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By Sneha Mascarenhas

Sneha Mascarenhas-finalBrand-name drug sales erosion upon the introduction of a generic is well-documented, and such erosion is to be expected when biosimilars are introduced to market as well. According to an FTC study, 73% novel chemical entities in 2008 drew Abbreviated New Drug Application (ANDA) filers on the first day of eligibility either under the Paragraph III or Paragraph IV provision as opposed to 6% in 2002, indicating that the competition for the 180-day exclusivity offered under the Hatch-Waxman Act increased in time. The intense competition for the 180-day exclusivity clearly offers a significant direct monetary benefit, but less is discussed about the value and impact of the generic’s early recognition as a brand alternative and its strong market differentiation from other generics.

Generic companies benefit from the marketing campaigns of branded drugs, which highlight the benefits of the drug over prior therapies or existing competitors. While the Hatch-Waxman Act and the Biologics Price Competition and Innovation (BPCI) Act explicitly reduce generic and biosimilar companies’ R&D expenses, which can run into billions of dollars and are estimated to be 15%20% of brand company revenues, these laws also implicitly reduce generic and biosimilar marketing, selling, and administrative costs by permitting reliance on some brand safety and efficacy data, thereby endorsing quality of the generic or biosimilar product.

Brand marketing, sales, and administrative costs are not insignificant, estimated to be roughly twice the cost of R&D in the same annual reports. On the other hand, generic company R&D figures run at 5%–6% of their own revenues, and marketing and other expenses are in the range of 15%–19%. Therefore, while brand companies spend roughly 45%–60% of their revenues on research and marketing, generic companies spend a lower 20%–25% of their revenues for these purposes. By taking away two major expenses related to pharmaceutical development, the Hatch-Waxman Act and the BPCI Act provide generic and biosimilar companies an immense opportunity to match the profit margins of brand companies, and sometimes to exceed hem as well. The savings offered to generic and biosimilar companies through those acts can be channeled to target timely manufacturing while taking a greater risk of loss, and to drive the distribution and sales network immediately upon patent expiration.

It is also interesting to observe the increasing number of number of generic and biosimilar companies globally with a growing capability to meet the high technical criteria of safety, identity, strength, quality, and purity of a medicinal entity, and the stringent regulatory approval requirements of developed nations, at a reduced cost. There is no doubt that, while access to medicines at affordable costs will increase, the profit margins of both innovator companies for new therapies and generic and biosimilar companies for existing medicinal products are going to reduce in time. Innovator companies will likely need to target profit margins of their leading generic or biosimilar competitors early, while generic companies will likely need to estimate volume of distribution as a function of time more rigorously to remain reasonably profitable.

Sneha Mascarenhas is a scientist, project manager, lawyer, and long-standing AAPS member who has served on numerous teams, committees, and boards which advance efforts to improve global health.