Biotech Values

[Biopharm investor]

One more on generic Lovenox

Not to retread an old discussion, but I thought I would add one more post on this topic to explain my position on this topic.

Legal considerations aside, an innovator will enter into an AG arrangement if doing so is economically advantageous.

Except for the possible impact of supply constraints, the rate of generic substitution of a branded drug is not dependent on the number of generic suppliers. The rate of generic conversion in an unlimited capacity environment is generally in the 80% - 90% range (may vary depending on the therapeutic class of the drug), and it occurs rather rapidly over 4 to 8 weeks.

If a generic Lovenox comes to market and the generic supply is not limited due to capacity constraints, Sanofi stands to lose 80% - 90% of its Lovenox sales volume. This will be true whether there is 1, 2, or 10 generic competitors in the market. The price for the first generic will be set to trigger substitution, and the only rate-limiting factor on the rate of substitution will be the generic supply. In this environment, the innovator will almost surely launch an AG, since doing so will cannibalize share from the generic competitors; not the brand. Absent capacity constraints limiting the rate of generic substitution, an AG takes a share of the generic market; not the branded market.

In a capacity constrained environment, however, an AG would take share from the brand, and this an innovator would never do.

So if, hypothetically speaking, MNTA/Sandoz launch generic enoxaparin and IS able to satisfy the market demand for enoxaparin, Sanofi will almost certainly launch an AG into the market, since doing so: (i) generates incremental sales it would otherwise not have, (ii) utilizes more of its manufacturing capacity, thereby absorbing fixed manufacturing overhead costs, than would be the case without an AG, (iii) does not have an adverse impact on the brand sales volume, and (iv) economically harms the generic company that entered its exclusive market. This is all true whether there is 1, 2, or even more generic players.

If, on the other hand, MNTA/Sandoz launch generic enoxaparin but CAANOT satisfy the market demand, Sanofi would probably not launch an AG since doing so would further convert the market to generic that they could otherwise fill with the brand.

In other words, an innovator will generally decide on whether or not to launch an AG based primarily on the extent to which doing so is perceived to impact branded sales volume.

So from my perspective, the determining factor as to whether Sanofi launches an AG is whether Sandoz is in a position to supply the market if MNTA/Sandoz open the market. It is function of the available drug supply of the generic alternative, not the number of generic competitors, that largely dictates the presence of an AG. The generic price as a percentage of brand WAC is a function of the number of generic competitors.