Authorized Generics
According to the FDA, there are now roughly 1,200 authorized generics approved in the U.S. With all of the changes coming to the commercial and government payer landscape, one of the most common questions we get today is how the launch of an authorized generic could impact the branded drug sales. These questions generally range from the likelihood of a drug being "MAC'd" (Maximum Allowable Cost is a metric used by pharmacies to manage drug cost), to the impact on the Medicaid book of business, to the need for new wholesaler distribution agreements. While the answers to these questions typically vary depending on the drug, pricing and distribution strategy, there are a few baseline concepts that are key to understand before diving into the specifics of your product. Read on to learn more!
What is an Authorized Generic?
Per the FDA, "The term authorized generic drug is most commonly used to describe an approved brand name drug that is marketed without the brand name on its label. Other than the fact that it does not have the brand name on its label, it is the exact same drug product as the branded product."
While the authorized generic (AG) will have a different NDC code and can deviate from the brand-name drug in minor ways such as product markings, color, or label, the drug composition is identical.
| Brand | Authorized Generic | Generic | |
|---|---|---|---|
| FDA Approval | NDA | NDA (same as brand's) | ANDA |
| Active Ingredients | ✔️ | ✔️ | ✔️ |
| Inactive Ingredients | ✔️ | ✔️ | ❌ |
| Bioequivalence | ✔️ | ✔️ | ✔️ |
| Route of Administration | ✔️ | ✔️ | ✔️ |
| Dosage Form | ✔️ | ✔️ | ✔️ |
| Strength | ✔️ | ✔️ | ✔️ |
Key: ✔️ = Same as brand; ❌ = Different from brand
Authorized generics can be sold by the brand manufacturer, also known as the primary manufacturer (i.e. the same manufacturer can sell both a brand and an AG), or by another, secondary, manufacturer through various licensing arrangements. Depending on the product and the commercial strategy, there may be advantages to utilizing a secondary manufacturer or a separate labeler code when launching an AG. A few questions to keep in mind when determining the best launch strategy for your AG include:
- How will the sales of the AG be handled by the primary and/or secondary manufacturer?
- How will the data be captured for the AG sales, chargebacks, rebates and other price concessions?
- How will the commercial contracting process look for the AG compared to the brand?
- What is the transfer price going to be?
The answers to the above questions and the configuration of your company operational teams will help guide you to the most ideal launch for your AG.
How are Authorized Generics treated in Government Pricing calculations?
In developing your launch strategy, understanding the impacts of the AG on the original branded product are key to forecasting and generating GTN components for both products. Below are the general inclusions and exclusions for authorized generics within the government pricing calculations; however, note that there can be nuance with the interpretation of a company affiliation. CMS has historically declined to comment on matters of corporate ownership, so manufacturers often need to make reasonable assumptions and ensure consistent application across the product portfolio.
Baseline Average Manufacturer Price (AMP)
Authorized generics with the same NDA as the brand must have the same Baseline AMP as the brand. [CMS Manufacturer Release 90]
The Baseline concept is key to keep in mind when evaluating the different scenarios of an AG launch. When evaluating the GTN impacts for Medicaid there are two key components to the Medicaid rebate liability, the base rebate and the inflation rebate. When an AG inherits the Baseline AMP and CPI-U from the branded product, this directly impacts the inflation rebate component of your Medicaid rebates. This is especially important now that the AMP Cap has been removed from the URA calculation. If the branded drug has significant inflation rebates, the manufacturer will want to evaluate the WAC price of the AG as well as the commercial contracting strategy to determine if the AG AMP (discussed below) will be positioned to remove any of the inherited inflation rebate liability.
Average Manufacturer Price (AMP)
Primary Manufacturer
The transfer and sales of the authorized generic to the secondary manufacturer, as well as sales of the authorized generic directly by the primary manufacturer itself, should be excluded from the primary manufacturer's calculation of AMP (as of 10/1/2019). [CMS Manufacturer Release 111]
It is key to note that sales of the AG will not impact the branded drug's AMP. When evaluating the brand's Medicaid book of business for GTN impact, this means that neither the base rebate nor the inflation rebate will decrease due to AG sales. You will not be able to lower your AMP by blending in lower-priced AG sales, nor will your AMP decrease lowering the inflation rebate. The Best Price (as discussed in the section below) will impact the base rebate, but generally AMP will not change. You should confirm any methodology decisions with your internal compliance/counsel or external counsel.
Secondary Manufacturer
AMP should include sales of authorized generics.
Best Price (BP)
Primary Manufacturer
If the primary manufacturer sells both the brand and the AG, BP should include the lowest price available to any eligible entity for an authorized generic drug in its calculation.[42 CFR § 447.505]
If the primary manufacturer licenses the AG to a secondary manufacturer with no affiliation, BP should include the transfer price of the AG in the calculation.
When evaluating the Best Price impact of an AG launch, you should know that this will impact the base rebate portion of the Medicaid rebates. When utilizing a secondary manufacturer, the transfer price will almost always set a new Best Price for the branded drug. If the primary manufacturer is going to distribute the AG, it will want to evaluate the commercial strategy for the product to determine if that will set the Best Price. It is always in the primary manufacturer’s best interest to ensure an arms length transaction when establishing an AG commercial strategy with a secondary manufacturer or a corporate affiliate. As such, you should always consult with your internal compliance/counsel or external counsel when establishing the roles and responsibilities in an AG launch.
Secondary Manufacturer
BP should include the lowest price available for any eligible entity authorized generic drug in its calculation.[42 CFR § 447.506]
Average Sales Price (ASP)
The ASP for an authorized generic and brand drug should be calculated separately.
Primary Manufacturer
The transfer and sales of the authorized generic to the secondary manufacturer should be excluded in the primary manufacturer's calculation of ASP.
Secondary Manufacturer
ASP should include sales of authorized generics.
There are nuances in launching an AG for an ASP-eligible "buy and bill" drug. The primary area of focus will be how the J/Q Code will be impacted by the launch of the AG. Generally speaking, the J/Q Code will generally shift to a blended reimbursement, as CMS is likely to deem the two products the same. The reimbursement on a blended J/Q Code is a weighted average based on the units sold during the quarter. When modeling the impact for medical reimbursement, you will need to have assumptions around market share, units sold and pricing to forecast the impact of the reimbursement.
Non-Federal Average Manufacturer Price (NFAMP)
The NFAMP for an authorized generic and brand drug should be calculated separately.
Primary Manufacturer
The transfer and sales of the authorized generic to the secondary manufacturer should be excluded in the primary manufacturer’s calculation of NFAMP.
Secondary Manufacturer
NFAMP should include sales of authorized generics.
Summary
| Brand | Authorized Generic | |
|---|---|---|
| Baseline | Calculated value (excludes AG sales/transfers) | Same as brand's |
| AMP | Excludes AG sales/transfers | Includes AG sales/transfers |
| BP | Includes AG sale/transfer price | Includes AG sale/transfer price |
| ASP | Excludes AG sales/transfers | Includes AG sales/transfers |
| NFAMP | Excludes AG sales/transfers | Includes AG sales/transfers |
How are Authorized Generics treated commercially?
Another area where we typically get questions during discussions of an AG launch is how the commercial market and the payers may react to and treat the Authorized Generic. Will the AG be treated like a traditional multi-source (i.e. ANDA) generic, or will it be positioned as an extension of the brand? There are layers to answers to these questions, and the actual commercial treatment heavily depends on the drug price as well as the drug class. Below are a few rules of thumb for how the three major PBMs typically react.
If there is only the brand and the AG in the market:
- ESI and Optum will most likely consider the AG as a branded drug and treat it as such on formularies
- CVS Caremark will most likely consider the AG as generic and treat it as such on their formularies
If there is the brand, an AG and an AB-rated generic in the market:
- ESI is likely to flip the AG to generic status and MAC both the AG and generic
- Optum will most likely continue to keep the AG as a branded drug
- CVS Caremark should keep the AG in the generic category
The nuanced differences between PBMs can fundamentally alter a drug's copay or coinsurance amounts, utilization management (i.e. step edits) and approval rates for written scripts. These details not only impact potential brand and AG sales, but could also impact both the brand and AG GTN waterfall. We always recommend developing and documenting all of your commercial assumptions, so that you can develop KPIs and other benchmarks.
One last note regarding the commercial treatment of an AG if the primary manufacturer is launching the product without the support of a secondary manufacturer. You will need to check with your distribution partners (i.e. wholesalers and distributors) to confirm if you need additional agreements or possible amendments to your existing contracts in order to ensure you are maximizing access to the AG from customers in the channel.
We'd be happy to further discuss your particular scenario - please feel free to reach out to the Woven team to learn more!
Published on July 17, 2024 by Jenny Bulkin