In fight for GSK's Advair, generic firms step carefully on price

By Ben Hirschler

LONDON (Reuters) - Generic drugmakers, hoping for rich pickings from the launch of copies of GlaxoSmithKline's (GSK.L) best-selling Advair inhaler in the United States next year, say they can win business without a race to the bottom on price.

"Nobody wants to kill the market," said Rajiv Malik, president of Mylan (MYL.O), which will have the first commercial Advair copy, assuming U.S. regulators approve its substitutable generic device by a target date of March 28, 2017.

A rival version from Hikma (HIK.L) and Vectura (VEC.L) is hot on its heels, with an approval date of May 10. After that, however, there will be a hiatus, which Malik thinks will curb excessive price discounting.

"It will be GSK plus one competitor for some months and then two competitors for maybe 12 to 18 months," he said in an interview. "We believe it is not going to be a commoditised product."

Vectura chief executive James Ward-Lilley agrees, pointing out that the two initial generic suppliers will not be in a position to replace all GSK's business.

“Mylan won’t have the manufacturing capacity to serve the whole market. Nor will we. That should lead to some rational behaviour in terms of pricing,” he said.

The stakes are high for all concerned.

Advair, for asthma and chronic obstructive pulmonary disease (COPD), is a major opportunity for generics companies at a time when fewer blockbuster medicines are losing patent protection, after a wave of expirations that peaked in 2012.

For GSK, U.S. generic Advair is a challenge as tries to return to growth while coping with declining sales of a product that has sold more than $1 billion annually since 2001. Global Advair sales, which hit a high of $8.3 billion in 2013, were $5.6 billion in 2015, with half that generated in the United States.

Although Advair is already available generically in Europe, demand for copies is expected to take off more swiftly in the United States, where managers of prescription plans, like Express Scripts (ESRX.O), can quickly drive conversion.

"You see in the U.S., unlike in Europe, very rapid switching between brands and between molecules and between devices," said Ward-Lilley. "Doctors are agnostic and are not in control of the decisions."

The U.S. price of Advair has already come down a lot in the past two years, under pressure from players like Express, and falling revenues means it accounted for 12 percent of GSK group sales in the first quarter, down from 20 percent in 2013.

Advair inhalers, typically lasting a month, officially retail for more than $330 in the United States but industry analysts estimate GSK can offer discounts of around 50 percent. GSK declined to comment.

Nonetheless, Malik said there remained "quite a bit of room" for generics to undercut Advair without wrecking the market. "Yes, GSK has been under price pressure recently but the price is still pretty attractive to bring in a generic," he said.

Although the U.S. patent on Advair expired in 2010, an additional patent on the Diskus inhaler used to deliver the drug runs until August 2016. That and the difficulty of making the two-in-one medicine has delayed competitors.

Malik, who says Mylan has invested some $325 million in a factory in Ireland to make generic Advair, expects competition down the road from Sandoz, the generics unit of Novartis (NOVN.S), and Teva (TEVA.TA) - but it won't be a crowded market.

There are, of course, still regulatory uncertainties. Will the U.S. Food and Drug Administration give approval on time or will it delay, given the complexity of the drug and device? And will generics be fully substitutable, as their makers hope?

After years of citing the difficulty of copying Advair, GSK changed its tune last year and said it was now factoring in the prospect of U.S. generics, which could erode U.S. Advair sales to just 300 million pounds ($433 million) in 2020.

Yet GSK still expects its respiratory business in 2020 to be at least as big as it was in 2015, thanks to the arrival of new lung medicines, including new kinds of inhaled drugs, a recently approved injection for severe asthma and a three-in-one inhaler for COPD.

"We're feeling rather positive about the positioning of new products in the respiratory field at a time when Advair sales are coming down," said Patrick Vallance, GSK's president of pharmaceuticals R&D.

($1 = 0.6937 pounds)

(Reporting by Ben Hirschler; Editing by Ruth Pitchford)