Pharmaceutical Lifecycle Extension Strategies - Innovation and Marketing in the Pharmaceutical Industry - page 239

8.3.5 Branded Generics

The fi rst generic obtaining US market approval through an ANDA obtains a 180-
day exclusive marketing period for the drug. This temporary monopoly in the
generics market allows the fi rst generic to obtain large profi ts. However, during that
period, branded manufacturers are allowed to introduce their own generics. The
branded manufacturer needs no FDA approval to enter the market with a so-called
branded generic—also referred to as authorized generic, pseudo-generic, or fi ghter
brand. Large pharmaceutical fi rms often control subsidiaries that produce and mar-
ket generics or they license the drug to a generic fi rm to compete against other
generics (Chandon 2004 ; Kvesic 2008 ).
Branded generics are a regularly used strategy of pharmaceutical fi rms, espe-
cially outside the United States, to either deter generic entry or to capture a share of
the generic profi ts (Berndt et al. 2007 ; Kamien and Zang 1999 ; Kong and Seldon
2004 ). Berndt et al. ( 2007 ) argue that there are two effects of branded generics on
the price of generics. In the short run, competition increases in the generics market
as branded generics are allowed to enter during the 180-day exclusivity period for
the fi rst generic manufacturer. This results in a lower generic price during that
period. In the long run, branded generics can deter entry, leading to higher long-run
equilibrium prices for generics. In small markets, branded generics may even dis-
courage generic manufacturers to submit an ANDA. Hollis ( 2003 ) fi nds for the
generic market in Canada that branded generics have a substantial deterring effect
on subsequent generic entries in medium-sized markets. Reiffen and Ward ( 2007 )
also fi nd that branded generics deter entry in small and medium-sized markets.
Depending on the market size they decrease the number of generic entrants by 1.7-
2.4. They also fi nd that branded generics increase equilibrium prices; on average,
long-term generic prices increase by about 1 % after the entry of a branded generic.
This price increase leads to higher profi ts of the branded drug, up to 3.2 %. Berndt
et al. ( 2007 ) fi nd that branded generics only lead to higher long-term prices when
less than fi ve generics enter the market, which is rarely the case in practice.
Kong and Seldon ( 2004 ) conclude in a theoretical study that introducing branded
generics to deter entry is only in specifi c instances a profi t-maximizing strategy.
They suggest that fi rms should mainly introduce branded generics in large markets
to capture part of the profi ts from the generics market.
Branded generics are often the fi rst generic in the category and can benefi t from
a fi rst-mover advantage. Grabowski and Vernon ( 1992 ) fi nd that the fi rst-moving
generic has long-term advantages over followers. Reiffen and Ward ( 2007 ) report
that the fi rst generic entrant earns 19-27 % of total generic sales, while, on average,
14 generics enter.

8.3.6 Switch to OTC

The regulatory body sometimes allows drugs with a proven safety under self-
medication circumstances to be available over the counter. Similar to prescription