White House Seeks an End to Pay-For-Delay
The release of the Obama administration’s 2012 budget proposal in February intensified an already heated debate between the pharmaceutical industry and the Federal Trade Commission (FTC).
A provision of the budget would prohibit controversial “pay-for-delay” patent settlements between branded and generic drug makers. Intended to speed generic drugs’ entry to market, the provision would have the opposite effect, according to the Generic Pharmaceutical Association (GPhA).
“The administration’s proposal purports that such a ban would save $8.8 billion over the next 10 years,” GPhA said in a statement addressing the budget proposal. Citing an independent analysis conducted in August 2010, GPhA claimed that “this economic assumption is fatally flawed.”
John J. Castellani, president and chief executive officer of the Pharmaceutical Research and Manufacturers of America, was also critical of the ban. He said patent settlements are “a vital aspect of a patent owner’s ability to protect intellectual property,” and that eliminating them would diminish incentives for medical innovation.
Both groups argue that pay-for-delay deals do not delay the entry of generic drugs past patent expiration. In fact, according to GPhA, they “generally have resulted in the early, date-certain introduction of generics years earlier than would otherwise have been possible.”
The FTC stands firm on its intent to banish what it deems an “unconscionable” practice, however. “Left untreated, these types of settlements will continue to insulate more and more drugs from competition,” FTC chairman Jon Leibowitz said.
Uptick in Generic Industry Deals Expected
Heavy competition in the generics market has many generic drug makers looking to join forces, according to a report released in February by Thomson Reuters. Experts say mergers and acquisitions (M&A) are the industry’s best hope for continued growth and expansion into new markets going into 2011.
The report, “Gaining Market Share in the Generic Drug Industry Through Acquisitions and Partnerships,” analyzed M&A deals made by generic pharmaceutical companies in the past 3 years to learn how the generic industry is dealing with “growing pains.”
With the expanded use of generic drugs have come significant challenges, such as government-mandated price cuts and increased competition in the market for small-molecule drugs. These have narrowed profit margins for many generic drug companies, according to the report.
Kate Kuhrt, director of generics and API intelligence at Thomson Reuters, said many companies are coping with challenges by seeking economies of scale in manufacturing and new opportunities in emerging markets. She added that “Companies are also cutting out the middle-man by moving into niche areas, including follow-on biologics.”
To achieve those goals, generic pharmaceutical companies are relying largely on partnerships with other firms. This trend toward consolidation is “likely to continue,” the report’s authors noted, “given the tremendous pressure on both innovator and generic companies to maintain growth.”
Deals between generic drug makers totaled an estimated $6.8 billion in 2009, down from $24 billion in 2008, according to the report.
To Balance Medicaid Budgets, Offer More Generics
The US Department of Health and Human Services (HHS) is urging state Medicaid officials to tackle their budget crises by offering more generic medicines.
“Use more generics” was among the many cost-slashing tactics Health and Human Services Secretary Kathleen Sebelius recommended in her February letter to the nation’s governors. The letter also outlined HHS’ efforts to identify “new ways to deliver care that encourage investment and yield savings.”
According to Sebelius, states spent $7 billion on prescription drugs in 2009. Some states contributed less to the tab by introducing measures that encourage the use of generics. For example, she explained, some states use cost sharing “to steer individuals toward generics or preferred brandname drugs.”
In a statement responding to the letter, the GPhA called these ap-proaches “right on the mark,” noting that each percentage point increase in the Medicaid generic dispensing rate saves the health care system an additional $591 million.
“GPhA applauds Secretary Sebelius for her leadership in working with governors to assure they have accurate information about drug costs in order to make wise purchasing decisions as they struggle to balance budgets,” the group stated. PT
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