AbbVie Inc (ABBV), Amgen, Inc. (AMGN): Do Generic Drugs Drastically Alter Market Dynamics?

Page 1 of 2

Pharma companies have been paying off generic drug makers so that cheap generic drugs do not enter the market. In a settlement case involving AbbVie Inc (NYSE:ABBV), the U.S. Supreme Court dealt a blow to this practice, allowing the FTC to take action against these deals. The judgment is seen as a “significant victory for the consumers and free trade.” However, the market remains relatively unaffected.

AbbVie Inc (NYSE:ABBV)

The case

The question for the Federal Trade Commission v. Actavis (NYSE:ACT), No.12-416, was about the legality of payments made by Solvay Pharmaceuticals (now owned by AbbVie Inc (NYSE:ABBV)) to Actavis Inc (NYSE:ACT), earlier known as Watson Pharmaceuticals. The FTC contended that this deal was a pay-for-delay payment that unlawfully restricted Actavis Inc (NYSE:ACT) from producing a generic version of AndroGel, a testosterone gel brand owned by Solvay.

While generic drugs cost 15% as much as the original product, they lead to losses of 90% of market share for the brand-name drug maker. During the hearing, the justices noted that while a brand-name maker may lose much more than what a generic maker would make, such payments seem to allow a generic producer to make more money by staying out of the market than by producing the drug.

While the Drug Price Competition and Patent Term Restoration Act of 1984 encourages generic producers to challenge patents of branded drugs, reverse payments, as the pay-for-delay payments are called,  result from a loophole in the act.

Fighting for high stakes

The stakes are very high in brand-name drugs. In 2011, sales of pharmaceutical products totaled $320 billion. However, total prescriptions for branded drugs were only 18%, but accounted for 73% of the total amount spent by consumers.

Of particular mention is the case of Enbrel, the rheumatoid drug of Amgen, Inc. (NASDAQ:AMGN). Enbrel is a genetically engineered anti-TNF compound, the same class as AbbVie’s Humira, and contributed $2.7 billion to the company’s revenue in Q4 2012. However, a recent study reported in the New England Journal of Medicine showed that Enbrel was no more effective in treating rheumatoid arthritis than a cocktail of three generic drugs. While Enbrel costs $25,000 a year, the generic alternative costs only $1,000.

Why you shouldn’t need to worry

The Supreme Court decision opened the way for antitrust scrutiny of pay-for-delay agreements. This could mean that brand name companies would now be wary of using reverse payments or any other strategy for delaying generic versions.

In addition, developing nations are also gearing up to challenge patents that do not appear to be genuine or are against their government’s policy of providing cheap medicines to the population. The recent case of Pfizer Inc. (NYSE:PFE) losing a patent lawsuit in India is a classic example. Although the patent revocation was sent back to the patent office for reconsideration, it is a harbinger of tougher times in coming days.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!