Authorized Generic Pricing: Why They Cost Less Than Brand-Name Drugs

When you pick up a prescription, you might see two bottles on the counter that look identical. One says Brand Name, the other says Authorized Generic. The price difference? Sometimes half. But why? If they’re the same drug, why does one cost so much less?

They’re the exact same drug - just cheaper

Authorized generics aren’t knockoffs. They’re not cheaper versions made by a different company using different ingredients. They’re the exact same pill, capsule, or injection as the brand-name drug. Same active ingredient. Same factory. Same quality control. Same packaging - sometimes even the same label, just without the brand logo.

The U.S. Food and Drug Administration (FDA) requires that authorized generics meet the same standards as the original brand. They’re made under the same New Drug Application (NDA) as the brand-name version. That means the manufacturer didn’t have to go through the long, expensive process of proving the drug works again. They just kept making it the same way, but sold it under a different name.

Think of it like a car company making the same model but selling it under a different dealership name. Same engine. Same safety features. Same assembly line. Just a different badge.

Why do brand companies allow this?

It sounds strange. Why would a company that spent billions developing a drug let someone else sell it for less? The answer lies in the 1984 Hatch-Waxman Act. This law gave the first generic manufacturer a 180-day window of exclusive rights to sell a generic version after a patent expires. That’s a big deal. During those six months, they’re the only one allowed to sell the generic - no competition.

That exclusivity gave them power. They could set high prices, knowing no one else could enter the market yet. So brand companies started playing a smarter game. Instead of waiting for a generic competitor to come in and take half their sales, they launched their own authorized generic - right alongside the first generic. Suddenly, instead of one competitor, there were two. And now they were competing against each other.

The result? Prices dropped fast. The Federal Trade Commission found that when an authorized generic enters the market at the same time as the first generic, retail prices drop 4% to 8% compared to when no authorized generic is present. For pharmacies buying in bulk, the discount can be even bigger - 7% to 14% lower wholesale prices.

How much cheaper are they really?

The price difference isn’t always dramatic, but it’s consistent. Authorized generics typically cost 4% to 8% less than the brand-name version. That might not sound like much, but on a $500 monthly prescription, that’s $20 to $40 saved every month. Over a year, that’s $240 to $480. For people on fixed incomes or managing chronic conditions, that adds up.

But here’s the catch: the savings aren’t always visible at the pharmacy counter. Pharmacy Benefit Managers (PBMs) - the middlemen who negotiate drug prices for insurance plans - control where drugs are placed on formularies. Sometimes, they put the authorized generic on the same tier as the brand. That means you pay the same copay whether you get the brand or the generic. In that case, you’re not saving anything out of pocket, even though the plan is paying less.

The real savings happen when the PBM puts the authorized generic on a lower cost-sharing tier - the same one as traditional generics. Then you pay less, and the plan pays less. A 2022 study of 1.2 million Medicare Part D patients showed that when authorized generics were placed on the same tier as traditional generics, medication adherence improved by 8.2 percentage points. People were more likely to fill their prescriptions because the cost was lower.

Real-world examples: When the strategy worked

In 2016, Mylan faced public outrage after raising the price of the EpiPen from $100 to $600. To ease backlash, they launched an authorized generic for $300 - exactly half the brand price. It didn’t fix the damage, but it gave patients a cheaper option immediately.

Gilead did something similar with its hepatitis C drugs Harvoni and Epclusa. Before their patents even expired, they released authorized generics. Why? Because they knew cheaper traditional generics were coming. By launching their own version early, they kept customers loyal and captured market share before competitors could grab it.

These aren’t isolated cases. About 67% of brand-name drug manufacturers have used authorized generics for at least one product since 2010. It’s become a standard tool in the industry’s pricing playbook.

How they change the market

Without authorized generics, the first generic company would have a free pass to set high prices during its 180-day exclusivity. Studies show that in those situations, the first generic often charges around 80% of the brand price. That’s still a big drop, but not a massive one.

When an authorized generic enters the market at the same time, everything changes. Now there are two generics competing from day one. That forces the first generic to slash prices quickly to stay competitive. Medicaid data shows that when an authorized generic is present, on-invoice prices - what pharmacies pay to buy the drug - drop by 13% to 18%. That’s a huge swing in a market where margins are already thin.

This effect is strongest in categories where brand loyalty runs deep: heart medications, antidepressants, and asthma inhalers. In those areas, retail prices dropped 6.8% to 7.2% when authorized generics entered. That’s not just a small discount - it’s a market reset.

Are authorized generics the best deal?

They’re not always the cheapest option. Once the 180-day exclusivity period ends, multiple generic manufacturers can enter the market. When four or more companies start making the same drug, prices often drop even further - sometimes by 80% or more compared to the brand.

But here’s the thing: that takes time. It can take months or even years for enough generic manufacturers to enter the market. Authorized generics fill the gap. They’re the first real price drop you’ll see after a brand loses exclusivity.

For patients, the best strategy is simple: ask your pharmacist. If you’re on a brand-name drug, ask if there’s an authorized generic available. If there is, compare the copay. If the authorized generic is on a lower tier, switch. If not, ask your doctor if a traditional generic is an option. Sometimes, the traditional generic will be cheaper than the authorized one - especially if multiple companies are making it.

What’s next for authorized generics?

The Inflation Reduction Act of 2023 capped out-of-pocket drug costs for Medicare beneficiaries at $2,000 per year. That’s good news for seniors. But it also makes cost control even more important for insurers and pharmacy benefit managers. Authorized generics are now a key tool in managing those costs.

Regulators are watching closely. The FTC has raised concerns that some brand companies use authorized generics as part of secret deals to delay cheaper generics from entering the market. These “pay-for-delay” agreements can keep prices high longer than they should. Courts and lawmakers are starting to crack down.

But for now, authorized generics remain one of the most reliable ways to get a brand-name drug at a lower price - without sacrificing quality or safety.

What to do next

If you’re paying for a brand-name drug, here’s what to do:

• Ask your pharmacist: “Is there an authorized generic for this?”
• Check your insurance formulary. Is the authorized generic on a lower tier than the brand?
• If the authorized generic isn’t covered better than the brand, ask your doctor about a traditional generic.
• Compare prices at different pharmacies. Sometimes, cash prices for authorized generics are lower than your insurance copay.

You don’t need to be a pharmacist or a policy expert to save money. You just need to ask the right questions.