More Attributes=More Share

As with the share impact, the pattern of generic prices after patent expiration can be predicted as a function of the compound's product and class attributes. In response, brand managers can adjust brand prices, and the choices made for brands have varied widely. Two obvious strategies are: (1) follow the generic price (downward) and attempt to retain share through existing relationships with distributors and possibly through rebates to selected managed care plans; or (2) maintain or increase price while share erodes by maintaining margin on remaining sales. Evidence suggests that although brand price can affect market share after patent expiration for products with retention attributes, for others the relationship is weaker, and pricing at parity with the generics to retain share can backfire. Such was the case with Eli Lilly's heart failure therapy Dobutrex (dobutamine), which dropped its price in an attempt to retain share but instead lost as much share as would be expected with a steady price.

Another important factor to consider is the interaction of generics with other brands and other therapeutic classes. Generics often expand a molecule's share of the class by drawing market share from other brand-name agents in the class or by drawing new, untreated patients to the class. Generics also may expand the class share of a broader therapeutic category. For example, generic ACE-inhibitors could expand the ACE-inhibitor share of the antihypertensive category. Knowing the degree to which a generic entrant could expand the molecule or class, versus gaining share from the brand, is essential to determining brand potential. Analyzing data from prior patent expirations by looking only at the share of molecule can result in underestimating the brand's true potential.

The authorized generic is a recent development that is generating some debate. It is negotiated when the manufacturer of a drug nearing patent expiry contracts with a generic company to sell an "authorized" version of the molecule, in some cases actually supplying the product to the generic company. Particularly in those instances in which a legal challenge (under paragraph IV of the Hatch-Waxman Act) creates the potential for the first generic to enjoy a 180-day exclusivity period, brand owners have begun to use this "join rather than fight" approach.

In recent months, several brand-name pharma companies, including Bristol-Myers Squibb, GlaxoSmithKline, Johnson & Johnson, and Pfizer, have drawn a great deal of attention for their launched or planned authorized generics. While regulatory opinion still evolves and long-term results have yet to be observed, evaluation of an early case offers useful insights.

GlaxoSmithKline contracted with Par to sell a generic version of Paxil (paroxetine). In September 2003, Par launched its generic simultaneously in the market with a generic from Apotex, the company that had challenged GSK's patent under paragraph IV and been awarded a 180-day exclusivity period. By launching concurrently with Apotex, Par gained access to the higher generic prices of the first 180 days, although its presence may have pushed the prevailing generic price lower than it would have been if Apotex's version had been alone during that period. In addition, Par gained the opportunity to establish contracts and distribution with pharmacies that could help it sustain share after other generics entered the market.