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Sepracor: Why Won't Companies Buy Low-Risk Research?

Executive Summary

In an industry crying out for ways to save their genericizing drugs, Sepracor offers a solution-but only one company has taken them up on their offer. The problem has more to do with the culture of pharmaceutical R&D than with economics.

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What's the Difference? Sepracor's Xopenex Hit Hard by Coverage Cut

Xopenex reimbursement is being slashed by Medicare. The message: CMS wants proof of differentiation before it will pay more for line extensions and new formulations. That means trouble ahead for a lot of other products.

Sepracor's Primary Care Ambitions

With the exception of Forest Labs, small companies haven't been able to build sustainable businesses in primary care because they can't generate enough returns (generally from expensive-to-acquire marketable products) to both restock a pipeline and drop requisite profits to the bottom line. Now Sepracor aims to be the first to do so, thanks to a research shortcut. Investors, hungry for a successful biopharma business model, are watching closely.

The Battle for IP

Generic firms are increasingly attacking innovators' drug patents before they expire--even, in some cases, the previously invulnerable active ingredient patents--and courts are supporting some of their tactics. The primary means used by generic firms for mounting this offensive campaign: Paragraph IV filings, which claim that the innovator's patent is invalid or won't be infringed. It's a tactic that generic firms are relying on more heavily. While the details of each patent dispute differ widely, one thing is clear: generic firms are finding successful ways to maneuver around existing innovator patents. They are winning in court almost 75% of the time after litigating Paragraph IV challenges. In particular, the Pfizer/Reddy case exposes how generic firms can and will poke holes in an innovator's intellectual property. Notwithstanding that Pfizer had explored and patented the derivative salts of Norvasc, this case highlights how the timing of certain types of patents may be crucial. In addition, it may motivate pharmaceuticals to more comprehensively explore alternative forms and formulations of their compounds. Besides building a portfolio of strong patents, fully exploring the form and formulation space could result in a secondary benefit: discovering a superior product.

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