Skip to NavigationSkip to content

How the intended role of generic medicines is being undermined in America

Published on 20/04/20 at 12:54pm

The introduction of a generic medicine should, in theory, incentivise companies to lower the price of the original drug, creating healthy market competition. However, loopholes in the current system are halting market entry, and questions over drug quality and generic manufacturing mar the process still further. Conor Kavanagh looks at the role of generics in the drug market, the current challenges and the solutions advised by experts.

Developing a new product in the pharmaceutical industry costs multiple millions, sometimes billions, of dollars and years of work. When a company gets a new drug approved it is given a patent by the US Food and Drug Administration (FDA). 

In 1984, The Hatch-Waxman Act (or the Drug Price Competition and Patent Term Restoration Act) created incentives for generic drug makers to challenge drug patents that prevent competition. Successful challenges win a 180-day period of exclusivity where their generic is the only one able to compete before additional generics are allowed on the market. This is designed with the goal of lowering the overall prices of the drug. The Act also established a quicker and less costly path to FDA approval, which no longer has to go through expensive and lengthy clinical trials for their drug, and instead leant on the supporting data from already approved drugs. 

Other laws have been designed to help patients access generic medicine. State laws allow generics to be freely substituted for brand name drugs by pharmacists, while health plans aggressively push generics by offering higher dispensing fees to pharmacies and lower copays to patients. In the US today, nine out of ten prescriptions are filled with generics, but they only account for 22% of America’s prescription drug spending.

In 2018, generics were estimated to have saved patients and health plans $265 billion. Generic drugs’ role in the market does help reduce prices for patients in certain instances, but there are numerous problems that stifle competition. 

How branded drug companies reduce competition from generics

To avoid the frenzy to be the first generic approved by the FDA, the companies who own branded drugs now settle patent litigation with generic drug makers directly. This allows the chosen generic drug maker to eventually enter the market, just not immediately, in exchange for a large lump sum payment. The branded and generics companies claim these “pay-for-delay” deals benefit everyone, but the Federal Trade Commission (FTC) disagrees, and has campaigned against them for years. 

According to the FTC, this tactic in particular costs consumers and taxpayers $3.5 billion in higher drug costs every year. The FTC has also filed a number of lawsuits to stop these deals and wants legislation to outlaw them. 

Erin Fox, the Senior Director of Drug Information and Support Services at the University of Utah, feels pay-for-delay has the biggest impact in stifling competition. She says the system does not work as intended because “the brand companies are literally paying other companies to not produce any competition.”

This fight against pay-for-delay has been more successful in recent years and in 2013, the US Supreme Court allowed the FTC to challenge brand-name drugmakers’ patent settlements with generics companies. But Fox feels they still cannot totally stop the brand companies schemes to limit competition, with a key recent example seeing the FDA approve a biosimilar (highly similar biologic drugs that offer an alternative to branded drugs) to Humira, yet it was not able to enter the market due to a pay-for-delay deal.

In October 2019, California Governor Gavin Newsom signed a bill that made the state the first to ban pay-for-delay bills in pharma. It made it unlawful for companies to exchange anything of value in return for a halt to patent challenges from generic drugmakers, and this new measure could open the door to a range of civil suits against companies seeking to keep generic competitors off the market. Overall, the FTC reported that these types of deals began to decline after 2014, although they are still a significant issue.  

While this tactic may be getting blunted by regulators and lawmakers, they still have many other ways of reducing competition. One of these is citizens’ petitions, which are, in fact, mostly not written by the general public, with the FDA stating that 92% of all petitions are actually created by branded drug companies. These are sent to the FDA asking that they do not approve the generic version of their drug. The FDA puts a priority on these petitions and rejects 80% of them, but the approval is not what the branded drug companies are looking for. These petitions take time and it usually delays the generic’s entry into the market, meaning the branded drug companies get another 180 days of exclusivity. 

While this extends branded drug companies’ monopolies for a brief period, they may also take other steps to make their control last longer, including creating their own generic drug to compete with their branded versions. Known as authorised generics, the FDA lists that there are currently almost 1,000 on the market. Like normal generics, these are sold at a more affordable price than their branded counterpart. But, unlike a competing company creating the generics, they control the price of both – keeping a price monopoly on the product. For example, in 2016, Mylan announced a generic version of their EpiPen, with a two-pack of the product costing $300 compared to their $600 branded version. 

The difference with a branded drug company releasing a generic is that the FDA will approve it quicker. Authorised generics are brought to market through an existing new drug application (NDA), while generics are brought to market via an abbreviated new drug application (ANDA) which is a longer overall process. 

This is one of the most profitable ways branded drug companies reduce competition, with Cutting Edge Information calculating they make a return of $50 for every $1 spent. While the branded drug companies say their authorised generics provide the same market benefit as a regular generic, critics do not agree. They say authorised generics erode incentives to make generic drugs by subverting the intended laws designed to allow one company to have the exclusive generic for a time, after the original patent expires. 

Many of these attempts to reduce competition are made worse due to a tactic known as evergreening. Robin Feldman, a Professor at the University of California Hastings College of the Law and Author of Drugs, Money, & Secret Handshakes: The Unstoppable Growth of Prescription Drug Prices, believes it is one of the worst tactics in restricting competition. She describes this as “extending one’s patents or non-patent exclusivities by tinkering with a drug’s dosage, delivery system, or other characteristics”. Even though generics companies can formally challenge methods like this, they rarely win.

Problems with quality and corruption

Although much of the subversion of the role generics are meant to play in the market is carried out by branded drug companies, generics companies have not helped their own image. Numerous cases of corruption and poor-quality control have caused skepticism around generic drug manufacturers. 

There have been numerous recalls of generic drugs that have led patients and customers to believe that generics are not the same as the branded type. In 2012, the FDA withdrew Teva Pharmaceutical’s generic version of GlaxoSmithKline’s Wellbutrin XL, Budeprion XL 300, as testing showed that the drug did not properly release its key ingredient, which confirmed claims that it was not a true equivalent. This caused the FDA to launch a $20 million program to test generics to ensure they are the true equivalent of the branded drug they copy. 

Generics companies have also caused problems with the FDA due to poor manufacturing processes. In 2012, the Novartis patent for Diovan expired and Ranbaxy received exclusivity for 180 days for the first generic product. However, after further testing it was found the generic was poorly manufactured and it did not get FDA approval. The FDA subsequently banned shipments of Ranbaxy products and the company was fined $500 million, the largest penalty paid by a generics company for violations. This caused even further problems as an alternative generic product didn’t become available until 2014 and the delay cost Medicare and Medicaid $900 million.

These types of scandals already mar the perception of generic drugs, but price fixing by generics companies has also done a lot of damage. There has been an ongoing investigation into generic drug pricing since 2014, which has looked at 300 drugs and 16 companies, and multiple companies are now facing litigation from 47 states. Executives have been accused of using coded language to construct a price-fixing scheme where companies have colluded to create a market landscape where they all made profit by collectively agreeing on drug prices. 

Teva is at the heart of the scandal, with the public document of the states’ lawsuits summarising that: “By 2012, apparently unsatisfied with the status quo of “fair share” and the mere avoidance of price erosion, Teva and its co-conspirators embarked on one of the most egregious and damaging price-fixing conspiracies in the history of the United States. During a 19-month period beginning in July 2013 and continuing through January 2015, Teva significantly raised prices on approximately 112 different generic drugs.  Of those 112 different drugs, Teva colluded with its “High Quality” competitors on at least 86 of them. The size of the price increases varied, but a number of them were well over 1,000%.”

Currently, Teva and other generic drug makers are discussing possible settlements with federal prosecutors, with one option being deferred prosecution agreements. 

Potential solutions

The glaring problems with generic drugs and the market are obvious, but tackling them through legislation remains a challenge due to the political landscape in America right now. 

Currently, the House of Representatives is controlled by the Democrats, while the Senate is controlled by Republicans. The Democratic House has passed numerous bills, only to get shut down by the Republicans led by the self-described ‘Grim Reaper’ Senator Mitch McConnell, who gave himself this title due to all the bills he has killed from the Democratic House. Even when a bill with bipartisan support passes both chambers, President Trump can still veto it and only a two-thirds majority vote override from the Senate can enact it into law without the President’s approval. This stalemate means reforms are hard to carry out at a federal level. 

There is also the problem of corporate influence in US politics. Robin Feldman believes the pharmaceutical lobby have a deeply entrenched influence in the American system, saying that: “The pharmaceutical industry spends lavishly in Washington, but this is not a recent phenomenon. Over the last 10 years, the pharmaceutical and health product industry spent an average of $233 million per year on federal lobbying, which was more than any other industry including oil and gas. There are more pharma lobbyists in Washington than there are members of Congress. And over the last 5 years, pharma companies, along with other patent holder groups, have carefully courted conservative groups that tend to produce judges. All of that influence pays off.”

Feldman also think there is “a loot of blame to go around” adding that: “Congress, the administration, pharmaceutical companies, PBM middle players, health insurance companies – they are all contributing to the current state of affairs. At the end of the day, it is consumers and taxpayers who suffer.”

Fox also believes the influence of Big Pharma halts legislative reform: “The pharma lobby is incredibly powerful. For example, the CREATES Act (that helps generic companies gain access to samples to manufacturer generic competitors) took years to pass. More complex legislation to limit patient copays or otherwise cap spending is not even being considered despite bipartisan support.”

There is still hope for faster change at a state level, however, with California taking the most drastic steps to reform the generics market by proposing a state generics drug company. In September 2019, British Labour leader Jeremy Corbyn set out plans in which his party would create a British state drug company if elected into government. Labour’s plans outlined how they would actively use voluntary and compulsory licensing to secure affordable generic versions of patented medicines when the patented product could not be accessed.

California is proposing something similar. Governor Newsom unveiled the proposal for a state generics company in his budget plan for 2020-2021. Newsom stated that the proposal would contract with drugmakers to produce the generics on the state’s behalf and the state would then sell the drugs to California residents under its own label. These actions have been endorsed by various experts and groups. 

Larry Levitt, Executive Vice President for health policy at the Kaiser Family Foundation, said: “Other countries control or negotiate the price of drugs, and if there is one state that could do it, it's California, which is the size of a country. A drug company could walk away from Rhode Island. It's much harder to walk away from California.” Anthony Wright, executive director of Health Access California, believes it would be a suitable way to help regulate the soaring price of insulin, saying: “Consumers would directly benefit if California contracted on its own to manufacture much-needed generic medications like insulin – a drug that has been around for a century yet the price has gone up over tenfold in the last few decades.”

Robin Feldmen feels a state generics company would be a good first step in giving people access to generics but reform also needs to “break through the reimbursement and supply systems to make sure hospitals stock them and health plans reimburse for them.” Feldmen believes that because the competitive process in the US is “languishing” it could create a role for the state in producing generics, especially when there are shortages and access problems. 

Despite the positive comments from some, there are doubts around state generics. Fox feels it’s difficult to know if it would be a success, saying: “In the California example, the state would simply be paying a contract manufacturer to make the drugs. It’s going to depend on if the state can obtain sufficient contract manufacturers to make what they need and for the price they are hoping for. Further complicating things right now is the outbreak of COVID-19 and concerns about shortages of raw materials and basic chemicals needed for drug manufacturing.”

Adding to Fox’s concerns is the reality that the branded and generics companies could still utilise the same tactics they have been using over the decades to frustrate a state company and tilt the market in their favour. 

An American Problem?

It is clear state drug companies may only be part of the solution. There are currently too many ways to undermine the generics market, which puts increasing costs on patients and consumers. 

Fox feels many of the issues the US face are somewhat unique to America. “Unfortunately, in the US generic drugs often have extremely high prices. There are no price caps on medications in the US and even the US government cannot negotiate prices with Pharmaceutical Research and Manufacturers of America (PhRMA).” 

Feldman shares a similar view to Fox, especially in regard to the market and biosimilars: “Pharma companies have concentrated their game playing on protecting their major market in the US. Certain aspects of the US legal system support this game-playing, including our system for approval of biosimilars. The US legislation for approval of biosimilars has been a garden of delights for those who enjoy obstructionist behaviours. As a result, European development of biosimilars is far ahead of the US.”  

Although generics, and drugs like biosimilars, do work in bringing down drug prices in the US, it is clear comprehensive political steps are needed across the board to make sure the market is not so easily manipulated by the large pharmaceutical companies in the future.

Conor Kavanagh 

Mission Statement
Pharmafile.com is a leading portal for the pharmaceutical industry, providing industry professionals with pharma news, pharma events, pharma service company listings and pharma jobs,
Site content is produced by our editorial team exclusively for Pharmafile.com and our industry newspaper Pharmafocus. Service company profiles and listings are taken from our pharmaceutical industry directory, Pharmafile, and presented in a unique Find and Compare format to ensure the most relevant matches