Analysts Foresee Golden Age Of Generic Medication
August 10th, 2007
A quiet coup is taking place in American medicine cabinets. Prescription bottles bearing catchy brand names such as Zoloft and Flonase are being pushed aside by tongue-twisting generics such as sertraline and fluticasone propionate.
The trend already is pinching the profit of big pharmaceutical companies, but it is rare good medical news for Americans’ pocketbooks.
The nation spends $275 billion a year on prescription medicine, but analysts forecast a golden era for generic drugs over the next five years as patents expire on brand-name medications with more than $60 billion in combined annual sales. That will open the door to copycats that can be 30 percent to 80 percent cheaper.
“There’s a tidal wave of generic drugs, and we are just in the beginning of the tidal wave,” said Laizer Kornwasser, an executive for Medco Health Solutions, which manages prescription drug plans.
The rise of generics has helped slow spending increases for prescription medication overall, even though aging baby boomers are consuming more drugs and even as new medicines enter the market, including cancer drugs costing tens of thousands of dollars.
Ronny Gal, an analyst for Sanford C. Bernstein and Co. who follows generic companies such as Teva Pharmaceutical Industries, Barr Pharmaceuticals and Mylan Laboratories, predicts 10 percent to 13 percent annual profit growth in the industry from now to 2010. He describes the generic trend as “good for everybody but the branded pharmaceutical companies.”
Last week, the big drug-maker Johnson & Johnson announced it would cut up to 4,800 jobs as it braces for generic competition to two of its drugs, Risperdal for schizophrenia and Topamax for seizures and migraine headaches. In the past year, combined U.S. sales of the drugs were $4 billion.
Shortly after the Johnson & Johnson statement, Sanofi-Aventis announced it had been hard hit by low-cost alternatives to its sleeping pill Ambien, which became available in generic form in April. As frequently happens when generics go on the market, sales of the name-brand Ambien plunged - to $91 million in the second quarter from $420 million in the same period last year. Generics already account for 60 percent of prescriptions in this country. That portion is expected to rise as cheaper substitutes arrive to treat many chronic conditions.
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Already this year, consumers have flocked to new generic versions of five major drugs, including Ambien and discount alternatives to Norvasc for high blood pressure.
Next year, generics competition is expected to hit Fosamax, a $2 billion drug in this country that slows bone loss and often is used by postmenopausal women. In 2009, the heartburn and ulcer medication Prevacid, a $3.5 billion product in this country, is expected to become available as a generic product. And by 2011, a generic substitute is expected to be available for what has been the world’s single best-selling medicine, the cholesterol drug Lipitor, a drug with annual U.S. sales exceeding $5 billion.
Several experts predict that generic drugs will keep drug price inflation in the single digits for the next several years.
“It’s much better than it was in the ’90s before these drugs started going generic,” said Steven B. Miller, chief medical officer for Express Scripts, another company that manages drug benefit plans. “The drug trend was always double digit.” As recently as 2002, he notes, the annual drug inflation rate was 18.5 percent.
Companies such as Express Scripts are promoting the use of generics by setting lower co-payments for them, reducing the amount patients must pay out of pocket.
Also helping to propel the copycat drug trend is the success of generic manufacturers in challenging patents held by brand-name companies. Another reason is that many patents simply are expiring on drugs that were introduced during the late 1980s and early 1990s, an unusually productive era of research and development for the pharmaceutical industry.
Patents provide 20-year protection from generic competition. Because companies often apply for patents in early stages of drug development, before drugs are approved, pharmaceuticals may have fewer years of what is called effective patent protection.
Now, as nearly every big drug-maker watches its bestsellers fade away, there are fewer potential blockbuster drugs waiting to take their place.
The FDA approves generic drugs that contain the same active ingredients as brand-name pharmaceuticals and says that generic drugs meet the same quality standards.
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