Generic Drugs Still a Growth Market?
Tuesday, February 19, 2008
Is there enough money in generic drugs?
That’s the question generic manufacturers might start asking themselves once IMS Health releases its official market growth numbers for 2007. A glimpse at the preliminary figures suggests there is,
but the money may be getting harder to find.
Growth in the generic drug market slowed considerably last year, to 3.8%—the
same rate as the overall prescription drug market, according to IMS Health corporate director of market insights Diana Conmy.
She gave a preview of the 2007 data at the Health Industry Group Purchasing Organization’s National Pharmacy Forum last week. You can find her analysis of the branded industry in our earlier post.
Conmy found the low-single digit growth rate for generics “surprising” given the segment’s past performance. “I checked this number and checked it twice, because historically, we have seen generics growing over
the last couple of years somewhere between 10% and 20%,” she said. “So to come in at the end of the year at 3.8%...is
quite dramatic.”
Not surprisingly, the cause behind that slowdown is an increased level of price competition
in the generic drugs market, Conmy said: “It has become an extremely competitive place to earn a profit and keep profitable
within this segment."
“The generic erosion curves are much steeper. There is more of a willingness by generic
manufacturers to enter the market 'at risk.' And there are just more players getting into the very large and meaty primary
care markets that are going off patent,” she said. Indeed, one such product, Merck’s osteoporosis drug alendronate
(Fosamax), saw competition from three generics (including a Merck-authorized product) last week.
Given that level of competition, is there a point at
which the price for a generic is too low? IMS Health's 2007 numbers indicate
the generic drug market may have already reached that threshold. The second half of the year was essentially the antithesis
of the economic rule of supply and demand, Conmy said: a “tremendous reduction” in the price of generics in the
marketplace without a corresponding increase in volume levels.
Instead, growth within the generic market is solely
coming from new approvals, and any exclusivity that manufacturers can scrape together. That, in turn, is why generic manufacturers
are becoming more aggressive in terms of “at risk” launches--launches like generic clopidogrel (Bristol-Myers Squibb's Plavix).
The end result, Conmy said, is that while generic utilization continues to increase, the brands are still holding onto the
dollar share.
But there are some bright spots: branded generics (like in the pain and ADHD markets) are still doing
quite well: branded generics rose 11.1% last year, according to IMS Health. And there's still room for growth under Medicare
Part D: despite the Center for Medicare & Medicaid Services' interest in increasing generic use under the drug benefit,
generic utilization was no higher than in the general population in 2007, Conmy said.
And last year could turn out
to be a one-year blip on the growth chart--especially given tough comparisons over the high-flying year of 2006. But for generic
manufacturers looking at the 2007 data, it's still not a comfortable place to be. How the generic industry responds will determine
who comes out on top in an increasingly competitive market.
The deals behind the FTC crackdown have become increasingly
common ever since Congress opened the door for generic drug competition in 1984. That's when a new federal law allowed generic
drugmakers to challenge patents held by brand-name pharmaceutical companies in court. As these lawsuits grew in number, Big
Pharma started to broker settlements whereby the generic companies agreed not to develop a competing drug in exchange for
a onetime payment, often totaling millions of dollars. The FTC says there have been 100 deals like this since 2004.
Big Pharma and generic makers love them. Brand name developers
get to protect their cash cows (it's estimated that sales of a brand name drug shrink by 80 percent in the first year after
a generic version is released), while generic companies pocket a tidy sum without having to take on the high costs and risks
of promoting a drug.
But regulators think these deals are illegal and have
tried for years to get courts to agree - without much success. The way they see it, these patent settlements harm consumers
because they prevent less expensive drugs from coming to market quickly. Americans spend more than $286 billion dollars on
prescription drugs each year, according to the IMS Health market research group. Generics make up 65 percent of all prescriptions,
but are roughly 20 percent of the costs. On average, generics cost nearly two-thirds less than their brand-name rivals.
So far regulators haven't had much success reining in
these patent settlements. Only two of the nation's 11 federal circuits have declared these patent settlements unlawful. Last
year, the U.S. Supreme Court refused to weigh in when it sided with AstraZeneca (AZN) in a government lawsuit challenging a $21 million deal it struck with Barr over the cancer treatment tamoxifen.
Meanwhile, a Senate committee last week approved a bipartisan bill that would prohibit brand-name drug manufacturers from
using settlement agreements to keep generic equivalents off the market. The full Senate has not scheduled a vote on the measure.
Similar legislation is pending in the House of Representatives.
Given that the Congress hasn’t passed any major
regulations that have significantly effected the bottom line of Big Pharma, I can only expect this to be another do-nothing
move—like the bills on election funding reform. Moreover, Big Pharma will
fatten, thorough lobbying, the coffers of our politicians--jk.
On CNNMONEY.com at http://money.cnn.com/2008/02/19/news/companies/generics_patent_settlements.fortune/index.htm?postversion=2008022005
February 20, 2008
Crackdown on Big
Pharma
Regulators are striking back against a common strategy used
by giant drug makers to block competition from generic companies.
By John Simons, writer
NEW YORK (Fortune) --
For years, Big Pharma has kept competition from generic drug makers at bay by essentially paying its would-be rivals to stay
out of its business. Now government watchdogs have declared war on these financial deals - a move that could bring cheaper
drugs to market faster while costing giant drug developers billions in lost revenue.
Just last week the Federal Trade Commission launched a
high-profile battle against Cephalon (CEPH), the maker of the blockbuster narcolepsy medication Provigil, over a $200 million payout it gave to four generic
companies in exchange for an agreement not to develop a competing medication. In a lawsuit filed in federal court in Washington, D.C., the FTC claims that the deal violates antitrust law.
The deals behind the FTC crackdown have become increasingly
common ever since Congress opened the door for generic drug competition in 1984. That's when a new federal law allowed generic
drug-makers to challenge patents held by brand-name pharmaceutical companies in court. As these lawsuits grew in number, Big
Pharma started to broker settlements whereby the generic companies agreed not to develop a competing drug in exchange for
a onetime payment, often totaling millions of dollars. The FTC says there have been 100 deals like this since 2004.
Big Pharma and generic makers love them. Brand name developers
get to protect their cash cows (it's estimated that sales of a brand name drug shrink by 80 percent in the first year after
a generic version is released), while generic companies pocket a tidy sum without having to take on the high costs and risks
of promoting a drug.
But regulators think these deals are illegal and have
tried for years to get courts to agree - without much success. The way they see it, these patent settlements harm consumers
because they prevent less expensive drugs from coming to market quickly. Americans spend more than $286 billion dollars on
prescription drugs each year, according to the IMS Health market research group. Generics make up 65 percent of all prescriptions,
but are roughly 20 percent of the costs. On average, generics cost nearly two-thirds less than their brand-name rivals.
So far regulators haven't had much success reining in
these patent settlements. Only two of the nation's 11 federal circuits have declared these patent settlements unlawful. Last
year, the U.S. Supreme Court refused to weigh in when it sided with AstraZeneca (AZN) in a government lawsuit challenging a $21 million deal it struck with Barr over the cancer treatment tamoxifen.
Meanwhile, a Senate committee last week approved a bipartisan bill that would prohibit brand-name drug manufacturers from
using settlement agreements to keep generic equivalents off the market. The full Senate has not scheduled a vote on the measure.
Similar legislation is pending in the House of Representatives.
The practice is also under scrutiny overseas. The European
Commission recently began investigating AstraZeneca, GlaxoSmithKline, Johnson & Johnson (JNJ, Fortune 500), Merck (PFE, Fortune 500), Pfizer, and Sanofi-Aventis (SNY) for similar payments to generic makers.
Big Pharma argues that a sweeping ban on these patent
settlements would stifle innovation in the drug industry. Ken Johnson, senior vice president of Big Pharma's powerful lobbying
apparatus, PHRMA, insists too that a prohibition is unnecessary given that the FTC and others have the authority to challenge
individual deals. "The courts and enforcement agencies like the FTC are in the best position to review these settlements on
a case-by-case basis to ensure that they are not harmful to competition," said Johnson.
But the FTC's goal behind last week's Cephalon lawsuit
isn't a narrow victory. The agency is hoping the Supreme Court will eventually take up the case and issue a precedent-setting
decision in its favor. "We're trying to reverse the course of the law and get another circuit to find these deals illegal
in the hopes that the Supreme Court will resolve [the issue] once and for all," said an FTC staff member.*
The government's case against Cephalon centers on a 2006
deal to keep a generic version of Provigil, which treats sleepiness in patients with narcolepsy and other disorders, off the
market. Four generic drug makers - Teva (TEVA) Pharmaceutical Industries, Barr Pharmaceuticals, Ranbaxy, and Mylan - had agreed to drop lawsuits challenging
the validity of Cephalon's Provigil patent until 2012 in exchange for a total of $200 million. Wall Street applauded the deal,
which protected a drug that was responsible for 44 percent of Cephalon's $1.7 billion in 2006 revenues.
In its legal filing, the FTC claims that the settlement
violates antitrust law and asks the court the issue a permanent injunction that would effectively allow generic versions of
Provigil to come to market much earlier than 2012. Cephalon denies any wrongdoing.
* I can only be cynical of the FTC motives, given the pro-business background and past
actions of the top bureaucrats at the FTC. I think they want to loose the
law suit before the conservative Supreme Court, and thereby block future suits of Pharma.
