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Authorised generics deals likely here to stay, says analyst

Published on 12/08/09 at 08:26am

The practice of branded drugmakers paying rivals to keep generics off the market after product patent expiry - known as reverse payment deals - is under fire by regulators in the US and EU, but so-called 'authorised generics' deals are likely to grow, according to Datamonitor.

In authorised generics agreements, the original brand owner forges a deal with a generic company - sometimes one of its own business units - to bring a copycat version of the drug to market early and maximise revenue from the mature product.

These have been particularly prominent in the US market, where agreements tend to occur during the 180 days of marketing exclusivity awarded to the first generic manufacturer to file for approval of a new generic product.

"However, we have seen agreements between branded and generics companies increasing in frequency quite markedly, both in the US and Europe," said Pam Narang, the Datamonitor analyst who authored the report.

Pfizer is the most frequent branded partner in this type of arrangement, involved in 30% of all authorised generics launches, according to the report.

For the generics industry it's a divisive issue, according to Narang.

The larger generics companies, which tend to be those with the resources to invest in getting 180-day exclusivity, do not like them as they have a material impact on their revenues, she told Pharmafocus.

Authorised generics typically capture on average about 50% of the market during that initial period, and in two thirds of cases they are launched at a greater discount to the branded drug than the conventional generic, reflecting the higher margins available to the authorised generics firm.

Smaller companies, which are less likely to win the exclusivity period, see this as a good strategy to quickly and easily get to market.

Datamonitor's report comes in the wake of quite a bit of scrutiny of the pharmaceutical market as a whole in both the US and EU.

A recent European Commission investigation into the pharmaceutical sector looked for collusion between branded and generic drugmakers aimed at delaying the entry of generics into the market.

"The report found that there was a delay of around at least four months on average, behind loss of patent protection on a branded product and the start of generic sales," said Narang." Its conclusions alluded to possible anticompetitive settlement agreements."

Meanwhile, the US Federal Trade Commission has been concerned about reverse payment agreements for years, but has had little legal power to do anything about them, and the judiciary in the US has provided little consensus on the issue. However, election of the new Obama administration has changed matters. Before acceding to the Presidency, Barack Obama added his signature to a bill seeking to outlaw these agreements.

"I doubt they'll be able to outlaw them completely, but certainly they will come under more stringent regulation," said Narang.

The FTC recently published a report that found authorised generics are actually pro-consumer, as they stimulate price erosion earlier in the exclusivity period, but did not investigate whether these deals deter early market entry. It is however requiring branded companies to disclose details of all their authorised generics agreements.

"The jury is still out, but on the basis of this report I don't see an end to authorised generics deals anytime soon," said Narang.

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