When a brand-name drug’s patent is about to expire, you’d expect a flood of cheap generics to hit the market. That’s the whole point of the Hatch-Waxman Act - to break monopolies and lower drug prices. But here’s what often happens instead: the original drug company launches its own authorized generic right as the first independent generic enters. And suddenly, the price drop isn’t as big as it should be.
What Exactly Is an Authorized Generic?
An authorized generic isn’t some knockoff. It’s the exact same pill, same factory, same formula as the brand-name drug - just packaged in a plain box with a generic label. The company that made the original drug sells it under a generic name, either through its own subsidiary or a licensed partner. No new approval needed. No new testing. Just a new label.
This isn’t a loophole. It’s legal. The FDA says so. The Hatch-Waxman Act of 1984 gave generic companies a 180-day window to be the only non-branded option on the market after a patent challenge. But it never said the brand company couldn’t jump in with its own version. And they did - fast.
How It Skews the Market
Picture this: a drug with $500 million in annual sales. The brand sells it for $3 a pill. The first generic company wins its patent challenge and prepares to launch at $0.80 a pill - a 73% drop. That’s what consumers and insurers expect.
Then, two weeks later, the brand company rolls out its authorized generic at $1.20 a pill. Same pill. Same packaging. Just cheaper than the brand. Now, instead of the generic taking 80-90% of the market, it gets stuck with 50-60%. The authorized generic grabs 25-35%. And the real price drop? It stalls.
The FTC studied this. In markets with authorized generics, the first generic’s revenue during its 180-day exclusivity period dropped 40-52%. Even three years later, those companies earned 53-62% less than they would have if no authorized generic had entered. That’s not competition. That’s sabotage from within.
The Settlement Trap
Here’s where it gets worse. Between 2004 and 2010, about 25% of patent litigation settlements involved an agreement: the brand company promised not to launch an authorized generic - in exchange for the generic company delaying its entry.
That’s called a "reverse payment." The brand pays the generic not to compete. And the authorized generic becomes the hidden tool. If the brand doesn’t launch its own version, the generic can dominate. But if the brand threatens to launch its own generic, the generic company backs down. The result? Market entry delayed by an average of 37.9 months. That’s over three years of higher prices for patients.
The FTC called this "the most egregious form of anti-competitive behavior." And they’re not alone. Former FTC Chairman Joseph Simons testified in 2019 that these deals "undermine the entire purpose of the Hatch-Waxman Act."
Who Benefits? Who Loses?
Branded drug companies say authorized generics help consumers by bringing down prices faster. They point to a 2024 Health Affairs study showing pharmacies paid 13-18% less for generics when an authorized version was available. But here’s the catch: the price drop isn’t as deep as it should be. The authorized generic sits between the brand and the true generic - a middle tier that keeps prices higher than they’d be otherwise.
Independent generic manufacturers say it’s a death blow. Teva reported a $275 million revenue loss in 2018 alone because of authorized generics. The Association for Accessible Medicines (formerly GPhA) argues it kills the incentive to challenge patents. Why spend millions on a lawsuit if the brand will just launch its own version and steal your market share?
Pharmacy benefit managers (PBMs), though? They mostly like it. A 2023 survey found 68% of PBM executives prefer formularies that include authorized generics. Why? Because they get more pricing options. More leverage. More room to negotiate. But that’s not the same as more competition.
The Legal Gray Zone
The Hatch-Waxman Act never mentioned authorized generics. That’s the problem. The law was written to encourage generic challenges. Instead, it became a playbook for delaying competition.
The Supreme Court stepped in with FTC v. Actavis (2013), ruling that reverse payment settlements could violate antitrust laws. But it didn’t touch authorized generics directly. So companies kept using them. The FTC responded by opening 17 investigations since 2020. In 2022, its director said they’d challenge "any arrangement that uses authorized generics to circumvent the competitive structure Congress established."
Is It Still Common?
It’s fading - but not gone. In 2010, 42% of markets with first-filer exclusivity saw an authorized generic launch. By 2022, that dropped to 28%. Why? Because regulators are watching. Because lawsuits are riskier. Because Congress keeps trying to ban them.
The Preserve Access to Affordable Generics and Biosimilars Act, reintroduced in 2023, would make it illegal to agree not to launch an authorized generic. If it passes, the practice could vanish overnight. But until then, companies still use it - especially on high-value drugs.
The Real Cost
The Congressional Budget Office estimated that banning authorized generics during the 180-day window could save Medicare $4.7 billion over ten years. That’s because more generics would enter, prices would drop faster, and fewer settlements would delay competition.
But here’s the quiet truth: for smaller drugs - ones with brand sales under $27 million a year - the threat of an authorized generic can stop a generic challenge before it even starts. Why spend $10 million on a lawsuit if you know the brand will just launch its own version and leave you with 10% of the market? That’s not innovation. That’s fear.
What’s Next?
Authorized generics aren’t going away because they’re illegal. They’re going away because they’re becoming too risky. The FTC is watching. Congress is drafting laws. Courts are growing skeptical. And the market? It’s changing.
Branded companies are learning to play by new rules. Some now wait until after the 180-day window to launch their authorized version. Others use third-party licensees to create distance. A few have stopped altogether.
But the system is still broken. The Hatch-Waxman Act was meant to speed up affordable drugs. Instead, it gave drug companies a legal way to protect their profits under the guise of competition. Until Congress closes this loophole, patients will keep paying more - not because generics are expensive, but because the system lets the original makers play both sides.
Are authorized generics the same as regular generics?
Yes, in every way that matters. Authorized generics are made in the same factory, with the same ingredients, dosage, and quality control as the brand-name drug. The only difference is the packaging and label. They’re not inferior - they’re identical. The difference is in how they enter the market: authorized generics are launched by the original drugmaker, while regular generics come from independent companies that challenge the patent.
Why do branded companies launch their own generics?
To protect their profits. When a patent expires, the brand expects to lose most of its sales. But if they launch their own authorized generic, they can keep a big chunk of the market - often 25-35% - while undercutting their own brand price. It’s a way to soften the financial blow of generic competition. In some cases, they even strike deals with independent generic companies to delay entry in exchange for not launching an authorized version.
Do authorized generics lower drug prices?
They lower prices a little - but not as much as true generic competition. An authorized generic usually costs 15-20% less than the brand, but 25-30% more than a regular generic. That means patients and insurers pay more than they should. Without authorized generics, the first generic company would typically capture 80-90% of the market and drive prices down much further.
Is it legal for a brand company to launch an authorized generic during the 180-day exclusivity period?
Yes, it’s legal. The FDA allows it, and courts have upheld the right of branded manufacturers to do so. The Hatch-Waxman Act doesn’t prohibit it. But while it’s legal, many regulators, including the FTC, argue it’s anti-competitive. The real controversy isn’t legality - it’s whether this practice undermines the intent of the law to encourage competition.
What’s being done to stop authorized generics from hurting competition?
The FTC has made it a priority. Since 2020, it has opened 17 investigations into agreements that delay generic entry using authorized generics. Congress has tried to ban them multiple times, most recently with the Preserve Access to Affordable Generics and Biosimilars Act in 2023. Courts are also becoming more skeptical - especially after FTC v. Actavis. The trend is clear: the legal tolerance for this practice is shrinking.