Generics Take Off

The 1990s were a boom period for the pharmaceutical and biotechnology industries. From 1995 through 1999, annual new drug approvals by the US Food and Drug Administration (FDA) averaged 37. Although those new drugs produced record profits at the time, they now present a quandary for big pharma as they come off patent and companies jump at the opportunity to produce generic versions of them. In 2003, 364 generic drugs were approved. In 2004, a record 474 were approved. This year, the FDA Office of Generic Drugs expects to receive close to 800 abbreviated new drug applications (ANDAs) for approval to market a generic product. That compares to 600 ANDAs in 2004, says Gary Buehler, RPh, the office’s director.

Those numbers are expected to increase as an estimated $100 billion worth of brandname drugs go off patent by 2010, of which $21 billion go in 2006 alone. In addition, the first generic versions of biopharmaceuticals are expected to come on the market in 2006, the first wave of a trend that has the potential to generate sales of over $16 billion by 2011. Dozens of new generics companies have jumped into the fray, including a number from India and China, but paperthin profit margins led to mergers and consolidation.

Big pharma is fighting back by patenting more steps of their drug production processes or tweaking formulations as patents are set to expire. They are also attempting to beat generics companies at their own game by marketing generic versions of their own brand-name drugs once they go off patent.

“There are three critical things [to making generics]: speed, cost, and quality,” says Veejay Batra, PhD, vice president of research for Ranbaxy Laboratories Ltd., Haryana, India.

“They are all interdependent, so you have to optimize all three and produce the generic at a cost that will give you a good profit. Then you have to get into some difficult drugs that not everyone can replicate, because you have less competition, but those products are difficult to make so not everybody will get into that.” Ranbaxy is one of the top 10 sellers of generics and the 13th fastest growing pharmaceutical company in the United States. It is the eighth fastest growing pharmaceutical company in Europe.

Generics giant

While Ranbaxy is a strong, up-and-coming company, Sandoz International, Holzkirchen, Germany, is one of the global giants in generics. Sandoz is the generics division of Novartis International AG, Basel, Switzerland. Andreas Rummelt, PhD, CEO of Sandoz, says there is “fierce” competition in the generics marketplace, particularly in the United States, where price erosion is putting the squeeze on generics manufacturers. “You have to have very costcompetitive technical operations, production, and supply-chain networks which will allow you to fight through this price pressure period so that you are not obliged to drop out of the market because the selling price is below your manufacturing price.”

These pricing pressures and jockeying for market share led to a number of recent mergers and acquisitions, some of them involving Sandoz. Several months ago it acquired generics company Hexal AG, Holzkirchen, Germany, and Eon Labs Inc., Lake Success, N.Y. Sandoz has a strong portfolio of anti-infective drugs, and its recent acquisitions will further bolster their offerings. Hexal is a market leader in Germany with a great deal of knowledge formulations, and biopharmaceutical formulations. Eon Labs is an industry leader in obtaining ANDAs from the FDA, has more than 200 products representing various dosages for more than 60 drugs, and has a leading market share for most of its products.

Those acquisitions gave Sandoz a portfolio of more than 600 active ingredients in more than 5,000 dosage forms. They also strengthened the company’s technology base in the application of transdermal patches, inhalation products, sustained-release implants, and multi-particulate drug-delivery dosage forms, which Sandoz hopes to use to achieve more than 80 product approvals a year. “We have globalized two important functions in our business,” says Rummelt, “the development function and the technical operations function. So we operate a global network of development sites and technical operations sites, which really allows us to drive the broad portfolio but also to access resources and skills from all overthe world.” The acquisitions also made Sandoz the largest generics company in the world—for a short time, at least.

In July, Teva Pharmaceutical Industries Ltd., Petach Tikva, Israel, purchased rival Ivax Corp., Miami, for $7.4 billion, making it the world’s largest generic drug company. For 2004, the company reported net sales of $4.8 billion, an increase of 46% over 2003. Teva is projected to control 10% of the US generics market in 2006. Batra believes the industry consolidation has just begun. “Because there are so many generics companies, not everybody will prevail and you will see a lot of acquisitions. Ultimately, you’ll only see a few top players that will remain in the market,” says Batra

Regulatory changes

In addition to financial considerations, the generics market has also been affected by some regulatory changes in the last few years. When the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) was passed in 2003, it changed the rules on how 180-day exclusivity was handled, says the FDA’s Buehler. “Right now, the way we’re operating with 180-day exclusivity is you can be eligible for exclusivity if you are the first to challenge any patent for a particular drug product. This gets us into a situation where we have a lot of ties.” Buehler says that his office was also awarding shared exclusivity in some cases, a situation generics manufacturers were not happy with. When the FDA starts to process ANDAs under MMA, the move will be toward a product-based exclusivity instead of a patent-based exclusivity. “This clarification in the MMA will make it much easier, and there will be much more surety with respect to the industry as to who is eligible for the 180-day exclusivity.” The legislation also limited the trigger for the exclusivity period to the first commercial marketing and, to prevent blocking competition, it included forfeiture requirements that compel marketing of the generic for which filing was submitted.

Abha Pant, MPh, executive director for regulatory affairs at Ranbaxy Laboratories, says regulations regarding generics are constantly evolving. Pant says her work begins as soon as her company’s research and development people begin working on products.

“Sometimes, even before the product is taken up for development, we start talking to FDA to get all the issues sorted out, so by the time it leaves for development they should have answers to most of their questions.”

Pant says the secret to a quick ANDA approval is simple—preparation. “We try to make sure the quality of our filings is good, and we try to take care of all the deficiencies that we’ve gotten in earlier filings so we don’t make the same mistakes again. We try to work with the agency. We’ve seen that that has really helped us.” She says this preparation once netted them an approval in six months and others in seven or eight months. Buehler says the median time for ANDA approvals is about 16 months.

Biogenerics boom

While the generics industry on the whole seems satisfied with the job FDA is doing, they are frustrated by the agency’s slow pace in producing a promised white paper on biogenerics, a field many say will explode in the coming years. It was supposed to have been issued early this year, then over the summer.

Buehler says white papers describing his office’s handling of biogenerics will be coming out by the end of the year. But the European Agency for the Evaluation of Medicinal Products is now accepting Market Authorization Applications (MMA) for biogeneric products which show proven biosimilarity in place of clinical trials.

Sandoz has already filed an MMA for Omnitrope, a generic human growth hormone that has already been approved in Australia. The company recently filed a lawsuit against the FDA over its Omnitrope filing in the United States. Sandoz filed its application in July 2003 and last September the FDA had notified them that they were unable to reach a decision on whether to approve the company’s application. The agency has taken no action since then, Sandoz says, on its “follow-on protein product,” the FDA’s term for copies of recombinant DNA-derived protein products.

Himanshu Parmar, an industry analyst with Frost & Sullivan in London, says that in the initial phases of the biogenerics market, industry will likely focus on three main biologics coming off patent: Epogen (epoetin alfa) and Neupogen (filgrastim) from Amgen, and Intron (interferon alfa-2b) from Schering-Plough. He says the first erythropoietin generics should launch between 2006 and 2007.

Biogenerics manufacturers known to have significant research programs underway for erythropoietin products that are approaching a marketable phase include Pliva in Zagreb, Croatia, and BioGeneriX AG, Mannheim, Germany. Recombinant human interferons (rh IFN) are widely anticipated to become some of the first biogeneric products to reach the market, Parmar adds. Recombinant human IFN alpha for the treatment of hepatitis C has already been submitted for approval in Europe by BioPartners GmbH, Baar, Switzerland, and should reach the market in 2006.

Safety concerns?

But while much work is being done, Parmar believes concerns over the safety of biogenerics may have a negative impact on consumers and prescribing physicians. “Cheap biogenerics may be perceived as low quality alternatives with inherent safety risks that may hinder both sales and market penetration of generic compounds. However, pharmaceutical generics entered the market with relatively few teething problems, so once regulatory guidance is established and accepted, this challenge should be relatively minor. This challenge is expected to have an intermediate impact over the next one to four years, but is anticipated to lessen beyond this period as the first products reach the market and biogenerics are treated on par with smallmolecule pharmaceutical generics.”

Ranbaxy’s Batra says biogenerics are the wave of the future and can offer companies a way to escape the cut-throat competition presently seen in the generics market. “If you are successful the profit will be greater because not everybody can enter that area.

In the generic area it’s easy to replicate products, but in the biogenerics area it’s not easy.” Because of the difficulty inherent in copying and manufacturing biogenerics, it could easily take two to three years to bring them to the market. But despite those difficulties, Batra believes biogenerics are still promising. “I think it will be more fruitful than making plain generics.”

Parmar says biotechnology companies are using several tactics to prevent generics manufacturers from producing cheaper versions of their products. These include reformulating them or improving delivery methods to produce a more effective product that will be preferred by consumers, so-called “value-added biologics.” Many biotechnology companies are highly reliant on specific blockbuster patents which are about to expire. “In response, many manufacturers are investigating new, similar indications for their existing products, or reformulations to make combinations of their existing successful products to improve their effectiveness,” Parmar says. Several of these analogs have already entered the biopharmaceutical market. A common analog is human insulin, which is manufactured in various reformulations for the improved treatment of disease.

There is much at stake, Parmar says, as the worldwide biogenerics market has the potential to generate revenues of over $16 billion by 2011 and an annual average growth rate of nearly 70% between 2007 and 2011. “This is a rapidly growing market, and the growth rate in 2006 is extremely high at 212.8 %. This is because the market is effectively starting from zero at this time and high growth is anticipated as the first product, rh IFN-alpha, is launched.”

Pharma fighting back

Like the biotechnology companies, big pharmaceutical companies have developed several ways to fight back. One is to offer reformulated versions of blockbuster drugs that allow them to at least maintain a portion of the market. When GlaxoSmithKline’s patent on Paxil (paroxetine) expired in 2003 the company introduced Paxil CR, a once-a-day, controlled-release version. Schering-Plough beat generics companies to the punch by launching Clarinex, an over-the-counter version of its own Claritin (loratadine), shortly after Claritin went off patent.

Batra says another tool big pharma is using is to enter the generics market. In 2003, Greenstone Ltd. became a wholly owned subsidiary of Pfizer Inc. In 2004, it launched a generic version of Pfizer’s Neurontin (gabapentin). Merck has a generics division that is one of the top 10 suppliers in the global generics market. Last year, Merck integrated its US subsidiary, Dey Inc., into its generics division. Dey develops respiratory and allergy medicines formulated with offpatent drug molecules.

While large pharmaceutical companies are getting into the generics market, generics companies are developing their own drugs.

Batra says Ranbaxy has a urology drug entering phase II trials as well as several other compounds that have come out of their drug development laboratories. Ranbaxy is also developing a malaria drug in partnership with a Swiss company. “We’ll remain in generics in the future, but we also want to enter the prescription area where we have enrolled a lot of scientists to do drug discovery and development.”

Rummelt says a long-term strategy at Sandoz is to stick with generics, but move more into producing ones that are difficult to make, something that their recent acquisitions of Hexal and Eon Labs allows them to do. “With the new combined company we have the resources and skills to basically develop nearly all products that go off patent in the next couple of years, so development is certainly one of the exciting areas.” He adds that flexibility will also be a key to success for the new Sandoz. “If you want to go for low-cost production, you have to find ways to have equipment which allows you fast setup times, because usually we have smaller batches and we have decided that our production will be rather flexible than just focusing on economies of scale.” To lower costs, they are also looking to automate and move into countries like India, where they have over 1,000 employees.

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