Tag Archives: Generic Drugs

Let Pfizer Compete in the Generic Market with Lipitor®

In a previous post we discussed the opportunity for Big Pharma companies to potentially preserve market share for their brands by competing with generic versions on price once their products lose market exclusivity.  Pfizer seems to have taken this strategic concept to a new level.  First cutting deals with Pharmacy Benefits Managers to make Lipitor® available at or below generic drug prices, then turning around and also providing discount coupons to lower patient co-pays for example from $10 for generic drugs to $4 for Lipitor.

Pfizer’s aggressive approach to “competing “ in this market has been met with considerable negative commentary and even Congressional inquiry.  Interestingly, Pharmacy Benefits Managers and their trade association (Pharmaceutical Care Management Association), the same groups that use and advocate similar tactics to encourage generic drug use,  are on the front lines of criticizing the Pfizer co-pay discount tactic.  The contention is that the Pfizer campaign will cost insurance companies and employers more,  even if patients benefit from a lower out of pocket cost.   And some of those in Congress have expressed concern,  wonder if the discounts provided by Pfizer will be passed along to insurers and employers or be pocketed by the PBMs.

Well, if there was such a thing as a “free, open market” there might be a simple answer to this.  Let the market decide.  If Pfizer wants to price their products similar or even lower than their generic competitors,  they can.  If patients want to use the discount coupons to lower their co-pays,  they can.  If generic drug companies want to provide co-pay discount coupons,  they can.  If the PBMs, and their insurance company and employer partners,  want to lower or even eliminate their co-pays for generic drugs, they can.

If this is really about “price” and lowering the cost of prescription drugs, especially for a particular product, within regulatory quality standards, let the low cost producer and provider with the lowest price win.  Why shouldn’t branded product manufacturers be able to compete on price in the generic drug market, if they want to?  m ike@pharmareform.com

Is Big Pharma Manufacturing Expertise Becoming a Misnomer?

We all depend on pharmaceutical manufacturing to produce our prescription drugs that are consistent in formulation, safe, and not contaminated with foreign materials or potentially harmful pathogens.

Anybody who has done pharmaceutical manufacturing, especially biologics or sterile injectable prescription drugs, knows how challenging it is to repeatedly get it done right in large scale.  From engineering and process controls to supply chain and inventory management to quality systems the expertise required to consistently produce high quality, regulatory compliant prescription drugs is perhaps one of the most unappreciated critical success factors for a pharmaceutical company.   If you can’t make it you can’t sell it.

This expertise is a core competency that has clearly been taken for granted by Big Pharma senior executives.  This lack of appreciation for manufacturing expertise is evident every time a pharmaceutical company faces a recall or needs to shut down due to “quality issues.”   Perhaps best exemplified by the now well publicized drug shortage situation, the inability to manufacture these life saving prescription drugs is putting patient lives at risk.   The lack of appreciation for the complexities and challenges of pharmaceutical manufacturing manifests itself in these shortages.

So what does it take to do high quality, safe, and regulatory compliant prescription drug manufacturing?  It takes a broad range of expertise (not just well trained technicians and operators), significant ongoing capital investment in facilities and equipment, and rigorous, almost obsessive quality systems.  These are not the places pharmaceutical executives  should be looking to cut costs.  And worse,  generic drug pricing generally don’t allow for the levels of continuous investments I believe are necessary in people (expertise), facilities, equipment, and quality systems.

But what about Big Pharma?  Well, who had the expertise?  Who had the robust quality systems?  I’ll even add … who had the proprietary insight into the nuances and complexities of making a particular prescription drug.  Big Pharma.   At least they did until they decided to take manufacturing expertise for granted.  Unfortunately, Big Pharma continues to close manufacturing facilities, outsource more to contract manufacturers, and retire or let go much of their manufacturing expertise.  And, this expertise and know-how doesn’t necessarily get transferred from Big Pharma to the manufacturers that will be making the generic versions of their products.

I often wonder how generic drug manufacturers or even contract manufacturers who take over manufacturing a prescription drug figure out, understand, and know how to deal with all the nuances and complexities of making a particular prescription drug.  Again, if you’ve done pharmaceutical manufacturing, you know how much is learned by doing hundreds and thousands of batches over years of experience.   Perhaps those who are challenged with making the drugs that are now in shortage are finding this out the hard way.  Unfortunately, it is patients who are now suffering and dying because pharmaceutical manufacturing is harder and takes more expertise than most pharmaceutical company executives appreciate.    mike@pharmareform.com

What can FDA really do about drug shortages?

President Obama is reported to have issued an executive order for the FDA to fix the drug shortage.  But, what can the FDA do, realistically?  Giving advanced notice of an impending shortage won’t help, especially with the current shortage.  And, even if FDA had authority and power to force manufacturers to continue manufacturing, how do you do that if quality of manufacturing or lack of cGMP (current Good Manufacturing Practices) compliant active pharmaceutical ingredients (API) are the problems?

The drug shortage problem has been evolving over the past 5 years or so and was inevitable given the market pressures on generic drug pricing and a market expectation for FDA approved products to be manufactured under rigorous cGMP conditions affirmed by FDA facility inspections (remember heparin?).

First, I believe the root cause of most of the drug shortages is the lack of financial incentive (profitability) to ensure a continuous supply of product to the market.  This is mostly not a Big Pharma issue with high margin branded products.  The majority of drug shortages are for generic drugs and many are injectable products (difficult to manufacture).  Generic does not necessarily mean easy or cheap to manufacture.

So, why don’t generic drug companies just raise their prices?  Well, perhaps the biggest factor is Medicare pricing and the 6% price increase cap in any 6 month period but also the aggressive price negotiations by Pharmacy Benefits Managers, pharmacy chains, hospital purchasing groups, and wholesalers.   Besides the manufacturing logistic challenges, the Medicare price increase cap leaves little incentive to ramp up production in the face of a shortage.

If low profit margins accentuated by the challenges and expense of maintaining manufacturing quality are to be blamed for these shortages,  what can FDA do?

First, FDA could be more lenient about the expectations and enforcement of cGMP requirements.  This might be a reasonable option where compliance issues are minor administrative deficiencies that should be in place but may not be as tidy as FDA and cGMP regs might require.  If administrative record keeping and paperwork issues are keeping otherwise high quality products off the market, FDA could provide some relief, at least temporarily.  My guess is this is not the case in most current drug shortage situations with manufacturing quality and FDA concerns being of a more serious nature.  And, to ignore cGMP entirely (e.g., don’t inspect so you don’t find)  is not a viable option where patient safety is at risk.

A more reasonable option, if the manufacturer really wants to continue manufacturing, would be to have the FDA work closer on an expedited plan for resolving regulatory concerns about safety or quality manufacturing issues.  Similarly, the FDA could work with interested alternative manufacturers to facilitate an accelerated approval of facilities, processes, and drug application.

I’m somewhat skeptical about fixing manufacturing issues because the investment (accelerated cash spend in short period of time) to resolve the issues may be far more than the market might be willing to pay for in terms of higher prices.  And with higher prices, even if manufacturers could raise prices to sufficiently profitable levels, comes the potential for market criticism and resentment because you are charging more than they used to pay.  Raising prices on prescription drugs, even when warranted, is a “no win” for manufacturers.

FDA could require filing “continuity of supply” plans with new drug approvals, brand or generic.  No viable alternative plan, no approval.  Besides being difficult to enforce, it won’t help the near-term drug shortages.

I’ve also read about building government stockpiles of “critical medicines. “  I’m not sure about the practicality of this in terms of how much supply for how long.  Would you stockpile months or year supplies? This might provide some modest initial financial incentive to the chosen manufacturers and these stockpiled drugs would also need to be replenished once they expire.  Managing this process and determining which manufacturer will get the contract at what price for a particular product, however, could undermine the purpose and viability.

The problem with most of the proposed solutions is they don’t address the root cause …  lack of financial incentive to ensure a continuous supply.

If the products that are now on the shortage list were priced at or maybe even priced slightly below the historic branded prices, I’m certain most would not be in short supply.  Manufacturers would already have “continuity of supply” plans in place. They would be making absolutely sure they made the necessary investments to ensure cGMP compliance.  They would make sure their active pharmaceutical ingredient (API) suppliers were sufficiently incentivized to ensure a continuous supply.  And if there was an anticipated problem, they would be working diligently around the clock and making any necessary investments to ensure supply to the market.  The FDA can not fix these financial incentive issues, regardless of the regulatory authority the President or Congress might want to bestow on the agency.  mike@pharmareform.com

Branded Prescription Drugs at Generic Drug Prices

Over 70% of prescriptions today are filled with generic drugs.  Once a branded product loses patent protection, they experience generic erosion and a rapid decline in market share of prescriptions.  With the healthcare market becoming increasingly more managed (think government, insurers, and Pharmacy Benefits Managers) and the dramatic difference in price (generic drugs being significantly less expensive) it doesn’t take long for generic drugs to replace branded products in the market.

But …  what would happen if the branded product manufacturers (Big Pharma) started to “match generic drug prices” once their product patents expired?   As generic drugs of the branded product come to market, the branded product matches their price or even prices slightly lower than the generic drug to preserve their market share.    Surely, nobody could be a lower cost manufacturer than the innovator, brand manufacturer.

Let’s think about this. The branded company development costs are well behind them.  Manufacturing facilities, equipment, and staff are already in place.  Training, quality systems, and regulatory compliance requirements are also in place.  Operational efficiencies have been honed over years of production.  Branded manufacturers can certainly negotiate at least as good a terms on API (active pharmaceutical ingredients), packaging, and supplies as the generic drug companies.  And while branded manufacturers may have higher “overhead expenses” that’s an accounting allocation issue.  Building a patient base, marketing, sales, and supply chain logistics are already in place for the branded product.

The generic drug company on the other hand has to develop the generic product (formulation and establishing bioequivalence can be challenging), purchase and set up manufacturing capabilities (or retool what they have), source API, packaging, and supplies, put in place new manufacturing SOPs (standard operating procedures) and regulatory required quality processes.  They have to hire and train new personnel (or at least retrain current staff), develop their regulatory filing, and secure FDA approval.  They may even have to challenge the patent validity of the innovator product.  And once approved, they have to market to and negotiate with the supply chain and the managed market.  In the end, these are all new costs for generic drug companies that have to be covered in the price of their new product entry.

In the past, branded products matching generic drug prices would have meant leaving money on the table and forfeiting profits as generic drugs gradually made their way into the market over a period of years.  Today, however, it only takes a matter of months before a majority of branded prescriptions drugs can be converted to generics.

I’m sure somebody has already done the math on this from a Big Pharma profitability perspective but I still believe that “matching generic drug prices” could have value for patients and Big Pharma.   Matching generic drug prices would preserve a large patient base of lifetime revenue (albeit at lower margins) for the branded product.  It also rewards loyal patients with lower prices for the same drugs they may have been taking for years. It would certainly make it easier and more efficient for healthcare providers, patients, and the managed market in that there would be no reason to worry about changing patient prescriptions.   And, while Big Pharma might view this as “throwing in the towel” ,  this approach would be a challenging “game changer” for the generic drug industry.  mike@pharmareform.com

Generic Drugs have Market Vulnerabilities Too

As mentioned in the previous post generic drugs now account for more than 70% of prescriptions filled in the US and that percentage is likely to increase with patent protection expiring on several blockbuster products over the next 3-5 years.  With additional support from the Obama administration to exploit the potential cost savings from the use of more generic drugs and continued efforts to ease the way to market for generic drugs, including biologics, you would think the future for generic drugs has never looked more promising.  Yet, there are five vulnerabilities and risks that could undermine the cost savings potential and success of generic drug manufacturers in the future.

  • Manufacturing Quality

Drug manufacturing is difficult, especially delivering lot-to-lot consistency for tablets and capsules and ensuring the sterility of injectable products.  One of the biggest concerns raised most often about the use of generic drugs is whether they are, in fact, the same as the branded products.  The FDA goes to great lengths to dispel purported generic drug misinformation and to provide definitive answers to common questions regarding comparability.  According to the FDA website:

“Health care professionals and consumers can be assured that FDA approved generic drug products have met the same rigid standards as the innovator drug. All generic drugs approved by FDA have the same high quality, strength, purity and stability as brand-name drugs. And, the generic manufacturing, packaging, and testing sites must pass the same quality standards as those of brand name drugs.”

I’m not sure how the FDA can possibly making sure “all generic drugs have the same high quality, strength, purity and stability as brand-name drugs.”  When you consider the increasing number of generic drug products being made available by more manufacturers (many, if not most, not even in this country), their assurance seems a bit definitive and even suspect (lacking credibility) given FDA’s already stretched resources and limited inspection capacity and capabilities.

Generic drug vulnerability in manufacturing quality comes with the potential for some well publicized cases of documented manufacturing problems, safety issues, or FDA warnings about any quality concerns that would compromise healthcare provider and public confidence in the efficacy or safety of generic drugs.  In fact, any concerns voiced by the FDA with regards to the use of generic drugs could destroy the confidence of an already skeptical patient population.

  • Unsustainable low prices

Even though generic drug manufacturers have built their business models around being low cost providers they still must make a reasonable profit to stay in business.  It is important to note that drug manufacturing, especially sterile injectable drugs, is not cheap.  Regulatory compliance and cost of goods can still make pharmaceutical manufacturing expensive, even for generic drugs.

When the healthcare market (e.g., pharmacies, wholesalers, Pharmacy Benefits Managers) drives competitive prices down to a point where even generic drug manufacturers can no longer make a reasonable profit, fewer manufacturers participate in that market and ultimately the healthcare market becomes more susceptible to shortages for those products.  I believe this is a major reason for the current shortage of over 150 medically necessary drugs, many which are generic drugs.

So, generic drug manufacturers are vulnerable to the negative financial impact of unsustainable low prices.  When they decide to manage this by limiting or eliminating the manufacturing of low or no margin products they leave themselves open to criticism and diminished public confidence as more of the critical drug shortages start to be blamed on the generic drug industry rather than on Big Pharma (the perception today).

  • Supply of Active Pharmaceutical Ingredients (APIs)

As generic drug manufacturers squeeze their suppliers for lower prices, those suppliers also lose interest in delivering at those low prices and a cascade of events begins to drive a shortage of APIs when you need them.  Without the financial incentives (reasonable profits) to ensure supply availability, even API suppliers start to limit and maybe even discontinue making the lowest margin products on a regular basis in favor of higher margin opportunities.

Unlike in other markets, the regulatory and manufacturing challenges of pharmaceuticals makes it difficult and time consuming for new manufacturers (API or generic drugs) to step in and take advantage of these drug shortages.  Even if a new manufacturer were able to begin production, the finished generic drug’s price would almost certainly be much higher than the previous generic drug price.  Again, potentially irritating and alienating the healthcare market and patients.

  • Burdensome Government fees

Additional fees levied on generic drug manufacturers (i.e., FDA reviews) as proposed by the Obama administration could erode the cost savings potential to the healthcare providers system.  Expecting generic drug companies to absorb these incremental fees could be counter productive (resulting in higher generic drug prices). More importantly, high fees across a portfolio of products could put sustainable profitability for smaller  generic drug companies at risk, even forcing some out of the market.

  • Product Liability

As more products become available and more patients take generic drugs, product liability cases will inevitably increase for generic drug companies.  As a result, they may become more inclined to avoid or quit manufacturing products with the potential for an inordinate amount of litigation.  Again, with their low cost of operations and thin profit margin business models, repeated and protracted litigation for low margin products may not be financially feasible, will add to their overall cost base, and could negatively impact healthcare provider and patient perceptions of quality.

The potential liabilities for generic drug companies is especially noteworthy in light of the pending Supreme court review of whether or not generic drug companies can be held liable for “failure-to-warn” when they rely on the prescribing information developed by the branded drug company and approved by the FDA.   Should generic drug companies not prevail, it will open generic drug manufacturers to new potential liabilities and future litigation which could further compromise their low cost business models.

So, while the future looks very promising for generic drug manufacturers, it is not without challenge or risk.  For the market to continue to reap the financial benefits of a consistent and safe generic drug supply, generic drug manufacturers must guard against these vulnerabilities.  And as much as insurers and patients might enjoy the low prices we pay for generic drugs, the low prices only matter when the products are as effective as the brand, are safe to take, and are available when we need them.