Electronic copy available at: http://ssrn.com/abstract=2318323

Branded versus Generic Medicines | Dr Aggarwal B; Dr Gurnani M

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Topic: Branded versus Generic Medicines: cost-saving and life-saving: A review of the

difference

Name: Dr. Bhumika Aggarwal1; Dr Mayank Gurnani2

Institute: 1. Indian Institute of Management Calcutta

2. Indian Institute of Management, Indore

Electronic copy available at: http://ssrn.com/abstract=2318323

Branded versus Generic Medicines | Dr Aggarwal B; Dr Gurnani M

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Literature Review

Databases searched: ssrn.com

Search terms used: branded versus generic pharmaceuticals

Total hits: 130

Relevant hits: 53

Introduction:

Seven years after Novartis, a global pharmaceutical company filed for a patent for its drug

‘glivec’ in India (Novartis 2006; Novartis 2012); the application was rejected by the Supreme

Court of India under Section 3(d), introduced in April 2005 into the Indian patent law. This

decision re-ignited the discussion about several issues:

1. Do ‘patents’ obstruct the access of affordable healthcare to patients

2. Are ‘patents’ and ‘generics’ adversaries

3. Do ‘global pharmaceutical majors’ use ‘patents’ as life-cycle management tools.

Medicines called ‘generic medicines’ or ‘generics’ are defined by the World Health

Organization (WHO) as ‘a pharmaceutical product, usually intended to be interchangeable

with the innovator product, marketed after the expiry of patent or other exclusivity rights’.

This paper aims to address the understanding of patents briefly, and whether court rulings as

above promote or mar innovative companies from entering the developing countries /

emerging markets like India. The paper is organized into 5 sections. The first section is the

summary of the literature search and review from the ssrn.com database. The second section

takes up some theoretical considerations for the strategies used by both branded companies

and generic manufacturers with examples, an outline of the commonly used terms/ acts / laws

with respect to generic medicines. The effect of entry of generics into the market and the

current generics scenario globally are described in the third section. The fourth section

presents a detailed debate about HIV/AIDS and the availability of branded versus generic

medications. A discussion of the implications appears in the fifth and final section of the

paper.

1.0 Literature search and summary

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Branded companies invest millions and spend ten years on average to bring a new drug

treatment to market. On the other hand, generic manufacturers focus on two critical factors –

to demonstrate the clinical bioequivalence to the innovator drug and to be the first to file their

‘Abbreviated New Drug Application’ for regulatory review and approval.

The market entry strategy employed by generic manufacturers are driven by two key factors:

the competitive advantage and the competitive scope.

These factors then shape the cost leadership, differentiation and focus of the generic industry

to segment the entry strategy in markets, the power of the buyer and the supplier, and the

potential competition.

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Manufacturers of generic medicines simplified the treatment of several diseases in developing

countries on a mass scale through provision of reasonably priced, quality-assured medicines.

This is changing with implementation of the World Trade Organization (WTO) Agreement on

Trade-Related Aspects of Intellectual Property Rights (TRIPS), and intellectual property

measures being discussed in regional and bilateral free trade agreement negotiations.

India once positioned as the “pharmacy of the developing world”, was obliged to modify its

patent law to allow ‘product patents’ on medicines to comply with the WTO Agreement on

TRIPS. Now, there is a threat that the limited policy space that remains will be further

constricted by bilateral or regional free trade agreements.

The economic effect of generic versus patent drugs

Depending on the side of the economic equilibrium, this entry of generics into the market can

be a positive (for patients, medical organizations, governments) or negative (branded

manufacturers) market development. Using the laws of economics, it can be concluded that

with an increase in supply of generic drugs, the price of these drugs (and their branded

counterparts) will lower.

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2.0 Strategies used by both branded companies and generic manufacturers

2.1 Approaches used by pharmaceutical companies to delay generic drugs.

Patent Infringement Litigation: The patentee or licensee of the patentee sues other

companies for e.g. a generic company that manufactures, imports, uses, sells, or offers for

sale patented technology without permission/license from the patentee, during the term of the

patent.

This strategy used by the innovator pharma company can at time backfire. In 2010, Abbott

Laboratories and Fournier Laboratories were sued by 24 states for filing patent infringement

suits meant to prevent generic versions of Tricor, a cholesterol fighting drug, from reaching

the market.

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‘Evergreening’: Branded drug companies try methods to extend their drug patents by

making improvements – such as making different dosage formulations or new delivery

methods to the original drug.

India, Brazil, Thailand, and South Africa are the few countries with laws against

evergreening. The Indian Patent Act, amended by the Patents (Amendment) Act 2005, states

that drugs cannot be patented if they result from “the mere discovery of a new form of a

known substance which does not result in the enhancement of the known efficacy of that

substance.” This has allowed the continued production of cheap generic versions of drugs by

Indian companies. And this was the reason for the Supreme Court judgment on the Novartis

case – the molecule ‘glivec’ did not show enhanced efficacy over the original ‘imatinib’ and

was only a minor modification of the original drug; granting a patent would mean declining

generic companies from making and marketing the drug and hence its being available as an

affordable and accessible medication to cancer patients.

Authorized Generics: Many drug companies license medicines going off-patent to another

company or a subsidiary that will sell the drug as an authorized generic. These authorized

generic agreements defeat the purpose of laws to allow lower priced drugs reaching the

patients.

e.g., Johnson & Johnson manufactures and supplies authorized generic versions of the

attention deficit hyperactivity disorder (ADHD) drug Concerta to Watson Pharma, which

distributes the authorized generic product in the United States. Watson Pharma also has an

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agreement with Cephalon Inc. to sell the authorized generic version of Amtrix for the control

of muscle spasms.

Pay for Delay: Also called as reverse payment arrangements, an innovator/ branded

company will compensate a generic competitor company to delay introduction of its generic

drug. This could also include incentives to make it attractive for a generic manufacturer to

delay market entry, including allowing the generic company to sell in some markets without

any legal challenge.

e.g., Pfizer tied up with Ranbaxy Laboratories to keep it from introducing a generic version

of Lipitor, its cholesterol fighting drug.

2.2 Strategies adopted by generic companies against the branded drugs:

Six-Month Exclusivity for Generics: Under the Hatch-Waxman Act, generic manufacturers

that are first to file and gain FDA approval for a generic are granted 180 days of market

exclusivity, wherein no other generic competitors can enter the market. During this period,

generic companies price their drugs as high as the branded drug. Prices begin to drop only

after other generic competitors enter the market. Generics that entered the market with this

exclusivity in 2010 included losartan, zolpidem, etc.

Pediatric Exclusivity for Brands: of an additional six months beyond the existing marketing

exclusivity and patent periods. To qualify for pediatric exclusivity, the manufacturer must

submit study results that “assess the safety and effectiveness of new drugs and biological

products in pediatric patients."

Generics Tend to Win Patent Challenges: Generic manufacturers willing to take on the risk

and the expense of a court battle to challenge patent exclusivity generally win.

2.3 Two types of medicine patents exist:

“Process patent” - only the process of manufacturing of the medicine can be

patented.

Advantage of a process patent: molecule itself is not patented and other companies

can manufacture the same molecule using a different manufacturing process. In this

case, competition keeps medicine prices low.

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“Product patent” - the drug molecule is patented.

Disadvantage: Increased patent protection for medicines are key features of new

agreements and newer medicines, especially for diseases such as HIV/AIDS,

tuberculosis and infectious diseases, resulting in them being more expensive (WTO,

1995).

2.4 Commonly used terms/ acts / laws with respect to generic medicines

The Waxman-Hatch Act (Drug Price Competition and Patent Term Restoration Act of 1984)

eased the testing requirements for entry by generic drugs, accompanied by the expiration of

patents on a large number of branded drugs is altering the competitive dynamics of the

pharmaceutical market place. The act echoes the determination of policy makers to

concurrently address issues of price control and technical progress. The 1984 Act:

Increased returns to innovation by extending the period of patent protection to take into

account the time between receipt of a patent and FDA approval of a drug for sale in the

market.

Reduced the testing requirements for approval of new generic brands of existing

chemical entities, thus reducing entry barriers in markets where patents have expired

(Frank et al 1995).

The Doha Declaration on the TRIPS Agreement and Public Health (2001) adopted by the

WTO reaffirmed flexibility of TRIPS member states in circumventing patent rights for better

access to essential medicines (Alsegard 2004; Scherer et al, 2002).

Section 3(d) of the Indian patent law (2005): This section states that inventions that are mere

"discovery" of a "new form" of a "known substance" and do not result in increased efficacy

of that substance are not patentable. This implied that India did not support patents for

inventions which were minor modifications and prevented undue monopoly during the

extended period of patent protection by the company.

3.0 Effect of entry of generics into the market and the current generics scenario

3.1 Increasing share of the generics market in developed countries

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Possible reasons of increasing generics market share not only in the developing countries but

also, in the developed world include:

Loss of patents of drugs

Some percent of patients not covered by insurance

Generic drugs / medications approved by the regulatory bodies like the FDA / EMEA

etc. as efficacious and safe as the branded versions of the medications

Increasing price competition to the branded drug due to the presence of multiple

generic versions of the drugs in the market

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Factors promoting the use of generics include:

1. Economic factors-

a. support by government and private health sectors,

b. Retail pricing mechanisms that favour use of generics and

c. Reference pricing for reimbursement programs.

2. Supportive legislation and regulation-

a. Regulatory measures favouring generic prescribing and substitution and

b. The requirement that labels and drug information contain generic names.

3. Public and professional acceptance and

4. Quality assurance (Kaplana et al, 2012)

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The generics sector is fast growing, primarily driven by an increasing demand for cost

effective medicines and availability of high value products.

3.3 India and the generics industry

India has more generic drug-manufacturing facilities approved by FDA than any country

other than the US! India has developed a world-class generic drug manufacturing sector with

major generics firms such as Cipla, Ranbaxy, Reddy's Laboratories, etc. in the absence of

patent-law restraints before 2005 (Médecins Sans Frontières, 2012).

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With the introduction of patent laws in India, will patients around the world be at risk of

losing the biggest source of accessible, affordable and lifesaving generic drugs.

Fortunately, this plausible risk is minimal, due to the public health measures of the Indian

government.

Price controls on essential medicines (since 1970) and reports suggest that this list of

drugs will be expanding.

Patent coverage for pharmaceutical products will apply only to applications filed with

the Indian Patent Office on or after January 1, 1995.

Any Indian generics company that began to manufacture a drug before 2005, which

was subsequently covered by an Indian patent, can continue to make and sell that

drug, though it might have to pay royalties established by the government to the

patent holder.

Compulsory licensing - Generics firms can legally copy patented drugs for export to

the least-developed countries, which lack domestic manufacturing capability

(Mueller, 2007; Bhargava et al 2006).

The loopholes: Neither the Indian patent statute nor its implementing rules define “efficacy.”

They give the patent office no guidelines for applying the new test. TRIPS requires that

patentable inventions be new and involve an “inventive step.” TRIPS does not define

“inventive step.”

4.0 HIV/AIDS and the generics industry

Indian generics companies, supply 84% of the HIV/ AIDS drugs that Doctors without Borders

uses to treat 60,000 patients in more than 30 countries (Mayer, 2005).

India has emerged as a world leader in generic pharmaceuticals production, supplying 20% of

the global market for generic medicines. Indian generic producers supply the majority of ARVs

in developing countries (Reich, 2005).

Even today, the most of the people in low and middle income countries have been treated with

generic medicines against HIV/AIDS produced by Indian generic manufacturers not

constrained or hampered by patent and other intellectual property restrictions (Médicins sans

Frontières, 2006).

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Till 2009, the FDA and WHO Prequalification Programme approved or pre-qualified 57 adult

fixed-dose combinations and 31 paediatric anti- HIV/ AIDS tablets produced by Indian generic

manufacturers but only eight adult fixed-dose combinations and 14 paediatric anti- HIV/ AIDS

tablets produced by non-Indian and originator manufacturers (Waning et al, 2010).

This absence of intellectual property barriers additionally brought about the development of

improved formulations of existing approved drugs, such as paediatric dosage forms and fixed-

dose combinations combining two or more medications against HIV/ AIDS into one tablet.

This has kept the market share increasing for the generic medications through the years, with

the aim to reduce the burden of diseases like HIV/ AIDS at affordable prices with accessible

medicines (Waning et al, 2009).

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Generic competition acts as a catalyst for price reductions and the start of differential pricing

programs. The fall in the price of first-line combinations of stavudine (d4T), lamivudine (3TC),

and nevirapine (NVP) from over $20,000 in 2000 to $90 in 2010 and the start of multiple tiered

pricing programs by large ARV manufacturers is attributed largely to generic competition by

some authors. (Wilson P 2010).

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5.0 Discussion and conclusions

5.1 The challenge today

Future scale up of the existing generic medications and development of generic forms

of recently recommended medicines against diseases like HIV /AIDS and others in

the developing (low and middle income countries) will possibly be hampered until the

generic producers are able to provide the dramatic price reductions and improved

formulations witnessed in the past.

The restraint on government spending has affected generics, with many countries

lowering the prices of generic medications through cuts in reimbursement rates or

contract tendering with a resultant curbing of margins for the generic manufacturer.

5.2 Why branded and generics could and should go hand-in-hand; the concept of co-

existence

5.2.1 The burning question: Do patents / regulations discourage innovation:

Branded company innovates (value creation through

breakthroughs)

Branded companies lose

revenue and hence put in

money to innovate more

products

Branded

vs Generics

Branded

company gets patent

On patent expiry, generics enter market

(value creation through competition

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5.2.2 The advantages of generic medicines:

They usually cost a very less than the price of branded drugs, sometimes as much as

80% to 85% less.

Generic drugs are under the same governance as branded drugs and must adhere to the

same standards. When branded drugs go off patent, the market is opened up to generic

versions. After a patent expires, pharmaceutical companies come under pricing pressure

due to competition from their generic equivalents.

In last few years there has been a tendency towards alliance, both within the different players

in the generics industry itself, and also between the generics industry and the branded /

innovator dug companies. This has been a trend more because of necessity, reflecting both

the difficult economic environment and the slowdown in development of innovative drugs.

Branded companies are now taking an increased interest in the dynamic generics market – as

an aftermath of increasing revenues being spent on development of innovative products and

at the other end the huge profits being generated from generics

(http://www.reportlinker.com/ci02261/Generic-Drug.html).

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5.3 Recommendations of this report:

1. Reliable quantitative estimates of the role of generics in the global drug supply are

needed to understand potential effects of such measures on treatment of life-threatening

diseases such as cancer and HIV/AIDS, especially in developing countries.

2. Differential Pricing: (also called tiered pricing) is the revision of product/ medicine

prices on the basis of the purchasing power of consumers in different geographical or

socio-economic segments. Differential pricing could be a very effective strategy –

To improve access to essential medicines in low and middle-income countries

where most patients pay for medicines out-of-pocket and therefore cannot

afford prices comparable to high income markets.

Additionally, a well-executed differential pricing system can lead to

incremental sales for the pharmaceutical manufacturers (Scherer, 2002; WHO

Differential pricing report 2010).

3. Free trade agreements creating novel intellectual property commitments can not only

increase drug prices and impede the development of acceptable dosage forms but also

delay access to newer and better drugs for widely prevalent diseases. Such measures

can challenge the international goal to achieve worldwide access to medications for

diseases.

4. To be given marketing permission it be made mandatory that a generic product must

demonstrate bioequivalence to a reference/ innovator/ branded / standard medicine.

5. Negative perceptions about the quality of generic medications need to be put to rest in

a collaborative effort by stringent regulatory processes, ownership and accountability

of the generic manufacturers and support from government sector.

6. Compulsory licensing: authorization permitting a third party to make, use, or sell a

patented invention without the patent owner’s consent. Under TRIPS, the patent holder

is forced to allow a local entity to produce the patented product in a number of

circumstances such as in case of national emergencies and public health crises such as

HIV/AIDS, tuberculosis and malaria etc., prior negotiation with the patent holder is not

required for voluntary licensing. At WTO in 2003, members agreed that developing

countries without manufacturing capacity could import generic variants of drugs under

patent to address public health threats such as malaria, HIV/ AIDS, or tuberculosis. The

agreement enables low-income countries to import generics from medium-income

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countries rather than being forced to set up domestic production to have access to

medicines (Danzon 2003, Hellenstein 2004).

7. India and its trade partners, along with international organizations, donors, national

governments, civil society and pharmaceutical manufacturers should ensure that there

is sufficient support and understanding for the generic industry to continue its pivotal

role in supplying developing countries/ emerging markets with accessible, affordable,

quality generic medicines rather than agreeing to inappropriate intellectual property

obligations.

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