The Wall Street Journal-20080206-Generic-Drug Firms Take Bolder Stance in Launches

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Generic-Drug Firms Take Bolder Stance in Launches

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Generic drug makers are finding it is necessary to take billion- dollar bets to stay competitive in the fast-moving industry.

Teva Pharmaceutical Industries Ltd.'s launch of a generic version of Wyeth's heartburn drug Protonix highlights the boldness of generic companies to launch their products in the face of potentially huge monetary penalties. Such moves, dubbed "at-risk launches," are expected to increase in the wake of recent court cases that seem to mitigate the hazards of doing so as competition forces generic drug makers to find new routes of increasing sales and extending market exclusivity.

"There is a willingness and necessity to take more risk," said Cowen & Co. analyst Ken Cacciatore.

An at-risk launch happens when a generic company launches its product after the automatic 30-month stay granted at the beginning of litigation, but before the completion of the case. The hazard lies in losing the litigation and thus being liable for triple the damages incurred by the branded-drug company.

The number of at-risk launches increased to eight in 2007 from just two the year before, according to J.P. Morgan Chase & Co. analyst Adam Greene.

The launch of generic Protonix by Teva in late December was brief, as it agreed to halt shipments in order to discuss a settlement with Wyeth, though some think many months' supply made it to the market.

Despite an extension of the standstill agreement with Wyeth, the companies couldn't reach a settlement and Wyeth said on Tuesday that it will continue to pursue the case.

It is likely that Teva will resume sales of it version immediately, though its initial launch was large enough for Teva to raise its 2007 earnings guidance based on the drug's sales. Wyeth had Protonix sales of $1.45 billion in the first nine months of 2007.

In the week ended Jan. 25, Teva's generic version of Protonix has grabbed a 60.3% share of the total U.S. prescriptions written for Protonix, according to Verispan, a Yardley, Pa., drug data vendor.

Increasing the amount of at-risk launches offers clear advantages to generic companies, as demonstrated by Teva's increased earnings guidance, though it also is triggered by pressure from a competitive industry.

Such launches can provide a lucrative opportunity to extend a generic's exclusivity, which lasts 180 days for the first company to file with the U.S. Food and Drug Administration.

Protonix is an example of this as others may not enter the market after exclusivity expires because of the possible at-risk penalties.

Teva used this strategy with Novartis AG's blood pressure drug Lotrel, for which it continues to enjoy exclusivity. Mr. Cacciatore expects that advantage to last "well into 2008."

Teva shares 180-day exclusivity of generic Protonix with Sun Pharmaceutical Industries Ltd., but Sun hasn't risked launching and Teva remains the sole generic manufacturer on the market.

Randall Stanicky, an analyst with Goldman Sachs Group Inc., expects an increase in companies receiving joint exclusivity, which can split the market and hurt pricing.

"To counter this, we expect the larger manufacturers to get increasingly aggressive in launching early to monetize the entire exclusivity in hopes that the other generic will choose to avoid the risk of damages," Mr. Stanicky said.

However, as with many generic launches, Wyeth's authorized generic version of Protonix will inevitably cut into Teva's market share.

Being the first to enter the market can provide a sound foundation for the franchise in preparation for when others enter the market.

Mr. Stanicky pointed to Teva's generic launch of Merck & Co.'s Zocor in 2006, which faced intense competition from other drug makers following the expiration of Teva's 180-day exclusivity.

Teva's product continues to lead the market because of supply-chain agreements, as well as using lower costs and greater scale to remain competitive on pricing.

"It gets very difficult for smaller competitors that are cost- disadvantaged to take that share away," said Mr. Stanicky.

With an estimated $3 billion in cash on its balance sheet, Teva can afford to weigh the long-term benefits of market exclusivity against the potential legal penalties.

For especially large launches, companies can team up to lessen their exposure to future trouble.

In launching a generic version of Sanofi-Aventis SA's allergy drug Allegra, Barr Pharmaceuticals Inc. teamed up with Teva in order to ensure a wider launch and to help indemnify itself from the potentially large damages.

Although the element of surprise is an important aspect of at-risk launches, Mr. Stanicky noted that there are several that may occur in 2008 or 2009, including a generic version of Sanofi-Aventis's allergy treatment Allegra D by Barr, Abbott Laboratories' Prevacid by Teva, and Johnson & Johnson's epilepsy drug Topamax by Mylan Inc.

Adding to this trend, two recent court cases seem to improve the legal standing of companies willing to launch drugs at risk.

The first case, involving KSR International Co. in the Supreme Court, made it easier to show that an idea was obvious, or lacking innovation, and can't be patented.

In a second case, involving Seagate Technology Inc., a federal appeals court changed a long-held standard for proving that an infringer willfully disregarded patent rights, thus making it harder to achieve an award for triple damages.

Steven Sklar, a patent attorney with Leydig, Voit & Mayer Ltd. in Chicago, said that these cases may provide some assurance to generic companies looking to challenge patents, but the process is still difficult.

"You still have to have a good reason for why you think the patent is not infringed," he said.

At a conference, Bruce Downey, chairman and chief executive of Barr, said he believed the KSR case would lead to an increase in at-risk launches because it changes the view of a case's strength and makes generic companies more likely to prevail.

Another reason that the industry is getting bolder is that triple damages have never been awarded to a branded company suing a generic drug maker.

There are several cases in the courts that may produce such a ruling, including the cases for Allegra and Lotrel, though the cases take years to conclude.

Mr. Stanicky said any damage award would be seen as a one-time setback for generic companies, which thoroughly assess the legal issues surrounding a case when deciding to launch. The damage award would be weighed against the long-term advantage of being the first generic on the market.