When you fill a prescription for a generic drug, you might think all generics are the same. But that’s not true. Two very different kinds of generic drugs exist in the U.S. market: authorized generics and first-to-file generics. And the difference between them can save you - or cost you - hundreds of dollars a year.
What’s an authorized generic?
An authorized generic is the exact same drug as the brand-name version, made by the same company, in the same factory, with the same ingredients and packaging. The only difference? It doesn’t carry the brand name. It’s sold under a generic label, often at a lower price.For example, if you take the brand-name drug Lipitor, the authorized generic is identical - same active ingredient, same tablet shape, same manufacturer (Pfizer). But it’s sold as "atorvastatin" without the blue pill logo. The brand company makes it, licenses it to a distributor, and sells it alongside the brand version or after the brand loses exclusivity.
Authorized generics can enter the market at any time. They don’t need FDA approval through the usual generic process. They’re already covered under the brand’s original New Drug Application (NDA). That means they can hit shelves even before a traditional generic is approved.
What’s a first-to-file generic?
A first-to-file generic is the first generic company to submit an Abbreviated New Drug Application (ANDA) to the FDA after a brand drug’s patent expires. Under the Hatch-Waxman Act of 1984, that company gets 180 days of exclusive rights to sell the generic version - no other generic can compete during that time.This exclusivity isn’t just a perk. It’s worth hundreds of millions of dollars. During those six months, the first-to-file generic is often the only option. That gives them pricing power. They can set prices higher than they would if competitors were already in the market.
Think of it like being the first food truck at a festival. You have the whole crowd to yourself. No competition. You can charge more.
How do prices compare?
Here’s where it gets real. The difference in pricing between these two types of generics isn’t small - it’s dramatic.When only the first-to-file generic is on the market (no authorized generic yet), the average retail price is about 14% below the brand-name price. That’s a discount, but not a huge one. Pharmacies pay about 20% less than the brand price.
Now, add an authorized generic. Suddenly, the retail price drops to 18% below the brand. Pharmacy acquisition costs drop even more - to 27% below brand price. That’s a 7 percentage point jump in savings just from adding one more competitor.
That’s not a typo. One extra player in the market - the authorized generic - cuts pharmacy costs nearly in half compared to the brand. And consumers pay less at the counter.
According to the FTC’s 2013 report, when an authorized generic enters during the 180-day exclusivity window, retail prices drop 4% to 8% more than they would without it. Wholesale prices drop even more - 7% to 14% lower. That’s money saved across the entire system.
Why does this matter for pharmacies and patients?
Pharmacies make more profit when both types of generics are available. When the first-to-file generic enters alone, pharmacy margins jump. But when an authorized generic joins in, margins jump even higher. That’s because pharmacies buy the authorized generic at an even lower price than the first-to-file version.Patients benefit directly. Lower acquisition costs mean lower out-of-pocket prices. In some cases, a prescription that cost $60 with just the first-to-file generic drops to $45 when an authorized generic arrives. That’s a $15 savings per fill. For someone taking the drug monthly, that’s $180 a year - just from competition.
And it’s not just short-term. The FTC found that even after the 180-day exclusivity ends, prices stay lower in markets where an authorized generic entered early. The effect lingers for up to 30 months.
What about the brand companies?
Brand companies don’t just sit back. Many launch their own authorized generics - often as part of a legal settlement with the first-to-file generic maker. It’s a trade: the brand lets the generic enter early, but gets to sell its own version at the same time.This cuts the first-to-file generic’s revenue by 40% to 52% during its 180-day window. That’s a huge hit. But here’s the twist: the FTC found this doesn’t stop other generic companies from filing patent challenges. The incentive to be the first to file is still strong enough to drive competition.
Some critics worry this arrangement slows down future generics. But data doesn’t back that up. The FTC’s analysis shows no measurable drop in the number of patent challenges from generic manufacturers, even when authorized generics are common.
How many generics are out there?
The more competitors, the lower the price. That’s basic economics. But the numbers are eye-opening:- With one generic (first-to-file only): prices are 39% below brand
- With two generics (first-to-file + authorized generic): prices drop to 54% below brand
- With four generics: prices fall to 79% below brand
- With six or more: prices drop over 95% below brand
That’s not speculation. That’s FDA data from 2015-2017. The more players, the faster prices collapse. Authorized generics are often the second player - the one that pushes prices down faster than the first-to-file alone ever could.
Are authorized generics less reliable?
No. They’re identical to the brand. The FDA requires them to meet the same standards. There’s no difference in safety, effectiveness, or quality.Some patients worry switching from brand to generic changes how the drug works. But authorized generics aren’t generics in the traditional sense - they’re the same pill with a different label. If your body responded well to the brand, it will respond the same way to the authorized generic.
The FTC’s 2013 report specifically addressed this concern: "There is no evidence that AG prices are higher than prices of other generics." In other words, authorized generics aren’t holding back competition. They’re driving it.
What’s changing in the market?
The FDA’s Generic Drug User Fee Amendments (GDUFA), updated in 2022, have sped up approvals. First-cycle approval rates jumped from 20% to 66%. That means generics hit the market 13 months faster than before.That’s good news. Faster approvals mean more competitors enter sooner. And more competitors mean lower prices - even without authorized generics.
But here’s the catch: brand companies are also launching new versions of their drugs - like extended-release formulas or combo pills - right as the original patent expires. These new versions can steal up to 29% of the market from first-to-file generics in the first year. That’s a legal way to extend monopoly pricing.
That’s why authorized generics matter more than ever. They’re one of the few tools left to break up brand monopolies when the brand tries to stay on top with minor tweaks.
Bottom line: which is better for you?
If you’re paying out of pocket, you want the lowest price. That usually means waiting for an authorized generic to appear. It might take a few weeks after the first-to-file generic launches, but when it does, your bill drops.Ask your pharmacist: "Is there an authorized generic for this?" If they say yes, ask for it. You’re not getting a "second-rate" drug. You’re getting the same drug, cheaper.
And if you’re on insurance, your copay might be the same regardless. But your insurer pays less. That means lower premiums down the road. Everyone wins - except the brand company, and maybe the first-to-file generic maker trying to cash in on exclusivity.
The system isn’t perfect. But when authorized generics enter the market, patients pay less. Pharmacies earn more. The system saves money. And the FTC has confirmed: this competition doesn’t hurt long-term generic innovation. It helps it.
Next time you see a generic prescription, don’t just accept it. Ask: is this the first-to-file version? Or is there an authorized generic available? That one question could save you hundreds a year.
