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/cder/consumerinfo/generic_info/generics_question_brochure.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.htm; Brendt, et al, Authorized Generic Drugs, Price Competition and Consumers’ Welfare • According to FDA, the greatest price reduction is associated with the second generic. Seehttp://www.fda.gov/CDER/ogd/generic_competition.htm; (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?