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Authorized Generics: Band-Aid or Strategy?

In the past two years, some Big Pharma companies have revitalized their long-dormant generics activities and launched generic copies of their own drugs. They're doing this to capture business they would otherwise lose completely and to tie up generics competitors in court. While similar strategies failed in the past, a number of changes may make it more feasible. Innovators are behaving more rationally about pricing. And they are going after the most lucrative part of the generics business.

Ten years ago, brand-name companies forayed into the generics business to capture revenues they otherwise stood to lose to generics competitors. They launched generic copies of their own drugs and set up subsidiaries to sell them. Their plan was to try to take share from generic firms by undercutting those firms, then assuming economies of scale would give them the pricing room they needed. All these efforts failed, and the brand name companies lost interest in the effort.

In the past two years, however, some Big Pharma companies have revitalized their generics activities. (See Exhibit 1.) On the...

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