Saigado wrote the article.

Reaction by payers to authorized generics will vary from payer to payer, Schafer says. “Whether it is brand or authorized generic, payers will drive to the product that provides the lowest net cost in many cases.”

For example, despite the introduction of Lilly’s authorized generic version of Humalog, payers may opt to stick with the brand product, Schafer says. “PBMs valuing high rebates may still be interested in the brand, as the higher price allows for more rebates. If the generic is priced at a lower net cost than brands, it may gain traction with payers, but will also add more competition.”

In addition, authorized generics won’t necessarily solve supply problems that exist for a branded product, he says. In the case of Mylan and its EpiPen authorized generic auto-injector, Schafer says that “the pricing is lower, which has benefited payers and patients. In terms of shortages, production issues have been problematic in this market, which has caused issues.”

Rishi Desai, Ph.D., instructor of medicine at Harvard Medical School, reported on switchbacks from authorized generics back to branded products in The BMJ in April 2018. Desai tells AIS Health that there’s little research on authorized generics and their effects on the market.

“A lot of times, the only reason for a brand name manufacturer to do this is to keep market share in the first six months” after a product’s patent has expired, Desai says, adding that some companies “actually stop marketing [the authorized generic] after the first six months.”

Products Have Short-Term Price Impact

The small amount of research that’s available on authorized generics indicates that they help most in the short run by lowering prices, Desai says. Still, one older study from Health Affairs indicated that in the long run, prices and market shares “are likely essentially unaffected by authorized generics,” while “potential costs to consumers from any delayed generic entry are likely small.”

Desai’s own research on switchbacks looked at the rate of switchbacks to branded drug products for patients switched from the branded products to authorized generics, compared with the rate of switchbacks for patients switched from branded to generic drug products. The study found that switching from branded to authorized generic drug products was associated with lower switchback rates.

Contact Hernandez at, Schafer via spokesperson Tess Rollano at, Hasson at and Desai at

by Jane Anderson