Re: Likelihood of an at-risk Copaxone launch
Without ascertaining the actual probability of an at-risk launch, which depends on many factors, we can say that the economic impetus to launch at-risk varies inversely (in a nonlinear fashion) with the pricing discount of the generic relative to the branded product.
Let B be the pre-existing price of the branded product, and let d be the discount of the generic’s price relative to the pre-existing branded product. Let C be the pre-existing, all-in cost of goods per unit volume of the branded drug, and let’s assume for the sake of simplicity that the all-in cost of goods per unit volume of the generic is equal to C. Let V be the volume of generic drug shipped per unit time.
Ignoring the possibility of punitive damages or treble damages (which are rarely awarded in these cases), the potential damages that could be awarded against the generic-drug company are based on the branded-drug company’s lost profits caused by generic substitution, which are V(B-C) per unit time.
The potential gain to the generic-drug company from launching at-risk is the profit earned by selling the generic, which is V([1-d]B-C) per unit time.
Thus, the ratio of potential gain to risk for the generic-drug company is [V([1-d]B-C)] / [V(B-C)] = ([1-d]B-C)/(B-C).
If d=0, i.e. price parity between the branded and generic products, then the ratio of potential gain to risk is (B-C)/(B-C) = 1.0; this is the highest the ratio can be* and it represents the most attractive scenario for an at-risk launch.
If d were, say, 0.5, and C were, say, 30% of B, then the ratio of potential gain to risk would be (.5B-.3B)/(B-.3B) = 2/7; in this case, the risk would be 3.5 times as great as the potential gain, and an at-risk launch would likely be unwise.
*The value would be >1.0 if the generic sold at a price premium to the branded product, but this makes no sense in practice.
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