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But the global picture is sunny as most of the global market growth benefits the generic makers
Last year, in the week after Thanksgiving, the long-anticipated end of patent exclusivity on Pfizer’s Lipitor (atorvastatin) ended—signaling an acceleration in the “patent cliff” that the branded pharma industry has been dealing with for the past couple years. With Lipitor, one of the most successful products in the history of the pharma industry (reaching annual revenues in the vicinity of $13.5 billion at its peak) losing exclusivity, Pfizer initiated a series of novel actions to retain market share for its brand, including a direct-sales pathway (patients would contact Diplomat Health, a Flint, MI specialty pharmacy) to fill prescriptions by mail; and dropping its price so that, in some instances, it is cheaper than the generic from Ranbaxy on the market. Meanwhile, Pfizer and other branded pharma companies are intensifying their pursuit of specialty pharmaceuticals—higher-priced drugs, generally biologic in origin, but with much more limited patient populations.
FIG. 1. GENERIC UTILIZATION HAS MARCHED STEADILY UPWARD, NOW REACHING 78% OF ALL PRESCRIPTIONS (LEFT). IMS THEN CALCULATES THE MARKET 'AVAILABLE' FOR GENERIC SUBSTITUTION, AND FINALLY THE 'EFFICIENCY' WITH WHICH BRANDED PRODUCTS ARE BEING REPLACED BY GENERICS.
From the perspective of the generics pharma industry, however, this is a go-go era of market growth. Generics have grown from $124 billion in 2005 to $234 billion in 2010, and are expected to reach $400-450 billion by 2015, according to projections by IMS Health. Nearly 70% of this demand will come from outside developed markets—the “pharmerging” economies, as IMS has labeled them, including the BRIC (Brazil, Russia, India and China) countries and a dozen or so others.
MARC KIKUCH, AMERICSOURCEBERGEN
“The next three years will be a ‘golden age’ of generics,” says Marc Kikuchi, VP of global generic sourcing for AmerisourceBergen (Valley Forge, PA). “There are more than 30 known generic new product launches anticipated in 2012 alone.” Specifically, between now and 2015, country-specific patents in one or more of the developed markets will expire for 11 of the top 20 leading medications (or 6 of the top 10). The drugs that are up for grabs by generic manufacturers have such household names as Plavix, Advair, Diskus, Nexium, Zyprexa, Singulair, Oxycontin, Abilify, Gleevec, Levaquin, Actos, Celebrex and Seroquel.
Meanwhile, a next patent-cliff era is beginning to come into view: biotech products, some of which have already been on the market for decades. By 2019, 80% of current oncology and rheumatoid arthritis drugs will lose their patent exclusivity, notes Murielle Thinard-McLane, VP Generics, McKesson Specialty Health (San Francisco, CA). “Although this will undoubtedly create opportunities, most of that cliff comes from biologic drugs, and for those types of therapies, the FDA approval pathway is still quite uncertain.”
ALAN SHEPPARD, IMS HEALTH
Looking beyond 2015, “the major opportunities will shift to the patent expiry of biopharmaceutical medicines,” notes Alan Sheppard, Global Head of Generics for IMS Health (London). However, the nascent “biosimilars” industry will not be a mirror image of traditional generics, mostly because the regulatory pathway is not expected to be as straightforward for biologically based products. At presstime, FDA was expected to announce guidelines for an approval pathway for biosimilars, but even when it does, the details of it will be vigorously contested by the originator biotech companies. Also, it remains to be seen how truly “similar” these products will be when marketed across large patient populations, since they will have subtle molecular differences from the originator biologics.
A key distinction that sets small-molecule generic drugs apart from their branded counterparts and helps to define the business model in the generics arena is that — for disease states or therapeutic classes for which a large number of identical generics exist from different manufacturers — FDA sanctions the automatic substitution of equivalent generics from competing vendors at the pharmacy level, not at the prescriber’s hand.
Thus, the prescriber no longer has control over which product (in terms of competing manufacturers) is actually dispensed to the patient — rather, this decision falls mainly to the pharmacist or payer, and is thus dictated by generic substitution rules, favorable reimbursement rates, reference pricing, and favorable or even exclusive formulary tier status. Thus, it’s in the best interest of generics manufacturers to seek preferred-supplier status or by negotiating better terms with payers, distributors and wholesalers, and pharmacy chains.
RALPH NEAS, GPHA
“This is a cut-throat commodity market, and price drives everything,” says Ralph Neas, president and CEO of the Generic Pharmaceutical Assn. (GPhA; Washington, DC). “If you go into a CVS, Walmart or Walgreens pharmacy, which generic drug you get largely depends on which generic is carried by that pharmacy—and the one they will be dispensing is the one for which they negotiated the best price, or the one from a company with which the pharmacy has a strategic relationship.”
“In the past, we’ve even seen some pharmacy chains use reverse bidding, whereby manufacturers bid against each other, lowering the price of their meds with each successive bid, in an attempt to secure the business,” he adds. “Faced with such pressure to be the lowest-cost provider, it’s no surprise there is literally no incentive for drugmakers to spend money to advertise in an attempt to either raise product awareness among consumers or seek product loyalty among prescribers, or to pursue various forms of product differentiation to set one drug apart from another in the same class.”
Occasionally a generic manufacturer will succeed in marketing “in product” differentiation characteristics, in an effort to distinguish themselves from generics from other manufacturers. “The most common means of differentiation — when it is pursued — tends to be to provide improved delivery systems or other administration systems or methods that would help a patient or end user to administer or reconstitute the drug product more easily,” says Fran DeGrazio, VP of marketing and strategic business development for West Pharmaceutical Services (Lionville, PA).
“Early selection of a manufacturing partner to aid in the design and development of a differentiating delivery or administration system may also help generic manufacturers see a faster move to market, through not only expertise in the delivery system arena, but also experience with regulatory requirements,” adds Mike Schaefers, VP, Marketing Europe, West Pharmaceutical Services.
A good example of such product differentiation approach is Mylan’s generic version of Johnson & Johnsons Duragesic product (fentanyl transdermal). “At the time of the launch, Duragesic and the authorized generic were produced as a reservoir patch (similar to a packet of ketchup), but this patch would sometimes leak,” says Kikuchi of AmerisourceBergen. “Mylan launched a matrix version of the patch that experienced reduced leakage (which is more like a wet wipe).”
HEATHER BRESCH, MYLAN
Similarly, when generic versions of the diabetes drug Glucophage (metformin) first became available, patients complained that some versions had an undesirable odor upon opening the bottle. Again, Mylan addressed the issue by coming up with a blackberry-flavored product that addressed these smell and taste complaints, notes Kikuchi. “Additional packaging improvements that can help to differentiate products for pharmacists include improved labeling and color-coding to distinguish different dosage strengths, unit-dose packaging (such as blister packs) to support patient compliance, and a photograph that shows the product inside recyclable bottles,” adds Heather Bresch, newly appointed CEO of Mylan.
Perhaps most important, Bresch says: “Many people are unaware of the number of generic drugmakers on the market today. Some even believe that one company is responsible for making all of the generic medicines that are available. But in fact, there are hundreds of companies competing for business in the generic pharmaceuticals space. As a result, product quality, supply reliability and service differentiation is a key part of succeeding in the generics business.”
The flip side of this generic differentiation is the movement by some retailers to have their own house brands of generics. Each of the Big Three wholesalers provide private-label OTC products for their networks of independent pharmacies, and the major chain pharmacies have had similar OTC efforts for a long time. But in prescribed drugs, there has been some movement toward branding products; WalMart has done this for a number of blister-carded products for several years now.
“The key difference between the distribution chain for generic prescriptions and branded prescriptions is that many customers (i.e., large chain pharmacies) purchase generic products directly from the manufacturers, while most purchase their branded products from their wholesaler or distributor partner,” says Kikuchi of AmerisourceBergen. “In addition, several larger healthcare providers with warehousing capabilities contract and purchase generic products directly from the manufacturers.”
FIG. 2. THE DRUG DISTRIBUTION SYSTEM HAS GOTTEN BETTER AT SUSTITUTING GENERICS FASTER, AND MORE COMPLETELY.
“To ensure safety and consistency, we only use A-rated generics in our pharmacies, we purchase directly from generics manufacturers and from trusted distributors in massive quantities to meet the dispensing needs of our large mail-order pharmacies, and we have the technology to track any medicine dispensed back to the specific bulk inventory that was delivered to our pharmacy,” affirms Timothy Wentworth, group president at Medco Health Solutions (Franklin Lakes, NJ), one of the leading PBMs.
While branded medications are predominantly procured by, warehoused, shipped and billed through distributors, many of the larger chain pharmacies often warehouse their own generics. “Distributors sell generics in two ways — using “source programs” where distributors aggregate customer volume to create better buying power and value for consumers or through customer contracts,” says Craig Cowman, SVP of sourcing for Cardinal Health’s Pharmaceutical Segment (Dublin, OH). “Our Source Generics program has experienced consistent growth over the past few years, allowing us to increase our penetration among independent pharmacy and retail buying group customers, who are typically the classes of trade that purchase the majority of their generics through a distributor.”
The intense price pressure on all medicines these days (both branded and generic) has seriously eroded the profitability of many distributors, as mandatory price cuts have been imposed across the board. This is making the distribution of generics a major challenge. “In some cases, particularly in Europe, the cost of the medicine is literally less than the cost of distribution, leading distributors to request a fee-per-pack-distributed rather than a margin on the value of the pack,” says Sheppard of IMS Health.
For a pharmacy benefit manager like Medco, sourcing efforts related to generics tend to focus on two key aspects: demonstrated safety and efficacy, and low cost, says Wentworth, adding: “Because there can be variability in the actual suppliers of a given generic drug over time, and we may change to more value-driven suppliers at any time, we condition our patients to expect that the actual pill might change in terms of size, color and other dynamics, on occasion.”
Can biologics be genericized?
When it comes to today’s highly lucrative and increasingly sought-after biotechnology-based therapies, the pending wave of patent expiries is bringing the flush of anticipation to many stakeholders throughout the healthcare arena. However, unlike the process and regulatory pathway that is well established for producing existing and pending generic versions of countless small-molecule drugs, the world of biosimilars is drastically different, for a variety of reasons.
“Although the opportunity is quite large, with $62 billion worth of biologic medications going off patent by 2016, there are currently no approved regulatory pathways in the US that a generic company can take to get a biosimilar drug approved,” says Thinard-McLane of McKesson. While a provision of the healthcare reform law passed in 2010 created a pathway for FDA approval of biosimilars, to date, FDA has yet to issue its regulations.
At presstime, FDA planned to release proposed biosimilar regulations before the end of 2011, clarifying how to define a biosimilar product, what standards should govern biosimilarity and interchangeability, how to name products, pharmacovigilance issues, and the types of exclusivity that will apply to biosimilars. But the proposed regs will simply be the opening round of a negotiation with industry that is likely to be protracted. This lack of a regulatory framework has frozen all stakeholders in place. “There literally can be no biosimilars industry unless and until FDA authorizes an approval paradigm,” says Wentworth of Medco.
“Without the establishment of a viable biogenerics approval pathway that allows for timely access to interchangeable biogenerics, consumers and payers will not benefit from the significant savings biogenerics can deliver,” adds Bresch of Mylan.
Today, there is a fledgling biosimilars market in place in Europe, with more than 80% of the current spending on biosimilars concentrated in Germany and other European markets—largely because the European Union has already adopted approved regulatory guidelines related to generic biotechnology-based products.
With regard to its regulatory pathway, makers of small-molecule generics are required to demonstrate the chemical similarity between their manufactured products and their corresponding reference products to show that the product is effectively the same as the originator product. To do this, drugmakers may submit an abbreviated registration dossier that includes the originator’s clinical data plus their own bioequivalence data to show that the product is effectively the same as the originator product. Once they get an appropriate A-B Interchangeability Rating from FDA (which is essentially a measure of chemical equivalence between the generic product and the reference product), the product can then be freely interchanged with the originator product, and automatically substituted with other equivalent generics at the point of prescribing or dispensing, says Sheppard of IMS Health.
Unlike small-molecule drugs, which are derived using repeatable chemical-synthesis routes, biotechnology-based therapies are derived from living organisms. During manufacturing, these products are inherently susceptible to variations that may arise and these variations could affect not only the safety or toxicity profiles of the product itself, but the drug’s clinical expression and efficacy for the patient.
MATT COOK, CAMPBELL ALLIANCE
“This will force drug companies pursuing biosimilars to develop their products almost as if they were innovator products themselves, requiring investments of tens if not hundreds of millions of dollars to carry out the necessary clinical testing,” says Matt Cook, executive in the Brand Management Practice of Campbell Alliance (Raleigh, NC), an inVentiv Health Company.
While this may not seem like a winning proposition, Cook points out that most of the top 10 blockbuster biotech drugs — each of which enjoys billions of dollars in sales each year — are poised to lose their patented status in the next 3—5 years, so there is plenty of incentive to take on the burden. “The revenue potential of these complex therapies is so attractive that even if you can only capture a fraction of this, it’s still worth the effort.”
However, wanting it and being able to pull it off are not necessarily one in the same here. “To make the most of this opportunity, generic companies will have to change their business model, and will need to have the financial means and capabilities in place to support the significantly higher development cost and post-approval marketing structure, and they will have to accept higher upfront risks in development and commercialization,” says Thinard-McLane of McKesson. “Because this is new territory for most generic players, there are likely to be fewer players in biosimilars than in traditional generics.”
“The fact that a manufacturer has expertise with generics is not an automatic guarantee that they should or will be involved in biosimilars,” adds DeGrazio of West Pharmaceutical Services. “It is more likely that those companies already producing biological-based products will manage their product’s lifecycle by extending into biosimilars.”
This hurdle to entry is compounded by another factor that differentiates biosimilars from small-molecule generics. Since biosimilars are unlikely to ever be considered to be truly equivalent to their reference products, and thus, no de facto substitution will be allowed by FDA, makers of biosimilars will be forced to both market their new drugs to prescribers (to raise awareness) and provide extensive pull-through support through physician detailing.
These two hurdles to entry will create unique challenges for drugmakers (and thus limit the number of players in this arena). “There are few generic manufacturers that have the scientific expertise, manufacturing capabilities and equipment to produce biological products, and available capital required to develop these products, gain approval and bring them to market,” says Kikuchi of AmerisourceBergen. Cook of Campbell Alliance predicts that much of this work will end up being pursued by the largest, most well-established generic drugmakers, and by Big Pharma companies and even the leading biotechnology firms “that will — as a strategic focus in the next few years —pursue biosimilar versions of each other’s proven blockbuster drugs.”
“The cost of developing a biosimilar has been quoted in the range of $150-200 million whereas the cost to develop a small-molecule generic can be as low as $0.5—3 million,” says Sheppard of IMS Health.
In fact, according to Neas of GPhA, among the first 10 biosimilar drugs that are expected to be developed once the leading biologics lose patent protection, “five to seven of these first biologics will likely come from brand pharmaceutical companies.”
Another factor that is sure to shape the landscape in the nascent market for biosimilar medicines is that these drugs are not expected to have the same 80% price delta that small-molecule generics enjoy compared to their reference counterparts. Rather, because of the extensive costs that will be required to develop and commercialize them, biosimilars are expected to yield discounts closer to 20—25%. “While such a price differential will likely be compelling for most payers, absent payer influence over product choice, prescribers may not find it compelling enough to be willing to risk substituting a newer, unproven biologic — for which prescribers or consumers may have lingering questions about safety or clinical efficacy —with the proven biotech drug,” says Cook of Campbell Alliance. This phenomenon may end up curbing the uptake of biosimilars and helping to slow brand erosion in these markets, at least for the early period until widespread use of the biosimilars eventually brings greater comfort to in the minds of prescribers and consumers alike.
Such firms are also expected to capitalize on the prescriber reticence to protect their branded interests. “Branded companies will very likely end up developing outreach messaging that capitalizes on the fear of the unknown, by telling physicians ‘You have treated many of patients over many years with our proven biologic products, so why risk suboptimal outcomes by making a switch to this newer, unproven, non-equivalent alternative?’” says Cook.
The first biosimilar therapeutic agents launched in Europe (erythropoetin, GCSF and human growth hormone) initially had a low uptake. “This was mainly due to safety and efficacy concerns amongst the clinicians,” says Sheppard of IMS Health. “It is only now after more than three years on the market that the usage of these products has increased, as safety and efficacy concerns have been allayed through ongoing usage and pharmacovigilance studies, and also their economic advantage.”
“Ultimately, the high hurdle for entry and need for cost recovery will mean that in the US, biosimilars will have to compete with branded biologics as if they were branded products themselves,” says Cook of Campbell Alliance. PC