Generics

“With greater than 90% of US prescriptions being for a generic medicine, generic drugs might be thought of as a growth area. However, the opposite is true and while generic competition is now the third inevitability (with death and taxes), US generic price deflation is running at about 5-10% a year and has had a drastic effect on the sales and earnings of most generic pharma companies” Andy Smith, healthcare analyst.

How large is the market for generic treatments?

The FDA reports that generic drugs have saved consumers $1.67tn or more, with US spending on generics expected to increase to $505bn by 2021, research firm Quintilles reports. The FDA’s Office of Generic Drugs, tracks generic usage and marked 2017 as a record-breaking year for approvals, with 1,027 new generic drugs receiving marketing authorisation – an increase of 214 from record figures the previous year.

What are generics?

In most countries, pharmaceutical companies retain patents on the drugs they develop for 20 years, although in some regions such as the European Union, extensions can be granted for certain treatments; for instance, those that have conducted paediatric clinical trials.

When these patents complete their terms, companies can copy the original compound as long as it is considered bioequivalent. This lowers drug prices due to aggressive competition and greatly reduced development costs.

What is bioequivalence?

Regulators require generics to provide the same clinical profile as their patented brand-name rivals. To do so, companies must show that a drug is biologically similar to the original by proving certain equivalencies in clinical trials.

The first is that the main ingredient in the generic must be the same as the original treatment, while inactive ingredients that help transport the drug can differ as long as they do not affect the strength of the product.The new drug must also be manufactured under the same strict standards of the original and must conform to the same route of administration (for example, oral or topical), and maintain the same form, eg a pill or spray.

If these, among other requirements are met, the generic can forgo the long-term clinical efficacy data required for new drugs, cutting the price of production considerably.

How difficult is the generic approval process?

Registration as a generic may be streamlined compared to new drug development, but it is still time consuming. In the US, the FDA reported that it took on average 15 months to get a generic drug approved in 2016 under an abbreviated new drug application (ANDA).

This was an improvement over the 24-month average of 2013, but was still an expensive process that more often than not has to be extended. From the beginning of this year to May, 806 ANDAs were submitted and 104 have been declined, alongside 132 that were awarded tentative approval.

All while the original pharmaceutical company retains its original infrastructure, allowing it to sell brand-name medicine without competition, often while developing its authorised generic at the same time. In the process, pharmaceutical companies gain an additional 180 days of patent protection if it they get their authorised generics to market before their competitors.

How do pharmaceutical companies extend patents beyond their natural lifetimes?

In addition to the 180 days of patent protection offered to companies that are first to market with a new generic, pharmaceutical companies have deployed a number of strategies to hold on to monopolies after patents have run out. Among these, pay-for-delay has received the most attention from antitrust regulators.

This is a process where pharmaceuticals sue a generic company for patent infringement, with the expectation of a settlement where the generic company receives more money than it would make from selling its finished product. In return, the generic manufacturer delays its approval process, allowing the pharmaceutical to continue selling its branded drug without the price pressures of competition.

Pharmaceutical companies can also attempt to restrict access to the samples required to test generics against their brand-name counterparts to show bioequivalence. This slows down the already lengthy generic approval process – in one notable occasion, by increasing the price of a brand-name drug out of the buying power of generic rivals. Patent-extension strategies extend even to FDA designations, with some companies taking advantage of orphan drug status meant to help in the development of drugs for rare diseases.

The most infamous of these is Humira, the most popular rheumatoid arthritis drug in the world. It gained orphan status for the treatment of juvenile arthritis, as well as four other rare diseases. This allows the company to charge premiums for the treatment of certain rare diseases, when the same drug has effective generic alternatives that have been approved for common diseases.

Which companies produce generic drugs?

The market comprises a mix of independent specialists and large pharmaceutical companies that maintain generic divisions. Of these, pharmaceuticals have been making a push to acquire and merge smaller independent outfits of late. Pzifer acquired Hospira in 2015, a worldwide leader in injectable generics. The pharmaceutical giant expects to receive $1bn in annual savings arising from the merger in 2018.

Teva Pharmaceuticals, for its part, reported a revenue increase of 2% in 2017, which it equates with its purchase of Actavis Generics and a subsequent enlargement of its generics division.

All in all, in 2016, 42 generic companies merged with pharmaceuticals, which is a substantial increase from the 34 mergers conducted in 2015 or the 22 in 2014.

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