Generic Drug Savings Stuck in Passing Lane

Long approval times, brand-company deals, and biologics impasse slow supply of new generics.

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Generic drugs comprise 70 percent of all U.S. prescriptions but less than 23 percent of the roughly $300 billion in 2009 prescription drug sales—and more than half of those generics were made by the branded companies themselves. Meanwhile, the backlog of generics applications before the Food and Drug Administration's Office of Generic Drugs has soared to an estimated 1,900, and the approval time for generic applications has slowed until it averages more than 26 months.

Faster approvals are provided to so-called first-time generics. These represent the initial generic approval of a branded drug that has come off of patent production or whose patents have been successfully challenged. But generic-drug advocates say the real savings of generics aren't realized until the second, third, and fourth generic versions are in the marketplace. That's when aggressive price competition drives down prices of all versions of a drug.

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The list of blockbuster drugs set to come off of patent protection in the near future includes some big-ticket household names. But don't expect their generic equivalents to show up on pharmacy shelves overnight. It will take time, additional funding to speed approvals, and new federal laws.

First, here are the big drugs coming off of patent. Medco's 2009 Drug Trends Report said that patents for a dozen billion-dollar drugs would expire in the 2009-2011 period. Ranked by 2008 sales, they were:

  • Lipitor, $6.4 billion, 2011
  • Pravacid, $2.9 billion, 2009
  • Effexor, $2.8 billion, 2010
  • Actos, $2.6 billion, 2011
  • Topamax, $2.4 billion, 2009
  • Valtrex, $2 billion, 2009
  • Zyprexa, $1.9 billion, 2011
  • Levaquin, $1.7 billion, 2011
  • Adderall XR, $1.6 billion, 2009
  • Flomax, $1.3 billion, 2010
  • Aricept, $1.2 billion, 2011
  • Ambien CR, $1 billion, 2009
  • Herman Saftlas, an investment analyst at Standard & Poor's who follows the stocks of large brand and generic drug companies, sees three major developments that could change the game for generics.

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    1. Some brand drug companies have, in effect, made payments to generic companies to delay introduction of generic equivalents. The Federal Trade Commission has cited this behavior as noncompetitive. Such deals were not addressed in the healthcare bills passed by the House and Senate, Saftlas says. But they would be banned by the more recent set of healthcare proposals issued by President Obama. Saftlas expects this proposal to make it into law.

    2. The generic drug companies are developing a user-fee program to provide more funding for the federal Office of Generic Drugs. The New York Times reported last month that executives at the recent annual meeting of the Generic Pharmaceutical Association (GPhA) joked—accurately—that the OGD's $51 million annual budget was less than the annual salaries of the left side of the New York Yankees' infield: Alex Rodriguez and Derek Jeter. Kathleen Jaeger, president of GPhA, says her industry "is very open to user fees" but that it likely would take as long as two years to develop a workable program. In the meantime, she said, the organization's priority is to get additional federal spending for the OGD.

    3) Biologics—the increasingly important class of drugs created from organisms as opposed to chemical compounds—has no established process for generic approval, Saftlas says, and legislation will be required to develop such rules. While generic versions of chemically formulated drugs are identical to their branded predecessors, the same is not true when it comes to making copies of biological drugs. Different life forms may be used to produce comparable therapeutic drugs, giving rise to the term "biosimilars." Some new versions of a biological drug actually yield superior results than their branded parent, and thus are known as "biobetters."

    There are sharp disagreements over the period when branded makers of such drugs should have exclusive sales rights. The shorter the period of exclusivity, the sooner generic versions and lower prices will make their way to consumers. The Senate Judiciary Committee has announced bipartisan agreement on a patent-reform bill. Big Pharma hailed the bill; generic pharma said that it would further impede and delay the introduction of generics. The measure's fate in the House is uncertain.