Generics enter ‘Golden Age,’ but hurdles remain

America’s favorite bedtime snack lost its patent in April of this year, spawning an immediate rash of 13 approvals of its generic equivalent within two days.

The expiration of the patent for Sanofi-Aventis’ $2.2 billion sleep medication, Ambien, on April 21 was nothing to snooze over. It’s the biggest patent expiration this year and has led to the Food and Drug Administration approval of 13 generic versions of zolpidem tartrate, immediate-release tablets in formulations of 5 mg and 10 mg. (Sanofi-Aventis’ extended-release Ambien CR is not yet available in generic versions.)

These should be happy times for generic drug makers. Generic drugs accounted for 54 percent of total drugs dispensed in 2006, up from 50 in 2005, and upcoming patent expirations make this the “Golden Age” of generics, said Ed Pezalla, vice president and medical director of Prescription Solutions, at the recent Pharmaceutical Care Management Association’s PharmacyBenefit Management & Generic Pharmaceutical Issues Symposium.

Other brand name drugs that have lost their patent this year include Pfizer’s hypertension drug Norvasc and migraine medication Imitrex from GlaxoSmithKline. Coming soon, the loss of the patent for GSK’s Coreg in September, as well as Pfizer’s Zyrtek and Schering-Plough’s Clarinex in December.

“We’re just starting off on the biggest period of patent expirations we’ve ever seen,” said Barath Shankar, research analyst with Frost & Sullivan.

There’s a glut of expirations on the horizon—of both blockbuster pharmaceutical drugs and biotech medicines. Last year, $11 billion worth of branded drugs lost their patents and opened up the market to generic competition, and another $99 billion worth of brand name drugs are expected to go off patent between 2007 and 2012, according to Bain and Co.

One result of the growing opportunities for generic drug manufacturers is a diminishing number of companies as they consolidate to create newer, stronger powers.

“Consolidation is driven by [generics manufacturers] wanting to expand their portfolio so they can negotiate better in terms of pricing with distributors,” Shankar said. The greater the number of drugs in a manufacturer’s portfolio, the more likely they are to be carried by a distributor, he explained, because they’re of more interest to the distributor.

It’s not just generic companies merging or acquiring, he said, but there’s also a considerable amount of vertical consolidation, so that generic manufacturers can source active pharmaceutical ingredients within their own company and therefore offer better prices.

One of the factors behind this consolidation is the considerable generic forces coming from India.

The top five Indian companies are Ranbaxy, Dr. Reddy’s, SunPharma, Cipla and Nicholas Piramal. Ranbaxy made the list of the top 10 generics companies in the United States.

It’s cheaper to produce drugs in India, said Tom Newton, a pharmaceutical market analyst at Visiongain in the United Kingdom, “and these companies have been doing it for a long time, so they’re good at it.”

India also has the upper hand because outside of the United States, it has the largest number of FDA-approved sites, so the safety of its facilities is almost guaranteed. And there are many available skilled young workers, who are educated and English speaking. In fact, according to Venkat Krishnan, vice president of Ranbaxy, it is the third-largest English-speaking scientific and technological manpower in the world.

Ranbaxy entered the U.S. market 12 years ago.

“We’d always envisioned ourselves as a global company, and America was the last market to penetrate,” said spokesman Chuck Caprariello, who is based in the company’s U.S. headquarters in New Brunswick, N.J. These days, 20 percent of the company’s revenues come from the United States.

Even with branded drugs coming off patent and generics gaining share of prescriptions dispensed, there are still a number of hurdles, all of which are moving toward resolution at incredibly slow speed. (For more on these issues, see following pages.) These include:

Biogenerics

Biogenerics are still a dream rather than a reality. There still exists no pathway to approve these drugs—also called biosimilars or follow-on biologics—in the United States because, say opponents, they cannot be an exact match of a biotech drug.

Four biosimilars already are approved in Europe, but industry experts don’t expect to see them approved in the United States any time soon.

Authorized generics

Authorized generics basically are branded drugs disguised as generics. A branded company supplies its drug to a generic firm, or to its own subsidiary, to market the product as a generic in return for royalties. Many people say these are nothing but bad news for the generic drug industry because they cut into the 180-day exclusivity period that is granted to the first generic on the market—and they are increasing. In 2005 21 authorized generics were approved compared with 24 in 2006. In the opposing camp, however, are the generics companies who contract with the branded companies to make their authorized generics products—and reap the financial rewards.

Citizen’s petitions

Long a thorn in the side of generic pharmaceutical companies, citizen’s petitions, which are typically launched by a branded company in an attempt to delay the launch of a generic, have been proliferating for years now.

“It’s become almost a knee-jerk reaction by branded companies when a generic is launched,” said Bill Rakoczy, a partner in the law firm Rakoczy, Molino, Mazzochi, Siwik.

This has become such a problem, he explained, that Congress has had to step in, and he expected to see some movement in Congress on this issue in 2008.

Funding at the FDA’s Office of Generic Drugs

Behind the scenes, there’s a huge backlog at the FDA’s OGD, which has seen the number of submitted applications increase by 150 percent, according to director Gary Buehler.

David Snow, chairman and chief executive officer of pharmacy benefit manager Medco, has called for increased funding for the OGD through generic user fees.

“It’s absurd to me that there is any excuse to not fund that office properly,” he said. “The reason they can’t get the applications through the system is because they’re grossly understaffed.”

According to the FDA, fewer generics are being approved for two reasons: A shortage of personnel and the number of faulty applications that generic companies submit. To address the massive backlog, the FDA is reviewing some applications in ‘clusters,’ as it did for the recent approval of generic Ambien (from companies including Teva, Mylan, Dr. Reddy’s and Watson). This method “can only be used when we get a number of applications on the same day,” Buehler said.

Also attempting to improve the generic drug situation, Buehler said the agency has increased its staff “so we have benefited a lot from the increase in resources, but it hasn’t kept pace with the increase in applications.”

He said the OGD needs up to 100 more employees over the next three years to eliminate the build up—a move that would cost between $16 million and $19 million a year.