The Promised Land For Generic Drugs

Generic drugs are supposed to be ascendant these days. A cost-conscious country is using them more frequently, and Congress seems to be moving down the path towards creating a whole new kind of generic – the follow-on biologic. Prospects for that legislation have considerably improved with bigger Democratic majorities in Congress and the new quantum majority in the White House. But at the same time, the forces that created these positive trend lines also contain elements that could lead to a reversal for generic firms.

For example, the widespread use of generics has allowed many firms to bloom, but manufacturing problems at some of these fast-growing operations threaten to discredit the industry as a whole. And an approval pathway for follow-on biologic could open up new business territory for firms, but to hear some tell, they may not benefit at all since the capital requirements will be too intense. The brand industry, having learned its lesson from the toothless labeling exclusivity in Hatch-Waxman, is hoping to include language in the FOB bill that will give biologic line extensions long lasting protections.

These pressures – along with a broader patent reform debate in Congress and state bills that would limit mandatory substitution – mean that the lobby and policy arms of the generic industry still have to work on overdrive even as the sector seems to have the wind at its back. Because while the generic industry’s presence in Washington has expended along with its sales, a by-product of that very growth, consolidation, now threatens to weaken the sector’s influence.

Barr’s acquisition by Teva means that what were arguably the industry’s two most robust D.C. operations are now squeezing under one roof, and the Generic Pharmaceutical Association will be missing one of its dues paying members. We’re not suggesting that this means that the generics industry is headed for hard times on the Hill, just that it’s going to have to continue to apply the same creativity and gumption that has brought it so much success in its previous battles with the brand industry.

Indeed, the poised, well positioned nature of the generics industry offers a Moses and the Promised Land analogy. Generics stand ready to enjoy some FOB meat and honey, but Barr, the firm that helped lead them there, isn’t going to join them. Barr’s D.C.-based CEO, Bruce Downey, was one of the first in the industry recognize the importance of having an lobbying operation, and, as noted in a recent interview with "The Pink Sheet," Downey was one of the driving forces behind the merger of the three fledgling associations into the current GPhA powerhouse. We’ll leave it up to you, dear readers, to decide whether this means that Henry Grabowski is Jericho.

image by flickr user runako used under a creative commons license

Deals of the Year Nominee: Pfizer/Ranbaxy

Ah, awards season. Why should film critics have all the fun? And voting! It's not just for presidential elections. This year your IN VIVO Blog team is nominating a handful of alliances, acquisitions, financings, regulatory negotiations and legislative compromises in our First Annual DOTY competition. And then you, dear readers, will vote (early and often, we hope) for the winner. Imaginary federal and international biopharmaceutical statutes prohibit us from awarding a monetary prize. But our winners, when they die, on their deathbeds, they will receive total consciousness. So they've got that going for them, which is nice.

In some circles, the event had its own acronym: LLOE – Lipitor Loss of Exclusivity. Now it has a date: Nov. 30, 2011 -- the end of the primary care era for pharma. Think that’s a little extreme? Well, you don’t get to be a Deal of the Year Nominee by playing it safe.

Except in this case you do. While most of the DotYNs you’ve read about here are essentially bets by firms that big ideas will work out in one form or another, this was a tale of two companies not wanting to take a chance. As we explained in the Pink Sheet, the deal gives some certainty to both sides, but what it really offers is closure.

In an era when product expirations – either through the lifting of exclusivity or the weight of safety problems--seem more common than product launches, this deal is an example of how big pharma can try to take its primary care jumbo jets in for soft landings. Protonix’s fall to earth offered a number of lessons for generic and brand firms to learn, and Ranbaxy seems to have gotten some good practice deal-making when it worked out a settlement on Nexium with AstraZeneca.
With the lawsuit behind them, both Ranbaxy and Pfizer can focus on what’s next. For Ranbaxy, it’s resolving manufacturing problems and figuring out how to be a regional growth engine for a big pharma. (The Daiichi/Ranbaxy merger, which may have contributed to the Pfizer settlement, is also a DotYN – vote for them both!)

For Pfizer, the question is how to learn to love being a drug maker again. CEO Jeffery Kindler may not have all the answers to that one yet, but by acknowledging the end of the Lipitor relationship, he’s moving in the right direction. Failing to recognize the seriousness of the problem helped cost the previous management team its jobs, so the decision to sign the divorce papers with the firm’s biggest product perversely takes a weight off the company.

But while the Ranbaxy settlement is a great example of what a company like Pfizer can get when it has a former general counsel as its CEO, that talent for certainty may also be emblematic of what a firm might miss out on. Because while some other new big pharma CEOs have been out trying to gobble up innovative technology or swallow up successful partners, one of the principal development decisions Pfizer has made with Kindler at the helm has been to stop placing bets on cardiovascular research.

But at least the financial community now knows how to model PFE’s LLOE. And so we formally nominate Pfizer/Ranbaxy for achievement in the category of playing it safe.

image by flickr user maxymedia used under a creative commons license.

In Follow On Biologics We Trust

Typically, Big Pharma business briefing days aren't known for being newsy events. Another year, another ho-hum pipeline update--complete with the requisite hyperbolic biodollar citations for clinical candidates to appease investors. But in the case of yesterday's annual Merck confab, that certainly wasn't the case.

At its day long event, the Big Pharma revealed the creation of Merck BioVentures, an ambitious new business unit with a heavy emphasis on follow-on biologics that aims to launch at least six such products in the 2012 - 2017 time period. The group will rely heavily on proprietary technology obtained when Merck bought the glyco-engineering biotech GlycoFi back in 2006 for $400 million.

In an interview with "The Pink Sheet" DAILY, Frank Clyburn, the newly appointed senior VP and general manager of MBV, noted that Merck plans to spend $1.5 billion over the next seven years in the hopes of putting at least five follow-on biologic candidates in the clinic by the end of 2012. "We are going to look at developing follow-on biologics in a number of therapeutic areas, a very diverse portfolio," Clyburn said.

The company is already 20% there. The only FOB Merck was willing to discuss specifically was its pegylated erythropoietin for anemia, a molecule called MK2578 designed to compete with Amgen's Aranesp currently in clinical trials that could launch as soon as 2012.

In comments to analysts and the press, CEO Richard Clark also played up the importance of FOBs to Merck's future growth strategy. Admitting that "2009 will be an important year of transformation and execution for us," Clark noted that "follow-on biologics represents a significant market opportunity due to the extensive patent expiries of leading biologics in 2017."

It is so nice to be right.

One of our favorite themes here at IN VIVO Blog--in addition to the potential benefits to biopharma of risk mitigation strategies--is that Big Pharma has a huge opportunity to become a leader in FOBs.

Think about it: as Congress continues to mull over FOB legislation, its increasingly unlikely that they will consider an abbreviated pathway to approval for these products. Indeed, it's going to take significant expertise on a number of fronts--clinical, manufacturing, and regulatory--to meet the case-by-case standards being contemplated by legislators for follow-on approvals. And, since the products are unlikely to be therapeutically substitutable, companies will also need significant sales and marketing expertise to actually make money on such products.

Who has the requisite know-how? With the exception of Teva Pharmaceuticals, it ain't the traditional generic makers. "Other players with vastly superior capabilities and resources may be at least equally—if not better—suited to participate...such as some large-cap pharmaceutical and biotech companies as well as select mid- and small-cap biotech companies," said Ken Cacciatorre, an analyst with Cowen and Co. in this April RPM feature by Kate Rawson.

A majority of Big Pharma even have the technology platforms to make it happen. Late to the biologics party, a number of Big Pharmas were extremely busy in 2006 and 2007 gobbling up so-called next generation antibody companies in their bid to build capability, especially in areas with already established intellectual property such as the anti-TNF space. In addition to Merck's purchase of GlycoFi, other biopharmas inking deals around next-generation players include GSK (Domantis), BMS (Adnexus), Pfizer (Biorexis), and Wyeth (Haptogen).

But until 2008, when Teva announced it was buying albumin-fusion play CoGenesys, the corporate spin has been about the opportunities to develop novel biologics. Teva's willingness to commit $400 million to its own FOB program seemed to jolt the thought-processes of other biopharma execs. In a matter of months, former GSK CEO JP Garnier was publicly signaling the strategic importance of Domantis' technology because it allowed the pharma to"re-do a monoclonal for everything that is on the market, from Avastin to Rituxan...without infringing IP. With a product that might even have a twist."

At Pfizer's analyst day in March, meanwhile, CEO Jeff Kindler indicated that the New York giant was also considering how to position itself in terms of FOBs. In response to a question about whether an abbreviated approval pathway would prompt the company to start developing follow-on biologics, Kindler responded: "I do think that's an opportunity for us."

But if Pfizer and GSK suggested they were willing to dip their toes in the FOB waters, Merck's news should be taken as a full-scale immersion. And it's really not that surprising. Anyone listening to Merck's financial guidance call last week knows the dire shape the pharma company is in thanks to slumping Zetia and Vytorin sales.

The company needs to do something to jump start its R&D. And using GlycoFi's technology to gain a chunk of the follow-on biologics market, poised to take off under the auspices of a new Democratic administration, is a logical place to start.

Thanks to heavily engineered yeast, Merck can develop specific protein versions that are "best-in-class" with "a better circulatory half-life, targeted tissue distribution and/or increased potency," according to Peter Kim, President of Merck Research Laboratories.

And that is the biological equivalent of the fast follower strategy Big Pharma has perfected so successfully for small molecules. At a time of increasing regulatory risk, what better way to gain a grasp on a new therapeutic modality than to create me-better versions of already well studied and hugely successful molecules such as Rituxan or Enbrel and then market the hell out of them?

It will be interesting to see if Merck's news spurs other Big Pharma down the FOB path. Certainly biotechs, such as Amgen and Genentech need to think carefully about life-cycle management strategies for their own products. Hours after the news broke, Lazard analyst Joel Sendek issued a report urging caution when it comes to Amgen:

"We view Merck’s biosimilar program as a serious long-term threat to Amgen’s anemia franchise. Neupogen follow-on biologics currently marketed in the EU have failed to acquire a very significant share of the market or dent usage of Amgen’s dominant products; however, in our view, Merck represents a more formidable competitor due to its marquee brand name and marketing expertise."

hang-glider dollar bill by flickr user J0nB0n used under a creative commons license.

Cephalon Learns Some Old Tricks to Protect Old Products

You can’t teach an old dog a new trick. But some recent product lifecycle management strategies by Cephalon suggest that you can teach a maturing company some old tricks to save old products.

It is probably a sign of Cephalon’s advancing age (passing the 20-year milestone in 2007) that the company is now at the stage where strategies to combat loss of exclusivity are as important as new product development.

It is employing some clever strategies: not exactly new but aggressively executed.

The first strategy uses pricing to create niches for new products and to lengthen the tail of a franchise. Specifically, Cephalon is using high, pre-expiration price hikes to create attractive slots for follow-on compounds and, intriguingly, for its own generics. (See here).

Two examples demonstrate Cephalon’s approach: Provigil (modafinil), the company’s current flagship product heading toward loss of exclusivity in April 2012; and Actiq, which began facing generic competition in the third quarter of 2006.

Cephalon has begun taking big price increases on Provigil (12% in August). The company’s investor relations VP, Chip Merritt, told an investment meeting earlier this month that that increase is just the start. “You should expect that we will raise Provigil prices to try to create an incentive for the reimbursers to preferentially” move to the next generation product, Nuvigil (armodafinil), which has been approved by FDA but not yet launched.

Similar price increases on Actiq in the two quarters prior to the start of generic competition for the fentanyl lozenge created room for another oral dosage form, Fentora.

But it also, created an opportunity for Cephalon to introduce its own "authorized" generic at a price that the company found attractive. Having three products in the oral fentanyl field (Actiq, Fentora and a generic) has permitted Cephalon to maintain a franchise at about $120 million per quarter since Actiq lost exclusivity. That’s higher than the quarterly sales that the company had from Actiq alone prior to its pre-expiration price hikes.

The second strategy of Cephalon’s young adult period is to find alternative exclusivity protections for a recently introduced product. That may, technically, be more of a product development strategy than protection of an aging product, but in Cephalon’s case, it was a way to take an old product (with thirty years of experience in Europe) and make it a new product with five to seven years of exclusivity (See "Wacky World of Generics: Treanda Edition").

The product is Treanda (bendamustine). Approved earlier this year for the first time in the US, the product treats an orphan indication (chronic lyphocytic leukemia – 15,000 new cases per year). The orphan indication gives it seven years of exclusivity for that use. But Cephalon has other plans for the product, so the company has found another form of exclusivity – and this is the clever part. As an old compound, it does not have a listed patent in FDA’s Orange Book. That means that there is nothing for companies who want to challenge the patent to challenge. That could lead to up to six and a half years of effective protection for the product.

Cephalon is performing its tricks well. The company just needs to pay attention to the patients using its products and regulators and payers who may develop an attitude towards the company that could come back to haunt it. When the company took the aggressive Actiq price increases, the web began to fill up with plaintive accounts of cancer patients trying to afford the medication. Too much of that and it won’t matter how long the company is able to stretch the life of products.

While you were winning/losing some

This weekend saw two major sports upsets, though neither was as shocking as the deep six of the global financial markets just a week ago. At last, the US finally won back the Ryder Cup, ending nine years of European domination; meanwhile, NFL fans not rooted in the six New England states cheered as the Miami Dolphins absolutely obliterated the Patriots defense with an annoyingly-simple-yet-hard-to-beat "Wildcat play" that snapped the Patriots 21 straight regular season wins. (The last loss was Dec. 10, 2006, coincidentally against the Dolphins.)

No financial crisis will slow down the consolidation of the generics pharmaceutical companies, according to this report. Of course, we've been reporting on the rise of generics for some time. At the same time, we're seeing a slowdown of the overall M&A market for pharma companies. (Check out the extensive report here or in this month's Start-Up.) Nevertheless, the Royal Bank of Scotland recorded a level number of buyouts this year, valued at more than $25 billion, an 80 percent increase over last year. Teva Pharmaceuticals' $9 billion buyout of Barr Pharmaceuticals certainly helped drive up that number, and Teva's chief executive for North America, Bill Marth, says more deals may be following the Barr buy. "It doesn't leave us in a position where we won't do more acquisitions that are complementary, it will just change the focus of those acquisitions," Marth told reporters Friday.

Speaking of generics, Ranbaxy, Indian's largest drugmaker and a recipient of a smackdown by the FDA, has recruited one-time GOP presidential (and vice presidential?) candidate Rudy Guiliani to take on its fight. The former Hizzoner will push to lift the ban the FDA put on more than 30 Ranbaxy medicines after finding deficiencies in Ranbaxy's plants. The company says the FDA's concerns are baseless. The Economic Times says other Indian pharmaceutical companies aren't overly concerned about selling in the U.S.

It ain't Lehmans Brothers, but things aren't looking well for Atherogenics, according to Pharmagossip, which linked to an article from the Atlanta Business Chronicle. Noteholders in the company filed a petition to put the company into Chapter 7 bankrupty.

Happy Birthday to Bayer Corp. The U.S. subsidiary of Bayer AG marks its fiftieth year in the US, according to an article in the Pittsburgh Post-Gazette. The paper had a sit down with Gregory Babe, who is to become the first American-born executive to head the subsidiary.

Direct-to-Consumer advertising continues to draw fire. The Guardian reports that the British Medical Association and the Royal College of Physicians are among nine medical organization to opposed the introduction of direct-to-consumer medicine. The group's contend that the NHS's eleven billion pound annunal drug cost would skyrocket if pharma comapnies could pitch their product directly. Meanwhile, on this side of the Atlantic, the FDA heard from two physicians who want the FDA to expand its oversight of direct-to-consumer ads to include medical devices. The docs--an orthopedic surgeon and cardiologist--who say drugs and devices should stand on equal footing when it comes to DTC ads, therefore putting the devices under greater scrutiny.

Wacky World of Generics: Timing Is Everything Edition

The best fighters learn from their opponents, and whatever else you may think about generic drug firms, there is no denying they are accomplished bruisers.

So it should come as little surprise that after years of being in the crosshairs of citizen petitions filed by brand firms, generic companies are starting to pull the trigger on some petitions themselves.

Some things haven’t changed, though: the targets of petitions are still generic companies and the beneficiaries are still brand firms, since delays always help them.

The most recent example of generic-on-generic petitioning resolved by FDA is Cobalt’s failed attempt to become the only generic of acarbose (Bayer’s diabetes treatment Precose). Cobalt had made regulatory arguments that it deserved 180-day exclusivity and scientific arguments that other ANDAs needed additional tests. FDA rejected them both, and Cobalt has now launched alongside a generic from Roxane.


Cobalt was the first-to-file ANDA applicant and so had the inside track to get generic exclusivity, but it forfeited the prize in part because it failed to gain approval within 30 months. First-to-file exclusivity is critical to the profit stream for generic firms and it is no small penalty for an applicant to lose it. In this case, Cobalt did not get approval in time, perhaps due to shortcomings in its application, which FDA had initially refused to accept.

Any instance where a first filer loses the all-important exclusivity is big news for the generic industry, so the Precose fight is an important precedent for other applicants. Given the negative outcome for Cobalt, the incident raises the question of how much haste firms should use in submitting their ANDAs to FDA. Usually there is an all-out race to be first-to-file to claim exclusivity. In this case, second-to-file turned out to be good enough. (Subscribers to the Pink Sheet can read the full story here.)


The episode also shows how a generic firm – in this case Roxane – can use knowledge of FDA’s regulatory clock to get to market as soon as possible.

Among the provisions of the massive FDA bill passed last year is one designed to curb abusive citizen petitions. The new law says petitions cannot delay approvals unless FDA determines there’s a public health justification, and even then, the agency only has 180 days to decide the issue in question.

Roxane correctly predicted how FDA would apply the law in this case at least. Roxane’s lawyer, Zuckerman Spaeder partner Bill Schultz, explains that, “because there was a very good chance that” six months after Cobalt filed its petition would be “exactly when FDA was going to approve the product … Roxane, anyway, was completely ready to go on the day the 180 day deadline expired.”

Schultz clearly doesn’t think much of Cobalt’s bioequivalency arguments. The case, he says, “raises issues about...how the citizen’s petition provisions can work." The question, Schultz says, is "whether FDA is implementing this public health provision" of the new law "responsibly, or whether they’re just invoking it every time.”

But that is a fight for another day.

M. Nielsen Hobbs

The Wacky World of Generics: Trade Secret Misappropriation Edition

Hollywood has been scraping the bottom of the comic-book barrel (excuse me – graphic novels) for blockbuster scripts of late. To stand apart from the crowds, all of you aspiring script writers out there, heed the advice from Jack Moseley in 1992’s The Cutting Edge: “Then you find another barrel.” May we suggest the pharmaceutical industry?

A recent FDA decision on a seemingly routine generic drug approval led far down the rabbit hole, leading us to a case with all of the twists and turns of a great film noir.

But first, background on the agency decision.

On April 11, 2008, FDA approved Spear Pharmaceuticals’ abbreviated new drug application for a generic version of Efudex Cream 5%, Valeant’s topical fluorouracil cream indicated for treatment of (1) multiple actinic or solar keratoses; and (2) superficial basal cell carcinoma when conventional methods are impractical.

The patents for the cream expired decades ago, but nary an ANDA has been filed until Spear submitted theirs in January 2005. Valeant, though, objected to the approval and filed a citizen petition urging the agency to reject the application, claiming that the generic should not be approved based on bioequivalence studies conducted solely for the actinic keratosis indication.

FDA denied the petition on the same day it approved Spear’s ANDA. Center for Drug Evaluation & Research Director Janet Woodcock explained that the single clinical trial was sufficient to demonstrate bioequivalence in both indications.

Valeant filed suit against the agency in U.S. District Court April 25, seeking to overturn the ANDA approval.

A Generic Vanishes

These days, there is no surprise in a brand company suing to block a generic. The surprising move came on May 14, when FDA issued an “Administrative Reconsideration and Stay of Action,” saying it is in fact rethinking approval of the Spear ANDA “because there are outstanding questions regarding this approval that the agency must consider.” The notice formally pushes back a decision on the ANDA until May 30.

In other words, the ANDA isn’t exactly approved after all. At least not yet. (Spear explains the situation a bit differently in a press release issued today. If you scroll down to the bottom you will see that the company has "voluntarily agreed not to ship additional product until the end of May, at which time we fully expect that the FDA will resolve its administrative issues." UPDATE: Despite what we originally noted here, Spear did begin shipping product on April 11, but voluntarily halted thereafter.)

Legal challenges to ANDA approvals are usually short-lived and vigorously fought by the agency – witness GlaxoSmithKline’s attempt to block Roxane’s generic version of GSK’s Flonase, or King’s challenge over its hypothyroid drug Levoxyl. But in this case, the agency seems to be giving more specific consideration to the concerns raised by the brand company over its ANDA approval standards.

And the stakes in this case are potentially quite high. As we explain in an article published in “The Pink Sheet,” FDA’s final decision on how to handle the issues raised by Valeant will have implications for plenty of other generic applicants—and, potentially, for the future development of approval standards for follow-on biologics.

The Jilted Suitor

Interesting and perhaps precedent-setting, yes. The next Martin Scorsese film, no. But the plot thickens.

Spear alleges that Valeant’s citizen petition was an ‘insider job’ that should never have been considered by FDA in the first place. Spear makes those claims in a federal civil suit in December 2007 against Valeant and investment firm William Blair asserting breach of contract, trade secret misappropriation and more.

In court documents, Spear describes a story of betrayal by a financial advisor. You can read all about it here.

In a nutshell, Spear claims that Willaim Blair (and in particular the banker’s VP Brian Scullion) tipped Valeant off to the generic firms’ plans regarding Efudex.

The timing is certainly suspicious. Spear began developing the Efudex generic around February 1999, working out with FDA a plan to ensure their bioequivalence trials would be sufficient for approval for both indications.

Five years later, Spear decided to explore selling one of its other generic product lines (tretinoin, Johnson & Johnson’s Retin-A) and consulted William Blair VP Brian Scullion. After signing a confidentiality agreement, Spear says it disclosed trade secrets (including the continuing development of generic Efudex) to Scullion. Spear also mentioned the plan to file an ANDA for Efudex in November 2004.

One of the potential parties interested in the tretinoin line was Valeant. After looking over the tretinoin deal, the firm declined the opportunity in October 2004. Then, on Dec. 21, 2004, Valeant filed the citizen’s petition requesting that FDA require a generic applicant seeking approval for a version of Efudex conduct trials in both indications. Eight days later, Valeant notified Blair that it was interested in the tretinoin line after all—which Spear says came too late because negotiations were under way with another partner.

On Jan. 3, 2005, Spear filed the Efudex ANDA. When the company called FDA April 19 to check on the application’s status, the agency informed them of Valeant’s citizen petition. The news, Spear said, “was a shock.”

“The timing … was not coincidental,” Spear says. “It was reflective of the confidential information that had been improperly leaked … The specificity of the requested relief reflects that Valeant learned not only of Plaintiffs’ confidential information with respect to Plaintiffs’ plan for filing an ANDA, but also the precise nature of the clinical trial they had conducted.”

The missing link? According to Spear, Brian Scullion. Although he told Spear he was not engaged to advise or represent any interested parties during the initial tretinoin exploration, William Blair had an investment banking relationship with Valeant and held over $1.7 million in Valeant stock as of Sept. 30, 2004.

Then, to really drive the last nail in the coffin, a generic manufacturer named Oceanside Pharmaceuticals launched a a generic of Efudex Cream 5% in December 2006. How did Oceanside beat Spear to market? It launched an “authorized” generic under license from Valeant. Authorized generics are also routine these days, but—as Spears points out—this was an unusual move given that Valeant theoretically had no reason to anticipate any generic competition to Efudex.

Spear is asking for $125 million in compensatory damages plus punitive damages and other relief, to be determined at a trial.

Neither John Malkovich nor Edward Norton have returned our calls for the role of Scullion – maybe if we can cast Scarlett Johansson or Natalie Portman in the part of Woodcock, they’ll call back…

Becky Jungbauer

Generic Drugs: Still a Growth Market?

Is there enough money in generic drugs?

That’s the question generic manufacturers might start asking themselves once IMS Health releases its official market growth numbers for 2007. A glimpse at the preliminary figures suggests there is, but the money may be getting harder to find.

Growth in the generic drug market slowed considerably last year, to 3.8%—the same rate as the overall prescription drug market, according to IMS Health corporate director of market insights Diana Conmy. She gave a preview of the 2007 data at the Health Industry Group Purchasing Organization’s National Pharmacy Forum last week. You can find her analysis of the branded industry in our earlier post.

Conmy found the low-single digit growth rate for generics “surprising” given the segment’s past performance. “I checked this number and checked it twice, because historically, we have seen generics growing over the last couple of years somewhere between 10% and 20%,” she said. “So to come in at the end of the year at 3.8%...is quite dramatic.”

Not surprisingly, the cause behind that slowdown is an increased level of price competition in the generic drugs market, Conmy said: “It has become an extremely competitive place to earn a profit and keep profitable within this segment."

“The generic erosion curves are much steeper. There is more of a willingness by generic manufacturers to enter the market 'at risk.' And there are just more players getting into the very large and meaty primary care markets that are going off patent,” she said. Indeed, one such product, Merck’s osteoporosis drug alendronate (Fosamax), saw competition from three generics (including a Merck-authorized product) last week.

Given that level of competition, is there a point at which the price for a generic is too low? IMS Health's 2007 numbers indicate the generic drug market may have already reached that threshold. The second half of the year was essentially the antithesis of the economic rule of supply and demand, Conmy said: a “tremendous reduction” in the price of generics in the marketplace without a corresponding increase in volume levels.

Instead, growth within the generic market is solely coming from new approvals, and any exclusivity that manufacturers can scrape together. That, in turn, is why generic manufacturers are becoming more aggressive in terms of “at risk” launches--launches like generic clopidogrel (Bristol-Myers Squibb's Plavix). The end result, Conmy said, is that while generic utilization continues to increase, the brands are still holding onto the dollar share.

But there are some bright spots: branded generics (like in the pain and ADHD markets) are still doing quite well: branded generics rose 11.1% last year, according to IMS Health. And there's still room for growth under Medicare Part D: despite the Center for Medicare & Medicaid Services' interest in increasing generic use under the drug benefit, generic utilization was no higher than in the general population in 2007, Conmy said.

And last year could turn out to be a one-year blip on the growth chart--especially given tough comparisons over the high-flying year of 2006. But for generic manufacturers looking at the 2007 data, it's still not a comfortable place to be. How the generic industry responds will determine who comes out on top in an increasingly competitive market.

The Wacky World of Generics: Risperdal Edition

They don't call them atypical antipsychotics for nothing.

Here are two things that keep Big Pharma CEOs up at night: (1) the growing power of payors—actively encouraged by the Medicare program—to drive therapeutic substitution in blockbuster product classes; and (2) the potential for government run comparative effectiveness studies to undermine the market position of newer medicines.

However, if two of the biggest players in the atypical antipsychotic market are to be believed, the impact of the first major patent expiration in that class will stand those fears on their head.

Johnson & Johnson’s risperidone (Risperdal) goes off-patent in June and generics are lining up to enter the market. That will clearly be a big hit for J&J to absorb: Risperdal sales in the US were about $2 billion in 2007.

In other blockbuster classes, a major patent expiration has meant big headaches for other brands in the class. Think of how Lipitor has seen its market share erode and discounts soar since Zocor went generic.

So Lilly’s $2.2 billion olanzapine (Zyprexa) and AstraZeneca’s nearly $3 billion quetiapine (Seroquel) are in big trouble, right?

Not so, say those two companies.

First off, the Medicare program’s overall generics-first emphasis is more than offset by the Centers for Medicare & Medicaid Services requirements that managed care plans cover all products in the atypical antipsychotic class (and five other protected classes). So plans will be free to switch Risperdal patients to the generic, but will find it difficult if not impossible to drive therapeutic substitution from other brands, as we wrote here.

Or, as AZ CEO David Brennan put it during the company’s January 31 earnings call, “the antipsychotic market is quite unique. A product is a product. There is not a history of therapeutic substitution in that area, and we expect to continue to grow our Seroquel franchise.”

Lilly CEO-designate John Lechleiter took it one step farther, telling investors during a January 29 earnings call that Lilly plans to “retain the broadest possible access for Zyprexa” by emphasizing the “superior efficacy evident in CATIE the longer the duration of therapy.”

You remember CATIE, right? That is the government run comparative trial completed in 2005, with headlines at the time declaring it showed that older off-patent antipsychotics are just as good as the atypicals.

That interpretation, needless to say, has not won out in the marketplace, since Lilly, AstraZeneca and the other companies in the market astutely anticipated the negative headlines and worked diligently to develop alternative interpretations.

How successful were they? Well, less than three years later Lilly will be using CATIE to help support continued use of Zyprexa over a generic from the atypical class itself.

And there is nothing typical about that.

The Wacky World of Generics: Protonix Edition

Here is a headscratcher.

Wyeth decided January 30 to launch an authorized generic version of its blockbuster proton pump inhibitor pantoprazole (Protonix). The launch comes a month after generic manufacturer Teva shocked Wyeth by launching its own version at risk. Teva quickly halted shipments under a standstill agreement with Wyeth, and the company's investors assumed (prayed?) that a settlement would follow.

Apparently not. Wyeth decided to launch its own generic under a license to Prasco (more on them later). The announcement came the day before the standstill agreement with Teva was set to expire.

Wyeth's announcement was followed by a generic launch from a third company, Sun Pharmaceuticals, which under the complex rules governing these things shares six-months of generic exclusivity with Teva. Sun had not launched previously, presumably since it feared the potential for steep damages should it eventually lose the underlying patent litigation.

However, with two prior launches (Teva's in December and Wyeth/Prasco's the day before), Sun decided to take the chance.

And then Teva announced that it has no plans to relaunch its own.

Huh?

Did Wyeth really just finish off its biggest brand in response to a non-existent threat that Teva would re-enter the market for good? And why on earth is Teva sitting back and watching one of the biggest generic opportunities in history wither away?

Welcome to the wacky world of generics.

Believe it or not, there is a way in which this bizarre series of circumstances might make sense for all the players involved.

Bernstein Research's Ronny Gal and Tim Anderson suggested one possibility in a note sent Friday. Teva's decision not to launch reflects the fact that it already has significant inventory in the trade, so it has nothing to gain from contributing to a price war that would affect the selling price it can realize on the product already in distribution. And, by waiting until after Sun enters the market this time, Teva further minimizes the potential size of any damages it might owe down the road if it loses the underlying case.

If that is the case, expect Teva to launch sometime in the next quarter or so, once trade inventories of its product are depleted and it can come in at a new, more deeply discounted price.

There is another option, the Bernstein analysts say: that Teva gambled and lost. The at-risk launch was a bad gamble by Teva, intended to extort a settlement from Wyeth in litigation the generic company believes it will lose. In that case, Wyeth is calling Teva's bluff and will ultimately prevail in court, recouping at least some of its losses on the generic.

In theory, Teva could be on the hook for treble damages. However, because Wyeth has already lost a preliminary injunction ruling in the case, it is extremely unlikely that it would be awarded any damages above the actual losses incurred to Teva's product.

Bernstein believes Wyeth is pursuing the right course in either case: it is impossible to put the genie back in the bottle now that Teva's product is in distribution, and an authorized generic launch helps Wyeth hold on to a bigger share of pantoprozole revenues for longer. If the company wins the litigation and gets a bit more money back, so much the better.

The big winners in all this, however, are not the battling companies. Instead, they are the payors who will probably reap the biggest benefit, as generic competition in the PPI class intensifies. With Protonix once a $2.5 billion brand, there is plenty of savings to be had. But the opportunity is even bigger since it is sure to increase pressure on AstraZeneca to further discount esomeprazole (Nexium).

In fact, that pressure may already be showing. AZ reported last week that Nexium experienced a net price decline of about 8% in the US last year--but that came almost entirely in the fourth quarter. The company said US sales of the brand fell 18% in the last three months of the year, despite about a 2% increase in volume. Yes, its discounts really are that deep and getting deeper.

Oh, and then there is Prasco. In case you've never heard of them, they are a relatively new start-up (formed in 2002) by former Duramed CEO Thomas Arington to focus on--you guessed it--authorized generics. Duramed, incidentally, once took on Wyeth over the course of a decade in an unsuccessful battle to market a generic version of conjugated estrogens (Premarin).

If you can't beat 'em, join 'em.

Generic EPO Should be a Big Deal. But Is It?

Novartis’ Sandoz division was on Friday granted European Commission approval for its biosimilar version of Johnson & Johnson’s epoietin alfa (Eprex). It’s not a huge surprise, given the positive recommendation earlier this summer, and given that Sandoz has done this before: growth hormone Omnitrope became the first biosimilar drug to gain European approval last year (and, after a long legal kerfuffle, got onto the US market, too).

But this should nevertheless be a big deal. We’re talking, after all, about a cheaper copy of EPO, the blockbuster anemia drug that made Amgen. A drug with sales that top $7 billion globally. Of all the biologics in generic firms’ sights, this has to be by far the most valuable--the "killer biologic," as one of you readers put it in a comment on a previous post. EPO is one of the most expensive drugs on many hospital formularies, and accounts for a huge chunk of payor expenditure.

At last!, we should be saying, the long-threatened generic biologics revolution has come to pass. Injectables will get cheaper, patient access will improve, originators will be forced to innovate and move on.

The reality isn’t quite so revolutionary. Sandoz is one of the few companies with the resources to persevere with biosimilars; many smaller firms dropped out as it became clear how onerous clinical trial and regulatory requirements would be.

Commercialization ain’t a slam dunk, either. Sure, a 20% discount counts given the prices of these drugs. But it’s up to individual countries to decide on whether docs may substitute the originator drug with a biosimilar. Innovators have done a good job lobbying against interchangeability. Questions and concerns over safety standards mean that biosimilar firms have an uphill struggle on the marketing and educational front, ensuring that these products are perceived as equivalent, not potentially dangerous cheapies.

Still, Sandoz will be helped considerably by the fact that its biosimilar has been granted the same international non-proprietary name (INN) as the reference drug, epoietin alfa (to the delight of the European Generic Medicines Association, since this goes some way at least to proving their case for scientific equivalence). Sandoz’s EPO will be available under three different brand names, though, likely in order to leverage locally-recognized and trusted generic brands across the various European markets.

Stada, another surviving biosimilars stalwart, had to settle for a slightly different INN for its generic EPO--epoietin zeta, filed in June 2006. That probably helped drive their decision to hand over commercialization to US-based specialist hospital marketer Hospira last November. The move was about “curbing financial risks” associated with the project, whose approval, as the press release optimistically states, “is still possible in late 2007”. Also last year, Mayne Pharma pulled out of a marketing deal with Pliva (now part of Barr Pharmaceuticals) on generic EPO. The product was approved in Croatia in 2005 but hasn’t got past the EU regulators.

In sum, Sandoz's approval in itself isn’t much of a threat to J&J, even less to Amgen, which sells epoietin alfa as Epogen in the US. But it is symbolic, at least in its timing, of an end to the monopolies that innovators have enjoyed on hard-to-make biologics like EPO, a topic we discussed in more detail in this IN VIVO feature.

Sandoz’s head of Biopharmaceuticals Ajaz Hussain knows that biosimilars’ take off will be slow; he told IN VIVO Blog about it earlier this summer. But take off they will, eventually—and when they do, this approval may well be looked upon, if only retrospectively, as one of the most important steps along the way.

Sleep Tight, Kids!

Well, all that insomnia prescription/revenue growth had to come from somewhere.

According to research released today by Medco Health Solutions, the children are feeling verrrry sleeeepy. Just don't let them drive:

... use of prescription sleep medications by children under age 19 surged 45 percent between 2001 and 2006; and 52 percent among adults age 20 and older. ... Yet, with those increases have come increased scrutiny on some safety concerns of the medications in this class. In March 2007, the FDA requested that all manufacturers of sedative-hypnotic drug products, a class of drugs used to induce and/or maintain sleep, augment their product labeling to include stronger language concerning potential risks. These risks include severe allergic reactions and complex sleep-related behaviors, which may include sleep-driving, the FDA report stated.

Medco's release is of course designed to raise awareness of generic zolpidem; Sanofi's last Ambien patent expired on April 21st. The most recently available IMS data through April 20th shows Ambien holding onto nearly 41% of new insomnia prescriptions (Ambien CR, Sanofi's extended-release replacement, had nearly 20%), but generic competition from 13 companies means it shouldn't be long before that plummets.

As we wrote last year, market share in insomnia is known to shift quickly--and reliably--in response to DTC advertising. And as the IN VIVO Blog pointed out last month, those DTC ads have gained their share of admirers, and FDA attention.

Medco anticipates saving upwards of $150 million per year thanks to generic zolpidem. And they just might get away with it without the antics of Abe & the beaver, the butterfly, and those meddling kids.