M&A Deals of the Year Nominee: Watson/Actavis

It's time for the IN VIVO Blog's Fifth Annual Deal of the Year! competition. This year we're once again presenting awards in three categories to highlight the most interesting and creative deal making solutions of the year. The categories are: M&A Deal of the Year, Alliance Deal of the Year, and Exit/Financing Deal of the Year. We'll supply the nominations (a half dozen in each category throughout December) and you, the voting public, will decide the winners (by voting early and often, commencing once we've announced all the nominees). Strap yourselves in, it's The Race for the Roger™.

At first glance, Watson Pharmaceuticals Inc.’s $5.6 billion acquisition of Switzerland-based Actavis Group seems run of the mill – a big generics player buys another big generics company, continuing a consolidation trend in the sector.

But the deal, announced April 25, 2012, is far more than that. It is the culmination of more than a decade of work that has seen once provincial US generics industry become globally integrated – and Watson’s story in particular shows how hard yet crucial that evolution has been.

The deal comes in the nick of time, coming off a lucrative year for generics companies overall, and Watson in particular. The sector benefited from a record-breaking number of high-value patent expirations, and Watson gained even more from its multi-billion-dollar semi-exclusivity opportunity for generic atorvastatin. 2013 and beyond isn’t going to be as easy, as generics companies begin to face a new era, commonly referred to as a ‘reverse’ patent cliff.

The problem isn’t of course unexpected – one can detect a dearth of patent expirations for innovative brands years in advance, and the generics industry is historically cyclical. But shifting the business model away from one that is heavily reliant on commodity generics to one that embraces more differentiated, higher margin products has been extremely tough, even for the best capitalized generics companies.

Watson itself recognized the problem years ago and tried to diversify both through in licensing innovative drugs and geographic expansion, but early efforts met limited success. It was not alone - chief competitors such as Mylan Inc., Teva Pharmaceutical Industries Ltd. and Ranbaxy Pharmaceuticals Inc. – also stumbled in serious ways.

The odds of success rose moderately with the arrival in August 2008 of CEO Paul Bisaro, a former president of Barr Laboratories Inc., which Teva bought in that same year. In fact, Watson was able to do the Actavis deal because Bisaro brought in seasoned management, in this case Sigurdur Oli Olafsson, the former CEO of Actavis. Olafsson, from within Watson, helped guide the purchase of Actavis and subsequent post-M&A planning. He will now serve as the amalgamated group’s president for global generics where his intimate knowledge of both Watson and Actavis will prove invaluable.

And the rough-and-tumble story has implications for the much larger branded business, as it looks to buttress its core business through diversification, albeit coming at the opportunities from the opposite end of the spectrum.

Underscoring the need to go global and reinvent itself, Watson will change its name to Actavis from 2013.

Bisaro believes the name change is necessary because too many other companies named Watson exist worldwide. “We couldn’t protect the name in markets around the world,” he said. “We will adopt the Actavis name, which is well-known and respected both inside and outside the United States.”

--Wendy Diller and Sten Stovall
art via clker

Provigil Generics Saga Is Certainly Stimulating

And we thought the launch of Lipitor generics involved some complicated issues…

When Teva Pharmaceutical Co. Ltd. announced on March 30 the launch of an authorized generic of its Cephalon subsidiary’s wakefulness drug Provigil (modafinil), we were surprised.

We, like most of the free world, believed that modafinil generics would not be primed to enter the U.S. market until April 6 – the entry date that several companies (including Teva USA, Mylan Pharmaceuticals, and Ranbaxy Laboratories) had agreed to under years-ago patent settlements with Cephalon. Plus, we knew Par Pharmaceutical would be a player as well, thanks to the Federal Trade Commission’s requirement that Teva supply Par with generic modafinil tablets for at least one year, with market entry no later than April 6.

Teva Ltd.’s authorized generic announcement seemed to be an attempt to capitalize on its new ownership of Cephalon, giving it a one-week jump on other modafinil generics. We figured that the other ANDA filers, who were expected to share in 180-day marketing exclusivity, were probably none too pleased with Teva’s move. Probably neither was the FTC, which already had concerns about Teva/Cephalon having too much control over the modafinil marketplace.

But our surprise then was nothing compared to the reaction when we heard that Teva USA alone had been awarded 180-day marketing exclusivity on modafinil.

Huh?

FDA’s determination that Teva, as the first ANDA filer to certify against each of two Cephalon patents, was the sole holder of 180-day rights left us befuddled. Others, apparently, were just mad.

Case in point: Mylan – which promptly sued FDA challenging the exclusivity decision.

Also hopping mad was FTC. In an amicus brief filed in Mylan’s lawsuit, FTC said that had it known at the time Teva Ltd. bought Cephalon last year that Teva USA would have sole exclusivity rights for modafinil, it would have sought stronger remedies beyond merely requiring the generic manufacturer to enter into a supply agreement with Par.

FTC was quick to say that it takes no position on FDA’s interpretation and application of the Hatch-Waxman Amendments and governing regulations. Nevertheless, FTC’s assertion that FDA’s exclusivity decision “eviscerates the competitive incentives” in Hatch-Waxman is a pretty clear indication of what the commission thinks about its sister agency’s decision.

We’re looking forward to some interesting oral arguments Wednesday in a D.C. federal court on Mylan’s request for a preliminary injunction. In the interim, however, we’ve been mulling the whole Provigil mess and have come up with more questions than answers (that is, after all, what we do best).

So, lump these into the category of “Things We’d Like To Know”:

1. When did Teva USA realize it was the first to file on both Cephalon patents?

In a filing in its own lawsuit against FDA (subsequently dismissed), Teva USA said it was unaware that it was the first filer against both patents “until recently, after Teva Limited acquired Cephalon and corporate affiliates Teva USA and Cephalon were able to share the relevant regulatory information.” So, then, does that mean this interesting little factoid didn’t come out during the due diligence process before the acquisition was completed? We would have thought it would, given the commercial importance of Provigil, a billion dollar product, to Cephalon.

Or was it, in fact, knowledge that was out there but not seized upon without the help of some clever Hatch-Waxman lawyering? After all, Teva USA already had to have known it filed on the first day possible against both patents. Did that not at least raise the possibility that maybe Mylan and Ranbaxy (who were in on the first day against the first patent) didn’t file immediately on the second patent?

The details about the timing of the Paragraph IV certification filings leads us to our next question…

2. What Did FTC Know And What Did It Think?

In announcing a proposed consent order clearing Teva Ltd.’s acquisition of Cephalon on Oct. 7, 2011, FTC said that Teva USA, Ranbaxy, Mylan and Barr Laboratories (bought by Teva in 2008) all filed ANDAs on the first day possible, “making them all eligible for the 180-day marketing exclusivity period under the Hatch-Waxman Act.”

(FTC’s documents about the consent order did not reference Watson Pharmaceuticals, which some analysts also expected to launch April 6 with a share of 180-day exclusivity because of its certification against Cephalon’s second patent on the day it was listed. The commission and Watson previously had tussled over requiring CEO Paul Bisaro to testify under subpoena about whether Watson’s settlement agreement with Cephalon restricted the former’s ability to relinquish any marketing exclusivity rights it may have with regard to modafinil).

Did FTC receive information about, and review, the specific dates on which Paragraph IV certifications were filed against the second Cephalon patent as part of its clearance process for the Teva/Cephalon acquisition? Did this information not raise a red flag, since it seemed to be common knowledge that a slew of companies would be able to enter the market on April 6?

Clearly, if the commission had any worries about the potential for Teva to win sole exclusivity for modafinil, it could have demanded relinquishment or selective waiver of exclusivity as part of the proposed consent order. (Expect this to be a consideration in any future consent order approving a generic firm’s acquisition of a branded company, or vice versa. Call it the “Provigil clause.”)

When we asked FTC whether it reviewed the timing of the Paragraph IV certifications and whether this information raised any concerns, the agency said it could not comment because the information was non-public.

However, it seems that such information would have been important to the commission’s review of the acquisition. Besides, the Cephalon acquisition was not the first time FTC had examined some of these issues. In 2008, the commission sued Cephalon, alleging that the branded company sought to maintain its monopoly on Provigil by paying four ANDA filers (Teva, Ranbaxy, Mylan and Barr) more than $200 million to keep their modafinil generics off the market. That lawsuit is pending in Pennsylvania federal court.

Given that FTC would already have been on high alert for any concerns related to modafinil generic entry, it seems all the more likely there was a fundamental disconnect between FTC’s assumption of what the market would look like come April 6, and FDA’s final decision. Which leads us to our next question:

3. Would FDA really be all that upset if a court overturned its exclusivity decision?

We suspect not. Reading various documents filed in connection with the court case, one can’t help but feel a sense of reluctance by FDA in reaching its final decision on modafinil exclusivity.

We note with interest the Office of Generic Drugs’ April 4 letter in which it delivered the happy news to Teva that the company received sole generic exclusivity. The letter feels the need to point out that “the parties familiar with modafinil ANDAs appear to have operated under the assumption that there are multiple ANDAs that qualify for the 180-day exclusivity for modafinil.” These “parties” included FTC, the letter said.

In deciding that Teva’s exclusivity was triggered by the March 30 authorized generic launch, OGD writes:

“With control of the marketing of PROVIGIL, and of an authorized generic, Teva has every reason not to pursue final approval of ANDA 076596 and not to market a ‘true’ generic under that application.”

In a footnote, OGD talks about how it considered a harsher penalty for Teva and what effect this novel situation (whereby an ANDA first-filer’s parent company bought, and now controls, the branded product sponsor) might have on FDA policy moving forward:

“We have considered finding that Teva’s marketing of PROVIGIL upon its acquisition of Cephalon triggered its 180-day exclusivity, and believe that there is a strong argument for finding so. We have refrained from adopting that interpretation in this case, however, because that exclusivity, if it were triggered by Teva’s acquisition of Cephalon, would expire on April 11, 2012 and, given the multiple uncertainties in this case, Teva had no notice that FDA considered it to be running. Because of the potential for collusion between NDA holders and captive first generics, and the subversion of the statutory scheme that could result, the agency may in the future provide guidance on the effect of such a relationship between NDA holder and first applicant upon any claim for 180-day exclusivity.”

In a brief opposing Mylan’s request for a preliminary injunction, FDA nevertheless offers sympathy for Mylan’s cause:

“FDA understands Mylan’s concerns. … Granting exclusivity to a generic manufacturer that is owned by the innovator manufacturer appears to thwart the Hatch-Waxman Amendments’ goal of bringing more generic drugs to market faster (i.e., because the generic manufacturer would have no incentive to compete against its related innovator manufacturer, or the generic could sit on its exclusivity indefinitely by not commencing commercial marketing of its product – which would trigger the start of the 180-day exclusivity period – thereby blocking any other generics from coming to market). … Nonetheless, final approval of Mylan’s ANDA hinges only on whether a previous ANDA was submitted containing a paragraph IV certification and the 180-day exclusivity period had run.”

Finally, we pose the question that we (naively?) thought would be the primary focus on the day modafinil generics entered the market:

4. What About Ranbaxy?

Under its recently finalized consent decree with FDA, Ranbaxy faced the loss, or potential loss, of exclusivity on up to eight ANDAs. The company has not publicly identified the ANDAs at issue. However, modafinil appeared to be the first product launch since the decree’s entry in January where Ranbaxy held a claim to 180-day exclusivity. With the generic Provigil story playing out the way it has, we may never know if modafinil was one of the eight.

Perhaps Wednesday’s oral arguments will shine some light on these and other questions we have. We anticipate having no trouble staying awake for that hearing.

-- Sue Sutter (s.sutter@elsevier.com)

image by flickr user oberazzi via creative commons

DOTW Spies the Brandification of Generics

With workhorse blockbusters like Lipitor (atorvastatin), Zyprexa (olanzapine) and Plavix (clopidogrel) losing patent protection within six months of one another, generic drugs are at their peak this year – and that puts the generic drug industry teetering at the brink of its own generic drug cliff. Impax Laboratories Inc. hasn’t been as busy diversifying and beefing up its branded portfolio as some of its larger generic competitors, but the company’s brand side did get a boost from a deal with AstraZeneca, announced Feb 1.

Impax bought U.S. commercial rights to AstraZeneca’s migraine medication Zomig (zolmitriptan), both the tablet and nasal spray formulations, for $130 million plus tiered royalties on sales. Impax has said it wants to “transform into a specialty pharma” with a focus on CNS, but it generates most of its sales from generics. The only brand sales come from a co-promote with Pfizer for Lyrica (pregabalin; a relationship stemming from a 2008 patent infringement settlement between Impax and Wyeth).

The in-licensing deal with AstraZeneca looks to be a smart move for Impax. Zomig will keep the firm’s contract sales force occupied once the Lyrica co-promote expires in June while the company awaits word from FDA on an NDA for IPX066, an extended release formulation of carbidopa-levodopa for Parkinson’s disease. Impax submitted the NDA for IPX066 in December. Zomig offers Impax an opportunity to ramp up its contract sales group ahead of a potential launch. The sales team is made up of 64 reps, but the company plans to add 20 more to support Zomig. Eventually, the company would like to have 120 to 130 reps if IPX066 is approved. Outside the U.S., the drug is partnered with GlaxoSmithKline.

Zomig hasn’t been detailed by AstraZeneca for “several years,” Impax said, so there is an opportunity to jumpstart sales. U.S. sales were $163 million for the 12 months ended Sept. 30. About 40% of scripts come from neurologists, the physicians Impax is looking to target with IPX066. But Impax will have to act fast. The patent expiration for Zomig tablets is in May 2013, though the nasal spray has longer patent protection, out to 2021.--Jessica Merrill

Two other deals this week, both by Germany’s Stada, further highlight how the generic industry is scrambling to diversify. More discussion below in the never generic …

Stada/Grünenthal and Spirig: German generics firm Stada enhanced its presence in Central and Eastern Europe and in the Middle East by acquiring marketed brand products from Grünenthal and a generic business from Switzerland’s Spirig. The acquisitions come as the company is facing unprecedented pricing pressure in its home market. In the larger of the two deals, Stada paid Grünenthal €312 million for rights to a portfolio of more than a dozen branded products in Europe and the Middle East, mainly in pain management. The portfolio includes drugs like Tramal (tramadol), Zaldiar (tramadol plus paracetamol), and Transtec (buprenorphine patch). The deal also includes Grünenthal's newest drug, the dual-action analgesic, Palexia (tapentadol), which is currently being launched in European markets and is licensed to Johnson & Johnson for marketing in the U.S. The smaller deal saw Stada buying Spirig’s generic business in Switzerland for CHF 97 million ($106 million). Stada said the acquisitions will strengthen its presence in the CEE region, where its sales are growing more rapidly than in Western Europe. In the first nine months of 2011, Stada's sales in Western Europe increased 2% to reach €868.4 million, whereas sales in Eastern Europe grew by 23% to €333.3 million. The Grünenthal acquisition will also open up new strategic distribution channels for products from its current portfolio, which in the future can also be marketed as branded products, the company said. —John Davis

Shire/Sangamo: In a move to add to the pipeline for its growing Human Genetic Therapies division, Shire is paying Sangamo BioSciences $13 million upfront in a licensing agreement to develop therapies for hemophilia and other monogenic diseases using the California biotech’s zinc finger DNA-binding protein (ZFP) technology platform. In the deal announced Feb. 1, Shire obtains worldwide rights to ZFP compounds that will target four genes – the blood-clotting Factors VII, VIII, IX and X – in an effort to produce new therapies for hemophilia A and B. Shire also gets the right to designate three additional gene targets – ZFPs, which can be engineered to recognize any specific DNA sequence within a gene, are thought to offer targeting potential in other therapeutic areas of interest to Shire, including hematology and lysosomal storage disorders. Under the alliance, Sangamo will handle all preclinical work up to filing of INDs with the FDA and Clinical Trial Applications with the EMA. Shire will reimburse Sangamo for research-related costs and also pay regulatory, development and commercial milestones, as well as sales royalties. Platform technology licensing deals are nothing new to Sangamo, which most recently licensed its ZFP nuclease technology to Pfizer, to help the pharma genetically alter Chinese hamster ovary cell lines to enhance the efficacy of protein and antibody therapeutics in 2008. We wrote about the latest DNA editing technologies in the January 2012 START-UP.—Joseph Haas

Covance/BioPontis: Contract research organization Covance will be responsible for drug development support for investment firm BioPontis Alliance, a three-year old firm focused on early translational research and science sourced through partnerships with academia. Covance will provide discovery, preclinical, bioanalytical, CMC, clinical, central laboratory and commercial support under the arrangement. BioPontis is tapping universities to evaluate thousands of compounds with plans to whittle them down to dozens and take them from preclinical development to Phase I. Our sister publication START-UP featured BioPontis here.—Jessica Merrill

Merck KGAA/Threshold Pharmaceuticals: Only weeks before a potentially value-boosting Phase II trial in pancreatic cancer patients is expected to read out, Merck KGAA has nabbed worldwide rights to Threshold Pharmaceuticals’ TH-302, a small molecule drug candidate also in Phase III for soft tissue sarcoma. TH-302 is thought to be active in hypoxic, or low-oxygen environments that are typical of tumors. Threshold will receive $25 million up-front, with the potential of a $20 million near-term milestone if the pancreatic trial results are positive. In all the small company could see $280 million in pre-commercial milestone payments and an additional $245 million in milestones and tiered double-digit royalties based on sales of the drug. The companies will jointly develop TH-302 (largely sharing the workload evenly with Merck picking up 70% of the costs, but Threshold will continue to lead the compound’s development in the soft tissue indication in the U.S.) and Threshold retained a U.S. 50/50 co-promotion option. – Chris Morrison

Takeda/Durect: Bad news is snowballing for Durect. On the heels of a failed Phase III study of its post-operative pain drug Posidur, Takeda has backed out of a co-development and commercialization deal for the drug in Europe and other territories. Takeda said Jan. 30 it would return rights to Posidur, which it gained through its acquisition of Nycomed, last year. Posidur is a long-acting depot formulation of bupivacaine made with Durect’s patented SABER technology, designed to provide up to three days of pain relief post-surgery. However, the drug failed to show statistically significant benefits on pain intensity and use of opioid analgesics compared to placebo in the Phase III study BESST. Nycomed paid $14 million upfront for rights to the drug in a 2006 collaboration. Meanwhile, Durect says it will focus on developing the drug in the U.S., where the company is partnered with Hospira. A pre-NDA meeting with FDA to determine a path forward is expected later this year, but it looks like Durect will have a hard case to make—JM

flickr image by Al_HikesAZ used under creative commons

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: Treximet Edition

That was fast! Just six months after (finally) winning approval for its first product, Pozen announced that an application for a generic version of the sumatriptin/naproxen migraine combo (Treximet) has been filed at FDA.

Par Pharmaceuticals filed the generic application and notified Pozen and its partner GSK (now the NDA holder for the drug) that it is challenging the patents on Treximet and seeking to market a generic version as soon as Treximet’s data exclusivity expires. Under US law, Pozen is guaranteed three years of exclusivity on Treximet, and it expects an additional six months of exclusivity to be awarded once pediatric studies are complete.

So the earliest Par’s generic could launch is October 2011.

That doesn’t seem so far away—especially since the Treximet application was first filed at FDA in August 2005 and not approved until April 2008. In other words, the commercial lifespan of Pozen’s first product could end up being only 10 months longer than the review of the application by FDA.

We have written before about the regulatory and reimbursement challenges facing new formulations like Treximet. (For an update on another case study in that area, see Nitromed’s recent sale of Bidil to JHP Pharmaceuticals. Or, for that matter, look at what else Pozen had to talk about on the conference call: a potential change in the proposed endpoint for a new NSAID formulation partnered with AstraZeneca.)

Add another item to the list of why these seemingly “low-risk” R&D projects are anything but: the relatively short commercial lifespans for those products lucky enough to make it to market and secure reasonable payment.

Now, this isn’t exactly news: everyone knows the ground rules for exclusivity for new formulations. As Pozen CEO John Plachetka told investors on an Oct. 17 conference call, “we expected such an action by one or more generic companies” and “we have a plan in place to deal with this.”

The first step in that plan, no doubt, will be a lawsuit to enforce the patents. In theory, should Pozen and GSK prevail, they would be protected from generic competition as late as 2025. But if history is any guide, patents on new formulation or drug delivery technology generally have not been broad enough to block generics from designing around them, sooner or later.

Regardless, it sure seems awfully early to be talking about the end of Treximet’s exclusivity, since the product is barely even getting started in the marketplace.

Plachetka noted that unbranded direct-to-consumer ads only began to air around Labor Day, and September script data show strong growth. Branded DTC ads are now starting in some markets he added, so “we expect the trend to continue to get better as the DTC starts to hit.”

Even there, Pozen is paying the price for the changes in the regulatory climate. GlaxoSmithKline says it took three months for FDA to review its proposed DTC ads for Treximet. “We just lost some time in terms of FDA giving us approval,” GSK CEO Andrew Witty said during an investor call Oct. 22. “We now have all of that. We've got very good reaction in the marketplace, and I'm not worried about Treximet.”

Though pre-review by FDA is voluntary, in the current climate it is really more of a necessity. (We explain here why pre-review is the smartest thing a company can do with its DTC—except perhaps not run TV ads at all.) For FDA, though, Congress has sent a clear message: pre-reviewing ads is nice, but they want to see more enforcement. And, as “The Pink Sheet” reports here, that is precisely what Congress is getting. So sponsors shouldn’t expect speedy reviews of those DTC campaigns for the foreseeable future.

All of which begs the question: what, exactly, will GSK really get from Treximet?

The product is supposed to extend the lifecycle of the Imitrex franchise, facing its own patent cliff early next year (February 2009). That gives GSK less than one year to establish Treximet in the marketplace—and then the possibility that it loses the product just over two years later.

Treximet may be a highly effective migraine treatment, but it sure seems fair to ask whether it is worth the headaches for GSK…

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: Painful Historical Parallels Edition

New details about a pending Justice Department investigation of Ranbaxy recall some painful memories from veterans of the generic drug scandal in the US at the end of the 1980s.

It is amazing to think—at a time when generic drugs are the political golden child, everybody’s favorite starting point for reining in costs, and everybody’s hope for controlling spending on biologics—that it was just two decades ago that generic drugs were perceived as inherently suspect. Company after company was accused of fraud, and dozens of products were withdrawn from the market.

So no one in the generic sector wants to read that the government is alleging “systematic fraudulent conduct” on Ranbaxy’s part.

Ranbaxy, of course, wants to read that least of all—certainly not while a $4.6 billion merger with Daiichi Sankyo is pending. (PharmAsia News has all the details on what is known about the investigation, and the speculation that it might affect the pending merger of the two companies.)

The companies say the deal is not in jeopardy. The bottom line for proceeding: Ranbaxy says the scope of the investigation is fully understood by Daiichi and the risks to the business as a whole aren’t worth worrying too much about.

Daiichi better hope so.

The alternative is not pretty. The downside risk may best by captured by considering what happened to Fujisawa went it bought out Lyphomed in 1989. The transaction came after a Lyphomed faced a round of manufacturing compliance issues that had seemingly been resolved.

The deal was a disaster on every level for Fujisawa. It turned out that FDA wasn’t done with Lyphomed by a long shot, not as the full extent of issues related to fraud in the generic drug sector started to come to light.

How big a disaster? Well, Fujisawa paid about $1 billion to buy Lyphomed, and ended up writing off $575 million when it finally unloaded the business in 1998. (The buyer? APP, which is being acquired itself a decade later.) Fujisawa spent millions cleaning up the business along the way, including withdrawing many products it acquired because of questions about potential fraud in the applications. Worst of all, Fujisawa’s own products were held up as a result of FDA’s concerns, putting its relationship with Medco Research for Adenoscan in jeopardy.

And strategically, it certainly didn’t help Fujisawa achieve its primary goal of building in the US. Fujisawa has since merged with Yamanouchi, and the new company—Astellas—is still working on that goal.

Painting by Renee Dixon

Wacky World of Generics: Pajama Party Edition

Have you ever had one of those dreams where you show up to the office in your pajamas? Well, it can be argued that the generics industry has been doing just that lately and it’s been working well for them.

The reason for the casual dress is FDA’s current policy on 180-day exclusivity for first-to-file generics. The agency awards the much sought-after exclusivity people to the first-to-file generic applicant, even if the ANDA isn’t terribly professional looking. The application doesn’t have to be all showered and combed to be eligible for those six very profitable months when the sponsor is the only generic on the market.

Due in part to this policy, many applications have been coming into FDA’s Office of Generic Drugs quite early, and it’s starting to look like the kind of place where people walk around in purple slippers. (We are pleased with this analogy because generic firms did in fact used to have sleepovers at FDA, camping outside the office in order to be first-to-file. The agency solved the problem by saying that everyone who submitted an application on the same day had to share. How to solve the problem of messy applications seems a bit more complicated.)

A report by the HHS Inspector General details the problems that FDA has been having trying to keep pace with the flood of submissions. As a result of the deluge, the agency has failed to meet the review deadline for nearly half of the applications it received, and has approved only 4 percent the applications on the initial cycle.

FDA, though, does not seem enthusiastic about the advice that the IG report offers as a fix, which would involve reprioritizing the order of reviews to focus on applications that were closest to approval. Instead, the agency is beefing up its review staff, and new legislative provisions that trigger the forfeiture of generic exclusivity may encourage better, slower application development (subscribers to “The Pink Sheet” can read the details).

But in the meantime, the document room in the Office of Generic Drugs isn’t going to be winning any fashion awards.

--M. Nielsen Hobbs

(Pajama image courtesy of Flickr user Iroma Baby via a creative commons license.)

Wacky World of Generics: Lipitor Edition--Or The End of The World as We Knew It

Circle the date: November 30, 2011.

That is the date when the first generic version of Pfizer's ultra-super-megablockbuster atorvastatin (Lipitor) will enter the market. At least, it sure looks that way after Pfizer and Ranbaxy settled patent litigation in the US and several other important markets. (You can read all about the settlement in The Pink Sheet DAILY.)

It will be the largest generic launch in history. And it will be as good a date as any to declare the end of the blockbuster era.

That's because Lipitor is not only too big for Pfizer to replace, it is--figuratively at least--too big for the industry to replace. There is simply too much infrastructure and too few blockbusters to replace Lipitor--or Plavix, or Zyprexa, etc. etc.

By now, the patent "cliff" facing Big Pharma at the start of the next decade is well understood. Less clear is what the industry will look like when it emerges on the other side.

The Pfizer/Ranbaxy settlement agreement certainly doesn't answer that question. But it does do two things. First of all, it assures Pfizer of an extra year of protection on Lipitor beyond the earliest potential "at-risk" launch date of a generic, and about five months more protection than investors seemed to expect. For a brand generating about $7.5 billion a year in the US, that is big news. (So big, in fact, that the settlement caused UBS to cut its ratings on some of the largest pharmacy benefit management companies in the US, because they will miss out on the potential profits from a generic launch in 2010.)

More importantly, it sets a deadline for Pfizer to settle on its post-Lipitor future. We have already offered one modest proposal for the company to think about, but there are plenty of other creative ideas around for how Pfizer could reinvent itself. (Not to mention old standbys like buying Wyeth or Amgen or Merck or all three.)

The point is that Pfizer now knows when the day after Lipitor will come. There is nothing like a deadline to focus the mind.

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.