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The Appeal of Authorized Generics

To combat the era of patent cliffs, pharmaceutical companies have long been planning strategies to extend the lives of their blockbuster drugs.  Some companies look to preserve their spot in the market by introducing new indications and new formulations.  Others opt to conduct pediatric testing to gain an extension, however short, of the product’s market exclusivity.  Still others would rather create a generic version of their own drug and prevent competition from pulling the rug out from under their sales.  By creating its own authorized generic, the company’s looming patent cliff may not look so precipitous.

An authorized generic strategy’s ROI is appealing. A study by Cutting Edge Information found that, on average, surveyed companies earned more than $230 for every dollar spent on their authorized generics strategies.  This high ROI far surpasses average reported earnings for dollars invested in new indications, new formulations and next-generation products.  Authorized generics are also attractive because planning can be completed quickly — generally within three years of patent expiry — since the drug does not undergo additional clinical testing.  The study describes how authorized generics have a leg up on competitor generics — they are identical to the brand-name product in both active and inactive ingredients, they can be brought to market quickly, and they can bypass a competitor generic’s 180-day exclusivity period.

ROI for Various Pharmaceutical Lifecycle Management Strategies

The breakdown of Return on Investment for various lifecycle management strategies pinpoints why companies have pursued Authorized Generics. (click for larger version)

Of course it is best for lifecycle management teams to use a multi-pronged approach when looking to ease the shock of patent expiry and generic competition.  Line extension tactics, Rx-to-OTC switches, and disease management programs will also help companies maximize portfolio revenue.  But authorized generics and subsidiary generic divisions remain a key strategy for life cycle management, especially in the recent 18-month stretch of major patent expirations.   Cutting Edge Information’s study found that two thirds of surveyed executives see generics as a major threat to their brand — life cycle management teams would do well to consider authorized generics in their portfolio management strategy to counteract generic competition.

Adam Bianchi
Senior Director of Research and Client Relationships

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