Generics Face New Challenges and Opportunities in an Evolving Marketplace

The next few years will be both an active and an interesting time for the generic drug industry as it adapts to new market realities.

Generics account for 75% of prescriptions in the United States, a big jump from only 47% a decade ago, according to IMS Health. Over the next 5 years, branded pharmaceuticals with sales of more than $142 billion are expected to face generic competition. “We’re going into the peak years of patent losses,” explained Doug Long, vice president of industry relations at IMS Health.

IMS estimates that the impact of patients shifting to lower-cost generics in major therapy areas, such as cholesterol regulators, antipsychotics, and asthma drugs, will reduce total drug spending by about $80 to $100 billion worldwide through 2014.

Six of the 10 biggest selling drugs— Lipitor, Plavix, Advair, Seroquel, Singulair, and Actos—will lose their patent protection and are expected to face generic competition in 2011 and 2012. Pfizer Inc’s cholesterol drug Lipitor and AstraZeneca’s cholesterol drug Crestor are blockbusters. “Lipitor is a major opportunity for the generic industry,” said Ken Cacciatore, an analyst with the Cowen Group.

GlaxoSmithKline’s Advair and AstraZeneca’s Symbicort asthma drugs would be less of an opportunity for competition. Ronny Gal, an analyst at the research firm Sanford C. Bernstein, said he’s skeptical about generic versions of those drugs reaching the market soon. “The respiratory position of the FDA has been stingy,” he noted.

“The generic version might have the same active ingredient, but not the device, since the device is still covered by a patent. So you’d get Advair without the disc. Consumers might be willing to pay more for the device,” he said.

The antipsychotics category will also be active for generics with Eli Lilly and Co’s Zyprexa and AstraZeneca’s Seroquel, both indicated for schizophrenia, due to lose patent protection in 2011 and 2012, respectively, and Forest Laboratories Inc’s antidepressant Lexapro losing its patent protection in 2011.

The huge diabetes category will also be affected, with patent losses of GlaxoSmithKline’s Avandia and Eli Lilly’s Actos. “The drugs are easy to copy and generics will clearly lead to big savings in the health care system,” said Gal.

Moving to Branded Products

Increasingly, generic companies are becoming hybrid manufacturers as they produce both generic and branded drugs. Teva Pharmaceuticals has been a leader in this trend, and Cacciatore estimates that 30 percent of Teva’s business is generated from branded drugs. “Teva produces Copaxone, the leading drug for multiple sclerosis (MS),” he said. “They have had a good presence in respiratory drugs and in women’s health since they acquired Barr.”

Teva’s global first quarter sales of Copaxone totaled $796 million, and the company is working on a lower volume injection of the drug. Teva is also in Phase III clinical trials for an oral MS treatment.

Cacciatore also cited Watson Pharmaceuticals’ strength in urology with its Gelnique and Oxytrol branded drugs for overactive bladder, as well as Mylan Inc’s EpiPen, as other branded strongholds from generic companies.

Doug Long of IMS observed that generic companies are increasingly focusing on difficult- to-produce products— drug categories where they can have preferred positions and biologics/biosimilars. “If you are not a very innovative product with a very strong clinical profile, it’s much more difficult to launch into a therapy area where leading generics are available and get a first-line position,” he said.

“Generics are such a bumpy business— it’s predicated by uncertainties in legal outcomes and patent expiration. Companies are looking for higher barriers to entry,” said Tim Chiang, research analyst at Capital Group LLC. “There’s been a lot more focus on difficult-to-manufacture products. There’s more interest in controlledrelease drugs that have a patch or injectable delivery system. Prices are higher for those products that are difficult to manufacture.”

Chiang also cited women’s health as a continued area of interest to generic companies. “Pharmaceutical companies can innovate by tweaking the amount of active drug in oral contraceptives so it creates more of a convenience factor.”

Osteoporosis drugs represent another extended regimen in the women’s health area. Eli Lilly’s Evista and Merck’s Fosamax have gone generic in a once-weekly version. This is another area where manufacturers can tweak delivery of administration of a product so that it becomes more convenient for consumers.

Biosimilars Still the “Holy Grail”

One of the most closely watched issues in the generics industry is biosimilars. Biotech drugs comprise the fastestgrowing sector in drug development and are expected to account for more than 50% of all new product approvals in 2015—and 71% by 2025, according to BioWorld Today. Sales of the top 10 biotech drugs exceeded $41.5 billion in 2008, according to a BioWorld Today report. Amgen Inc’s arthritis drug Embrel topped the list with worldwide sales of $5.9 billion.

“That’s an evolving space since there are no bioequivalent pathways. There’s a lot of interest in the industry— biotechs are the ‘Holy Grail’ for generic manufacturers. It’s evolving in Europe, but we’re still 3 to 5 years away here,” said Chiang.

Recent health care legislation had given the FDA the green light to create a workable biogenerics approval pathway, and there is increased pressure on the industry to allow competition in the arena of high-priced drugs.

“The high prices of biotech drugs underscore the importance of creating much-needed competition to lower costs and increase access for these life-saving products,” said Charles Cote, a spokesperson for the Pharmaceutical Care Management Association. “Most high-cost biotech medicines do not face generic competition, straining public and private payers’ ability to provide affordable drug benefits for these necessary and often life-changing products. Generic competition lowers costs because it gives patients the power to choose and gives manufacturers an incentive to reduce prices,” he said.

Cote pointed out that disease states that have high biologic spend include inflammatory conditions, such as rheumatoid arthritis and psoriasis, MS, asthma, anemia, and neutropenia. “The biogenerics provision included in the recently passed health reform legislation is an important first step in bringing about greater competition and lower costs in this space,” he said.

Even when pathways are established, barriers will exist for generic companies to manufacture these drugs. Merck recently decided to end its efforts with Amgen’s anemia drug Aranesp after the FDA said it needed to assess the drug’s cardiovascular side effects with extensive and costly clinical trials.

“When the FDA requires clinical trials, even abbreviated, it will add to the cost of entering the market and limit the players,” said Cacciatore. “Generic competition will be on a product-by-product basis with companies going after certain drugs, if they have the specific technology to produce that drug.”

IMS’s Doug Long doesn’t expect the FDA to be ready to accept submissions for biosimilars until 2013 or 2014. “In the meantime, companies are exploring alternative regulatory pathways, such as filing license agreements with the FDA for promising therapies in their pipelines, to accelerate their entry into the follow-on biologics and biosimilars category,” he said.

In January, the FDA accepted Teva’s Biologics License Application (BLA) filing for a similar biologic to Amgen’s Neupogen. The submission “marks a US milestone for Teva as it is our first biosimilar product,” said a Teva spokesperson.

Clearly, the generics industry faces challenging, yet interesting, times as companies deal with the changing marketplace.

Barbara Sax is a freelance editor based in Chevy Chase, Maryland. She has covered pharmacy and the drugstore industry for over 20 years.