Pharma chameleon

Generic pharma companies can offer bioequivalent products at a fraction of the price. So why do brand names continue to sell after patent expiry?

Generic pharma companies can offer bioequivalent products at a fraction of the price. So why do brand names continue to sell after patent expiry?

Generic pharmaceutical companies have the power to match exactly the needs of any existing healthcare environment, bringing to a ready market drugs with the same pharmacological potency to which they are accustomed for a fraction of the price. With fat-cat pharma increasingly the target of accusations of profiteering, Paul Evans assesses the nascent potential of the bio-equivalent pharmaceuticals industry.

A recent PWC report estimates that the global pharmaceutical market will be worth $1.3trn by 2020; double its value today. This figure depends heavily on the huge profits achieved by the big brand–name pharmaceutical companies. Big Pharma claims that the high prices it charges are necessary to fund the research and development required to generate the drugs humanity needs, but this explanation is increasingly being called into question, by those who suspect the big–name players of rampant profiteering.

The biggest of the big names, by most estimates, Pfizer, took $48.3bn in healthcare revenues in 2006. In the same year it spent just $7.59bn on research and development, and finished the year with a staggering net income of $19.33bn. When the profits of the top ten drug companies in the US fell to 14.3 percent of sales in 2003 the median average of the Fortune 500 was a trifling 4.6 percent. If this is simply the price of progress, critics ask, then why is the marketing expenditure of large pharmaceutical companies typically two and a half times the amount spent on R&D? According to the Commons public accounts committee in the UK Big Pharma spends £850m a year marketing products to GPs.

But why is this level of marketing needed? As Marcia Angell, a lecturer in social medicine at Harvard and an industry critic, puts it: “A uniquely important drug would require very little promotion.” Angell records that between 1998 and 2003, 487 drugs were approved by the FDA. Of these, 78 percent were classified as ‘similar’ to drugs already on the market; 68 percent were not new compounds; and only 14 percent were “likely to be improvements over older drugs”. In short, the marketing is needed to push the large proportion of so–called ‘me–too’ drugs Big Pharma is producing. The number of genuinely new drugs coming to market has dropped significantly; in 2002 the FDA approved 78 drugs, 17 of which contained new active ingredients and only seven of which were classified as improvements on older medicines. Of those seven, Angell records, not one came from “a major US drug company”.

To many it seems clear that brand pharmaceuticals are protecting an untenable position in the healthcare sector. Detractors have even accused them of disease–mongering – creating demand by promoting aspects of normal function as symptomatic of illness – and more still complain of increasinglyanti–competitive behaviour. In January thisyear the European Commission staged raids atthe offices of GlaxoSmithKline and a batch ofother drugs firms over allegations of “Possibleanti–competitive behaviour” to prevent cheapgenerics from reaching the market.

The Pepsi challenge

So what is it that Big Pharma doesn’t want us to know? Already, nearly fifty percent of prescriptions in the US are filled with generic drugs. It is commonplace for customers in US pharmacies to be asked if they would prefer the brand name drug they have been prescribed or its generic equivalent. But that’s just the problem; many are suspicious that what they are getting is simply not going to be equivalent.

Consumers prefer brand names for all kinds of reasons, but brand name recognition is primarily important because it informs just this type of decision. Two products are available to you. Both claim to do the same job. But one is more expensive than the other. Do you choose the product produced by the household name, that you’ve seen advertised on television a hundred times, that you’ve seen friends and family using a hundred times more, but at a higher price, or opt for the product of unknown provenance at the budget rate? The brands win out because they are familiar, you know what you are getting and, paradoxically, because of the higher pricetag; traditional consumer wisdom states that ‘you get what you pay for’.

So if Big Pharma is big because it’s better, then why is it afraid of a little competition? Why not let consumers take the ‘Pepsi challenge’ with the generic pharmaceuticals? The simple reason is that when it comes to regulated drugs, brand name loyalty is frankly misplaced. Generic drugs are copies of brand–name drugs that have exactly the same dosage, intended use, effects, side effects, safety and strength as the original drug. In other words, their pharmacological effects are exactly the same as those of their brand–name counterparts.

All generic drugs must be reviewed and approved by the FDA in the US or the relevant regulatory boards in the UK, Canada, Israel, Chile, Australia and so on; all of which require that generic drugs have the same active ingredients, quality, strength, purity, and stability as the brand–name drugs they are copying. Because of trademark laws, the generics need to be packaged differently to the brand–name preparations, and they may sometimes have different colours, flavours, preservatives or combinations of inactive ingredients – or ‘fillers’ – to the original medications (though they must have the same dosage form – whether you swallow it, drink it, or inject it) but the active ingredients must be the same in both preparations, ensuring that both have identical medicinal effects. When a pharmaceutical company wishes to take their generic drug to market, they must offer proof of bioequivalency. In order to be bioequivalent, the active ingredients in a generic drug must be absorbed at a similar rate and in a similar amount as the brand name drug. The generic does not have to act exactly the same as the brand name drug, but it does have to fall within certain guidelines set by the FDA.

Patent profiteering

Of course, generic drugs are cheaper because the manufacturers have not had the expense of developing and marketing a new drug, so theirproduction does little to push the development of new drugs. This is why the FDA and other regulatory boards reward the research and development effort of original pharmaceuticals by granting a patent that gives the company the exclusive right to sell the drug as long as the patent is in effect. Each specific patent is different, but they may last as long as 20 years. That gives Big Pharma a long time to establish its brand–name products. Clearly, there needs to be a reward system that promotes the development of substantially new drugs, but the rewards for the big players are enormous, and are not passed on to the patients the drugs were developed to help.

Long after the R&D costs have been recouped, Big Pharma continues selling its wares at a massive profit, keeping its drugs’ retail price at the high rate required to launch them. When the patent and any other exclusivity rights have expired, other pharmaceutical companies can apply for permission to recreate the drug and market it themselves under a different name. Once the market opens up the price drops like a stone.

Consumer fears that the generic drugs must be manufactured in poorer–quality facilities, using inferior ingredients or with less attention paid to product safety to hit the low prices they achieve are unfounded. The price is driven down by simple market forces and the generics are held to the same standards as the brand–name manufacturers. In fact, the FDA estimates that generic drug production by brand–name companies has reached around 50 percent.

It is easy to see why. With a dearth of genuinely original products being produced, Big Pharma might otherwise see its gravy train run dry. Patent expiries in the period 2007–2012 are expected to bring drug production worth well over $100bn to an open market. The rapidly ageing populations in Europe and Asia mean that demand for already existing drugs is set to rocket over the next couple of decades and it looks likely that generic pharmaceutical companies will be at the forefront of feeding that demand. Crucially they will be able to help improve healthcare provision in countries that simply can’t afford the more expensive original versions.

But it’s not just consumers who are deciding whether to buy brand–name or generic products. Healthcare systems all around the world are struggling to find ways to curb their spiraling pharmaceutical bills. Lower–priced generics should be an obvious solution. In the US, for example, authorities are reeling from escalating bills for prescription drugs for state employees and those eligible for medical aid, but there is an obstacle to them simply trading big–name for generic; those controlling the budget are not the ones prescribing the drugs to individual patients.

A large part of the problem the healthcare authorities face is the powerful influence Big Pharma has over the doctors whose job it is to decide what drugs to prescribe. In fact they spare no expense in ensuring their brand names are familiar to the real decision makers, employing more than 90,000 salespeople to address doctors directly, in their offices or over an expensive lunch, wow them with slick sales pitches, and leave behind as many complimentary items bearing their logos as they can offload, to make sure the physicians think of them when pulling out the prescription pad. The same companies are able to track doctors’ habits by buying in data detailing the prescriptions pharmacies are filling, rewarding those friendliest to their products and targeting those who seem reluctant to prescribe it. It is estimated Big Pharma spends around $12bn a year targeting doctors in this way. Generic companies, with market forces to consider, simply can’t match this Herculean effort.

The ‘unsales’ team

It is of course the authorities who are left to pick up the tab after doctors have been wined and dined, as their prescriptions bear the names of the drugs of their favourite or most persistent flesh–pressers, and not those of the most cost–effective companies. But the authorities are fighting back, launching their own charm offensive on behalf of generic pharmaceuticals.

Medco Health Solutions, a leading pharmacy benefit manager company based in New Jersey, which manages drug benefits for large employers, has been sending its own pharmacists out to encourage doctors to use generics for years now, and the practice is becoming more and more widespread. More recently governments in the UK, Australia and Canada are taking up the practice, seeking to educate doctors in their own offices.

In Pennsylvania, where around $3bn a year is spent on pharmaceuticals, state–funded squads of educators, known as ‘unsales’ teams, tour doctors’ offices with their own brand of slick marketing, echoing the well–rehearsed pitches, impressive brochures and free lunches hawked by the brand–name companies, urging doctors to consider alternatives to their expensive drug habits. Their message is leant weight by the support of Harvard University professors who are backing the programme to encourage doctors to make decisions based on the best available scientific research instead of company marketing.

Proponents such as Harvard’s Jerry Avorn, a professor of medicine, are promoting what is called ‘academic detailing’ – using industry sales techniques, such as reducing complex and voluminous material down to basic bullet points – to get across a message based on evidence. The Pennsylvania Department of Aging’s drug– assistance programme charged Dr Avorn with putting together an ‘unsales’ force to countermand the work of the brand–name marketing teams, investing $3m in the foundation he led.

The unsales representatives carry a letter of introduction from Dr Avorn, and are able to offer free copies of his book or others from the Harvard medical back–catalogue. The university has also certified the contents of their talks and literature as educational – even allowing doctors who have digested them to tot up some continuing– medical–education credits – but they still face a battle convincing doctors that they carry a more enlightened message than their corporate counterparts. Kristen Nocco, a pharmacist, and one of the Unsales team says: “Until you prove yourself, they’re going to treat you like a drug rep because you are. You are asking for the same thing: their time.” The battle is a tough one, the unsales reps are not only outfunded but outnumbered, but the message is slowly getting through.

As more and more ‘blockbuster’ drugs approach patent expiry and the landscape of healthcare evolves it seems it will be only a matter of time before the Big Pharma dinosaurs face extinction, and generic companies, the pharma chameleon, will inherit the earth.

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