The Wacky World of Generics: Risperdal Edition

They don't call them atypical antipsychotics for nothing.

Here are two things that keep Big Pharma CEOs up at night: (1) the growing power of payors—actively encouraged by the Medicare program—to drive therapeutic substitution in blockbuster product classes; and (2) the potential for government run comparative effectiveness studies to undermine the market position of newer medicines.

However, if two of the biggest players in the atypical antipsychotic market are to be believed, the impact of the first major patent expiration in that class will stand those fears on their head.

Johnson & Johnson’s risperidone (Risperdal) goes off-patent in June and generics are lining up to enter the market. That will clearly be a big hit for J&J to absorb: Risperdal sales in the US were about $2 billion in 2007.

In other blockbuster classes, a major patent expiration has meant big headaches for other brands in the class. Think of how Lipitor has seen its market share erode and discounts soar since Zocor went generic.

So Lilly’s $2.2 billion olanzapine (Zyprexa) and AstraZeneca’s nearly $3 billion quetiapine (Seroquel) are in big trouble, right?

Not so, say those two companies.

First off, the Medicare program’s overall generics-first emphasis is more than offset by the Centers for Medicare & Medicaid Services requirements that managed care plans cover all products in the atypical antipsychotic class (and five other protected classes). So plans will be free to switch Risperdal patients to the generic, but will find it difficult if not impossible to drive therapeutic substitution from other brands, as we wrote here.

Or, as AZ CEO David Brennan put it during the company’s January 31 earnings call, “the antipsychotic market is quite unique. A product is a product. There is not a history of therapeutic substitution in that area, and we expect to continue to grow our Seroquel franchise.”

Lilly CEO-designate John Lechleiter took it one step farther, telling investors during a January 29 earnings call that Lilly plans to “retain the broadest possible access for Zyprexa” by emphasizing the “superior efficacy evident in CATIE the longer the duration of therapy.”

You remember CATIE, right? That is the government run comparative trial completed in 2005, with headlines at the time declaring it showed that older off-patent antipsychotics are just as good as the atypicals.

That interpretation, needless to say, has not won out in the marketplace, since Lilly, AstraZeneca and the other companies in the market astutely anticipated the negative headlines and worked diligently to develop alternative interpretations.

How successful were they? Well, less than three years later Lilly will be using CATIE to help support continued use of Zyprexa over a generic from the atypical class itself.

And there is nothing typical about that.

Read More

The Wacky World of Generics: Fosamax Edition

Today, Merck bids a fond farewell to its Fosamax franchise, as the first generic versions enter the market.

Three generic firms are entering the market: Barr and Teva with approved ANDAs, and Watson with an "authorized" generic supplied by Merck. Next up will be generic versions of the Fosamax D formulation (expected in April) and then numerous additional generics in August when the 180-day generic exclusivity period awarded to Barr and Teva expires.

Authorized generic launches are hardly surprising anymore, as brand firms are committed to maximizing the value of their brands through the patent expiry period. What is surprising is the unusual lengths Merck went to to give Fosamax a send-off in style.

The company ran a promotional campaign in the final months before patent expiration highlighting the upcoming Fosamax generic launches, and even created a website called GoingGeneric.com to promote Fosamax. Merck drove traffic to the site via links on its main Fosamax website as well as through a "multi-channel physician campaign" that included direct mail and journal ads.

We would love to show you the site, which featured a neat animated video of a Fosamax patient on the beach, but Merck has taken it down. The site "served its purpose," a spokesman says. Here is Google's cached version of the page, which has no graphics but at least shows the basic messages Merck was pushing.

The overall theme: Fosamax allows patients to "Save Now and Save Later." In other words, starting new patients on Fosamax rather than a competitor like Boniva or Actonel meant lower copays right away (since most managed care plans had Fosamax on tier 2) and then even lower copays now that generics are available.

In other words, Merck did everything in its power to build a bigger market for the generics that launched today.

What's going on here? Does anyone else remember the good old days when Big Pharma companies would simply shift resources away from brands in their final quarters of exclusivity, jack up the price, and concentrate on new products?

Well, those days are obviously over. "Maximizing the value of the brand" (or, perhaps, milking every drop from a cash cow) is critical business for big pharma at a time when new product launches have slowed to a trickle and cost cutting is the order of the day. At a time when hitting profit targets is a quarter to quarter war of attrition, every penny counts.

That is why Merck not only ran the campaign, but also highlighted it to investors during its December 4 analysts day. "We are prepared for a number of different potential scenarios to insure that we maximize the value of the Fosamax franchise," CFO Peter Kellogg said, and then discussed GoingGeneric.com as an example.

Merck says it expects Fosamax revenues in the range of $1.1 billion to $1.4 billion worldwide in 2008 (down from $3 billion in 2007). That's a big drop no matter what, but the difference between the high and low ends of the range is $300 million. You can bet Merck would love to have that in revenues rather than make it up in job cuts or other efficiency initiatives.

So, if the going generic campaign helped drive higher brand sales in the first six weeks of the year (and then higher sales of the authorized generic during the spring and summer) it would be a big deal for Merck.

Did it work? Its hard to say. Fosamax revenues increased 1% in the fourth quarter to $522 million. That is not exactly spectacular growth, but it reversed a downward trend in sales throughout the year, and helped Merck hit its goal of $3 billion in global revenue for the brand in 2007.

During Merck's fourth quarter call in January, Kellogg credited Fosamax's strong showing to its favorable formulary position in anticipation of generic entry, but did not specifically comment on whether the Going Generic campaign made a difference. And a Merck spokesman declined to provide any additional details about the performance of the campaign, saying the company didn't want to share any lessons learned with the competition.

Whether or not the campaign itself worked, the idea is here to stay. In today's world, Big Pharma has not choice but to drive sales growth of all its brands through every means possible--even if it means building up the market for its generic competitors.

That may be a sign of desperation for Merck, but it is a nice treat for Barr and Teva who unequivocally benefit from anything Merck did to increase the size of the Fosamax market over the past few months.

Our only question: when will Teva and Barr be launching GoneGeneric.com?

Read More

The Wacky World of Generics: Protonix Edition

Here is a headscratcher.

Wyeth decided January 30 to launch an authorized generic version of its blockbuster proton pump inhibitor pantoprazole (Protonix). The launch comes a month after generic manufacturer Teva shocked Wyeth by launching its own version at risk. Teva quickly halted shipments under a standstill agreement with Wyeth, and the company's investors assumed (prayed?) that a settlement would follow.

Apparently not. Wyeth decided to launch its own generic under a license to Prasco (more on them later). The announcement came the day before the standstill agreement with Teva was set to expire.

Wyeth's announcement was followed by a generic launch from a third company, Sun Pharmaceuticals, which under the complex rules governing these things shares six-months of generic exclusivity with Teva. Sun had not launched previously, presumably since it feared the potential for steep damages should it eventually lose the underlying patent litigation.

However, with two prior launches (Teva's in December and Wyeth/Prasco's the day before), Sun decided to take the chance.

And then Teva announced that it has no plans to relaunch its own.

Huh?

Did Wyeth really just finish off its biggest brand in response to a non-existent threat that Teva would re-enter the market for good? And why on earth is Teva sitting back and watching one of the biggest generic opportunities in history wither away?

Welcome to the wacky world of generics.

Believe it or not, there is a way in which this bizarre series of circumstances might make sense for all the players involved.

Bernstein Research's Ronny Gal and Tim Anderson suggested one possibility in a note sent Friday. Teva's decision not to launch reflects the fact that it already has significant inventory in the trade, so it has nothing to gain from contributing to a price war that would affect the selling price it can realize on the product already in distribution. And, by waiting until after Sun enters the market this time, Teva further minimizes the potential size of any damages it might owe down the road if it loses the underlying case.

If that is the case, expect Teva to launch sometime in the next quarter or so, once trade inventories of its product are depleted and it can come in at a new, more deeply discounted price.

There is another option, the Bernstein analysts say: that Teva gambled and lost. The at-risk launch was a bad gamble by Teva, intended to extort a settlement from Wyeth in litigation the generic company believes it will lose. In that case, Wyeth is calling Teva's bluff and will ultimately prevail in court, recouping at least some of its losses on the generic.

In theory, Teva could be on the hook for treble damages. However, because Wyeth has already lost a preliminary injunction ruling in the case, it is extremely unlikely that it would be awarded any damages above the actual losses incurred to Teva's product.

Bernstein believes Wyeth is pursuing the right course in either case: it is impossible to put the genie back in the bottle now that Teva's product is in distribution, and an authorized generic launch helps Wyeth hold on to a bigger share of pantoprozole revenues for longer. If the company wins the litigation and gets a bit more money back, so much the better.

The big winners in all this, however, are not the battling companies. Instead, they are the payors who will probably reap the biggest benefit, as generic competition in the PPI class intensifies. With Protonix once a $2.5 billion brand, there is plenty of savings to be had. But the opportunity is even bigger since it is sure to increase pressure on AstraZeneca to further discount esomeprazole (Nexium).

In fact, that pressure may already be showing. AZ reported last week that Nexium experienced a net price decline of about 8% in the US last year--but that came almost entirely in the fourth quarter. The company said US sales of the brand fell 18% in the last three months of the year, despite about a 2% increase in volume. Yes, its discounts really are that deep and getting deeper.

Oh, and then there is Prasco. In case you've never heard of them, they are a relatively new start-up (formed in 2002) by former Duramed CEO Thomas Arington to focus on--you guessed it--authorized generics. Duramed, incidentally, once took on Wyeth over the course of a decade in an unsuccessful battle to market a generic version of conjugated estrogens (Premarin).

If you can't beat 'em, join 'em.

Read More