Replies to post #77975 on Biotech Values

[DewDiligence]

MNTA: i think the price dynamics typically seen when generics are introduced may not hold when there is a high barrier to entry and only 2 drugs are competing for market share. that is, i think SNY will fight for market share and pricing won't be static.

Mathematically, the single-generic case has an infinite number of outcomes that are functionally equivalent for MNTA investors to the one I posited; e.g. no price discounting and the NVS/MNTA generic garnering a 60% market share produces the same $1.5B of annual sales for NVS/MNTA as under my set of assumptions.

I think a more conservative assumption is 50% market share when steady state is reached - likely at a price point close to the discount you assume.

This set of assumptions results in annual sales of about $940M for both the NVS/MNTA generic and SNY’s branded product, which is a steep margin reduction for SNY to take on the branded product. Typically, the vendor of the branded drug maintains full pricing; the thinking is that docs who suffer from Generic Phobia will continue to use the branded product regardless, so why give them a price break? Thus, I think a more likely scenario that results in the same NVS/MNTA $940M number as in your scenario is the one in which SNY launches an authorized generic.

In considering the outcome that includes an AG from SNY, I previously arrived at a 40% haircut for the NVS/MNTA sales relative to the best case (#msg-33892399), which is arithmetically identical to your scenario above. Moreover, I think an AG launch by SNY is quite likely for the reasons laid out by BI in #msg-34006751. Thus, I would submit that you and I are on the same wavelength about the likely bottom-line result for NVS/MNTA, although we arrived at the answer by somewhat different routes.

it may boil down to COGS. neither [SNY or NVS] are completely vertically integrated, but SNY initially may have an advantage based on scale.

On this narrow point, I disagree. NVS is on record that they have the capacity to supply 100% of the US Lovenox market. There’s a reason why NVS has contracted with four different Chinese suppliers of bulk heparin :- )