Authorized Generics: Good For Everyone (Even Generics)

1
Authorized Generics Good For Everyone (Even
Generics)

• Jerome A. Swindell
• Senior Counsel

2
Not A New Issue

• Innovator firms have been supplying generic
  products for years
• FDA estimates that innovator firms manufacturer
  over 50 of generic products (http//www.fda.gov/c
  der/consumerinfo/generic_info/generics_question_br
  ochure.htm)
• GPhA estimates that 56 of Rx filled by generic
  products
• Thus, only about 28 of Rx filled by product
  manufactured by generic companies

3
Why Do Innovator Firms Supply Generic Marketers?

• It is profitable
• Do not want to shut down production capacity
• Preferable to work with a company that has
  customer contacts and appropriate sales
  organization

4
What Are Generics Complaining About?

• No complaint about presence of AG in post-expiry
  context.
• AG is only one of many possible competitors
• Complaint is about so-called exclusivity period.
• Generics want to be insulated from competition.
• Assert that 5-10 million litigation investment
  entitles them to windfall of hundreds of millions
  of dollars.

5
The Role of Antitrust? - None

• This is a health care policy debate, not an
  antitrust concern.
• No supportable Section 2 theory
• Cases have been easily dismissed
• A few irresponsible commentators have suggested
  predation
• No evidence of below cost pricing
• Antitrust should not adopt new rules without
  sufficient evidence of consumer harm, especially
  where the new rule clearly raises prices

6
Authorized Generics are Good for Patients and
Payers

• No dispute that generic drugs, including
  authorized generics, reduce prices.
  http//www.fda.gov/CDER/ogd/generic_competition.ht
  m Brendt, et al, Authorized Generic Drugs, Price
  Competition and Consumers Welfare
• According to FDA, the greatest price reduction is
  associated with the second generic. See
  http//www.fda.gov/CDER/ogd/generic_competition.ht
  m (analysis of retail data shows that first
  generic priced at 94 of brand price, but second
  generic reduces prices to 52 of brand price).

7
Authorized Generics are Good for Patients and
Payers

• Federal and state governments are large payers.
• Taxpayers benefit from low prices six months
  earlier than otherwise
• Reduces amount of the tax burden needed to pay
  for health care costs
• Commercial payers also save money
• Keep premiums lower.
• Increase coverage.

8
Authorized Generics are Good for Generic
Companies

• Example 1 A generic company may be first on a 5
  10 mg product, but not on the 15 mg. An AG
  deal on the 15 mg will allow the company to offer
  a full complement to its customers.
• Example 2 A generic company may have
  manufacturing difficulties that prevent it from
  launching. The exclusivity period may run out
  even though the generic company has made no sales.

9
Authorized Generics Do Not Inhibit Paragraph IV
Challenges

• Generics already make filing decisions based on
  expectation of price competition, even during
  exclusivity period.
• Multiple first applicants. 21 USC
  355(j)(5)(B)(iv)(II)(bb).
• Unlimited number of firms can share so-called
  exclusivity.
• Each first applicant will bear litigation costs
  with no promise of monopoly profits.
• Different first applicants on different dosage
  strengths.
• Example one firm can be first on the 5mg dosage
  and a different firm can be first on the 10mg
  dosage.
• Firm with 5mg dosage can compete to fill 10mg Rx.
  Thus, 10mg firm will not make monopoly profits,
  absent collusion.
• By competing for 10mg Rx, owner of 5mg will not
  earn monopoly profit unless it can effectively
  segment sales intended for 5mg Rx.

10
Authorized Generics Do Not Inhibit Paragraph IV
Challenges

• Mere existence of subsequent filers suggests that
  patent challenges will not diminish.
• Some drugs experience more than a dozen paragraph
  IV filings.
• Subsequent applicants face same 5-10million
  litigation entry barrier faced by first
  applicant.
• But no prospect of monopoly profits.
• Entry date for subsequent applicants even more
  uncertain.
• Existence of subsequent applicants suggests that
  market is sufficiently profitable to bear
  litigation costs even with prospect of price
  competition.

11
Authorized Generics Do Not Inhibit Paragraph IV
Challenges

• No evidence of inhibition
• Generic firms control the evidence, but have not
  produced anything.
• Some concern that low volume drugs may be
  adversely affected.

12
Health Care Policy Question

• Do we deny consumers price benefit for vast
  amount of drug expenditures in order to preserve
  an incentive to litigate (with no guarantee of
  success) patents relating to very small drugs?

13
The Next Phase Price Cuts Are Per Se Illegal

• Generic market is profitable innovator companies
  want to compete
• If Congress outlaws authorized generics,
  innovator companies will lower prices on branded
  products.
• Recent Best Price legislation makes this decision
  easy
• Already happening
• Merck/Zocor, BMS/Plavix
• Generics and ill-informed legislators now
  complaining about low prices
• Will they seek legislation that prevents
  innovator firms from lowering prices in response
  to competition?