Authorized generics agreements – last ditch effort on part of branded pharma

30-Jul-2009 - United Kingdom

As pay-for-delay agreements look to be on the way out of the pharmaceutical industry in Europe and the US, a new report by independent market analyst Datamonitor forecasts that the number of authorized generics (AG) agreements will grow, in tandem with the increasing convergence between branded and generics companies. Competitive pressures in the US and Europe have radically altered the brand-generic dynamic, to the extent that the line between the two is beginning to blur, with AG agreements one outcome of these developments. The growing trend for branded companies – notably GlaxoSmithKline, Sanofi-Aventis, and Pfizer, to bolster their generics presence also means that the strategy of fielding own-generics will gain traction.

Authorized generics in Europe and the US – same drivers, different impacts

Authorized generic agreements, the strategy by which branded companies market generic versions of their own branded drugs, provide innovators with a means of capitalizing upon the generic erosion of their own brands, thereby maximizing revenue streams from a mature product. Authorized generics are therefore something of a very late-stage drug lifecycle management strategy for branded pharma. The generics industry is more divided on the issue. For those companies with the wherewithal to aggressively challenge patents and get to market early, AGs are a considerable irritant. However, for smaller players these agreements represent a valuable competitive advantage, and this is more true in the US than Europe.

Due to their sale during the 180-day period of market exclusivity awarded to first-to-file generics companies in the US, AGs are considerably more potent in the American market. The increasing use of AGs as a ‘bargaining chip’ in reverse payment agreements in the US (but not Europe) underlines their greater impact. Indeed, there have been calls from some in the generics industry in the US for the so-called ‘Hatch-Waxman loop-hole’ to be closed to prevent AG sale during the 180-day market exclusivity period says Datamonitor healthcare strategy analyst Pam Narang. “Detractors insist that AG sale at this time is anticompetitive and a deterrent to early generics entry. However, given the accelerated price erosion that characterizes AG sale during the 180-days of market exclusivity, an outright ban is unlikely in the short-term,” she says.

Own-authorized generics offer the best option for branded pharma

All AG agreements involve a branded drug- and generics partner. In the event that the branded company has a generics subsidiary the identity of the generics partner is often a foregone conclusion. Such ‘own-AGs’ allow the branded company to retain all revenues derived from AG sales rather than just a fraction, as is the case when the generics partner is external. Therefore, own-AGs represent the best-case scenario for branded companies looking to market an AG, Ms. Narang says. “This is supported by Datamonitor’s analysis, which found that the proportion of own-AGs was over-represented in the dataset under investigation.”

Datamonitor analyzed 40 AG launches that occurred in the US between 2004 and 2008. Although only a third of the 14 branded companies under investigation had the opportunity to market an own-AG, these constituted 45% of all AG launches. Moreover, not only was Pfizer the most frequent branded partner involved in own-AG launches, but the company was also the most common branded partner in all AG agreements analyzed, involved in 30% of all AG launches.

The most lucrative therapy classes were the most popular targets for authorized generic launch

Authorized generic launches for branded drugs belonging to the cardiovascular (CVD), infectious disease (ID), and central nervous system (CNS) disorder classes were collectively responsible for most (60%) of the AG launches under analysis. Unsurprisingly, these three therapy areas represent the top three classes in terms of pre-generic quarterly sales in the US, totaling $6 billion in all. This supports the idea that companies will defend their most lucrative brands – the blockbusters – with the greatest vigor, with AG launch forming a part of this arsenal.

The average peak AG market share for these three disease classes ranged from 43% for CNS brands to 50% for ID brands. While AGs for CVD and ID brands lost considerable market share in the two years post-launch, those for CNS drugs dropped just one percent on average. The relative stability of CNS AG market share is due to the limited number of generic competitors entering the market for a number of brands within this group, Ms. Narang says. “Indeed the extent to which an AG is able to capture and retain generic market share is often correlated with the number of bone fide generic entrants with which it must compete.”

Datamonitor found that the highest value brands were associated with the greatest number of generic entrants following loss of patent protection. Brands with sales in excess of $600 million in the quarter prior to generic entry experienced an average of 14 and 19 competitors at one and two years post generics launch, respectively (not including the AG). It is therefore unsurprising that the average proportion of the generics market captured by AGs for this group of drugs was one of the lowest observed, at only 36%, when products were grouped by value.

Authorized generics are here to stay, for now

A slowdown in the number of new drugs reaching the market coupled to delays to generics entry, has spurred regulators in both Europe and the US to look more closely at the way Pharma does business. While the Federal Trade Commission (FTC) has ramped up efforts to police pay for delay deals more vigorously in the US, the European Commission’s long awaited antitrust report also highlights potential collusion between branded and generics companies, Ms. Narang says. “Although the issue of AGs has come under scrutiny across the board, there have yet to be any definitive conclusions regarding their anticompetitive nature.

“Moreover, the FTC’s recent AG report actually implies that AGs are pro-consumer, due to their impact on generic price. Notwithstanding the lobbying efforts of some of the larger generics companies, therefore, AGs look to remain a fixture in the battle between branded and generics pharma in the short-term,” she says. Ends

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