Generic Pharmaceuticals

The Generic Pharmaceutical Industry continues to play a mega role in the health care marketplace. Today, according to industry sources, U.S. generic pharmaceutical sales are at some $54.1 billion and account for around 63 percent of all prescriptions dispensed in the United States.

This special section is dedicated to the generics market and includes some interesting and thought-provoking facts and figures, a brief history of the generics industry, news items. Also included are two position statements from the Generic Pharmaceutical Association and excerpts from a speech GPhA’s president and CEO, Kathleen Jaeger, presented at the Windhover FDA/CMS Summit.

The Generics Industry At-a-Glance

Facts and Figures:

• U.S. brand pharmaceutical manufacturer sales for 2006: $220.6 billion.

• U.S. generic pharmaceutical manufacturer sales: $54.1 billion. (Source: IMS Health)

• The top five U.S. corporations by unbranded generic prescriptions dispensed are Teva Pharmaceuticals USA, Mylan Laboratories Inc., Novartis (Sandoz), Watson Pharmaceuticals, and Mallinckrodt, respectively.

• 8,730 of the 11,487 drugs listed in the FDA’s Orange Book have generic counterparts. (Source: FDA, MedAd News)

• Generic medicines account for 63% of all prescriptions dispensed in the United States. (Source: IMS Health)

• Generic pharmaceutical products are used to fill more than one billion prescriptions every year.

• In 2006, the top 10 generic drugs, by prescriptions dispensed in the United States, were Acetaminophen, Hydrocodone, Hydrochlorothiazide, Lisinopril, Amoxicillin, Metformin, Levothyroxine, Atenolol, Albuterol, and Furosemide. (Source: IMS Health)

• In 2006, the average retail price of a generic prescription drug was $32.23. The average retail price of a brand name prescription drug was $111.02. (Source: The National Association of Chain Drug Stores, 2006).

• Generics (unbranded and branded) accounted for 63% of all prescriptions dispensed in 2006, according to IMS Health data, but less than 20% of every dollar spent on prescription drugs. Generics cost, on average, 30% to 80% less than their brand counterparts.

• The U.S. market for unbranded generics grew by 22.3% in 2006. (Source: IMS Health)

• Blockbuster products coming off patent are valued at $27 billion in 2007 and $29 billion in 2008. (Source: Bain & Company)

A Brief History of the Generics Industry

In the 1960s, a government effort to prove the safety and effectiveness of pharmaceuticals manufactured prior to 1962 helped to launch the generic pharmaceutical industry. In 1962, the National Research Council of the National Academy of Sciences was instructed to evaluate all drugs that had been approved for use prior to that year. Under its Drug Efficacy Study Implementation (DESI) program, the National Research Council reviewed more than 3,000 products. The list produced by this review described which products were effective for all claimed indications, and which were probably or possibly effective for claimed indications, and those which were ineffective for claimed indications.

As a result of the review of these products, generic manufacturers were able to file for approval to manufacture products that had been ruled effective without the need to conduct biostudies. Thus, a number of pre-1962 medications, if made to the prescribed chemical formula, were able to enter the market without additional study.

It wasn’t until passage of the Drug Price Competition and Patent Term Restoration Act of 1984, commonly known as Hatch-Waxman, that the generic industry truly blossomed. This landmark law created the regulatory mechanism under which the Food and Drug Administration can approve affordable pharmaceuticals. As President Ronald Reagan said at the time, Hatch-Waxman provided “regulatory relief, increased competition, economy on government, and best of all, the American people will save money, and yet receive the best medicine that pharmaceutical science can provide.”

Over the past two decades, President Reagan’s prediction has proven to be true. The generic industry has grown dramatically, from $1 billion in annual revenues to more than $22 billion today. From a modest beginning, today more than one out of every two prescriptions is filled with generic medicines. And the value remains — less than 13 cents of every dollar spent on prescriptions are spent on generic medicines.

Source for facts and Figures and a brief history: The Generics Pharmaceutical Association Web Site

The Generic Pharmaceutical Association (GPhA) was founded in 2001, following the merger of three industry trade organizations: the Generic Pharmaceutical Industry Association, the National Association of Pharmaceutical Manufacturers, and the National Pharmaceutical Alliance. The three groups represented similar members, with the former two placing a greater emphasis on scientific issues and the latter focusing on sales and marketing issues. As GPhA, the industry now speaks with a stronger, unified voice before federal and state governments, the courts, and the court of public opinion.

GPhA Releases Position Statements

The Generics Pharmaceutical Association has released position statements concerning two separate pieces of legislation recently introduced into Congress.

In May, GPhA president and CEO Kathleen Jaeger made a statement concerning the “New Trade Policy for America,” introduced by democratic House Ways and Means Committee Chairman Charlie Rangell and Trade Subcommittee Chairman Sander Levin. In June, Jaeger made a statement regarding legislation crafted by Senators Edward Kennedy, Michael Enzi, Hillary Clinton, and Orrin Hatch that would authorize the Food and Drug Administration to approve biogenerics:

GPhA Statement on “New Trade Policy for America” Legislation  

“This new bipartisan trade policy is proof that a balance between fostering drug innovation and ensuring access to affordable medicines can be achieved. The ‘New Trade Policy for America’ is an important step forward in ensuring that our nation’s Free Trade Agreements reflect U.S. law and ensure domestic and international access to affordable medicines.

“This new bipartisan agreement sends the message that our Free Trade Agreements should not unduly block generic competition abroad or include measures that delay timely access to affordable medicines. For more than 20 years, the U.S. health care system has proven that bringing competition into the pharmaceutical marketplace results in lower consumer costs without stifling innovation. This new trade policy recognizes that this balance can also be achieved abroad.

“For years, the brand pharmaceutical industry has been overreaching in Free Trade Agreements by succeeding in gaining more intellectual property rights than they have under U.S. law.  This new policy simply makes Free Trade Agreements in Colombia, Panama and Peru consistent with U.S. law so that consumers in our trading partners will also benefit from access to more affordable medicines. Contrary to claims that it harms brand companies, the new framework merely tells them that they need to play by U.S. rules which have served the brands well for decades. It does nothing to hinder innovation and, in fact, brings other nations more in line with the research and development incentives pharmaceutical companies currently enjoy here in the United States.

“We greatly appreciate the efforts of Mr. Rangel, other Congressional leaders and the Administration to strike the right balance in our trade agreements and wish them success in drafting text that reflects this basic intent. While the ‘New Trade Policy for America’ affects Free Trade Agreements with Colombia, Panama and Peru, we urge Congress to continue to push for reform in future free trade agreements, such as Korea.”

GPhA Statement on Biogenerics Legislation   

“GPhA applauds the bipartisan efforts of Members of the Senate Health, Education, Labor and Pensions Committee to facilitate the ultimate passage of ‘The Biologics Price Competition and Innovation Act of 2007.’ However, we continue to have significant concerns about two specific provisions of the Manager’s Amendment that would unnecessarily delay getting safe, effective, more affordable biogenerics into the hands of consumers.

“First, we continue to oppose the extension of 12 years of market exclusivity that this legislation grants brand biotechnology companies. Such an arbitrary and excessive period of time is not only unprecedented and unwarranted, but more importantly, would unjustifiably delay access to affordable competition and choice for consumers and businesses alike.

“Second, we believe another flawed provision would permit brand companies to make a minor change to their product and receive an additional 12 years of exclusivity. This provision could allow brand companies to make multiple minor changes to their products and receive 12 years for each change, in effect maintaining their monopolies in perpetuity. This practice, commonly known as ‘evergreening,’ would essentially prevent safe and affordable life saving biogenerics from ever reaching patients. We have been informed by Senate staff that this is not the true intent of the compromise agreement forged by the Senate and will work with the negotiators to craft language that addresses this issue.

“Once again, we commend the extraordinary efforts of the Committee to craft a long-overdue pathway for safe and effective biogenerics. However, we must underscore that changes to the underlying bill must be made in order to ensure that this bill achieves the very real potential of this legislation and ultimately gains our support. None of us want to participate in a process that produces little more than an empty promise. We are confident that working together in good faith with all stakeholders—consumers, businesses, health plans, Governors, and representatives of the pharmaceutical industry—the Congress can and will produce a workable legal and regulatory pathway for biogenerics.”

New Frost & Sullivan Report:
U.S. Generic Pharmaceuticals Outlook

Frost & Sullivan recently released a new research report titled “U.S. Generic Pharmaceuticals Market Outlook.” The 66-page report provides a detailed analysis of the generic market, including competitive structure, market and revenue forecasts, and market share analysis. It also examines the major industry challenges and identifies the most promising opportunities for future market growth.

In announcing the new report, the company gave the following market overview of the generics industry.

Generic Pharmaceuticals Manufacturers Look to Vertical Integration to Cope with Growing Competition and Pricing Pressures

The generic pharmaceuticals market in the United States witnessed a series of major mergers and acquisitions between 1997 and 2006 as companies sought to sustain themselves in an intensely competitive environment. As competition continues to increase and pricing pressures intensify, companies are looking to strategies such as vertical integration of active pharmaceutical ingredients (API) manufacturing from low-cost manufacturing locations. “A strong API backbone is a vital component of a successful growth strategy for most large generic pharmaceutical companies, usually achieved through acquisitions and backward vertical integration,” notes the analyst of this research service. “While this ensures a stable supply of raw materials for captive consumption, it could also emerge as a successful business unit by itself to support further expansion.”

Companies that implement this strategy could also benefit by achieving greater control over margins and improved stability in supply. The bulk of API supply is drawn from low-cost manufacturing locations and this gives companies a distinct edge in the price-driven generic pharmaceuticals market. However, acquisition of manufacturing plants is an expensive proposition for many of the smaller generic pharmaceutical companies due to growing competition and the global demand for generic products. Companies that are not vertically integrated, therefore, may not be able to compete effectively with less expensive products.

‘Authorized Generics’ Impact Revenue Growth of Generic Pharmaceuticals

While the U.S. generic pharmaceuticals market registered double-digit growth during the period 2001 to 2004 due to incremental revenues from the patent expiry of blockbuster drugs, this appears to have stabilized to a large extent and future revenue growth in the market could slow down. The introduction of ‘authorized generics’ is also likely to be instrumental in affecting the revenue growth as they act as a direct competitor to generic pharmaceuticals. Essentially, ‘authorized generics’ allow branded pharmaceutical companies to successfully compete with generic drug manufacturers whose products are considerably less expensive. “The impact of ‘authorized generics’ on generic drug launches with 180-day exclusivities has limited growth to a large extent,” says the analyst. “For most generic pharmaceutical companies, the180-day exclusivity period is the best time to earn maximum revenues and achieve good margins, as most of the growth takes place during this period.” However, a potential bill that seeks to ban ‘authorized generics’ could, if passed, have a positive impact on the future growth of the generic pharmaceuticals market.

The impact of ‘authorized generics’ notwithstanding, generic prescription volumes continue to increase due to the availability of multiple low-cost versions of several major blockbuster drugs that have reached patent expiry. While volumes increased from an estimated 1,648.8 million in 2003 to 2,254.4 million in 2006, generic prescriptions’ share as a percentage of total prescriptions rose from 48.0 to 57.3 percent during the same period. Generic prescription volumes have always been ahead of branded prescription growth and this trend is likely to persist during and beyond the forecast period, with generic prescription share increasing to 77.6 percent by 2013.

To learn more about the report or to order, visit www.marketresearch.com or phone 800-298-5699.

GPhA’s Jaeger Looks Toward the Future

Kathleen Jaeger, president and CEO of the Generic Pharmaceutical Association, delivered a speech on GPhAs outlook for 2007. The speech was delivered last December during the Windhover FDA/CMS Summit. The following are excerpts from her remarks.

“The Windhover Summit has become a critical place for those of us in the health care community to gather, to take a quick look back at the year, but more importantly, explore the year to come.

“While some of us in this room have our differences, all of us are united in the belief that 2007 will be a critical year for not only the pharmaceutical industry, but for the entire health care community.      

“Healthcare is once again a top priority. In fact, a nationwide poll conducted in the days before the election found that outside of the war with Iraq, access to affordable healthcare was America’s number one concern. It’s not surprising.

“Many Americans — of all ages — are being forced to make health care decisions based on cost rather than need. We all know the troubling stats. Millions of Americans do not have health insurance because they can’t afford it…

“Our health care system can do better. It must do better…

“Each year, generics save consumers and the health care system tens of billions of dollars. That trend is sure to continue as more brand products come off patent, more states adopt regulations to encourage the use of affordable generics, and more, older Americans enroll in the Medicare prescription drug benefit.

“But it’s not just about saving money.  It’s about bringing safe and effective medicines to Americans. It’s about improving and saving lives.

“When the new Congress convenes… it will have a real opportunity to improve the health care of Americans by increasing access to safe, effective and affordable generic medicines… And, perhaps the most lively debate is centering on the need for FDA to create a clear, effective abbreviated approval pathway for biogenerics…

“As you know, this past September Congressman Waxman and Senators Schumer and Clinton introduced the “Access to Life-Saving Medicine Act” to bring more affordable, generic biopharmaceuticals to consumers. The legislation would mandate that FDA create a pathway of approval for these life-saving medicines…

“…FDA should exercise its responsibility and not keep consumers waiting for affordable medicines. If the FDA can review the more expensive medicines, they should also work on behalf of consumers and review generic alternatives. Let’s let sound science drive the system and, stop bowing to the false claims of the brand industry. Sound science already has enabled citizens in the European Union, Australia, India and South America to have access to these medicines… Clearly, the U.S. must stop dragging its feet…

“In the words of the Consumer Federation of America, ‘Congress should not wait until the extremely high costs of biologic therapies are crippling the health care system before it clears a path for biogenerics in the United States…’

“Generic biopharmaceuticals will only be one of many issues on Congress’ plate in 2007… Congress must also reauthorize the Prescription Drug User Fee Act by the end of next year. FDA has floated the idea of requiring that generic drug companies pay user fees to help fund the Agency.

“While we are certainly open to discussing any options that would bring more affordable medicines to consumers faster, we need to be clear — user fees cannot be discussed in a vacuum. The fact is that user fees by themselves won’t get drugs to consumers faster as long as barriers like authorized generics, citizen petitions and, yes, no pathway for biogenerics exist...

“Finally, I would like to touch on the issue of TPA and free trade agreements. When it comes to pharmaceuticals, free trade agreements should ultimately help consumers at home and abroad.

“Unfortunately, most agreements have not only violated this goal, but have directly contradicted U.S. and WTO commitments and even, at times, gone far beyond U.S. law… “What can we do?

“…we can encourage Congress to amend TPA, requiring that USTR maintain a balance between pharmaceutical innovation and access to affordable medicines from the start of their trade negotiations. Why? Because failure to balance the need for both pharmaceutical innovation and access will hurt our economy, our healthcare system and the availability of affordable medicines worldwide.

“In 2007, we and Congress have a real opportunity to make a difference in the lives of millions of people by bringing additional life-saving safe and effective, affordable medicines to patients in a timely manner. 

“Generics and biogenerics will provide the financial headroom to support access to novel life-saving medicines. A win-win for everyone. Yet, we need to work together.

“We need to ensure that the brand industry continues to receive sufficient incentives to research and develop novel medicines, while we also need to facilitate access to affordable medicines by immediately establishing an effective and efficient abbreviated biogeneric approval pathway and closing unintended loopholes in the existing system.

“If we do, 2007 can truly be a breakthrough year for improving the health care of Americans.”

For Jaeger’s full speech, visit www.gpha.org.

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