The arrangement clearly benefited Par. Apotex, by contrast, was forced to share what could have been a period of exclusivity.
Not surprisingly, manufacturers in Apotex's position have objected to these arrangements. To date this year, generics companies
have filed four citizen's petitions with FDA regarding authorized generics, all of which were rejected. In its most recent
ruling, FDA stated that the entry of authorized generics and the resulting lower drug prices benefit US consumers. This situation
will continue to evolve but regulatory sentiment at this time favors the benefit to consumers over any losses of generic exclusivity.
As for GlaxoSmithKline, depending on the terms of its contract with Par, the authorized generic appears to give GSK a royalty
stream from generic paroxetine that will supplement the postexpiration brand revenues from Paxil. But are there circumstances
in which the loss of revenue from the brand name drug would outweigh the royalty stream from the authorized generic? Consider
two hypothetical cases. Product A represents a fast-eroding blockbuster, while Product B is a comparably sized but slower-eroding
product attracting fewer generics. Both would benefit from the royalty stream of an authorized generic. (See "Authorize or
Defend?".) Product B's royalty stream, however, would be higher because of the presence of fewer generic companies. But managers
must also evaluate incremental erosion of the brand revenue. In a case in which many generics will enter and the branded drug
share will erode quickly (A), the addition of one more generic—the authorized one—will not typically erode the brand revenue
much further. In this case, an authorized generic is likely to be financially favorable.
Authorize or Defend? Product A: Fast Erosion Brand, Product B: Slow Erosion Brand
Product B illustrates a more complicated dynamic. In this case, (with fewer generics and slower erosion) the authorized generic
materially affects brand sales. The additional generic and the greater generic price erosion have the effect of increasing
total generic share at the expense of the brand. In such circumstances, it may take substantially longer for the authorized
generic deal to break even for the brand owner. Or, depending on the contract terms, it may not be worthwhile. In addition,
in cases where an authorized generic is warranted, the most effective brand pricing strategy is likely to involve maintaining
or increasing the price.
Before striking an authorized generic deal, companies must take into account all the circumstances surrounding the patent
expiration. Following are the three most important factors that will lead to the success of an authorized generic:
- The product has a predominance of attributes associated with fast erosion.
- The product and market are substantial and possess characteristics likely to attract multiple generic entrants.
- The product is able to attract a strong generic licensing partner.
Support the Brand or Not?
In addition to deciding whether to participate in the generic arena, the innovative company must also decide whether to
continue investing in the brand. Although the historical norm—and likely the right answer for many products—has been to withdraw
all investment from brands at or before the patent expiration time, the decision should be carefully considered. When there
are product and class attributes that correlate with high share retention, some amount of continued investment may be warranted.
The case of Fisons' Intal provides one example in which continued investment was likely merited. Intal is a mast cell stabilizer
used primarily for asthma. The delivery mechanism was not a widely diffused technology at the time (1995), and relatively
few companies were able to reproduce the product. The first generic entrant did not use an identical delivery technology,
and Fisons invested in communicating these differences. Intal maintained more than 40 percent share 12 months after patent
expiration and, as late as 2000, it was still generating significant revenue.
There are other examples of manufacturers successfully differentiating and maintaining a branded product after patent expiration.
Coumadin is a well-known example. Armed with several intrinsic attributes associated with share retention (mortality risk,
dosing concerns, few prescribers) and supported by studies, DuPont, and then BMS, continued to promote the product and communicate
the data to agencies and payers. Although such circumstances are relatively rare, there will be more cases in years to come,
particularly as biologics lose exclusivity.
In the arena of more typical products, the question is likely to be whether any form of investment, such as a small study
on therapeutic equivalence, should be undertaken. For example, if a delay with a planned follow-on creates a substantial gap
between the original product's expiration and the launch of its successor, the brand owner needs to consider the merits of
remaining engaged in the category during that period.