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The rising cost of healthcare, increasing drug prices and the restrictive nature of the formularies of many insurers and third party payers is forcing a growing number of Americans to rely almost exclusively on generic prescription drugs. The trouble is that most Americans know very little about generic drugs; mainly because big pharma has done its best to minimize the discussion about generics and continues to portray generic manufacturers as less than reputable purveyors of prescription drugs. Because of this, I think that American ought to begin to understand an industry that increasingly will play a major role in the US healthcare system. So here goes:

1. According to IMS Health, generic drugs accounted for 70 percent of the 2.9 billion prescriptions filled in the US in 2009
2. Generic drugs accounted for only 15 percent of almost $300 billion spent on prescription drugs last year in the US
3. Since 2003, the US Food and Drug Administration (FDA) received 800 new generic drugs applications; up from an average of 330 applications per year in the last decade
4. Five years ago, it took FDA regulators an average of 16.3 months to review and approve generic new drug applications; by 2009 the average time to approval had ballooned to 27.7 months
5. There is a backlog of nearly 2,000 pending generic new drug applications, almost double the backlog at the agency in 2005
6. FDA’s division of generics had a budget of only $41 million in 2009; its budget for 2010 is $511 million
7. Unlike branded pharmaceuticals, companies seeking regulatory approval for new generic drugs don’t pay user fees
8. According to FDA Commissioner Dr. Margaret Hamburg generics saved American consumers almost $750 billion over the last decade.

Based on these facts, it is evident that FDA is seriously under funded, under staffed and overwhelmed by the spike of new generic drug applications in recent years. Interestingly, President Obama’s proposed 2010 budget included $38 million in user fees from generic manufacturers to process new drug applications. Not surprisingly, generic manufacturers are not willing to pay these fees unless the approval time for their products is drastically shortened. To that end, FDA is hiring 50 more reviewers and hopes that personnel increases will eliminate the generic drug application backlog by 2012. 

Dr. Hamburg is also looking to streamline some aspects of the generic drug application review process. For example, she proposed giving higher priority to generic drugs applications for branded drugs whose patent expiry is imminent as compared with applications for drugs that have several more years of patent protection remaining.

Nevertheless, the bottom line is that the agency needs a much larger budget and staff to keep up with the ongoing torrent of new generic drug application. With this in mind, the agency ought to consider reallocating existing resources—rather than wait for budget increases in these financially uncertain times—to process new generic drug applications in a timely fashion. This may be possible because of the annual number of drug applications for new, branded prescription drugs has steadily been decreasing for the past five years.

Hat tip to the New York Times!

Until next time...

Good Luck and Good Job Hunting!!!!!!

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Earlier this week, an article appeared in the NY Times Business section heralding the entry of several large pharmaceutical companies into the branded generics industry. For those of you who may not know, generic drugs are lower cost versions of brand name prescription drugs that have lost patent protection. Generic prescription drugs are usually much cheaper than their brand name counterparts but generally deliver the same therapeutic effects as the branded product. In most cases, so-called “commodity generic drugs” are not branded and sold to consumers by their chemical names. A good example of a commodity generic drug is the anti-depressant sertraline HCl; which Pfizer sells under the brand name Zoloft. Pfizer still manufactures and sells Zoloft but Zoloft lost patent protection several years ago and a generic version of the active ingredient, sertraline HCl, is now available to consumers. Because sertraline HCl is much cheaper than Zoloft, pharmacists almost always substitute prescriptions for Zoloft with sertraline HCl. This is perfectly acceptable because sertraline HCl was approved by the US Food and Drug administration with an AB rating which means that sertraline HCl is biologically equivalent to Zoloft.

Unlike commoditized (no-name) generics, branded generics are off-patent prescription drugs that are sold to consumers—as the name implies—under a brand name. Typically, because these products are “branded” and actively marketed by manufacturers they are sold at higher prices than equivalent no-name generics. This is because consumers are generally willing to pay more for drugs that are manufactured by well known and trusted companies as compared with no-name generics which are usually produced by lesser known or unidentified manufacturers.

Branded generics are not a new or novel concept. They were previously championed by a number of generics manufacturers, most notably Barr Laboratories, which was recently purchased by the Israeli generics giant TEVA. In the past, when pharma embraced the blockbuster drug business model, drug manufacturers built in revenues— that eventually would be lost through patent expiry—into the price of their top selling drugs. This allows drug companies to maximize ROI early in a drug’s life cycle years before patent expiry Studies have shown that branded prescription drugs can lose as much as 90% of their original value two years after the introduction of generic equivalents. Consequently, because of drastically diminishing financial returns after patent expiry, it didn’t make economic sense to continue to promote and support a brand that was facing generic competition. Put simply, the company made its money on the drug and it is time to move on. 

However, the emergence in recent years of an affluent middle class in developing markets like China, India, Brazil, Eastern Europe and elsewhere is causing branded pharmaceutical companies to reconsider their generics strategy. In these markets, many people frequently pay out of pocket for their medicines but cannot afford to pay for the expensive brand name drugs. Also, in some emerging markets, where the threat of low quality or counterfeit prescription drugs may be high, consumers who can afford to purchase medicines are willing to pay more for drugs manufactured by well known and respected companies. Finally, IMS Health estimates that close to $89 billion in US drug sales alone will be lost to generic competition over the next five years or so.

In the absence of any new blockbuster drugs on the horizon, many big pharma companies have been scrambling to acquire or enter into relationship with established regional generic manufacturers. For example, GlaxoSmithKline recently bought a stake in Aspen a South African generics manufacturer and entered into an agreement with India-based Dr. Reddy’s laboratory to sell generic products in Asia and other emerging markets. Likewise, in the last year, Pfizer created an off-patent generics division (products are sold under Greenstone label which is a wholly owned subsidiary of Pfizer) and signed agreements with three Indian companies to sell their products in the US and other markets. These deals added about 200 products to Pfizer’s new generics portfolio. Further, Pfizer recently announced that the Greenstone brand has become the world’s seventh largest generics seller. In addition, Pfizer is expected to make a formal bid to purchase the financially-troubled German generics manufacturer Ratiopharm; one of Germany’s largest purveyor of generic drugs.

Not to be outdone by the competition, the French drug maker Sanofi-Aventis recently purchased Brazil-based Medley, a dominant player in the South American branded generics industry and Laboratorios Kendrik, a Mexican generics producer. Last year, the company also purchased Zentiva, a leading Czech generic manufacturer signally the company’s intention to move into financially-lucrative Eastern European markets.

Watson, one of the largest American generics manufacturers (which primarily operates in the US) recently purchased Arrow, a generic producer that operates in 20 different countries. Finally, Novartis, recognizing a business opportunity before most of its competitors, entered the generic market in 2003 following creation of Sandoz, a division of Novartis that manufactures and sells small molecule generic drugs and branded biosimilar products. Recently, Novartis purchased the German branded generics manufacturer Hexal, making it the world’s second largest generic drug manufacturer after Teva.

The entry of pharmaceutical companies into the generics business is allowing these companies to pursue a two-tiered business strategy in certain markets which is designed to preserve the long term value of their branded franchises. For example, companies can continue to sell their expensive name-brand drugs to the wealthy (or those that can afford them) and concurrently sell the more moderately priced branded generics which includes and over the counter products to the broader market. 

While some may lament the end of the blockbuster drug era, rising healthcare costs and generic competition is forcing big pharma to continue to explore novel and innovative strategies to reinvent itself.

Until next time...

Good Luck and Good Job Hunting (try the generic industry; business is booming)

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A post today on the Pharmalot blog suggests that Israeli generic manufacturer Teva is in talks to acquire US-based Barr Pharmaceuticals for  $7.0 -7.5$ billion. Barr’s present market cap is approximately $5.0 billion.

The acquisition would make sense for Teva to broaden its reach into the generic and branded generic markets in the US. Also, Barr recently acquired PLIVA which has active research programs on biosimilars and is currently selling its version of EPO in Croatia and other parts of Eastern Europe.

Teva has been trying to get into the biosimilar/follow-on biologics market for the past eight years or so. The company previously bought several early stage biogenerics manufacturers but have yet to advance their plans to formally enter the biosimilar/follow-on biologics market. This may be the opportunity that Teva has been looking for!

Check back for updates.

Until next time…

Good Luck and Good Job Hunting!!!!!!

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