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Posts Tagged ‘generics

GSK inks deal with Dr Reddy’s

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GSK joins the ranks of pharma firms that have recently been inking deals with generics manufacturers. Interestingly, GSK is taking the specific line that these generic drugs are for the emerging markets and presumably not US or EU.

The rationale, as stated by the FT (GSK in generic drug alliance), is that in emerging markets “selling large volumes at lower prices is more important”. I live in the emerging markets and I am not convinced.

There is a market for branded drugs, and there is a market for generic drugs. They are different things. It might be necessary to sell generics in the short term, but it is not the only or best thing that we could be doing.

With perhaps the exception of Novartis (and its impressive Sandoz generic arm), one should consider the generic gamble as a hail mary pass not a properly thought through strategy. Unless, of course, someone provides the data, rather than hyperbole, to show that this is actually a good idea for pharma.

Written by Pillhead

June 20, 2009 at 8:48 pm

Growth in Prescription Drug Spending Lowest in 40 years

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The National Health Expenditure Accounts (NHEA) are the official estimates of total healthcare spending in the US.

The latest numbers show that the annual growth in spending on prescription drugs has been on a downward trend for since 1999. The highlights document notes that, “prescription drug spending growth decelerated in 2007, from 8.6 percent in 2006 to 4.9 percent in 2007”. The explanations for this falling trend are given as, “an increase in the generic dispensing rate, slower growth in prescription drug prices, and growing consumer safety concerns”.

Let’s take a look at these three explanations in turn:

The Growth in the Generic Prescription Rate

An article in NEJM (The Ongoing Regulation of Generic Drugs, 2007) gives a decent look at the regulation of generics in the US and also gives data for the proportion of prescriptions that are generic.

generic scripts

I was rather surprised to see how slowly the generic prescription rate is increasing. Over the last two years, 2006 and 2007, the rate of penetration has actually been slowing down.

This decreasing growth trend is obviously not a good explanation for the deceleration in spending of prescription drugs. In fact the trend is the exact opposite of the description given by the NHEA. Perhaps their other two explanations are more substantial.

The Price of Prescription Drugs

The United States Government Accountability Office (GAO) produced a report in 2007 examining trends in retail prices, described as usual and customary prices, which they defined as those prices that an individual without prescription drug coverage would pay at a retail pharmacy, (Prescription Drugs: Trends in Usual and Customary Prices for Drugs Frequently Used by Medicare and Non-Medicare Health Insurance Enrollees).

This analysis proved more difficult than would have been expected (after all the CPI covers drug prices). The authors wrote, “there is no easy to understand and reliably accurate information regarding the price of drugs paid by consumers”; their solution was to create the dataset themselves.

gao drug prices

The results (the nice graph is actually from the newsletter of the American Psychiatric Association) show that over the 7 years through 2006, branded drugs have increased in price by about 6% annually on a slight upwards trend, while generic drugs have been on a relatively flat/decreasing trend increasing by 1% annually. Unfortunately, there is no data here specifically for 2007, the year we are really interested in for this post. However, there is little reason to believe that the trend will dramatically shift in the other direction.

Growing Consumer Safety Concerns

This is an interesting explanation for the deceleration in spending on prescription drugs: people are spending less on drugs because they do not think that they are safe enough. This hypothesis is a can of worms waiting to happen, but let’s take a quick look.

Consumer concern comes from three sources: Drs, the media, and word of mouth. In many respects, these three are interlinked and feed into each other. This is a positive feedback loop with the ability to magnify concerns rapidly.

But there are only two independent sources of input into the system: scientific fact (in the form of clinical trial data), and the local regulatory agency (in the form of warnings, and label updates).

In the US, there is a potential problem because the regulator, the FDA, does not appear to be independent of the feedback loop. In some real sense, the FDA is an active party to the loop:

The FDA publishes a quarterly newsletter on the safety reports that it has received, “Potential Signals of Serious Risks/New Safety Information Identified from the Adverse Event Reporting System (AERS)“. The safety reports themselves are voluntary and generally lack much detail, but they do note a side effect, an identifiable person, and a drug that was being taken at the same time, eg a patient of mine called Mr Blogs complained of pain in his chest while taking drug x. These reports are useful in identifying rare events that may be linked to a drug, but that are so rare that they did not show up in the clinical registration trials, but they are hardly robust. A signal identified would mean that an association between a drug and a given side effect needs to be investigated further, and such signals by definition cannot apportion causality.

But with its public newsletter, the FDA does not identify signals needing further analysis. It identifies “potential” signals that may or may not require further analysis at some time in the future. This kind of crystal ball gazing is embarrasing at best and dangerous at worst. If people are discouraged for unscientific reasons from taking an effective medicine then the consequent morbidity and mortality that results is on the FDA’s hands.

So Which Explanation is the Best?

The generic prescription rate appears to be on a slowing growth trend lately and certainly does not appear to be influencing the deceleration in spending on prescription drugs.

It is possible that prescription drug price inflation slowed in 2007 but this is not immediately clear from the data publicly available. The trend was fairly stable and showed a slight upward trend from 200-2006.

While it is difficult to measure changes in consumer safety concerns, it would seem reasonable to believe that they had an effect to some degree in the US.  It is a little concerning that the FDA appears to be fanning the flames with its quarterly “potential” safety signal newsletters.

Written by Pillhead

June 14, 2009 at 5:26 pm

Why would we sell generic drugs rather than branded ones?

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I am on the side that finds it difficult to see the synergy between what we do on the ground every day and selling generic drugs. In spite of us, big pharma continues its march down the road of licensing and buying generic drugs, and sometimes even buying entire generic firms lock-stock-and-barrel (Big Pharma Adds to Generics Medicine Chest, WSJ).


The top reason why this strategy cannot work: ethical standards.


Our field force and medico-marketing arms are tightly regulated both internally, and externally through local industry body codes of conduct and international bodies such as IFPMA. The american firms also have the US Foreign Corrupt Practices Act (FCPA) to follow.


Rather than argue the point of how ethical or not we are in reality, I want only to point out that the strongest generic competitors are not beholden to the same regulations. The playing field is not level.


The second reason why this strategy will not work: competitive edge.


Unlike pharma firms, generic companies have been competing head to head with identical drugs with thin margins for years. We have always had scientific differentiation between us and our competitors. Pharma could always find a niche for its products to live in. We are not trained, and certainly not ruthless enough, to compete in a non-scientific arena.


The third reason, and the one I am least knowledgeable on: overhead costs.


We did not begin embracing generic drugs until the patent cliff could be avoided no longer. It is fair therefore to assume we are doing so to fill the hole while we develop some new drugs. When these drugs arrive, we will need the medical and marketing muscle to scientifically differentiate from our competitors again and so we cannot strip these people from the organisation just yet.


A model involving big overheads and selling drugs with thin margins is not something I would necessarily invest in.


Written by Pillhead

May 23, 2009 at 8:33 am

Posted in pharmaceutical industry

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Access to Medicines – Andrew Witty at GSK sets the pace

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In a speech at the Harvard Medical School last week, Andrew Witty, CEO of GSK, set out a bold new agenda for increasing access to medicines in poor countries (PharmaTimes, GSK lays out plans to seriously tackle disease in developing world). It was a triumph of substance over style in which GSK identified 4 key steps that it would be taking, and encouraged other firms to join it.

1) A more flexible approach to IP. A patent pool for medicines for neglected tropical diseases including both small molecule and process patents.

2) Pricing discounts for the poorest countries. GSK will charge no more than 25% of the full price as long as this covers cost of goods.

3) Greater collaboration. GSK already has a dedicated research centre set up in Spain and offered joint ownership to other institutions that want to join the 100 scientists already there.

4) Partnership in delivering solutions in the poorest countries. GSK commited to ploughing 20% of any profits made in these poor countries back into local health infrastructure projects.

The pooling of patents is a trick that has a history in industry: an article in Bloomberg (Glaxo’s WItty to Share Research to Aid Poor Nations) notes that industrial cooperation of this sort was used in 1917 to speed the manufacture of warplanes during WWI, but this will be a first for the pharma industry.

Understandably, some are finding this all too progressive to believe (PharmaGossip, Arise Sir Andrew Witty (or is it Saint Andrew?)). Some have noted that this bold plan will not necessarily cost GSK much money as it only made about $43 million in these countries last year (FiercePharma), but to be fair to GSK, Witty said as much: “We’re not putting enormous amounts of money on the table here,” he noted at Harvard.

Rarely does a pharma executive speak with such clarity of purpose, and rarely does a pharma executive accept that he does not have a commercial obligation to try to make money from the poorest countries directly. Bravo Mr Witty on both counts.

Written by Pillhead

February 19, 2009 at 2:11 pm