Big drug companies could lose out to generic competition

Oct 27 2005

The battle between the big drug makers and their generic competition is intensifying, much to the benefit of consumers.

According to a new report from a major pharmacy benefit manager, more than $38 billion worth of drug revenue is expected to lose patent protection through 2008.

Consequently consumers stand to save $20 billion in drug costs, say Express Scripts.

This could mean that big brand drug companies will have to scramble for new drugs to fill revenue gaps as their blockbusters go off patent.

Meanwhile, according to analysts, generic drug companies stand to gain about $8 billion over the next three to five years.

After they lose patent protection, drug prices as a rule drop around 20 percent during the first six months.

The first generic drug company to file with the Food and Drug Administration for a generic license is granted first-to-file production rights for six months.

During that time, only the lead generic maker and the drug maker who held the patent are producing the drug.

After that half-year expires, production opens to other generic makers and the drug's price plummets again.

Then it becomes a generic free for all, and prices as a rule drop to about 20 percent of the brand price.

Pfizer, the world's biggest drug maker, announced a 52 percent plummet in third quarter net profits on Friday, and chief executive officer Henry McKinnell has partly blamed generic competition.

Analysts believe Pfizer will lose $10 billion of sales from expired patents through 2008 and will have a difficult time filling that gap.

But big drug companies often wage fierce battles in court to hold on to patents even after they expire, slowing down the process and delaying new revenue for generic drug makers.

Many believe that increased generic pressure could change the mix of drugs that are developed by the big pharmaceutical companies, and they may have to discover unique drugs which could discourage investment.

The FDA approved an unprecedented 474 generic drugs in 2004, up nearly a third from 364 the previous year.

Despite the increased work load in 2004, the agency managed to trim its approval process for generic applications to a "record time" of 15.7 months from 17 months.