There are many ways to soften the impact of generic competition. A great deal of energy and money goes on strategies to delay generic entry, whether through aggressive litigation, lobbying for extended patent terms or incremental product development such as new indications or formulations, writes Peter Mansell .
Once intellectual property protection runs out, the assumption tends to be that the game is up. Yet there are options for limiting damage in the marketplace. The US, for example, has seen increasing recourse to ‘authorised’ generics, whereby the patent holder launches its own generic version either independently or by striking a deal with an experienced generic operator. Less discussed is the most direct means of fending off generic incursion: by competing on price.
In the last month, two key patent expiries in the US have prompted suggestions that the research-based industry may be entering a new era of generic defences. One was the antidepressant Zoloft (sertraline), where Pfizer hopes to take the edge off patent exposure by introducing its own generic version through its Greenstone subsidiary.
More notable was the loss of patent coverage on Merck & Co’s cholesterol treatment Zocor (simvastatin).What has excited commentators about Merck’s response is its unusual ploy of offering substantial rebates to health insurers that charge a lower co-payment for Zocor than for generic equivalents. Merck has also hedged its bets by launching an authorised generic simvastatin through Dr Reddy’s Laboratories.
The discounting strategy drew a sharp response from Senator Charles Schumer, who urged the Federal Trade Commission (FTC) to investigate “these anticompetitive behaviours expeditiously”. Manipulating “the consumer price of these drugs to preserve the market share of the more expensive product is unconscionable”, he said.
Given that the prices of branded medicines are routinely lambasted, it may seem perverse to accuse Merck of impeding competition by undercutting generics. The fear, though, is that deep discounting and the widening flow of authorised generics will eventually dull the appetite of generic competitors to risk expensive patent challenges through Paragraph IV applications.
The recent resurgence of financial settlements that stave off generic entry may partly reflect the thinner pickings available to first filers through the Paragraph IV channel. The prize of a six-month exclusivity period is crucial to generic players for the same reason originators cling to their patent exclusivity: the less competition there is, the less reason to lower prices. First-filers generally make hay during the exclusivity period, with prices held at 70-80% of the brand.
Authorised generics can gatecrash this honeymoon because the FDA treats them as brands, so exclusivity provisions do not apply. Indeed, the Generic Pharmaceutical Association regards these products as “nothing more than brand pharmaceutical products masquerading as generics”.
The FTC is taking a close look at whether authorised generics act as a damper on competition. It is also likely to continue pursuing the matter of settlements, despite a recent setback in the US Supreme Court. In the meantime, members of the Senate Judiciary Committee have announced legislation aimed at thwarting “sweetheart deals that delay the entry of low-cost drugs”.
While authorised generics are now a routine occurrence with major patent expiries, the jury is out on whether the Zocor pricing strategy will prove a long-term trend. Teva, one of two companies awarded marketing exclusivity for generic simvastatin, claims its own generic launch has been an unqualified success.
There are a number of reasons why patent holders may be looking at fresh approaches to defending their assets. One is the high cost of litigation against the swelling ranks of patent challengers.
Another is that the assets in question are particularly valuable. Last year Zocor (simvastatin) was the number two brand in the US market with sales of US$4.4 billion; Zoloft ranked seventh with sales of US$3.1 billion (IMS Health data). A third factor is that a number of loopholes exploited by research-based companies to spin out patent life have now been closed, both in the US and Europe
While the threat of patent expiry is universal, its circumstances and consequences are a little different on this side of the Atlantic. For one thing, authorised generics are less of a phenomenon in Europe, particularly as there is no generic exclusivity for patent holders to undermine.
Nor is there such an incentive to discount, with price controls already narrowing the margin between brands and generics. “US companies, when they start discounting, are starting off from a much higher price level than European companies,” points out Peter Wittner, founder of UK-based generics specialist Interpharm Consultancy.
In the UK, however, the intensity of generic competition is more akin to the US model. According to IMS MIDAS data, the average price differential between generics and branded equivalents four years after launch is 80%.
The British Generic Manufacturers Association (BGMA) says deep discounting has already arrived in the UK market, particularly just after patent expiry and during the first six months to a year of generic competition. Pricing flexibility under the Pharmaceutical Price Regulation Scheme allows research-based companies to pursue ‘brand equalisation’ policies. Some or all of a product is sold at the generic market price and pharmacists can dispense the brand against a generic prescription without losing out on reimbursement.
According to BGMA spokesman Alex Harris, this leeway enables brands to be discounted at levels “wholly detached from the realities of the marketplace”. There are also authorised generics in the UK, he notes, although they are neither as visible nor as divisive as in the US market.
Wittner cites the case of GlaxoSmithKline, which gave Generics UK permission to market an unbranded version of ranitidine prior to patent expiry. But the practice is unlikely to take off in Europe with anything like the urgency seen in the US, given the lack of an exclusivity incentive or a regulatory equivalent to the FDA’s role in checking patent status, he believes.
He envisages European brand holders relying less on discounting than on product modifications to lift drugs out of the range of the generic competition. As far as discounting goes, “it all depends on the company's philosophy as to whether it just writes off the product after patent expiry or decides to try to retain some of the prescription volume, albeit at a significantly reduced price”, Wittner comments.
“Many branded companies, as part of their defence strategy, develop an improved, and usually cheaper, route of synthesis a few years after the original patent,” he observes. This widens the opportunity “to market their own generic and so compete with generic companies who will be relying on an Active Pharmaceutical Ingredient that is manufactured according to the original, more complex and thus more expensive route of synthesis”.
Roy Gentry, head of communications and public relations at the European generic medicines association, the EGA, agrees that the threat of discounting and authorised generics is less pronounced in Europe. Drug pricing is an altogether more complex proposition as companies rarely negotiate with private insurers.
If brand owners were to engage routinely in heavy discounting, though, it could be cataclysmic for some generic companies, Gentry adds. The industry already subsists on “extremely small” margins. Nonetheless, he sees more defensive activity from the branded sector at the regulatory level, particularly in respect of ‘patent linkage’ and the generic naming of biosimilar medicines.
Patent linkage, in which regulatory authorities come under pressure to stall approval of generics if reference drug’s patent status is unresolved, is a marked problem for the generics industry in Central and Eastern Europe. While a Romanian law tying generic approvals to patents has recently been repealed, in the Slovak Republic a successful push for repeal of comparable legislation has been overruled.
Finland has also gone down the patent linkage route. Amendments to its Medicines Act allow marketing authorisation holders to ask for patented products and their generic equivalents to be withheld from the country’s generic substitution list. More damagingly, this request may be made, inter alia, on the basis of a national process patent filed before 1 January 2005, when product patents were introduced in Finland.
Originators are also squeezing the generics industry in the emerging field of biosimilars. Here the aim is to deny generic versions of biotechnology products use of the reference drug’s international non-proprietary name (INN), Gentry notes. Doing so would scotch any claims to therapeutic equivalence and effectively rule out generic substitution.
Despite these serious points of contention, Gentry says research-based and generic companies are no longer locked in the kind of “head-on battle” that used to characterise their relationship in Europe. All the same, it is clear neither side is ready to lay down its weapons quite yet.