Battle of the Brands
by Deborah Abbey Kelly
January 2007
As drug patents expire, drug manufacturers maneuver to secure a slice of the market—and with so many interested parties, the struggle can be fierce.
The availability of generic pharmaceuticals is a hot–button issue for multiple parties. Consumers want access to cheaper medicines‚ insurance providers want to control costs and regulators want a level playing field. In the middle of the action are the brand and generic drug manufacturers—both want to garner as much market share as possible.
The stakes are enormous‚ and growing. Over the next five years‚ branded drugs with billions in annual sales are scheduled to lose patent protection. Competing products from generic manufacturers will be allowed to enter the marketplace‚ leading to consumer discounts of up to 80 percent.
Not content to watch from the sidelines as generics wrest away profits‚ brand companies are responding with a variety of strategies to delay competition. These strategies include extending patent life by designing new formulations‚ filing patent infringement lawsuits against generic companies and paying off generic competitors through lawsuit settlements that slow their market entry.
You Say Potato
Yet‚ even when a generic drug maker successfully challenges a patent and gains exclusive rights to market its drug for six months‚ brand companies still have a way to stay in the game. Some have begun creating “authorized” generics that are indistinguishable from the original drug but are repackaged and marketed under a private label.
Generic competitors are crying foul and calling for congressional intervention. “Authorized generic is a terrible term. These are brand products masquerading as generics,” says Kathleen Jaeger‚ president and CEO of the Generic Pharmaceutical Association (GPhA). “They’re coming into the market during the 180 days of exclusivity that Congress gave generic manufacturers [under the 1984 Hatch-Waxman Act].”
The legislation was enacted by the U.S. Congress to lower drug prices by increasing competition and accelerating consumer access to affordable medicines. When a generic company successfully challenges a brand company’s patent‚ it earns the right to market its product without competition from other generics for 180 days. By granting generic companies a six–month monopoly‚ the law effectively gives them the financial means to mount a patent challenge‚ which Jaeger calls “the check and balance in intellectual property approval.”
The 180–day window of exclusivity is a generic manufacturer’s most profitable sales period. When the first authorized generic was introduced in late 2003—thereby launching the authorized generics trend—it cost the first generic competitor nearly US$400 million in revenue‚ Jaeger says.
Good for Consumers?
Brand manufacturers currently are able to sidestep Hatch–Waxman because U.S. patent law allows owners of intellectual property to license it to others. It’s dangerous to use legislation to take away intellectual property from the brand pharmaceutical companies,” says Al Rauch, a pharmaceutical industry analyst at A.G. Edwards, a St. Louis, Mo., USA–based brokerage firm. “The undermining of intellectual property would inevitably impact other industries and could lead to damaging consequences,” he says.
The immediate effect of introducing authorized generics to the market, though, is a consumer windfall. When the first generic makes its market appearance, the drug’s price usually falls by about 20 percent, Rauch says. But when an authorized generic joins the competition, prices immediately plunge by as much as 50 percent. Banning authorized generics would delay consumer savings for six months, amounting to a congressional mandate that drug companies maintain higher prices. “That’s a difficult position to defend,” Rauch says.
Nevertheless, legislation prohibiting the use of authorized generics during the 180–day period of generic exclusivity was introduced in the U.S. Congress in July 2006. “Authorized generics are wolves in sheep’s clothing,” Sen. Charles Schumer said in a statement announcing the bill’s introduction. The bill was referred to the Committee on Health, Education, Labor, and Pensions, and no further action had been taken as of October 2006.
According to a July press release from GPhA supporting this legislation, authorized generics violate the integrity of Hatch–Waxman and should be banned. If left unchecked, brand companies ultimately will drive generic competitors out of business, leading to unnecessarily long brand monopolies, the press release states.
The Pharmaceutical Research and Manufacturers of America (PhRMA), an organization representing the country’s leading pharmaceutical research and biotechnology companies, defended authorized generics in a July 2006 statement. “The bottom line is that authorized generics are a win–win for patients. They increase competition and result in savings to the health care system.”
A New Trend
When Merck’s blockbuster cholesterol drug Zocor’s patent expired in June 2006, the company priced the pill—which generated sales of US$4.4 billion in 2005—below the price of the first generic. The move didn’t stem the loss from generic competition by much, however. Data from health care information provider Verispan, Yardley, Pa., USA, show a 70 percent reduction in Zocor’s sales in the first full month of generic competition. Immediately after Hatch–Waxman took effect, limited competition from generics caused the brand pharmaceutical industry to lose only 15 percent of its market share per year following patent expirations, Rauch says. “Now you can lose 50 percent in less than a week after the patent expires,” he says. “It’s very hard for brand pharmaceutical companies to adjust to these rapid losses of market share.”
Pharmaceutical companies rely on government–granted patents to protect their huge investments in researching and developing new therapeutics, according to PhRMA’s July 2006 statement on authorized generics. The absence of this protection “would seriously impact the pharmaceutical companies’ ability to recoup their costs and reinvest in other research projects.”
Ultimately, federal regulators and legislators will decide how to balance the equation. Arguments on the issue of authorized generics will be investigated by the Federal Trade Commission, which agreed in March 2006 to undertake a study on the short– and long–term competitive effects of authorized generics. The study is expected to be complete in the spring of 2007. With so many competing interests at stake, however, a definitive resolution on generic competition is a long way off.
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