Laws are evolving in favor of the generics industry as the demand for generics grows. Several recent Supreme Court decisions in particular are having a significant effect on the industry — decisions that some pharmacy directors say may increase the availability and demand for generic drugs.
"We are seeing an evolving situation that seems to favor the increased use of generics," says Glen Stettin, MD, vice president for clinical products at Medco Health Solutions. "More products will be coming to the market as blockbuster patents end this year and especially next, and some companies are finding the path to market less encumbered. Certainly the demand for generics is increasing among our customers, the employers, and health plans."
The generics market certainly is strong, having grown swiftly between 2001 and 2004, primarily because of the patent expirations of blockbuster drugs. According to IMS Health, the total generics market in this country went from 49 percent of all prescriptions sold in 2000 to 64 percent at the end of the first quarter of this year — 20 percent of all dollars spent on drugs. It went from 60 percent to 63 percent in the last two years alone.
All of this makes the generics industry an increasingly powerful economic force. Its power in the health care industry could increase as the recent Supreme Court decisions ripple through the market.
One decision in particular — which had nothing to do with drugs — could have a major effect. At issue is what has come to be called the "obviousness test." In KSR v. Teleflex, the Court ruled last April that "granting patent protection to advances that would occur in the ordinary course without real innovation retards progress" and may deprive "inventions of their value or utility."
The ruling strengthens generic manufacturer claims that patents for extended-release versions of previously patented drugs are vulnerable to challenge, as well as drugs that are re-patented when the delivery system is changed, like a tablet that is changed into a gelatin capsule.
"This will have implications for the pharmaceutical industry because generics manufacturers will take advantage of it," says Bryan A. Liang, professor of health law studies at California Western School of Law in San Diego.
Another Supreme Court action seems to favor branded generics, i.e., generic drugs either manufactured by branded companies or manufactured as the result of deals between generics and brand-name companies. Branded generics are also called authorized generics.
In June the Supreme Court refused to consider the appeal of a lawsuit brought by consumer groups against AstraZeneca and the generics manufacturer Barr Laboratories. The court let stand a ruling that an agreement between the two companies regarding the sale of a generic version of AstraZeneca's Nolvadex breast-cancer drug did not violate antitrust laws.
The consumer groups, joined by some labor union health plans, claimed that a 1993 agreement between Barr and Zeneca, a predecessor to AstraZeneca, blocked the sale of lower-cost generic versions. Zeneca had paid Barr $21 million to settle its challenge to the patent for Nolvadex, the chemical name for tamoxifen citrate, and gave Barr the right to sell tamoxifen made by AstraZeneca. Barr was selling the drug at an agreed 5-percent discount to AstraZeneca's price. The plaintiffs said the generic version would have sold for a far greater discount had it not been for the agreement.
The decision will play a major role in the generics market in coming years. It allows brand manufacturers to successfully compete with generic drug manufacturers whose products are considerably less expensive through deals similar to the one between AstraZeneca and Barr.
That said, it has not been all good news for Big Pharma and the generics companies they cut deals with to manufacture authorized generics. A Supreme Court decision in February found that one strategy used by brand pharmaceutical manufacturers to delay competition from lower-cost generics was illegal.
In MedImmune v. Genentech, the court nullified a federal district court ruling that made it harder for manufacturers of generics to file a new abbreviated drug application with the FDA.
Manufacturers of generics sometimes ask courts to approve their right to file a NADA before they actually file with the FDA. The Supreme Court's action means that when seeking the approval, known as "declaratory relief, they no longer need to have "reasonable apprehension" that a brand manufacturer will attempt to block the NADA.
Generic Pharmaceutical Association President and Chief Executive Officer Kathleen Jaeger said in a public statement that "the Supreme Court has ruled in favor of American consumers by making it harder for brand companies to delay generics from coming to market."
According to Jaeger, studies show that authorized generics "significantly reduce incentives for independent generic firms to challenge invalid brand name patents and to develop non-infringing processes."
"The long-term effect of allowing authorized generics on the market during the 180-day generic exclusivity period will be less competition and reduced access to cheaper drugs," according to GPhA.
These decisions mean the generics industry will continue to gain market share.