Latest Tactics to Stifle Generic Competition
In the last half of this decade, it is estimated that $100 billion worth of brand name drugs have lost (or will lose) patent exclusivity. Each year, generic drugs take more and more of the market share from brand-name drug manufacturers. In fact, the percentage of drug prescriptions dispensed for generics increased from 47% to 63% between 1999 and 2007. It seems like a losing battle for the brand-name manufacturers, so as the old saying goes… if you can’t beat ‘em, join ‘em. The big pharmas are starting to take their slice out of the generic industry.
There are a number of strategies that the brand-name manufacturers have employed since the Hatch-Waxman Act in 1984 in order to stave off generic manufacturers and retain market exclusivity. The most common tactic is a combination of “evergreening” and aggressive litigation. With evergreening, the company stockpiles patents on as many aspects of the product as possible. When a generic company attempts to get marketing authorization, the brand-name manufacturer takes the generic company to court over claimed infringements with some patented aspect of the product. This allows the drug manufacturer to delay the entry of competition and retain its big profits (for up to 30 months or longer in the U.S.).
However, litigation is only a short-term strategy – eventually the generic drug makers will enter the market. Other tactics meant to invoke a more gentle decrease in product price once the generics invade are:
- Patents on new formulations / combinations – Coming up with better delivery methods, simpler administration routes (e.g. once a day versus three times a day), combination products and new isometric forms may stifle competition and keep doctors and patients coming back to the brand name
- Patents on improvements in the manufacturing process in order to decrease costs
- Aggressive advertising campaigns to keep their products fresh in the minds of doctors and patients. In addition, brand-name manufacturers jump on every opportunity to promote bad press about unexpected adverse events with generics (i.e. the heparin from China fiasco) or poor manufacturing controls (such as the FDA ban of 30 generics from Ranbaxy). These negative advertising campaigns are meant to scare consumers aware from generics.
Lately though, the market is starting to take a different turn. In a number of ways, the brand-name manufacturers are starting to play more of a hand in the generics market.
- Some brand-name manufacturers have begun marketing their own “authorized generic” to compete with the first generic manufacturer to gain entry. This may be done through a subsidiary or through a licensing deal with another generic manufacturer. The brand-name manufacturer gets a slice of the pie while decreasing the profits for the first generic competitor. When paired with the delays and costs of an aggressive litigation campaign from the brand-name company, the generic drug maker may be deterred from entering the market at all.
- A number of big pharmas have started purchasing generic companies. This serves three purposes: (1) it allows the brand-name company to launch their own “authorized generics” through a subsidiary that is better suited for the generic business, (2) it enables brand-name manufacturers to have a presence in countries that cannot yet afford brand-name prices – such as Brazil – and (3) it decreases competition, allowing prices and profits to remain higher. This has started a domino effect as big generic companies are forced respond in kind – case in point: Teva’s recent purchase of Barr Pharmaceuticals.
- In some recent cases, the brand-name manufacturer has resorted to financial arrangements – or what some may call payoffs – in order to stifle competition. For example, see Pfizer’s settlement with Ranbaxy to delay their generic version of Lipitor by 20 months. While these arrangements may violate antitrust laws, the government has not levied any punishments yet.
So while the percentage of drug prescriptions dispensed for generics has steadily increased over recent years, the brand-name manufacturers have been able to keep their percentage of sales fairly high (84% in 2007, down from 88% in 1999). Surely, this battle will continue to rage on for years to come. Hopefully, the generic industry will be strong enough to keep prices affordable for consumers, while the brand-name drug makers get enough market share to continue to bring innovative products to patients. Balance will be the key.
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