June 10, 2025 • 19 mins
Health Affairs' Rob Lott interviews Keith Drake of Greylock McKinnon Associates about his recent paper that explores trends in authorized generic drug launches and the effects observed on competition in pharmaceutical markets in the US.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Rob Lott (00:00):
Hello, and welcome to a health podocy. I'm your host,
(00:04):
Rob Lott. I'll admit that I havea relatively simple
understanding of therelationship between brand name
drugs and generic drugs.Generally, I get it. Brand name
drugs get a period of time whenthey're the only version of that
(00:26):
drug on the market, And duringthat time, they can typically
charge what the market willbear.
Then at some point, generics areallowed to enter and that
competition forces prices down.But of course, I know it's a lot
more complicated with all kindsof different negotiations and
strategies that differentparties use to eke out
(00:49):
additional revenue from themarket. Now one of those
strategies is to add anotherkind of drug to the mix
altogether. Not a brand namedrug and not a traditional
generic, but rather anauthorized generic. That is a
version of the drug sold by thebrand name manufacturer but
marketed without the brand name.
(01:12):
And it's at this point where Ijust have to give in and do my
best impression of Adam Sandlerdoing an impression of Jerry
Seinfeld by asking, Who are thead wizards who came up with this
one? That's a joke, but it's aserious issue. It affects
countless Americans and theirwallets every day. And it's the
(01:34):
subject of today's HealthOdyssey. I'm here with Doctor.
Keith M. Drake, a director withGreylock MacKinnon Associates.
And with his colleagues, he'sthe author of a paper in the
June issue of Health Affairs,looking at trends in authorized
generic drug launches and theireffects on competition in oral
(01:56):
solid drug markets in The US. Ican't wait to hear more and to
learn more about what's going onin this space. Doctor.
Keith Drake, welcome to ThePodicy.
Keith Drake (02:07):
Hi. Thanks so much for having me.
Rob Lott (02:09):
Well, let's just start with the landscape. Let's take
one step back and look attraditional generic drugs. What
role do they play in the marketand how widespread are they?
Keith Drake (02:19):
Yeah. I mean, you summed it up really well. We
generic drugs are just copies ofbrand drugs, and we want firms
to discover new drugs. So we letthem sell for a while without
having copies so they can sellat a high price and make good
money. But at some point, wealso want drugs to be cheap, so
(02:42):
we let other firms sell copiesof those drugs.
And when generic copies becomeavailable, there's really
intense price competition, andthat competition makes drugs
cheap for us all.
Rob Lott (02:56):
Okay. So now add into the mix, if you will, the idea
of authorized generics. What arethey? How do they differ from
both brand name drugs,traditional generics? How does
how does that work?
Keith Drake (03:11):
Yeah. So the the brand drug seller has FDA
approval, and it can use thatFDA approval to sell its brand
drug, but it can also sell ageneric version of its drug. So
an authorized generic is reallythe same thing as the brand
drug. It's just that instead ofthe brand label, it has a
generic label. And the reason afirm sells an authorized generic
(03:37):
is once generic drugs areavailable, most of the
prescriptions get quicklyconverted to generic products.
So by selling an authorizedgeneric, the brand drug seller
can retain some of the salesthat it's losing when generics
enter.
Rob Lott (03:57):
By converted, mean the patient who would go into the
pharmacy and used to purchasethe brand name drug, they start
purchasing the generic instead.Is that right?
Keith Drake (04:06):
Yeah. So your doctor actually usually will
give you a prescription for abrand drug because doctors are
familiar with the brand names.But when you bring that
prescription to the pharmacy, ifa generic version is available,
it will usually be automaticallysubstituted. So usually once
generic products are available,even though doctors are still
(04:28):
prescribing with the brand name,most prescriptions actually
received by patients are genericproducts.
Rob Lott (04:36):
Got it. Okay. Now before we talk about your study,
can you say a little more aboutsort of what we know about the
effect of authorized generics,especially what do they mean for
consumers, and what are thetrends we've seen over the
years?
Keith Drake (04:55):
Yeah. So one thing that's really important to keep
in mind is there's usually justone initial generic product, one
generic firm selling a genericproduct. And that's because of
something called the 80 genericexclusivity period. So Congress
set this up, and they did it totry to incentivize generic firms
(05:19):
to challenge patents listed fora brand drug. So if you're the
first generic firm to challengea patent, you get this thing
called the hundred and eightyday generic drug exclusivity
period.
And it's it's great for genericfirms because they can sell at a
really high price withoutcompetition. So that's important
to keep in mind because anauthorized generic is usually
(05:41):
introduced at the same time asthe first kind of traditional
generic product. So there'sactually usually two initial
generic products. There's thefirst firm challenging the
patent, and then there's alsothe brand drug seller who's
selling unauthorized genericproduct. So the FTC did a big
(06:02):
study of these when they firststarted popping up in 02/2011.
And they found that authorizedgenerics basically function like
other generic products. Theycompete on price. They bring the
price down and they seem to begood for consumers for the most
part.
Rob Lott (06:19):
Okay. What happened in 2011? Was there a change or was
it just someone had thebrilliant idea for the first
time?
Keith Drake (06:26):
Well, when brand drug sellers started selling
authorised generics, the genericfirms made a huge fuss because
they thought, hey, we'resupposed to be the only seller
during this one hundred andeighty day exclusivity period.
You are taking away our profits.There's gonna be fewer kind of
patent challenges because ofthis. So the FTC so so actually,
(06:48):
I think some members of congressasked the FTC to look into this,
and they did this really hugestudy. And they basically found
that authorized generics aregood for price competition, and
they don't seem to be affectingthe number of patent challenges
that basically every drug withany kind of reasonable sales has
(07:12):
their patents challenged at somepoint.
Rob Lott (07:14):
Got it. Okay. So against this backdrop, tell us a
little bit about your study.What was the main question you
asked, and what answers did yourfindings reveal?
Keith Drake (07:25):
Yeah. So we wanted to see if authorized generics
were still having similareffects on competition. And,
actually, there's one otherfinding from the FTC's report
that I should talk about. It'sthe the FTC did see that there
were some settlement agreementsbetween brand and generic firms
(07:48):
that included a promise that thebrand would not sell an
authorized generic. So in thosecases, you only see one initial
generic product.
So the FTC determined that thatwas really bad for competition,
because not only do you haveonly one initial generic
(08:09):
product, but that promise not tosell was is really valuable for
generic firms. So the FTC hasargued that those promises are
leading to a delay in whengeneric entry first starts,
which is really bad forconsumers.
Rob Lott (08:26):
Gotcha. So just to make sure I understand, normally
when there is an authorizedgeneric in the mix, basically
the market for that generic drugis basically split in two
between the first generic entryand the authorized generic. But
there's a world in whichgenerics and the brand name
(08:49):
manufacturers can come to anagreement and basically the
generic gets to have 100% of thegeneric market if the brand name
company agrees to sort of backoff. Is that a fair
interpretation?
Keith Drake (09:02):
Yeah. You're exactly right. There should be
two generic products at first,but when there's an agreement
like this, there's only onegeneric product. And that's that
means there's higher genericprices, and it probably also
means that people were payingfor the brand drug for more for
longer than they should have.They should have had generics
available sooner.
Rob Lott (09:21):
Got it. Okay. So against that backdrop, against
the FTC report and theirfinding, what where did you go
from there?
Keith Drake (09:30):
Yeah. So we just tried to see if the FTC's
findings were still relevant totoday. And largely our findings
well, our findings were similarin some ways and different in
others. We found that authorizedgenerics, when they are sold,
are still usually introduced atthe beginning of generic
(09:51):
competition. So there are oftentwo initial generic products
like I was talking about.
But I think the reallysurprising thing from our study
was, especially for these topselling drugs, authorized
generic launches are much rarerin recent years than they were
in the period that the FTCstudied. So, like, the FTC study
(10:12):
said that, you know, 90% of topselling drugs have an authorized
generic, and we found that thatpercentage has dropped to be
less than 40%.
Rob Lott (10:23):
Wow. I wanna hear a little more about your theory to
explain what happened there.We'll dig into that after this
break. And we're back. I'm herewith doctor Keith Drake talking
(10:54):
about his recent study in theJune issue of Health Affairs
about authorized generics.
Just a moment ago, you said youwere a little surprised to see a
drop off, if you will, in thepercentage of brand name drugs
that were also having anauthorized generic brought into
the market. It was a drop offfrom the FTC report, your
(11:15):
findings were significantlylower. What's going on there?
What do you think explains that?
Keith Drake (11:20):
Well, I think the most important explanation is
that these no authorised genericagreements are affecting a lot
of the generic entries that arehappening. And they've changed a
little. Actually, firms havegotten into trouble for
expressly promising not to sellan authorized generic. So a lot
(11:41):
of recent agreements don'tinclude an express promise, but
they have set up the deal toinclude incentives for the brand
not to sell an authorizedgeneric. So they kind of
accomplish the same thing, butthey're more complicated to try
to avoid getting into trouble.
Rob Lott (12:01):
Without getting too far into the weeds, what kind of
incentives might be established?
Keith Drake (12:06):
Yeah, so one thing they do is use the tiered
royalty provision. So just togive a simple example, the way
it'll work is if the brand sellsits authorised generic, it
doesn't get any royalties on thetraditional generic product. But
if it withholds its authorisedgeneric launch, it gets 50% of
(12:29):
the traditional genericsprofits. So of course, prices
are higher with one product. Soif you're splitting the market
either way, you make more moneyif there's only one product.
So it's good for both thecompanies, but it's bad for
purchasers of drugs.
Rob Lott (12:43):
Oh, it sure is. And that's a great segue actually
for my next question, which is,do we know have we been able to
quantify how that affects whatpatients are paying at the
pharmacy counter?
Keith Drake (12:56):
Yeah, that's a great question. I mean, I think
what patients actually payreally depends on their
insurance. So if if you don'thave insurance, you're probably
paying a lot more. If you if youhave insurance, you're probably
paying a higher co pay. Ifyou're buying a brand drug when
you should be buying a generic.
We think about, you know, thingson a bigger level, I guess,
(13:18):
usually. And I think in terms ofhow much it's costing the
system, it's probably billionsand billions of dollars.
Rob Lott (13:25):
Can you put these trends in sort of the broader
context? This is just like oneavenue of these firms kind of,
you know, trying to find theirbest angle on the profit, but
obviously there's this wholepatent and intellectual property
ecosystem. And how do you seethis piece of the puzzle fitting
(13:48):
in with things like evergreeningand product topping, all the
patent tickets that reallycomplicate matters? Where does
this fit into that landscape?
Keith Drake (13:59):
Yeah. I think they work together to make the
problem worse. So a lot ofpeople don't realize like a drug
does not just have one patent. Atop selling drug will have ten,
twenty, 30 patents or more. Butmost of them have almost no
chance of actually being upheldin court.
They've gotten issued muchlater, and they kind of cover
(14:20):
ancillary aspects of a drug. Sothat's actually not a problem if
generic firms are just kind ofignoring those patents and
entering anyway. But if they'rereaching deals that, you know,
it kind of delay their entrywell into the life of these
patents that probably shouldn'thave been issued in the first
place, that's that's a bigproblem.
Rob Lott (14:41):
So in a way, a lot of these patents are sort of used
as leverage or as sort of likean excuse to come to an
agreement. Is that fair?
Keith Drake (14:50):
I think it helps them come to an agreement for
later entry than they otherwisewould without a reverse payment
or pay for delay. That's myperspective for sure.
Rob Lott (15:03):
So the history here, we look back on the original
generic market was created in1984 with the Hatch Waxman Act,
and that sort of set into motionthis whole system of using
market exclusivity in order toincentivize additional revenue
(15:27):
and allow drug developers toearn a profit, but then also to
force prices down to keep thingsaffordable. Do you have a sense
of whether this sort of rise anddecline of authorized generics
was even on the radar of thefolks writing that legislation
(15:52):
back in 1984? And I'll ask youmaybe to do a little Back to the
Future here and imagine we'veinvited nineteen eighty four
Henry Waxman, he's sitting hereat the table with us. What do
you think he would say after heread your paper?
Keith Drake (16:08):
That's a great question. I I am sure that they
were not thinking aboutauthorised generics because, you
know, the generic firms werereally surprised when brand
firms started selling their owngeneric products. I think, you
know and I think senator Hatchand representative Waxman are
(16:29):
both on record as being veryagainst pay for delay generally
and saying that was definitelynot an intended part of the act.
So I so I think if you could getget them to sit down and think
about this, they would probablysay, you know, authorized
generics, when they're used tocompete on price and sold as any
(16:51):
other generic, they can havepositive effects. But the way
they've kind of been used inbargaining about the timing of
generic entry is reallyproblematic, and I think, you
know, something should be doneabout it.
Rob Lott (17:05):
Well, you just asked my next question. What can we do
about this? What are the policylevers sort of at our disposal
to address what's really becomea problematic situation?
Keith Drake (17:20):
It's a great question. There's lots of
antitrust litigation about thesecases, but they're really hard
cases because they're complexand you have to explain these
things to a jury. It'sdifficult. So I, you know, I
think that litigation willcontinue, but it's it's I'm not
sure it will kind of win out inthe end. There are some bills
(17:42):
that have tried to ban pay fordelay.
I think Amy Klobucher, inparticular, introduced one. So
if that actually got passed,maybe it would make a big
difference. I I like the ideaof, you know, there are these
nonprofit generic firms thathave really tried to address
some of the supply shortages. Ithink it would be really
interesting if they got into thebusiness of challenging patents
(18:05):
and kind of refused to enterinto some of these questionable
deals that might hold the restof the industry more
accountable. I so I've been kindof trying to make that happen
with no success so far.
Rob Lott (18:18):
That's really fascinating. It's like, what do
you what happens when you removethe need for profit from the
equation? It maybe changes whata negotiation would look like.
Keith Drake (18:34):
Exactly. Right.
Rob Lott (18:36):
Awesome. Well, lots more to monitor and lots more to
learn about this market in theyears ahead. Do you have any
other projects in this spacethat you can share with us?
Keith Drake (18:52):
Yeah, you know, I have a working paper in which we
looked at the stock pricereaction to some of these deals.
And, you know, we found that thebrand stock prices are going up
by billions of dollars onaverage. And or sorry, I should
say in total in reaction to someof these deals. So we kind of
(19:12):
estimate the overall harm frompay for delay to be in the
billions of dollars per year.That's that's probably the most
relevant one.
Rob Lott (19:23):
Well, that's probably a great place to wrap up.
Doctor. Keith Drake, thank youso much for taking the time to
talk to us today.
Keith Drake (19:31):
Thanks so much for having me.
Rob Lott (19:32):
And to our listeners, thanks for tuning in. If you
enjoyed this episode, pleasetell a friend, leave a comment,
smash that subscribe button, andtune in next week.
Keith Drake (19:46):
Thanks for listening. If you enjoyed
today's episode, I hope you'lltell a friend about a health
policy.
Hello, and welcome to a health podocy. I'm your host,
(00:04):
Rob Lott. I'll admit that I havea relatively simple
understanding of therelationship between brand name
drugs and generic drugs.Generally, I get it. Brand name
drugs get a period of time whenthey're the only version of that
(00:26):
drug on the market, And duringthat time, they can typically
charge what the market willbear.
Then at some point, generics areallowed to enter and that
competition forces prices down.But of course, I know it's a lot
more complicated with all kindsof different negotiations and
strategies that differentparties use to eke out
(00:49):
additional revenue from themarket. Now one of those
strategies is to add anotherkind of drug to the mix
altogether. Not a brand namedrug and not a traditional
generic, but rather anauthorized generic. That is a
version of the drug sold by thebrand name manufacturer but
marketed without the brand name.
(01:12):
And it's at this point where Ijust have to give in and do my
best impression of Adam Sandlerdoing an impression of Jerry
Seinfeld by asking, Who are thead wizards who came up with this
one? That's a joke, but it's aserious issue. It affects
countless Americans and theirwallets every day. And it's the
(01:34):
subject of today's HealthOdyssey. I'm here with Doctor.
Keith M. Drake, a director withGreylock MacKinnon Associates.
And with his colleagues, he'sthe author of a paper in the
June issue of Health Affairs,looking at trends in authorized
generic drug launches and theireffects on competition in oral
(01:56):
solid drug markets in The US. Ican't wait to hear more and to
learn more about what's going onin this space. Doctor.
Keith Drake, welcome to ThePodicy.
Keith Drake (02:07):
Hi. Thanks so much for having me.
Rob Lott (02:09):
Well, let's just start with the landscape. Let's take
one step back and look attraditional generic drugs. What
role do they play in the marketand how widespread are they?
Keith Drake (02:19):
Yeah. I mean, you summed it up really well. We
generic drugs are just copies ofbrand drugs, and we want firms
to discover new drugs. So we letthem sell for a while without
having copies so they can sellat a high price and make good
money. But at some point, wealso want drugs to be cheap, so
(02:42):
we let other firms sell copiesof those drugs.
And when generic copies becomeavailable, there's really
intense price competition, andthat competition makes drugs
cheap for us all.
Rob Lott (02:56):
Okay. So now add into the mix, if you will, the idea
of authorized generics. What arethey? How do they differ from
both brand name drugs,traditional generics? How does
how does that work?
Keith Drake (03:11):
Yeah. So the the brand drug seller has FDA
approval, and it can use thatFDA approval to sell its brand
drug, but it can also sell ageneric version of its drug. So
an authorized generic is reallythe same thing as the brand
drug. It's just that instead ofthe brand label, it has a
generic label. And the reason afirm sells an authorized generic
(03:37):
is once generic drugs areavailable, most of the
prescriptions get quicklyconverted to generic products.
So by selling an authorizedgeneric, the brand drug seller
can retain some of the salesthat it's losing when generics
enter.
Rob Lott (03:57):
By converted, mean the patient who would go into the
pharmacy and used to purchasethe brand name drug, they start
purchasing the generic instead.Is that right?
Keith Drake (04:06):
Yeah. So your doctor actually usually will
give you a prescription for abrand drug because doctors are
familiar with the brand names.But when you bring that
prescription to the pharmacy, ifa generic version is available,
it will usually be automaticallysubstituted. So usually once
generic products are available,even though doctors are still
(04:28):
prescribing with the brand name,most prescriptions actually
received by patients are genericproducts.
Rob Lott (04:36):
Got it. Okay. Now before we talk about your study,
can you say a little more aboutsort of what we know about the
effect of authorized generics,especially what do they mean for
consumers, and what are thetrends we've seen over the
years?
Keith Drake (04:55):
Yeah. So one thing that's really important to keep
in mind is there's usually justone initial generic product, one
generic firm selling a genericproduct. And that's because of
something called the 80 genericexclusivity period. So Congress
set this up, and they did it totry to incentivize generic firms
(05:19):
to challenge patents listed fora brand drug. So if you're the
first generic firm to challengea patent, you get this thing
called the hundred and eightyday generic drug exclusivity
period.
And it's it's great for genericfirms because they can sell at a
really high price withoutcompetition. So that's important
to keep in mind because anauthorized generic is usually
(05:41):
introduced at the same time asthe first kind of traditional
generic product. So there'sactually usually two initial
generic products. There's thefirst firm challenging the
patent, and then there's alsothe brand drug seller who's
selling unauthorized genericproduct. So the FTC did a big
(06:02):
study of these when they firststarted popping up in 02/2011.
And they found that authorizedgenerics basically function like
other generic products. Theycompete on price. They bring the
price down and they seem to begood for consumers for the most
part.
Rob Lott (06:19):
Okay. What happened in 2011? Was there a change or was
it just someone had thebrilliant idea for the first
time?
Keith Drake (06:26):
Well, when brand drug sellers started selling
authorised generics, the genericfirms made a huge fuss because
they thought, hey, we'resupposed to be the only seller
during this one hundred andeighty day exclusivity period.
You are taking away our profits.There's gonna be fewer kind of
patent challenges because ofthis. So the FTC so so actually,
(06:48):
I think some members of congressasked the FTC to look into this,
and they did this really hugestudy. And they basically found
that authorized generics aregood for price competition, and
they don't seem to be affectingthe number of patent challenges
that basically every drug withany kind of reasonable sales has
(07:12):
their patents challenged at somepoint.
Rob Lott (07:14):
Got it. Okay. So against this backdrop, tell us a
little bit about your study.What was the main question you
asked, and what answers did yourfindings reveal?
Keith Drake (07:25):
Yeah. So we wanted to see if authorized generics
were still having similareffects on competition. And,
actually, there's one otherfinding from the FTC's report
that I should talk about. It'sthe the FTC did see that there
were some settlement agreementsbetween brand and generic firms
(07:48):
that included a promise that thebrand would not sell an
authorized generic. So in thosecases, you only see one initial
generic product.
So the FTC determined that thatwas really bad for competition,
because not only do you haveonly one initial generic
(08:09):
product, but that promise not tosell was is really valuable for
generic firms. So the FTC hasargued that those promises are
leading to a delay in whengeneric entry first starts,
which is really bad forconsumers.
Rob Lott (08:26):
Gotcha. So just to make sure I understand, normally
when there is an authorizedgeneric in the mix, basically
the market for that generic drugis basically split in two
between the first generic entryand the authorized generic. But
there's a world in whichgenerics and the brand name
(08:49):
manufacturers can come to anagreement and basically the
generic gets to have 100% of thegeneric market if the brand name
company agrees to sort of backoff. Is that a fair
interpretation?
Keith Drake (09:02):
Yeah. You're exactly right. There should be
two generic products at first,but when there's an agreement
like this, there's only onegeneric product. And that's that
means there's higher genericprices, and it probably also
means that people were payingfor the brand drug for more for
longer than they should have.They should have had generics
available sooner.
Rob Lott (09:21):
Got it. Okay. So against that backdrop, against
the FTC report and theirfinding, what where did you go
from there?
Keith Drake (09:30):
Yeah. So we just tried to see if the FTC's
findings were still relevant totoday. And largely our findings
well, our findings were similarin some ways and different in
others. We found that authorizedgenerics, when they are sold,
are still usually introduced atthe beginning of generic
(09:51):
competition. So there are oftentwo initial generic products
like I was talking about.
But I think the reallysurprising thing from our study
was, especially for these topselling drugs, authorized
generic launches are much rarerin recent years than they were
in the period that the FTCstudied. So, like, the FTC study
(10:12):
said that, you know, 90% of topselling drugs have an authorized
generic, and we found that thatpercentage has dropped to be
less than 40%.
Rob Lott (10:23):
Wow. I wanna hear a little more about your theory to
explain what happened there.We'll dig into that after this
break. And we're back. I'm herewith doctor Keith Drake talking
(10:54):
about his recent study in theJune issue of Health Affairs
about authorized generics.
Just a moment ago, you said youwere a little surprised to see a
drop off, if you will, in thepercentage of brand name drugs
that were also having anauthorized generic brought into
the market. It was a drop offfrom the FTC report, your
(11:15):
findings were significantlylower. What's going on there?
What do you think explains that?
Keith Drake (11:20):
Well, I think the most important explanation is
that these no authorised genericagreements are affecting a lot
of the generic entries that arehappening. And they've changed a
little. Actually, firms havegotten into trouble for
expressly promising not to sellan authorized generic. So a lot
(11:41):
of recent agreements don'tinclude an express promise, but
they have set up the deal toinclude incentives for the brand
not to sell an authorizedgeneric. So they kind of
accomplish the same thing, butthey're more complicated to try
to avoid getting into trouble.
Rob Lott (12:01):
Without getting too far into the weeds, what kind of
incentives might be established?
Keith Drake (12:06):
Yeah, so one thing they do is use the tiered
royalty provision. So just togive a simple example, the way
it'll work is if the brand sellsits authorised generic, it
doesn't get any royalties on thetraditional generic product. But
if it withholds its authorisedgeneric launch, it gets 50% of
(12:29):
the traditional genericsprofits. So of course, prices
are higher with one product. Soif you're splitting the market
either way, you make more moneyif there's only one product.
So it's good for both thecompanies, but it's bad for
purchasers of drugs.
Rob Lott (12:43):
Oh, it sure is. And that's a great segue actually
for my next question, which is,do we know have we been able to
quantify how that affects whatpatients are paying at the
pharmacy counter?
Keith Drake (12:56):
Yeah, that's a great question. I mean, I think
what patients actually payreally depends on their
insurance. So if if you don'thave insurance, you're probably
paying a lot more. If you if youhave insurance, you're probably
paying a higher co pay. Ifyou're buying a brand drug when
you should be buying a generic.
We think about, you know, thingson a bigger level, I guess,
(13:18):
usually. And I think in terms ofhow much it's costing the
system, it's probably billionsand billions of dollars.
Rob Lott (13:25):
Can you put these trends in sort of the broader
context? This is just like oneavenue of these firms kind of,
you know, trying to find theirbest angle on the profit, but
obviously there's this wholepatent and intellectual property
ecosystem. And how do you seethis piece of the puzzle fitting
(13:48):
in with things like evergreeningand product topping, all the
patent tickets that reallycomplicate matters? Where does
this fit into that landscape?
Keith Drake (13:59):
Yeah. I think they work together to make the
problem worse. So a lot ofpeople don't realize like a drug
does not just have one patent. Atop selling drug will have ten,
twenty, 30 patents or more. Butmost of them have almost no
chance of actually being upheldin court.
They've gotten issued muchlater, and they kind of cover
(14:20):
ancillary aspects of a drug. Sothat's actually not a problem if
generic firms are just kind ofignoring those patents and
entering anyway. But if they'rereaching deals that, you know,
it kind of delay their entrywell into the life of these
patents that probably shouldn'thave been issued in the first
place, that's that's a bigproblem.
Rob Lott (14:41):
So in a way, a lot of these patents are sort of used
as leverage or as sort of likean excuse to come to an
agreement. Is that fair?
Keith Drake (14:50):
I think it helps them come to an agreement for
later entry than they otherwisewould without a reverse payment
or pay for delay. That's myperspective for sure.
Rob Lott (15:03):
So the history here, we look back on the original
generic market was created in1984 with the Hatch Waxman Act,
and that sort of set into motionthis whole system of using
market exclusivity in order toincentivize additional revenue
(15:27):
and allow drug developers toearn a profit, but then also to
force prices down to keep thingsaffordable. Do you have a sense
of whether this sort of rise anddecline of authorized generics
was even on the radar of thefolks writing that legislation
(15:52):
back in 1984? And I'll ask youmaybe to do a little Back to the
Future here and imagine we'veinvited nineteen eighty four
Henry Waxman, he's sitting hereat the table with us. What do
you think he would say after heread your paper?
Keith Drake (16:08):
That's a great question. I I am sure that they
were not thinking aboutauthorised generics because, you
know, the generic firms werereally surprised when brand
firms started selling their owngeneric products. I think, you
know and I think senator Hatchand representative Waxman are
(16:29):
both on record as being veryagainst pay for delay generally
and saying that was definitelynot an intended part of the act.
So I so I think if you could getget them to sit down and think
about this, they would probablysay, you know, authorized
generics, when they're used tocompete on price and sold as any
(16:51):
other generic, they can havepositive effects. But the way
they've kind of been used inbargaining about the timing of
generic entry is reallyproblematic, and I think, you
know, something should be doneabout it.
Rob Lott (17:05):
Well, you just asked my next question. What can we do
about this? What are the policylevers sort of at our disposal
to address what's really becomea problematic situation?
Keith Drake (17:20):
It's a great question. There's lots of
antitrust litigation about thesecases, but they're really hard
cases because they're complexand you have to explain these
things to a jury. It'sdifficult. So I, you know, I
think that litigation willcontinue, but it's it's I'm not
sure it will kind of win out inthe end. There are some bills
(17:42):
that have tried to ban pay fordelay.
I think Amy Klobucher, inparticular, introduced one. So
if that actually got passed,maybe it would make a big
difference. I I like the ideaof, you know, there are these
nonprofit generic firms thathave really tried to address
some of the supply shortages. Ithink it would be really
interesting if they got into thebusiness of challenging patents
(18:05):
and kind of refused to enterinto some of these questionable
deals that might hold the restof the industry more
accountable. I so I've been kindof trying to make that happen
with no success so far.
Rob Lott (18:18):
That's really fascinating. It's like, what do
you what happens when you removethe need for profit from the
equation? It maybe changes whata negotiation would look like.
Keith Drake (18:34):
Exactly. Right.
Rob Lott (18:36):
Awesome. Well, lots more to monitor and lots more to
learn about this market in theyears ahead. Do you have any
other projects in this spacethat you can share with us?
Keith Drake (18:52):
Yeah, you know, I have a working paper in which we
looked at the stock pricereaction to some of these deals.
And, you know, we found that thebrand stock prices are going up
by billions of dollars onaverage. And or sorry, I should
say in total in reaction to someof these deals. So we kind of
(19:12):
estimate the overall harm frompay for delay to be in the
billions of dollars per year.That's that's probably the most
relevant one.
Rob Lott (19:23):
Well, that's probably a great place to wrap up.
Doctor. Keith Drake, thank youso much for taking the time to
talk to us today.
Keith Drake (19:31):
Thanks so much for having me.
Rob Lott (19:32):
And to our listeners, thanks for tuning in. If you
enjoyed this episode, pleasetell a friend, leave a comment,
smash that subscribe button, andtune in next week.
Keith Drake (19:46):
Thanks for listening. If you enjoyed
today's episode, I hope you'lltell a friend about a health
policy.
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