In “The Impact of a Brand Generic Launch on the Recovery of Patent Damages” published in the Summer 2005 IPL Newsletter, James D. Veltrop and Chad A. Landmon explore the positive and negative effects of a brand name drug company making the decision to also launch a brand name generic. In light of the extensive litigation between brand and generics drug companies, the authors’ discussion raises some interesting issues to consider.

With respect to the two sides of the debate, the authors write:

On the one hand, the launch of the brand generic significantly reduces the profitability of the launch by the first generic competitor, who otherwise is often entitled to a six-month window of exclusivity before other generics can enter the market. In addition, the launch of its own generic allows the brand company to increase sales, albeit potentially at the expense of significant profits on its brand product. On the other hand, if the brand company also has patent claims against the generics, its launch of a brand generic might generate additional costs because any damages it might be entitled to recover could be substantially less than it might have recovered had it refrained from launching the brand generic in the first place. Because the brand generic would be a noninfringing alternative to the generic product, lost profits damages could be wholly or partially unavailable and the brand company would have to rely on a lower measure of damages than lost profits. . . . the launch of a brand generic might suggest that the brand company lacks confidence in either the merits of its patent claims or its ability to collect the full measure of damages from generic companies. Alternatively, it could suggest that the brand company is at least partially motivated by other factors, such as reducing the incentives of generic companies to challenge brand company patents.

According to the authors, the practice of launching brand name generics is thought by many generics companys to undermine the Hatch-Waxman Amendments, which made generics more widely available. Passed by Congress in 1984 in order to shorten the generics approval process,
the Hatch-Waxman Amendments enabled generics companies to launch a generic product simply by filing an Abbreviated New Drug Application (“ANDA”), which demonstrated that the generic product is bioequivalent to the brand drug that was already approved. In this manner, generics companies were able to quickly launch generics products, without having to bear the expense of producing safety and efficacy data. The authors go on to say, however, that

[H]aving recently passed the Medicare Modernization Act, it is doubful that Congress will take up again soon the Hatch-Waxman Amendments. Thus, the practice of launching authorized generics during the 180-day exclusivity period likely will remain a key brand company strategy for some time to come.

While the authors present an excellent summary of the issues involved with this debate, as a consumer myself, I wonder why brand name drug companies are pursuing this strategy at all, despite the litigation that is arising out of the generics-brand name disputes. How can companies think it makes good business sense to launch an expensive and then a cheaper version of its own products? While it is true that once a generic is available, some consumers will choose to buy the generic over the brand name product automatically, others will be reluctant to go with a generic simply because it was manufactured by a different company. However, if one company manufactured both versions of the drug, the majority of consumers would without a doubt simply purchase the cheaper version of the medication. In my mind, this practice seems to be a lousy business strategy that is out of sync with common sense. Although from a patent perspective, it may have some valid rationales, but from a business perspective, the brand generics strategy seems to undermine the company’s investment in the brand product.

As for the brand generics strategy itself, I can see why the generics companies dislike it, but I am conflicted as to whether or not it really undermines Hatch-Waxman. Certainly the practice has antitrust implications, but I suspect Congress intended to protect the public with Hatch-Waxman more so than the generics companies. Since the public receives a generic, regardless of whether or not it is a brand product, I don’t see how this undermines Hatch-Waxman. Apparently, however, my view is not a popular one among generic companies. Thus, the debate continues.