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All things Pharma

The Generic Retribution

The patents for branded pharmaceutical products were designed to safeguard the interests of the branded pharmaceutical manufacturers and offer them adequate market exclusivity time to recuperate their costs and make sufficient profits. The patents were also intended to uphold the attractiveness of the branded pharmaceutical business and sustain the pursuit of innovation for newer and better therapies. The introduction of Hatch-Waxman Act in 1984 tried to strike a balance between the research-oriented branded pharmaceutical companies and the generic pharmaceutical companies. However, the delicate balance between the two arms of the pharmaceutical industry eventually got skewed and has continued to deteriorate.

What Went Wrong?
The branded pharmaceutical companies, after having worked diligently in researching and building a brand for a large number of years, found it extremely difficult to digest the erosion of revenues and loss of profits soon after the expiry of patents. This led the branded pharmaceutical companies to examine the Hatch-Waxman Act and other legislations more closely. Branded pharmaceutical manufacturers worked overtime to find loopholes in the Hatch-Waxman Act that would enable them to extend market exclusivity of their products.

Branded pharmaceuticals adopted numerous approaches to restrict the entry of generic competition and enjoy extended market exclusivity. Since, extension of few months can also mean millions of dollars for the blockbuster products, brand name companies have tried to exploit each and every avenue. The most popular loopholes used by the branded pharmaceutical companies are:

• Filing of additional patents, by which the Hatch-Waxman Act prohibits the FDA to approve the generic version for the next 30 months unless and until a final verdict goes in favour of the generic manufacturer

• Keeping the first approved generic product out of the market through negotiations and payoffs. The first generic approved product has an exclusivity period of 180 days and by keeping it out of the market until the disputed patents expire, the branded pharmaceutical companies restricts the entry of generic competition

• Introduction of new dosage forms or slightly modified versions of the original product, extending its exclusivity regime

• Directing patients and physicians to its successor product, thereby minimising the loss inflicted by the product going off patent

Further, branded pharmaceutical companies are shielded by the Hatch-Waxman Act, which prevents the use of their clinical research data by competing generic companies for the purpose of reference, until after 5 years of the branded product being granted approval. This is known as “data exclusivity.” Since generic companies are only supposed to establish the generic drug’s bioequivalence and not conduct expensive, time-consuming clinical trials, the absence of data on the branded product creates a roadblock.

In addition, the FDA approval time for generic drugs is over 20 months, which has worked against the generic players. The multi-cycle review has added to the cost of bringing the generic drug to market as well as delayed introduction.

This deliberate delay has stripped the patients and healthcare providers of hundreds and millions of dollars over the past several years. The escalating drug prices have severely affected the healthcare budgets. All these factors have culminated into a public outcry and an infuriated generic industry.

Changing Rules of the Game: Advantage Generics
There is growing awareness and realisation of the fact that the branded pharmaceutical manufacturers have bent the rules and repressed the generic industry for a very long time. Amendment to the Hatch-Waxman Act has caught up and become an immediate priority. The changes announced earlier this year are directed towards tying loose ends and reflect a conscious attempt to facilitate the introduction of generics much faster than before. Following are some of the major changes:

• Abolish the automatic 30-month stay privilege of branded pharmaceutical companies • Amend the 180-day exclusivity rule so that it is applicable to the generic company that secures product approval and finally markets the product

• Tighten patent submission by branded pharmaceutical companies to reduce the delay in generic approvals and launch

• Reduce generic drug approval times

• Propagate the availability and use of generic medications

In addition to this, the FDA is gearing up to work more closely with generic manufacturers and enhance communication, so that the filing documents are prepared appropriately and get approved during first review. All these reforms and the announcement of the final rule are estimated to remove several roadblocks for generic manufacturers, leading to faster product approval and a promising future. These initiatives are expected to propel the generic industry on to a much stronger and surer footing and also save Americans over $35 billion in drug costs over a span of ten years.

Future Outlook
With branded products worth billions of dollars coming off patent in the next five years, the generic industry could not have asked for more. The tremendous opportunity with favourable legislation and softening FDA stance is a perfect time for generic manufacturers to retaliate with a vengeance.

Background
Frost & Sullivan, an international consultancy firm, has been supporting clients’ growth for over four decades. Our market expertise covers a broad spectrum of industries, while our portfolio of advisory competencies include strategic consultancy, market intelligence and management training. Our mission is to work with our clients’ management teams to deliver market insights and to create value and drive growth through innovative approaches. Frost & Sullivan’s network of more than 500 consultants, industry experts, corporate trainers and support staff, spans the globe with 19 offices worldwide.

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