Go Go Generics

Dec 01, 2009

Jill Wechsler
Since enactment of the Hatch-Waxman Act 25 years ago, the generic drug industry has grown exponentially, a cause for celebration among generics firms and their customers. Generics now account for 70 percent of prescriptions in the US, with health plans, payers and pharmacy benefit managers (PBMs) promoting these less expensive, bioequivalent products as a way to curb healthcare spending and expand patient access to drugs. Sales of generics are currently near $50 billion, and industry analysts anticipate another growth spurt as brand-name products with about $60 billion in sales lose patent protection over the next two years.

One aim of the 1984 legislation was to maintain a balance between stimulating generic product development and maintaining incentives for innovation. That goal has been tested over the years by both sides "gaming the system." Generics makers have aggressively challenged drug patents before scheduled expiration, while brand-name firms have delayed generic entry through 30-month stays, citizen petitions, and deals to "authorize" their own generic products.

The Battle Over Biosimilars

With 25 years of product development and manufacturing experience, generics makers are looking for future growth in follow-on versions of more complex dosage forms and "biosimilars" of large molecules. Health reform legislation is slated to establish a pathway for the Food and Drug Administration to approve follow-on biologics (FOBs), something that wasn't included in Hatch-Waxman. There's general agreement on Capitol Hill over how much clinical research FDA should require to document similarity between an innovator and FOB, and on difficulties for establishing interchangeability. But patent exclusivity remains contentious.

"A 12-year market exclusivity policy will result in few, if any, generic biologics and less, rather than more, innovation," said Teva North America president Bill Marth at the September meeting of the Generic Pharmaceutical Association (GPhA). Teva will be involved in this market, he said, but only as an innovator firm, not to make biosimilars if exclusivity is so extensive.

There's also a conflict over the framework for resolving patent disputes. Proposals differ for requiring disclosure of patent information, for challenging patent terms, and for communicating pending challenges to involved parties. Generics makers won a requirement in Senate legislation for the same Medicare billing codes for brand and follow-on products—an approach that encourages biosimilar utilization. But that's a minor item in the larger, high-stakes debate.

Carve-Outs and Settlements

Generics makers would like Congress to support their fight against several policies designed to curb or delay product utilization. One threat comes from state "carve-out" laws that limit generic substitution at the pharmacy. Such policies arise from anxiety, often generated by brand competitors, that a generic raises safety issues for patients. Congress' Government Accountability Office may investigate.

Another fight involves marketing of authorized generic products by pharma companies just before patent expiration, which usually results in limited generic competition during the 180-day exclusivity period. The looming wave of major patent expirations is prompting development of more "branded generics," produced either by the original manufacturer or under contract with a generics firm. Brands are expanding their capacity in this area through the purchase of generics firms around the world.

Interestingly, both brands and generics want flexibility to settle patent disputes through agreements that involve pharma payments to generics firms to delay market entry until an agreed-on future date. While the Federal Trade Commission (FTC) and other critics have labeled these "pay-for-delay" deals as anti-competitive, manufacturers on both sides claim that such arrangements can avoid lengthy patent battles and end up accelerating consumer access to generic products. The FTC has gone to court to block delay settlements, and Congressional leaders may try to curb these deals.

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