[Ip-health] New York Times: More Generics Slow the Surge in Drug Prices

[Thiru Balasubramaniam]

August 8, 2007
More Generics Slow the Surge in Drug Prices
By STEPHANIE SAUL

A quiet coup is taking place in American medicine cabinets.
Prescription bottles bearing catchy brand names like Zoloft and Flonase
are being pushed aside by tongue-twisting generics like sertraline and
fluticasone propionate.

While the trend is already pinching the profits of big pharmaceutical
companies, it is rare good medical news for American pocketbooks.

The nation currently spends $275 billion a year on prescription
medicines. But over the next five years, analysts forecast a golden era
for generic drugs, as patents begin to expire on brand-name medications
with more than $60 billion in combined annual sales. That will open the
door to copycats that may be 30 percent to 80 percent cheaper.

=93There=92s a tidal wave of generic drugs, and we are just in the
beginning of the tidal wave,=94 said Laizer Kornwasser, an executive for
Medco Health Solutions, which manages prescription drug plans.

The rise of generics has helped slow spending increases for
prescription medications over all, even though an aging population is
consuming more drugs and even as new medicines enter the market =97
including cancer drugs costing tens of thousands of dollars.

Ronny Gal, an analyst for Sanford C. Bernstein who follows generic
companies like Teva Pharmaceutical Industries, Barr Pharmaceuticals and
Mylan Laboratories, predicts 10 to 13 percent annual profit growth in
the industry by 2010. He describes the generic trend as =93good for
everybody but the branded pharmaceutical companies.=94

Last week, the big drug maker Johnson & Johnson announced it would
eliminate up to 4,800 jobs as it braced for generic competition to its
drugs, Risperdal for schizophrenia and Topamax for seizures and
migraine headaches.

In the last year, combined United States sales of the drugs were $4
billion.

Shortly after the Johnson & Johnson statement, Sanofi-Aventis announced
that it had already been hard hit by low-cost alternatives to its
sleeping pill, Ambien, which became available in generic form in April.

As frequently happens when generics appear, sales of the name-brand
Ambien plunged =97 to $91 million in the second quarter, from $420
million in the same period last year. Generics already account for 60
percent of prescriptions in this country. And that portion is expected
to rise, as cheaper substitutes arrive to treat many chronic
conditions.

Already this year, consumers have flocked to new generic versions of
five major drugs, including Ambien and discount alternatives to Norvasc
for high blood pressure.

Next year, generic competition is expected to hit Fosamax, a $2 billion
drug in this country that slows bone loss and is often used by
postmenopausal women. In 2009, the heartburn and ulcer medication
Prevacid, a $3.5 billion product in this country, is expected to become
available as a generic product. And by 2011, a generic substitute is
expected for what has been the world=92s single best-selling medicine,
the cholesterol drug Lipitor, a drug with annual United States sales
exceeding $5 billion.

Several experts predict that generic drugs will keep drug price
inflation in the single digits for the next several years.

=93It=92s much better than it was in the =9290s, before these drugs started
going generic,=94 said Dr. Steven B. Miller, chief medical officer for
Express Scripts, another company that manages drug benefit plans. =93The
drug trend was always double digit.=94

Companies like Express Scripts are promoting the use of generics by
setting lower co-payments for them, reducing the amount patients must
pay out of pocket.

Also helping to propel the copycat drug trend is the success of generic
manufacturers in challenging patents held by brand-name companies. But
another reason is that many patents are simply expiring on drugs that
were introduced during the late 1980s and early 1990s, an unusually
productive era of research and development for the pharmaceutical
industry.

Patents provide 20-year protection from generic competition. But
because companies often apply for patents in early stages of drug
development, before drugs are approved, pharmaceuticals may have fewer
years of what is called effective patent protection.

And now, as nearly every big drug maker watches its best sellers fade
away, there are fewer potential blockbuster drugs waiting to take their
place.

=93At the end of the day, it=92s basically a failure of innovation,=94 said
Richard T. Evans, a consultant with the firm Avos Life Sciences, a
research and consulting firm for the drug industry. Mr. Evans said it
was hard to know whether the drug industry was merely in a cyclical
lull or whether it suffered from a systemic decline in productivity.

But the Pharmaceutical Research and Manufacturers of America, the trade
group for brand-name companies, said that company research and
development budgets are increasing each year, even as generic
competition cuts into profits.

=93I don=92t think we would support the contention that there=92s a lull,=
=94
said Caroline Loew, the industry group=92s senior vice president for
scientific and regulatory affairs. Citing diseases like Alzheimer=92s,
Parkinson=92s and cancer, she said, =93The companies are tackling diseases
that are extremely complex. The biological mechanisms are very poorly
understood. By definition, that sort of science, which is very much
emerging science, is going to take longer.=94

One way the pharmaceutical industry is working to counter the generic
trend is through its own generic subsidiaries and contracts for the
production of company authorized generics.

The Food and Drug Administration approves generic drugs that contain
the same active ingredients as brand-name pharmaceuticals, and the
agency says that generic drugs meet the same quality standards as
brand-name drugs.

Yet in a study conducted in 2002 by AARP, 22 percent of those surveyed
indicated they thought that generic drugs might be less effective or of
poorer quality than brand-name drugs.

Mr. Gal, the Sanford Bernstein analyst, said that the generic drug
industry was still working to overcome such suspicions.

Corporate drug plan managers like Medco Health Solutions and Express
Scripts work aggressively on behalf of employers to encourage the use
of generic drugs. One way is by setting lower co-payments for them.
That may mean an out-of-pocket expense of $20 less for generics than
name-brand medication.

James and Rosemarie Cola, a retired couple in Queens, take 16
medications between them. Over the last few years, out-of-pocket costs
for several of their drugs have fallen, as generics have become
available.

Mr. Cola, 82, a retired hairdresser and makeup artist who earned an
Emmy for his work in daytime television, recently paid only $9 for a
90-day supply of cilostazol, a substitute for the branded drug Pletal
for leg pains. The drug became available as a generic in 2004.

Mrs. Cola, 74, is expecting to see several of her medications become
generic within the next few years, including Zyrtec for allergies,
Lipitor for cholesterol, and Coreg for heart problems.

=93We=92re living on pills,=94 said Mrs. Cola, a retired substance abuse
counselor and social worker.

Whatever the cost savings, Mrs. Cola says she must think twice before
switching from one formulation to another whenever one of her drugs
becomes generic.

=93I don=92t like to change drugs,=94 Mrs. Cola said.

---------------------------------
Thiru Balasubramaniam
Geneva Representative
Knowledge Ecology International (KEI)
voice +41.22.791.6727
fax +41.22.723.2988
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thiru@keionline.org