Mylan

Source: Mylan N.V.

Mylan N.V.'s (NASDAQ:MYL) recent disclosure that its filed for approval of a generic alternative to GlaxoSmithKline's (NYSE:GSK) best-selling drug, Advair Diskus, could mean that billions of dollars in annual sales are about to disappear from GlaxoSmithKline's top line.

An important drug
Advair Diskus has been approved for use in asthma patients since 2000, and Advair Diskus' $1.2 billion in third-quarter sales (roughly half of which come from the United States) maked it one of the planet's best-selling medicines. In fact, Advair Diskus is so popular that it accounts for roughly 20% of GlaxoSmithKline's annual revenue.

That's a big problem for GlaxoSmithKline, because patents protecting Advair expired in the U.S. in 2010 and in the EU in 2013. The only reason generics haven't emerged in the United States yet is because patents protecting the Diskus inhaler itself don't expire until this year.

Mounting a challenge
Previously, GlaxoSmithKline maintained it would be difficult for a generic drugmaker to craft a dispensing system like Diskus that's similar enough to win over regulators.

However, that rationale was dealt a blow when the FDA offered up guidelines to the generic-drug industry to assist companies like Mylan in 2013.

Specifically, the agency told the industry exactly what pre-clinical and clinical trial data would be required for approval and it went so far as to spell out the exact characteristics that a Diskus-like device should possess, including its shape and the number of doses it should be able to dispense.

The FDA also recommended that generic-drug makers submit a working model of their device and engineering drawings to the FDA ahead of time to ensure eligibility.

It's highly likely that Mylan followed the FDA's advice and that the FDA signed off on Mylan's Diskus-like device. If so, then its version of Advair Diskus could win approval soon, especially since Mylan is already selling generic Advair (under the name Sirdupla) in the United Kingdom.

Looking ahead
Advair Diskus costs payers thousands of dollars per year, so there's a lot of incentive for patients and payers to embrace a lower-cost alternative. Patient switching would probably drive the majority of sales (if approved) for Mylan, but additional sales could be captured if the entry of a low-cost generic expands the number of prescriptions written annually in the indication, which could mean an even greater profit opportunity.

Having said that, Mylan isn't the only company angling for a share of Advair Diskus revenue. Other generic-drug makers will challenge GlaxoSmithKline too, and that could result in a fight over price and market share that crimps the total market opportunity. Regardless, because asthma affects up to 40 million in the United States alone, this could still be a needle mover for Mylan. 

Todd Campbell owns shares of Mylan. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. The Motley Fool recommends Mylan. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.