Generics and drug brand names

An article about branding generic drugs...

a whole bunch of intersting pharam strategies in this article. To quote a bunch of passages:

Leveraging the sixth months of marketing exclusivity that the FDA provides to first to market generics
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With too many players in too many parts of the business, companies that primarily sell generics often find themselves lost in the crowd, able to stand out on pharmacy shelves only by cutting prices. More and more, though, they are replacing the identically drab scientific labels on their products with brand names of their own, raising prices in step with a higher profile.

''Everybody tries to undercut each other on price -- it all becomes a high wire act,'' said Allen Chao, the chief executive of Watson Pharmaceuticals, a generic drug maker based in Corona, Calif., adding, ''We decided the only way to deliver consistent earnings, quarter after quarter, was to go into the branded drug business.''

There have always been some brand names in the generic drug cabinet. When a drug loses its patent protection, one company gets the right to sell a generic version for about six months, after which others are allowed in. Some companies immediately put a brand name on that first version and back it with marketing to doctors and consumers.
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Locking up suppliers to reduce competition and enable price increases...
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And a few companies, like Mylan, have entered into exclusive agreements with the suppliers of chemicals and other raw materials for their drugs, arrangements that can have the effect of reducing the number of generics competitors.

In the case of lorazepam, an anti-anxiety drug, Mylan was able to reduce its top competitors largely to just Ativan, the original patented version by American Home Products. In February, after it had the field more to itself, Mylan raised the wholesale price of its version of lorazepam by 343 percent, to $796.67 for 1,000 pills, from $179.95. The company attributed the jump to regulatory delays and legal fees from patent disputes, not to its arrangement with a supplier. A spokeswoman added that Mylan's competitors could have gone to other suppliers.
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Erecting legal barriers to entry...
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Drug patents now last for 20 years. Yet by the time a company actually gets a drug to market, its patent has already largely expired, leaving it just eight years on average to be the lone seller. At the end of the patent period, companies often sue to protect their exclusivity by raising questions about the ability of generics makers to produce a safe substitute. Such a challenge can cost a generics maker millions of dollars in legal fees and lost revenues.
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Wholesalers shaping their suppliers...
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Other market factors have lately made matters worse. The nation's drug wholesalers have long complained that the generics industry -- valued at $7.9 billion in the United States last year, or 8.4 percent of total drug sales -- has too many players, creating inefficiencies and extra costs. In 1996, several of the wholesalers -- including the industry leaders Cardinal Health Inc. of Dublin, Ohio, and the McKesson Corporation of San Francisco -- reduced the number of their so-called preferred suppliers, forcing many of the small manufacturers out of business. The carnage prompted many chief executives to quickly add some ballast to their bottom lines.
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The power of branded generics
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Yet laying claim to a branded drug is neither easy nor inexpensive.

To roll out a new patented formula can cost $450 million to $600 million in research and development. (Teva is spending less because of a sharing arrangement with some Israeli universities and hospitals.)

To develop a branded generic, a company has to choose a drug that is technically difficult to reproduce, which will tend to narrow the number of possible competitors.

It also has to be prepared to back its new named version with a marketing campaign directed at doctors, who can specify a branded generic when writing a prescription. Anything with a name -- which brings with it the implication of higher quality than something without one -- can command a higher price.

Enough money is at stake to spark a controversy, as it has over Mylan's exclusive arrangement with one supplier. The Pittsburgh-based Mylan struck that deal shortly after the final quarter of 1997, when 41 of its 97 generic drugs lost money.

The agreement with the supplier, which involved raw materials for several other generics besides lorazepam, gave Mylan ''the majority of the market until competitors could catch up,'' said Ian Sanderson of Cowen & Company. ''The company can triple sales from that drug,'' he added, referring to lorazepam.

But the price increase -- as well as similar increases by other generics makers, including Geneva Pharmaceuticals U.S.A., a division of Novartis -- was greeted by a nationwide chorus of criticism from independent pharmacists. It takes several weeks for insurers to alter their reimbursement schedules following price increases, the pharmacists complained, forcing them to absorb the difference in some cases.
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And, an interesting fact from 1998...
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For one thing, knockoffs are becoming more popular. Generic drugs now account for 42.1 percent of all dispensed prescriptions, up from 32.4 percent six years ago, according to I.M.S. Health, an industry consultant. For another, their ranks are going to swell in the next decade as branded drugs that now generate some $41 billion a year in revenues come off patent. These drugs include such superstars as Eli Lilly & Company's Prozac.
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