Generics companies are feeling the same pressures as large pharmaceutical companies; yet by embracing the emerging payment-by-results model and integrating new technologies, they stand to reap the rewards of the drive to do more with less.
The current period represents a lucrative harvest for the Generics industry, with a flood of valuable, mainly small molecule, drug patent expiries. For example, Lipitor is rapidly heading for genericization and currently generates about $10 billion a year in sales for Pfizer.
Moreover, governments actively encourage the generics industry. For example, in the US the Hatch-Waxman Act can give a company 180 days exclusivity for a generic drug and it also partially mitigates the risk of litigation from the patent owner during the drug development.
In future, with economic pressure and armed with much better knowledge of how an individual tolerates a drug and how amenable their condition is to a particular therapeutic regimen, targeted generics will form the first-line mainstay treatments in the majority of patients.
This favourable climate has put Teva, the largest generics company, in the top 15 of all pharmaceutical companies by sales and it is considered to be the largest pharmaceutical company by the number of prescriptions filled.
Generics are dead
Despite the opportunity, the classic branded generics industry has a serious problem looming. Proprietary small molecule pharmaceutical pipelines are drying up; the food on which the generics companies have traditionally feasted is disappearing. The FDA approved 21 drugs in 2010, a drop from the previous few years and a continuation of the general downward trend.
However, crucially, although drugs continue to be approved those approvals are beginning to consist of a larger proportion of biopharmaceuticals with six biologics being approved in 2010.
Biopharmaceuticals do not offer the same market opportunities for genericization as small molecule drugs, which have traditionally formed the life-blood of the industry offering:
Low cost development
low cost manufacturing and
huge volume markets, being taken by millions of patients everyday for about the price of a daily newspaper.
These critical factors associated with small-molecule drugs enable the generics companies to thrive by aggressive marketing tactics and greatly undercutting prices.
However, the market dominance is turning from small molecule blockbuster drugs taken by millions of people to large molecule ‘niche-busters’ which cost thousands of dollars per dose but are taken by many fewer patients. The opportunities and business models which have served the generics industry so well are in upheaval.
The grass is always greener
The same way that restaurants say they make all their money from selling alcoholic drinks and pubs claim to make all their money from selling food the generics industry is moving towards patented products whilst the world’s ”big beast” proprietary pharmaceutical companies move towards generics and biosimilars. Teva’s8217;s pipeline includes several patented developments covering neurological, auto-immune and oncological diseases. Teva also has a strong franchise in Copaxone which it is fiercely defending from generic competition, poacher turned gamekeeper style.
Meanwhile, Novartis has its Sandoz arm; GSK has a deal with Dr Reddies; Daiichi Sankyo is in alliance with Ranbaxy; Pfizer tried to acquire Ratiopharm and Ranbaxy before it got its hands on King Pharmaceuticals; and AZ has a deal with Torrent Pharmaceuticals.
In dealing with their own problems proprietary pharmaceutical companies are pursuing strategies to reduce risk. By diversifying both into markets that are outside the generic drug field and pushing deep into generic pharma’s8217;s own territory, these strategies provide further threat to classic generics businesses.
Long live generics
The future for the generics industry is however rosy and can be realised by virtue of those very threats to the proprietary industry. Whilst economics and markets have been studied and predict growth for the generic companies, in fact many of the opportunities are rooted in advances in technology and the changing face of how drugs are prescribed, taken and their effectiveness measured.
We see three tiers of healthcare emerging, driven by economic constraints, deeper regulation and technological opportunity:
Proprietary personalised medicine - which is costly and the onus on it working will be placed firmly with the pharmaceutical or medical device company
generic personalised regimens – using low cost generics targeted to provide optimum care with close monitoring of outcomes
individual responsibility for wellness – education and stimulus to live healthily.
This will be enabled by much better understanding of patients own reaction to drugs and the diseases from which they are suffering. At the moment, we are just at the start of this revolution of understanding:
The individual response of a particular patient to a particular therapy (or lack of therapy). For example, the patient’s genotype, such as their genetic predisposition to drug metabolic pathways and cytochrome P450 status.
the response of a particular disease condition or injury to a particular therapy, information drawn from biomarkers associated with the disease
economics and life issues of a particular treatment in the context of the particular patient.
Enabling this new model is the rise of biomarkers and genetics to define responders and non-responders to pharmaceuticals. This does not just apply to new drugs, as our understanding of the genetic responses to drugs improves we can raise the effectiveness of generics to their full potential.
For example, warfarin costs pennies a day and is widely given to patients at risk of blood clotting. However it is the second most common drug implicated in adverse drug reaction-linked emergency room visits. One-third of thrombosis patients metabolise their warfarin dose differently from that expected due in large part to variations of two genes, VKORC1 and CYP2C9. Since 2007 the FDA has recommended doctors consider lower initiation doses for patients with variations in these genes. In January 2011 the FDA updated the labelling referring doctors to a table containing stable maintenance doses observed in multiple patients having different combinations of CYP2C9 and VKORC1 variants. The newly updated warfarin label also notes that the dosing ranges in the table account for clinical factors, such as age, race, body weight, sex, concomitant medications, and co-morbidities, along with genotype.
As a new model of stratified medicine emerges, suppliers of high-value proprietary drugs will feel the squeeze as payers seek to minimise cost using high cost drugs as the treatment of last resort.
A major factor impeding the success of new molecular entities is the economic case that must be made for the prescription and reimbursement of drugs. The pressure from payers is increasingly on pharmaceutical companies to link payment to successful results in the patient.
The current system of prescribing drugs to patients is an open loop system. The point at which the patient picks up the prescription generally marks the end of the control the healthcare system has over the outcome in the patient. The patient may not choose to take the drug, the patient may take the drug wrongly or the patient may just choose to take the drug differently. Whilst some patients may not understand how to take their medication, others recognise that the prescribed regimen does not work for them and adapt it to their personal responses. Adherence, or concordance, has long been recognised as an issue. There are variously published figures on the subject but the WHO figure of 50% is representative. As the understanding of the importance of adherence monitoring increases, technologies have abounded to assist both patients and clinicians in adherence.
Existing approaches to improving concordance range from the simple, such as assistance programmes and reminder systems, to the complex, involving direct monitoring of the preparation, administration or efficacy of treatment. Highly sophisticated approaches such as Proteus Biomedical’s8217;s Ingestible Event Markers allow not only identification of the type and source of the drug, but also enable measurement of certain vital signs.
The benefit of integrating technologies into clinical testing and as part of a regulatory submission offers an additional degree of protection or options for life-cycle management. This may represent a significant opportunity for generics companies who can build added-value propositions attractive to payers by demonstrating increased compliance savings across the care pathway. The issue is to understand how a given technological approach enhances concordance and by how much to remove cost at the population level, making broad adoption of added-value generics an attractive proposition.
There are also many drug delivery technologies that assist the user in taking medicines. An example is rheumatoid arthritis drugs. The modern rheumatoid arthritis drugs are biologics given by injection. However the nature of the condition means that it is difficult for patients to self-inject. Consequently the proprietary rheumatoid arthritis drugs are presented in an auto-injector, and the follow-on biosimilars will be forced to do the same.
A generic drug enhanced, for example, by an innovative delivery system, or more convenient packaging, is increasingly looking like a better deal than the latest, best in class and still patented drug. Better in terms of clinical outcomes because the recent increments being made by best in class drugs are small relative to the many issues which still exist regarding proper and compliant use of the drug. Better for the payer because the cost of the generic drug combined with the innovative device or enhanced packaging is likely to be a lot cheaper than the patented drug.
The emergence of diagnostic, monitoring and drug delivery technologies together provide a huge opportunity for generic medicines. Providing that generics companies can embrace the emerging payment-by-results model and integrate new technologies then they stand to reap the rewards of the drive to do more with less.
Sarah Wren is a healthcare expert at PA Consulting Group.
For further information, please contact Sarah Wren or Ian Rhodes, healthcare experts at PA Consulting Group. Dr Gregory Berman, formally of PA, co-authored this article.
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