Wacky World of Generics: REMS Edition

Here's a "Catch-22": If the Food & Drug Administration prohibits sale of a drug outside of a tightly controlled restricted distribution program, how on earth is a generic company supposed to obtain supplies of the product to use as a comparator in bioequivalence trials?

If you are Dr. Reddy's, hoping to be first to challenge the patents on the anti-cancer agent Revlimid, you ask nicely. And if you are Celgene, apparently, you answer "no way." That, at least, is how Dr. Reddy's describes the situation in a citizen petition filed with the Food & Drug Administration earlier this month. (We have the full story in "The Pink Sheet" DAILY.)

This petition has all the markings of a test case. The goal is not so much to accelerate a generic challenge to Revlimid (the earliest a generic launch could possibly come is three years from now) but rather to define a process to assure that the new Risk Evaluation & Mitigation Strategies authority given to FDA in 2007 doesn't become a perpetual exclusivity award for sponsors.

The law (known as FDAAA) states unequivocally that restricted distribution programs are not to be used to block or delay generic competition. It's just that, well, it's one thing to say that, another thing to make it so.

Certainly, George Horner--the former CEO of Prestwick Pharmaceuticals--doesn't see any realistic way for generics to compete against products covered by REMS. He told us that in a story on the fascinating development program--and flurry of business development activity--for the Huntington's chorea therapy Xenazine. (You can read all about it in The RPM Report.)

In the petition, Dr. Reddy's is proposing a process that would essentially allow generic manufactures to obtain an authorization from FDA for studies, and then compel manufacturers to provide samples (at market prices) for use in bioequivalence trials. That certainly seems reasonable enough--and we bet (after much regulatory machination) FDA ends up setting a policy along those lines to eliminate the Catch-22 facing Dr. Reddy's.

But that still doesn't address the bigger issue: While it is presumably simple enough to create a bioequivalent version of the active ingredient in Revlimid, is it really possible to create a generic equivalent to the restricted distribution program for the drug? Celgene would argue no. In fact, the company has argued no in the context of the predecessor product--the notorious thalidomide. (Read more about that case here.)

Put another way: does FDA really want to make it simple for dozens of sponsors to launch versions of drugs like thalidomide, when the agency has already determined that the risks of inappropriate use are high enough to merit costly, burdensome post-marketing restrictions? Our hunch: products covered by restricted distribution programs will end up looking more like biotech therapies facing follow-on competition than they will like conventional generic drugs.

And, for now, there isn't even a clear-cut way for generics to begin the process of proving bioequivalence.

The Promised Land For Generic Drugs

Generic drugs are supposed to be ascendant these days. A cost-conscious country is using them more frequently, and Congress seems to be moving down the path towards creating a whole new kind of generic – the follow-on biologic. Prospects for that legislation have considerably improved with bigger Democratic majorities in Congress and the new quantum majority in the White House. But at the same time, the forces that created these positive trend lines also contain elements that could lead to a reversal for generic firms.

For example, the widespread use of generics has allowed many firms to bloom, but manufacturing problems at some of these fast-growing operations threaten to discredit the industry as a whole. And an approval pathway for follow-on biologic could open up new business territory for firms, but to hear some tell, they may not benefit at all since the capital requirements will be too intense. The brand industry, having learned its lesson from the toothless labeling exclusivity in Hatch-Waxman, is hoping to include language in the FOB bill that will give biologic line extensions long lasting protections.

These pressures – along with a broader patent reform debate in Congress and state bills that would limit mandatory substitution – mean that the lobby and policy arms of the generic industry still have to work on overdrive even as the sector seems to have the wind at its back. Because while the generic industry’s presence in Washington has expended along with its sales, a by-product of that very growth, consolidation, now threatens to weaken the sector’s influence.

Barr’s acquisition by Teva means that what were arguably the industry’s two most robust D.C. operations are now squeezing under one roof, and the Generic Pharmaceutical Association will be missing one of its dues paying members. We’re not suggesting that this means that the generics industry is headed for hard times on the Hill, just that it’s going to have to continue to apply the same creativity and gumption that has brought it so much success in its previous battles with the brand industry.

Indeed, the poised, well positioned nature of the generics industry offers a Moses and the Promised Land analogy. Generics stand ready to enjoy some FOB meat and honey, but Barr, the firm that helped lead them there, isn’t going to join them. Barr’s D.C.-based CEO, Bruce Downey, was one of the first in the industry recognize the importance of having an lobbying operation, and, as noted in a recent interview with "The Pink Sheet," Downey was one of the driving forces behind the merger of the three fledgling associations into the current GPhA powerhouse. We’ll leave it up to you, dear readers, to decide whether this means that Henry Grabowski is Jericho.

image by flickr user runako used under a creative commons license

Deals of the Year Nominee: Pfizer/Ranbaxy

Ah, awards season. Why should film critics have all the fun? And voting! It's not just for presidential elections. This year your IN VIVO Blog team is nominating a handful of alliances, acquisitions, financings, regulatory negotiations and legislative compromises in our First Annual DOTY competition. And then you, dear readers, will vote (early and often, we hope) for the winner. Imaginary federal and international biopharmaceutical statutes prohibit us from awarding a monetary prize. But our winners, when they die, on their deathbeds, they will receive total consciousness. So they've got that going for them, which is nice.

In some circles, the event had its own acronym: LLOE – Lipitor Loss of Exclusivity. Now it has a date: Nov. 30, 2011 -- the end of the primary care era for pharma. Think that’s a little extreme? Well, you don’t get to be a Deal of the Year Nominee by playing it safe.

Except in this case you do. While most of the DotYNs you’ve read about here are essentially bets by firms that big ideas will work out in one form or another, this was a tale of two companies not wanting to take a chance. As we explained in the Pink Sheet, the deal gives some certainty to both sides, but what it really offers is closure.

In an era when product expirations – either through the lifting of exclusivity or the weight of safety problems--seem more common than product launches, this deal is an example of how big pharma can try to take its primary care jumbo jets in for soft landings. Protonix’s fall to earth offered a number of lessons for generic and brand firms to learn, and Ranbaxy seems to have gotten some good practice deal-making when it worked out a settlement on Nexium with AstraZeneca.
With the lawsuit behind them, both Ranbaxy and Pfizer can focus on what’s next. For Ranbaxy, it’s resolving manufacturing problems and figuring out how to be a regional growth engine for a big pharma. (The Daiichi/Ranbaxy merger, which may have contributed to the Pfizer settlement, is also a DotYN – vote for them both!)

For Pfizer, the question is how to learn to love being a drug maker again. CEO Jeffery Kindler may not have all the answers to that one yet, but by acknowledging the end of the Lipitor relationship, he’s moving in the right direction. Failing to recognize the seriousness of the problem helped cost the previous management team its jobs, so the decision to sign the divorce papers with the firm’s biggest product perversely takes a weight off the company.

But while the Ranbaxy settlement is a great example of what a company like Pfizer can get when it has a former general counsel as its CEO, that talent for certainty may also be emblematic of what a firm might miss out on. Because while some other new big pharma CEOs have been out trying to gobble up innovative technology or swallow up successful partners, one of the principal development decisions Pfizer has made with Kindler at the helm has been to stop placing bets on cardiovascular research.

But at least the financial community now knows how to model PFE’s LLOE. And so we formally nominate Pfizer/Ranbaxy for achievement in the category of playing it safe.

image by flickr user maxymedia used under a creative commons license.

Wacky World of Generics: Pulmicort Edition

Blockbuster generic entries are starting to look an awful lot like high stakes poker games. If you like risky bets, high stakes, bluffs and misdirections, it's all here. The one big difference: the game usually ends with both players splitting the pot in the form of a settlement, rather than continuing until one player goes bust.

Consider the latest blockbuster generic settlement involving the asthma therapy budesonide (Pulmicort). If ever there was a wild round of Texas hold ‘em, this was it. (In case you missed the drama, “The Pink Sheet” covered it all: here and here.)

First, the players. AstraZeneca, markets Pulmicort Respules, which brings in almost $1 billion in the US each year. Teva, the first to file for approval of a generic version of the product, challenging AZ’s patent on the use of budesonide for asthma that run until 2019.

Teva filed its ANDA in 2005. AZ, naturally, sued to enforce its patents, and almost as naturally, filed a citizen petition urging FDA not to approve the generic without issue a guidance explaining bioquivalence standards for locally acting oral inhalations like budesonide. And so the game began.

The real action only started a couple weeks ago, when FDA rejected AZ’s petition and approved Teva’s generic application.

Once upon a time, no generic company would risk launching until the underlying patent case was resolved. In theory, at least, an “at-risk” launch exposes the generic firm to treble damages, meaning it could have to pay back three times whatever it earns from the launch. Those days are over, thanks to consolidation giving generic companies more resources to at least contemplate facing a large damages award—and, more importantly, an increasing sense that innovator companies would much rather settle than press on to a verdict.

In other words, generics have learned to call the innovator’s bluff.

That, at least, is what Teva did: announcing November 17 that it was shipping the generic. That should not have come as a surprise, since Teva pioneered in using an “at risk” launch strategy with products like Neurontin and Protonix.

Rather than fold, AZ raised the stakes. It announced its own plans to launch an “authorized” generic via an agreement with Par. That too has become standard practice among innovators—though it’s a bit like dealing a third player in halfway through the hand. AZ also filed for a preliminary injunction to halt Teva’s launch.

And AZ got the injunction.

Here’s where things get really interesting. Thanks to the ever evolving series of precedents governing generic launches, Teva’s “at risk” launch was riskier than usual, since, in theory at least, it triggered the company’s exclusivity period for the generic. Those 180 days are precious, basically representing the entire value of challenging a patent. So, in addition to the threat of damages if it lost the patent case, Teva faced the potential of watching its opportunity to profit from a victory slip away, day by day, while litigation continued.

Assuming, of course, that Teva wasn’t bluffing. If Teva really truly launched the generic—shipped it all the way to pharmacies and into the marketplace, the exclusivity clock started ticking. If, on the other hand, Teva announced the launch, took orders, even collected money from potential buyers—but didn’t ship product out of its control—then the clock didn’t start ticking. Teva, naturally, wasn’t about to shed any light on exactly what it did or did not do; would you show your hole cards to an opponent in the middle of the hand?

So the two players stared each other down for a week and then settled. The terms: Teva will launch its generic under license to AZ in December 2009, and pay an undisclosed royalty back to AZ. There will be no other authorized generic allowed. Its liability from the at-risk launch is waived, and product already shipped stays in distribution. (Aha! Teva wasn’t bluffing the launch, apparently.)

Here’s where the poker analogy breaks down. It looks to us like both sides won.

Teva gets six months of generic exclusivity essentially guaranteed. Yes, it has to wait an extra year to cash in, but that is an easy trade to make. Yes, it has to pay a royalty back to AZ, but with a truly exclusive position, that shouldn’t be too big a deal.

For AZ, the settlement buys an extra year of exclusivity for Pulmicort—and removes the uncertainty posed by Teva’s pending challenge. True, AZ faces generic competition long before its use patent on Pulmicort expires, and will end up with only nine years of life on the brand. But the basic budesonide patent has already expired, and pharma companies have not had much success in defending brands protected only by secondary patents. So nine years of exclusivity on Pulmicort isn’t a bad outcome for the company—and it is one more year than AZ had two weeks ago.

Okay, Par lost the opportunity to share in the Pulmicort launch, but it was playing with house money anyway.

Nope. The only ones who can claim to be losers here are the people who buy Pulmicort and think they should be able to get a generic alternative before the end of next year. But they aren’t even players in this game.

Wacky World of Generics: Thalidomide Edition

Even the title has to cause shivers or a good shake of the head. Thalidomide? Generics? The two words don’t belong together: it can’t be possible.

How can thalidomide (the infamous teratogen and source of the crisis that led to the 1962 FDA efficacy amendments) be the source of a debate about generic use? This is not wacky. This should be inconceivable.

But it’s not.

Celgene’s highly successful Thalomid brand of thalidomide, with sales last year just short of $450 million, has passed its tenth year on the market. And it faces a generic challenge from Barr Labs, which has an ANDA pending for the drug’s initial orphan indication, treatment of the cutaneous lesions of erythema nodosum leprosum.

Now, a struggle is developing on the ability of generic companies to replicate the tight risk management program that Celgene developed to make thalidomide a commercial product.

To get Thalomid to the market, Celgene developed a strictly controlled distribution and patient contact /education program called STEPS. The company devotes more than 175 employees to maintain its risk management programs. The program is so important to the commercial use of the product that Celgene has a patent on the program itself.

STEPS may represent a steep barrier to generic copies; at least that is what Celgene hopes. The company has laid out its arguments against FDA approving generics in a petition filed with the agency a year ago: Sept. 20, 2007. (For an anlysis of the Celgene petition, see our coverage in “The Pink Sheet.")

FDA’s eventual decision as to whether the thalidomide risk management program can be copied or mimicked will be of major significance to the entire industry.

As FDA begins to require more risk management programs (now called REMS – Risk Evaluation & Mitigation Systems) as integral parts of NDA approvals, these post-market controls have the potential to significantly lengthen the life of brands.

Or as Celgene pointedly argues to FDA: "In many ways, the survival of the company depends on the successful implementation of its novel restricted distribution plans." Give away its risk management program to another marketer and FDA will give away the core of Celgene’s ability to market thalidomide safely. The company notes that it has successfully prevented patients from experiencing the horrors of the teratogen. If another company is distributing the ingredient less carefully, it would hurt the public, the drug industry and Celgene’s brand.

But FDA was specifically instructed in the FDA Amendments Act (passed a year ago in September 2007) to prevent companies from using REMS as barriers to generic competition. Something is going to have to give.

The decision on STEPS will be one of the important early precedents arising from FDAAA. It is significant that Celgene used ex-FDA general counsel Dan Troy to craft its arguments to protect STEPS and Thalomid.

Not only is Troy a prominent figure on the issue of FDA’s ability to control industry marketing practices, he has also recently become the general counsel of GlaxoSmithKline – assuring that the issue of the value of REMS as a way to block generics will get the attention of at least one other major pharma player. Indeed, GSK has been--by accident if not design--one of the most active early players in shaping how the REMS authority will be used, having already agreed to three programs for its new products, and with a fourth pending for Promacta.

In the wacky future world of generics, companies will have to learn how to replicate post-marketing control programs as well as how to replicate the chemical structures. The safety programs may turn out to be harder to copy.

Wacky World of Generics: Timing Is Everything Edition

The best fighters learn from their opponents, and whatever else you may think about generic drug firms, there is no denying they are accomplished bruisers.

So it should come as little surprise that after years of being in the crosshairs of citizen petitions filed by brand firms, generic companies are starting to pull the trigger on some petitions themselves.

Some things haven’t changed, though: the targets of petitions are still generic companies and the beneficiaries are still brand firms, since delays always help them.

The most recent example of generic-on-generic petitioning resolved by FDA is Cobalt’s failed attempt to become the only generic of acarbose (Bayer’s diabetes treatment Precose). Cobalt had made regulatory arguments that it deserved 180-day exclusivity and scientific arguments that other ANDAs needed additional tests. FDA rejected them both, and Cobalt has now launched alongside a generic from Roxane.


Cobalt was the first-to-file ANDA applicant and so had the inside track to get generic exclusivity, but it forfeited the prize in part because it failed to gain approval within 30 months. First-to-file exclusivity is critical to the profit stream for generic firms and it is no small penalty for an applicant to lose it. In this case, Cobalt did not get approval in time, perhaps due to shortcomings in its application, which FDA had initially refused to accept.

Any instance where a first filer loses the all-important exclusivity is big news for the generic industry, so the Precose fight is an important precedent for other applicants. Given the negative outcome for Cobalt, the incident raises the question of how much haste firms should use in submitting their ANDAs to FDA. Usually there is an all-out race to be first-to-file to claim exclusivity. In this case, second-to-file turned out to be good enough. (Subscribers to the Pink Sheet can read the full story here.)


The episode also shows how a generic firm – in this case Roxane – can use knowledge of FDA’s regulatory clock to get to market as soon as possible.

Among the provisions of the massive FDA bill passed last year is one designed to curb abusive citizen petitions. The new law says petitions cannot delay approvals unless FDA determines there’s a public health justification, and even then, the agency only has 180 days to decide the issue in question.

Roxane correctly predicted how FDA would apply the law in this case at least. Roxane’s lawyer, Zuckerman Spaeder partner Bill Schultz, explains that, “because there was a very good chance that” six months after Cobalt filed its petition would be “exactly when FDA was going to approve the product … Roxane, anyway, was completely ready to go on the day the 180 day deadline expired.”

Schultz clearly doesn’t think much of Cobalt’s bioequivalency arguments. The case, he says, “raises issues about...how the citizen’s petition provisions can work." The question, Schultz says, is "whether FDA is implementing this public health provision" of the new law "responsibly, or whether they’re just invoking it every time.”

But that is a fight for another day.

M. Nielsen Hobbs

The Wacky World of Generics: Trade Secret Misappropriation Edition

Hollywood has been scraping the bottom of the comic-book barrel (excuse me – graphic novels) for blockbuster scripts of late. To stand apart from the crowds, all of you aspiring script writers out there, heed the advice from Jack Moseley in 1992’s The Cutting Edge: “Then you find another barrel.” May we suggest the pharmaceutical industry?

A recent FDA decision on a seemingly routine generic drug approval led far down the rabbit hole, leading us to a case with all of the twists and turns of a great film noir.

But first, background on the agency decision.

On April 11, 2008, FDA approved Spear Pharmaceuticals’ abbreviated new drug application for a generic version of Efudex Cream 5%, Valeant’s topical fluorouracil cream indicated for treatment of (1) multiple actinic or solar keratoses; and (2) superficial basal cell carcinoma when conventional methods are impractical.

The patents for the cream expired decades ago, but nary an ANDA has been filed until Spear submitted theirs in January 2005. Valeant, though, objected to the approval and filed a citizen petition urging the agency to reject the application, claiming that the generic should not be approved based on bioequivalence studies conducted solely for the actinic keratosis indication.

FDA denied the petition on the same day it approved Spear’s ANDA. Center for Drug Evaluation & Research Director Janet Woodcock explained that the single clinical trial was sufficient to demonstrate bioequivalence in both indications.

Valeant filed suit against the agency in U.S. District Court April 25, seeking to overturn the ANDA approval.

A Generic Vanishes

These days, there is no surprise in a brand company suing to block a generic. The surprising move came on May 14, when FDA issued an “Administrative Reconsideration and Stay of Action,” saying it is in fact rethinking approval of the Spear ANDA “because there are outstanding questions regarding this approval that the agency must consider.” The notice formally pushes back a decision on the ANDA until May 30.

In other words, the ANDA isn’t exactly approved after all. At least not yet. (Spear explains the situation a bit differently in a press release issued today. If you scroll down to the bottom you will see that the company has "voluntarily agreed not to ship additional product until the end of May, at which time we fully expect that the FDA will resolve its administrative issues." UPDATE: Despite what we originally noted here, Spear did begin shipping product on April 11, but voluntarily halted thereafter.)

Legal challenges to ANDA approvals are usually short-lived and vigorously fought by the agency – witness GlaxoSmithKline’s attempt to block Roxane’s generic version of GSK’s Flonase, or King’s challenge over its hypothyroid drug Levoxyl. But in this case, the agency seems to be giving more specific consideration to the concerns raised by the brand company over its ANDA approval standards.

And the stakes in this case are potentially quite high. As we explain in an article published in “The Pink Sheet,” FDA’s final decision on how to handle the issues raised by Valeant will have implications for plenty of other generic applicants—and, potentially, for the future development of approval standards for follow-on biologics.

The Jilted Suitor

Interesting and perhaps precedent-setting, yes. The next Martin Scorsese film, no. But the plot thickens.

Spear alleges that Valeant’s citizen petition was an ‘insider job’ that should never have been considered by FDA in the first place. Spear makes those claims in a federal civil suit in December 2007 against Valeant and investment firm William Blair asserting breach of contract, trade secret misappropriation and more.

In court documents, Spear describes a story of betrayal by a financial advisor. You can read all about it here.

In a nutshell, Spear claims that Willaim Blair (and in particular the banker’s VP Brian Scullion) tipped Valeant off to the generic firms’ plans regarding Efudex.

The timing is certainly suspicious. Spear began developing the Efudex generic around February 1999, working out with FDA a plan to ensure their bioequivalence trials would be sufficient for approval for both indications.

Five years later, Spear decided to explore selling one of its other generic product lines (tretinoin, Johnson & Johnson’s Retin-A) and consulted William Blair VP Brian Scullion. After signing a confidentiality agreement, Spear says it disclosed trade secrets (including the continuing development of generic Efudex) to Scullion. Spear also mentioned the plan to file an ANDA for Efudex in November 2004.

One of the potential parties interested in the tretinoin line was Valeant. After looking over the tretinoin deal, the firm declined the opportunity in October 2004. Then, on Dec. 21, 2004, Valeant filed the citizen’s petition requesting that FDA require a generic applicant seeking approval for a version of Efudex conduct trials in both indications. Eight days later, Valeant notified Blair that it was interested in the tretinoin line after all—which Spear says came too late because negotiations were under way with another partner.

On Jan. 3, 2005, Spear filed the Efudex ANDA. When the company called FDA April 19 to check on the application’s status, the agency informed them of Valeant’s citizen petition. The news, Spear said, “was a shock.”

“The timing … was not coincidental,” Spear says. “It was reflective of the confidential information that had been improperly leaked … The specificity of the requested relief reflects that Valeant learned not only of Plaintiffs’ confidential information with respect to Plaintiffs’ plan for filing an ANDA, but also the precise nature of the clinical trial they had conducted.”

The missing link? According to Spear, Brian Scullion. Although he told Spear he was not engaged to advise or represent any interested parties during the initial tretinoin exploration, William Blair had an investment banking relationship with Valeant and held over $1.7 million in Valeant stock as of Sept. 30, 2004.

Then, to really drive the last nail in the coffin, a generic manufacturer named Oceanside Pharmaceuticals launched a a generic of Efudex Cream 5% in December 2006. How did Oceanside beat Spear to market? It launched an “authorized” generic under license from Valeant. Authorized generics are also routine these days, but—as Spears points out—this was an unusual move given that Valeant theoretically had no reason to anticipate any generic competition to Efudex.

Spear is asking for $125 million in compensatory damages plus punitive damages and other relief, to be determined at a trial.

Neither John Malkovich nor Edward Norton have returned our calls for the role of Scullion – maybe if we can cast Scarlett Johansson or Natalie Portman in the part of Woodcock, they’ll call back…

Becky Jungbauer

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.

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?

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.