Generic drug makers see drought ahead

Written by New York Times | Updated: Dec 5 2012, 07:09am hrs
They call it the patent cliff. Brand-name drug makers have feared it for years. And now the makers of generic drugs fear it, too.

This year, more than 40 brand-name drugs valued at $35 billion in annual sales lost their patent protection, meaning that generic companies were permitted to make their own lower-priced versions of well-known drugs like Plavix, Lexapro and Seroquel and share in the profits that had exclusively belonged to the brands.

Next year, the value of drugs scheduled to lose their patents and be sold as generics is expected to decline by more than half, to about $17 billion, according to an analysis by Crdit Agricole Securities.The patent cliff is over, said Kim Vukhac, an analyst for Crdit Agricole.

In response, many generic drug makers are scrambling to redefine themselves, whether by specialising in hard-to-make drugs, selling branded products or making large acquisitions. The large generics company Watson acquired a European competitor, Actavis, in October, vaulting it from the fifth- to the third-largest generic drug maker worldwide.

As one consequence of the approaching cliff, executives for generic drug companies say, they will no longer be able to rely as much on the lucrative six-month exclusivity periods that follow the patent expirations of many drugs. During those periods, companies that are the first to file an application with the Food and Drug Administration, successfully challenge a patent and show they can make the drug win the right to sell their version exclusively or with limited competition.

The exclusivity windows can give a quick jolt to companies. During the first nine months of 2012, sales of generic drugs increased by 19% over the same period in 2011, to $39.1 billion from $32.8 billion, according to Michael Faerm, an analyst for Credit Suisse. Sales of branded drugs, by contrast, fell 4% during the same period, to $174.2 billion from $181.3 billion.

But those exclusive periods also make generic drug makers vulnerable to the fickle cycle of patent expiration. The only issue is its a bubble, too, said Kleinrock. He said next year, the generic industry would enter a drought that was expected to last about two years. Of the drugs that are becoming generic, fewer have exclusivity periods dedicated to a single drug maker.

In 2013, for example, the antidepressant Cymbalta, sold by Eli Lilly, is scheduled to be available in generic form. But more than five companies are expected to share in sales during the first six months, according to a report by Vukhac.

Heather Bresch, the CEO of Mylan, said Wall Street analysts were obsessed with the issue. I cant go anywhere without being asked about the patent cliff, the patent cliff, the patent cliff, she said. The patent cliff is one aspect of a complex, multilayered landscape, and I think each company is going to face it differently.

Jeremy M Levin, the CEO of Teva Pharmaceuticals, agreed. The concept of exclusivity where only one generic player could actually make money out of the unique moment has diminished, he said. In the absence of that, many companies have had to really ask the question, How do I really play in the generics world

For Teva, Levin said, he believes the answer will be both its reach it sells 1,400 products, and one in six generic prescriptions in the US is filled with a Teva product and what he says is a reputation for making quality products. Levin and Bresch each said that generic companies could gain an edge by expanding into global markets.

Mylan made a big international push in 2007, when it bought the generics business of the German pharmaceutical company Merck KGaA, and this summer it entered into a deal with Pfizer to market and distribute generic drugs in Japan. Watsons recent purchase revealed a similar goal. It plans to take the name Actavis, which is unfamiliar to American ears but is better known internationally.