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Blockbuster Drugs Go Generic

Cheaper And Safe, Generic Drugs Are Snatching Market Share Away From Brand-Name Pharmaceuticals. But A Steady Pipeline Of New Drugs Ensures There Will Be Plenty Of Business For Both For Years To Come.


June 19, 2003
Copyright © 2003 CARIBBEAN BUSINESS. All Rights Reserved.

The emerging generics industry: Because generic drugs can be up to 70% cheaper than brand-name drugs, they sell only $11.1 billion a year—less than 10% of the total $132.1 billion annual drug sales market—but account for 45% of all prescriptions filled in the U.S.

Generic pharmaceutical drugs have become the new blockbuster drugs of the 21st century. Thanks to their bargain prices, generics’ sales are increasing at the rate of 10% annually.

The phenomenon has caused some to wonder whether generic drugs could pose a threat to brand-name drug manufacturers, which are the cornerstone of Puerto Rico’s pharmaceutical manufacturing industry. Luckily, both sectors agree there are always new drugs to be developed.

And, while recent federal legislation ensures generics are promoted and price advantages are passed on to consumers, patent protection over new drug discoveries remains long enough to ensure that brand-name pharmaceutical manufacturers recoup their investment before the drug turns generic.

For over four decades, Puerto Rico has been recognized as the pharmaceutical-manufacturing capital, with dozens of manufacturing companies on the island. In 2002, these companies produced 16 of the 20 best-selling brand-name pharmaceutical drugs in the world; total drug sales that year surpassed $355 billion.

There are approximately 50 pharmaceutical companies that produce brand-name drugs in Puerto Rico, along with a handful of generic- or bioequivalent-drug producers. According to a study by economist Heidi Calero for the Pharmaceutical Industry Association of Puerto Rico, the pharmaceutical sector represents 56% of the island’s manufacturing industry and has accounted for more than 40% of its gross domestic product since 1992. Although the ability of Puerto Rico’s manufacturing industry to generate and retain jobs has fallen from 21% to 11% in the past 20 years, the pharmaceutical sector’s portion of manufacturing jobs has increased 8% during that span, to 20%. Indeed, Puerto Rico’s pharmaceutical sector was active enough in 2002 to produce 36 of the top 200 prescription drugs in the U.S., nine of which accounted for 100% of the worldwide production, 10 for 50% or more, and six for 10% to 40%.

Now the brand-name pharmaceutical market is facing stiff competition from generics. The market share of generic drugs on the U.S. mainland has increased from 34% in 1992 to 45% of all prescriptions in 2002, reaching sales of $11.1 billion in 2001 from nearly three billion prescriptions.

Consumers prefer generics to brand-name drugs for their low prices; generics can sometimes put as much as 70% back into their pockets. Pharmaceutical companies that make brand-name drugs, meanwhile, are aware of how quickly generics can ravage a blockbuster product’s sales. What’s worse, the average time between when a brand-name product’s patent expires and when a generic version goes on sale is dwindling every year; today, it averages only three years.

Nevertheless, it is cheaper to make and sell generic drugs. Their manufacturers don’t incur costs for research & development, marketing, or advertising. The U.S. Food & Drug Administration (FDA) gives a generic the seal of approval once the drug has met all regulations.

So, what’s the outlook for Puerto Rico’s brand-name pharmaceutical manufacturers as they face the steadily increasing market growth of generic drugs?

"There’s a market for all," said Ivax Operations Director Lelia Fuentes. "[Generics companies] will continue evolving. This year we have severe acute respiratory syndrome (SARS). Ten years ago, there was the HIV / AIDS boom. If you look at the world’s evolution, you will see that science keeps evolving."

Manufacturers of brand-name pharmaceutical drugs accept this progression. "What we manufacture are brand-name, patent-protected pharmaceutical products," said Harry Rodriguez, Abbott Laboratories divisional vice president & P.R. operations general manager. "Once the patent is lost, however, it’s a free market [for the generics industry]."

This is what Dwight Mutchler, sales & marketing vice president of Mutchler Inc., has seen through the years as an excipients provider to Puerto Rico’s pharmaceutical-manufacturing industry. "Once brand-name products come off patent, pharmaceutical companies continue producing the product and selling it, particularly if it is a blockbuster drug.

"The company then takes three-quarters of a drug’s production and sells it to a generics-distribution chain," continued Mutchler. "This is a common practice for most companies, enabling them to continue making a profit from a drug. So, generics production will definitely continue to grow."

Abbott’s Rodriguez explained, "This is why the pipeline must always be strong, why we dedicate so much time and effort. In the future, our efforts will be concentrated on biotechnology products. They are costlier and more difficult to create, but they will probably be more complex to duplicate."

"The reason the generics industry has grown so much in recent years is that the brand-name pharmaceutical industry has lost so many patents," said Joaquin Viso, the founder, president & CEO of Mova, the first Puerto Rican pharmaceutical manufacturing company. Mova began as a generics production company in 1986. "In addition, federal law amendments [Hatch-Waxman Act of 1984] have allowed generic products to come out more quickly and in a more regulated way. This, and the government’s and private industry’s interest in reducing medical costs, will aid in the growth of the generics industry."

According to Ismael Hau, marketing manager of Mova InterAmerica Corp. (MIC), "The expansion of generic products on the U.S. mainland, where 45% of the population uses generics, is a constant source of concern for the healthcare industry. In Puerto Rico, however, only 15% of the population uses generic drugs. There is a lot to be done to increase the use of generics on the island, beginning with education."

To that end, MIC distributes, free of charge, a booklet among its drugstore clients with information about generics, such as what they are, how effective as a medication they can be compared with brand-name drugs, and some examples of generic drugs produced for some of the most popular brand-name drugs. The booklet has been reprinted several times.

"One of the challenges facing the pharmaceutical industry is competition from generics," said Ana-Maria Zaugg, vice president of corporate strategic planning for IMS Health Inc., during a presentation sponsored by the Puerto Rico Pharmaceutical Industry Association (PIA) last year. "Generics competition seemed manageable until Prozac set a new standard. With managed-care providers and employers shifting more costs to patients and Medicare initiatives that have failed to materialize, generics loom as a cost trade-off."

Zaugg refers to antidepressant Prozac, and how its sales were decimated by the generic version, fluoxetine, in 2001. According to an IMS Health chart, fluoxetine had secured 46% of Prozac’s market share in the second week, 73% in the third week, and 78% in the fourth week. Never before had a generic had so great an impact on such a blockbuster brand-name product as Prozac (which had average annual sales of nearly $3 billion in 2000).

According to IMS Health statistics, at least 16 of the 35 leading brand-name pharmaceutical products in the world will have lost their patents by 2006, causing sales losses of up to $51.2 billion to the top 20 multinational pharmaceutical companies. The lion’s share ($36.5 billion) will fall on the shoulders of the top 10 companies, among them those with local manufacturing operations such as Bristol-Myers Squibb (Pravachol), Merck (Neurontin, Zocor), GlaxoSmithKline (Paxil), Pfizer (Diflucan, Zoloft), and Schering-Plough (Claritin).

What the future holds

To predict the future one must consider the present. The most recent statistics from the Generic Pharmaceutical Association (GPhA) show that U.S. mainland retail sales of generic prescription drugs were $11.1 billion in 2001, or 8.4% of the total $132.1 billion spent on drug therapy at retail. By comparison, sales of brand-name prescription drugs amounted to $121 billion, or 91.6%.

Even though the average cost of generic prescriptions was $19.33, compared with $65.29 for brand-name prescriptions, the GPhA statistics show that approximately 55% of all prescriptions in 2001 were for brand-name drugs. What’s more, generic and bioequivalent drugs are certified by the FDA to be comparable to their brand-name counterparts. Given that there are generic versions available for approximately 75% of brand-name drugs, then, why do consumers continue paying more for a brand name?

Dozens of healthcare organizations, insurance agencies, managed-care companies, and government agencies have studied the issues holding back the growth of the generic-drug market. The GPhA calls them "real and artificial barriers" to generic-drug use.

One barrier is the rebate paid to insurers by manufacturers of brand-name, patent-protected prescription drugs. Physicians are also barriers when they exercise "the power of the pen" to prescribe brand-name products instead of generics.

Other barriers include inadequate maximum-allowable cost levels set by public and private healthcare providers (insurers) to incentivize pharmacists’ promotion of generic drugs to consumers; an underfunded FDA Office of Generic Drugs, which is slow to approve abbreviated new drug applications (ANDAs); and brand-name patent holders filing frivolous lawsuits for patent infringement litigation that put continuous 30-month delays on ANDAs.

Boosting generics

Despite all the barriers, the use of generic drugs is on the rise. The number of generics has more than doubled to 8,021 since the 1980s (as of March 2003). This growth has largely been spurred by a federal regulation known as the Hatch-Waxman Act of 1984.

Hatch-Waxman is a regulatory framework that balances incentives for research-based brand-name pharmaceutical companies and provides guidelines for generic-drug manufacturers to enter the market. While it provides the patent protection that is essential for research-based brand-name pharmaceuticals, it fosters the early development of generic alternatives.

The law grants patent protection to brand-name products’ active ingredients for 17 to 20 years. During this time, the pharmaceutical company holding the patent must test the new drug and have it approved according to the FDA’s New Drug Application (NDA) regulations before it can be marketed to consumers.

During the NDA process, a pharmaceutical company invests an average of $800 million in research & development, clinical trials, and compliance with government regulations in areas such as packaging, labeling, and patient-drug information. Only then will the FDA grant its approval of the product, and the company can proceed to market the drug to consumers. The FDA currently has 10,569 products in its Orange Book of approved drugs.

Before the Hatch-Waxman Act of 1984, generic-drug makers couldn’t begin working on the formula for their version of a brand-name product until the last date of that product’s patent protection. If they did, the generic-drug makers could be accused of patent tampering. Today, generic-drug makers are allowed access to brand-name drug makers’ data on products’ safety and efficacy, which speeds the process of manufacturing generics.

The cost advantage of generic drugs is increasingly evident in light of the escalating prices of brand-name drugs. A Merck-Medco Managed Care report indicated the average cost per day of a drug introduced to the market before 1995 was $1.09; by 1999, the cost had risen 173% to $2.97.

This is one of the reasons U.S. congressional members are proposing legislation to expand programs promoting the use of generic drugs to low-income groups that don’t have access to brand-name medicines. Sens. Edward Kennedy (D.-Mass.), John McCain (R.-Ariz.), and Charles E. Schumer (D.-N.Y.) have presented several bills supporting the elimination of legal and bureaucratic restraints to the approval of generic drugs.

In June, Health & Human Services Secretary Tommy Thompson announced new FDA regulations limiting a generic drug’s stay from the market during a patent challenge to one 30-month period. Other procedures to speed and reduce the cost of determining whether a new generic drug is safe and effective are being reviewed.

The FDA expects 465 ANDA approvals in 2003, a 29% increase compared with the 361 ANDAs approved in 2002. Cancer drugs with annual sales of more than $15 billion will lose patent protection over the next decade, which will trigger an influx of generic equivalents.

Why invest in generics?

It can take 10 to 15 years and $800 million or more to develop a brand-name pharmaceutical drug, from research & development to marketing, according to the most recent industry statistics. Of course, there are vast rewards for the companies involved in brand-name drug manufacturing, not only in the billions of dollars the drugs rake in each year but also in the potential satisfaction of finding the cure for a disease such as polio, tuberculosis, SARS, or HIV / AIDS.

In the U.S., 71% of HMOs require generics to be substituted for brand-name drugs whenever possible. Many insurance companies charge patients higher co-payments for a brand-name drug if there is a generic version available.

The courts will increasingly quash the delay tactics used by brand-name pharmaceutical manufacturers, smoothing the path for generics companies. Today, it isn’t unusual to find pharmaceutical drug makers much more willing to sell or enter into co-sharing marketing contracts with generic companies on those products whose patents will soon expire.

Ivax Pharmaceuticals succeeds as a bioequivalent-drug manufacturer

Ivax Pharmaceuticals Inc. has invested more than $100 million in the past three years to add space and equipment to its plant in Cidra, improve its infrastructure, and expand its work force from 320 employees to nearly 600 by year’s end.

"Since 2000, the constant addition of new bioequivalent drugs to our manufacturing process, with an average 35% increase in annual volume, has resulted in a massive employment effort to keep the plant’s production operating seven days a week, with three consecutive work turns and the packaging division taking two work turns," said Ivax Operations Director Lelia Fuentes. "We work with 65 active ingredients, from which we produce 125 formulas and 680 different packaging configurations. It is a dynamic operation and we average four or five product launches each year."

Ivax was one of the companies ready to do business with the government when the need for Cipro, one of the few antibiotics that effectively treat anthrax, spiked after 9/11. Pharmaceutical companies such as Ivax were able to come up with a drug that was more cost-effective and efficient than the brand-name version and could be available worldwide.

"But there is enough work for all of us," said Fuentes. "We can’t take away from the added value that a new drug discovery brings. There are impressive brand-name drugs that have been around for 50, 60, even 80 years and still are effective treatments. The worth of brand-name pharmaceutical companies is that they will continue evolving since there will always be new illnesses, such as SARS [severe acute respiratory syndrome] and HIV / AIDS."

What Fuentes can’t say is that a new drug is necessarily the best. According to Fuentes, generic-drug manufacturing took off on the wrong foot years ago because there was little regulatory intervention. The entry of generic retail products billed as cheaper—but of lesser quality—also affected the generic-drug industry.

"The pharmaceutical drug-manufacturing market has advanced enormously since then," said Fuentes. "It used to be that brand-name drug companies depended on how medical sales representatives kept physicians informed of pharmaceutical drugs’ benefits. Other aspects affecting drug sales were how medical insurance plans operated and the importance of patients’ purchasing power.

"Nowadays, the sale of pharmaceutical drugs is a huge business, not necessarily geared toward individual treatment at the time of marketing the drug," continued Fuentes. "This has affected consumers as they take more responsibility in choosing a drug treatment based on advertising campaigns worth millions and the high costs of brand-name drugs."

Ivax produces mostly bioequivalent drugs, although parent company Ivax Corp. also develops proprietary products to treat respiratory, oncologic, central nervous system, gastrointestinal, urologic, and veterinary problems. A bioequivalent drug differs from a generic in that it must prove through clinical trials that it has the same medical and therapeutic effect as a brand-name drug. Once approved by the U.S. Food & Drug Administration (FDA), a bioequivalent drug can become as much of a blockbuster drug for its manufacturer as brand-name drugs can be for their companies.

Take, for example, what happened to Bristol-Myers Squibb (BMS) in 2000 when Ivax launched bioequivalent drug paclitaxel to counter BMS’ Taxol, a widely used cancer treatment. Sales of Taxol dropped 31% to $1.1 billion from $1.6 billion in 2001. They dropped another 22% to $857 million last year.

"A generic drug’s clinical trial can cost up to $1 million," said Ivax Human Resources Director Lourdes Melendez. "At a minimum, the proportional investment in manufacturing a bioequivalent drug can run more than a third of a brand-name drug’s investment, close to $275 million."

Fuentes and Melendez said Ivax operates in an environment that is full of day-to-day changes. "Brand-name drug manufacturers depend on the marketing stage to produce high-volume sales because they have an exclusive market," said Fuentes. "But as a bioequivalent-drug manufacturing company, we depend on being cost-efficient since our earnings spread is smaller than a brand-name company’s. We have to use advantages such as cost to compete."

Brand-name drug manufacturers will lose $51.2 billion in sales by 2006

Sixteen of the top 35 brand-name pharmaceutical drugs in the world will lose their patents by 2006, costing the top 20 manufacturers $51.2 billion in sales. The products in bold below are made in Puerto Rico.

Active ingredient(s): Brand name / Manufacturer

Omeprazole: Prilosec / AstraZeneca

Simvastatin: Zocor / Merck & Co.

Amlodipine: Lotrel / Novartis

Fluticasone: Foltx / Pan American Laboratories

Pravastatin: Provigil / Cephalon Inc.

Paroxetine: Paxil / GlaxoSmithKline

Sertraline: Zoloft / Pfizer Inc.

Lisinopril: Prinivil / Merck & Co.

Amox / Clavulanic Acid: Amoxicillin / Anexsia

Loratidine: Claritin / Schering-Plough Inc.

Salmeterol: Serevent Diskus / GlaxoSmithKline

Ciprofloxacin: Cipro / Bayer Pharmaceutical

Gabapentin: Neurontin / Parke-Davis

Levofloxacin: Quixin / Santen Inc.

Azithromycin: Actron / Bayer Pharmaceutical

Nifedipine: Naftin / Merz Pharmaceuticals

Sources: IMS Health: Midas, December 2001; Lifecycle, December 2001; SMR Team Analysis, 2002

What’s the difference between generic, bioequivalent, and brand-name drugs?

There are more than 8,000 generic drugs available for prescription use, linked to approximately 75% of the 10,570 brand-name pharmaceutical drugs approved by the U.S. Food & Drug Administration (FDA). The FDA regulates all the processes to manufacture pharmaceutical drugs and ensures companies use the same active ingredients in brand-name and generic drugs, guaranteeing that both versions have the same medical effect.

According to the U.S. Congressional Budget Office, the substitution of generics for brand-name drugs saves consumers between $8 billion and $10 billion annually. Michigan’s Blue Cross Blue Shield has calculated that if consumers were to increase their use of generics by 1% statewide, they would save more than $30 million annually.

To earn FDA approval, a generic drug must have the same active ingredients as a brand-name drug. A generic is effectively the same as a brand-name pharmaceutical drug in terms of dosage, safety, and strength; how it is taken; its quality; its performance; and its intended use. The only difference is the name and cost.

The term generic is used to define a nonbrand-name pharmaceutical drug. In actuality, though, there is a third kind of drug that competes with both generic and brand-name drugs. It is called bioequivalent, meaning that the drug is almost an exact copy of the brand-name drug it substitutes in rate and extent of absorption in the body.

Brand-name drugs

Brand-name drugs are developed by researchers and scientists based on the discovery of an active ingredient and its medical use. After giving the drug a name that reflects its chemical identity, the company that owns the chemical applies for a patent on the active ingredient, protecting the chemical element from being copied.

The patent protects the drug for 17 to 20 years. During this time, the pharmaceutical company has to conduct research & development, perform clinical trials, and meet other federal regulations to obtain FDA approval. The entire process, from discovery of the chemical to receipt of FDA approval, can cost up to $800 million before the brand-name drug is ready to be marketed. Studies show that companies spend upward of $15 billion to $17 billion promoting prescription drugs.

Generics and bioequivalents

When a brand-name drug’s patent expires, generic- and bioequivalent-drug manufacturers can develop formulas and submit them for FDA approval by going through an abbreviated new drug application (ANDA) process. The FDA lists all its approved drug products in a document called the Orange Book.

The FDA gives generic and bioequivalent drugs listed in the Orange Book an "A" or "B" rating (or a combination of both: "AB1," "AB2," etc.).

The "A" rating is used for bioequivalent products, or drugs that are therapeutically equivalent to a brand-name product. This means the drug meets requirements such as having the same active ingredients in the same dosage form and same strength and using the same administration route as the brand-name product. It also has been proven through clinical trials of 24 to 36 subjects to have the same rate and extent of absorption in the body.

"B" ratings are used for pharmaceutical drugs that act as generics. A generic product is only pharmaceutically equivalent to the brand name, since it won’t have gone through clinical trials for rate and extent of absorption in the body. A generic drug has the same dosage form as a brand-name drug, but can differ in some characteristics.

Mova’s Viso says competition has improved generic and brand-name pharmaceutical manufacturing

Mova Pharmaceutical Corp., the first Puerto Rican-owned pharmaceutical company, has been successfully developing, manufacturing, marketing, and distributing its own generic products since 1986. However, the company recently decided to concentrate on providing new products to brand-name pharmaceutical companies and manufacturing formulations for existing drugs.

"We understood that our focus should be on helping the pharmaceutical industry develop products," said Mova Pharmaceutical President Joaquin Viso. "But with the expansion of the generic-drug manufacturing industry, both brand and generic companies have become sophisticated in the use of patents, complicating an already complex process.

"It’s become good business for law firms and patent lawyers," continued Viso. "In the end, this may be good because it helps to apply more science and technology to the generic-drug production process, making a drug go through a stricter filtering procedure before it confronts all the lawsuits."

Mova InterAmerica Corp.’s Ismael Hau closely follows the laws regulating the pharmaceutical drug industry in Puerto Rico. Mova InterAmerica, a separate company from Mova Pharmaceutical, is dedicated to the sale, marketing, and distribution of more than 17 companies’ pharmaceutical drugs throughout Puerto Rico. These companies have more than 500 different units combined.

"Puerto Rico’s guidelines on generic-drug manufacturing follow the U.S. Food & Drug Administration’s regulations," said Hau. "When a customer goes to a drugstore to fill his or her prescription, by law the certified pharmacist has to offer to substitute a generic drug for a brand-name drug, if one is available."

In this respect, Puerto Rico law differs from U.S. mainland law. In the States, a pharmacist can only substitute a brand-name product upon receiving written permission from the physician or after calling to verify that the physician approves the substitution.

"The generic drug has to be in the exact form as the brand-name product," said Hau. "For example, if the brand-name drug is a tablet, then the FDA will only approve its generic version if it is in tablet form. The only difference there can be between the two products, other than the price, are the excipients [inactive ingredients] used, which give a pharmaceutical product its color, shape, or size."

Mova Pharmaceutical has evolved since it began operations. "I have always preached to others about the benefits of contract manufacturing, or outsourcing, in this industry," said Viso. "Mova Pharmaceutical has proven that it can develop and produce the same or even better products for its customers. But now the company is focused on research & development [R&D] and manufacturing."

Viso is also president of Alara Pharmaceutical Corp., Mova Pharmaceutical’s R&D arm. The two companies have more than 1,300 employees between them.

Viso noted that Mova Pharmaceutical’s growth was a modest 12% in 2002 because of investments made in the Manati plant. However, he expects revenue growth to exceed 40% this year.

This Caribbean Business article appears courtesy of Casiano Communications.
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