The growth of generic drug companies

Matt Buttell

As one door closes, another opens. And over the next few years, as drug patent expiries heat up, those that will profit most will be the generic drug companies, marking a new direction for the pharmaceutical industry.

In the US, drug patents last 17 years, and after expiration generic drug companies compete to be the first to file for an Abbreviated New Drug Application (ANDA), giving manufacturers a 180-day period of exclusivity to market the drug. Past evidence has shown how being the first to file for an ANDA can make or break a generic drug company, since much of the market share is determined by that 180-day period.

And now, with expiries coming thick and fast, evidence suggests that much of the revenue currently generated by branded drugs will soon be shifted to generic drug companies. According to market evidence, there will soon be a generic drug for most major branded drugs within the next seven years.

Competition

In short, the invention of a new drug is a cash machine for a drug company. Patents protect new discoveries from competition, and Big Pharma can charge whatever it likes for the delivery of the drug. But when the patent expires, and generic drug companies swarm the market, all bets are off.

With a generic copycat behind every new drug, ready to start selling a nearly exact yet much cheaper version virtually the day patent protect ends, research by Standard & Poor's suggests that branded drug sales are set to decline for the first time this year.

Standard & Poor's findings have been boosted data from IMS Health, the pharmaceutical industry's research giant, which suggests that by$24 billion worth of branded drugs this year will get generic competitors, up from $18 billion last year. IMS Health predicts that figure will $30 billion by 2012.

Challenges

While the wave of generics is set to continue, generic drug companies are up against notable challenges as well.

According to new reports from today, for instance, Ranbaxy Laboratories Ltd., India's biggest pharmaceutical company by sales, predicts that it will take "a long time" to resolve issues with the US Food and Drug Administration (FDA).

Atul Sobti, the firm's chief executive, told reporters at the India Economic Summit that the firm "is still in discussions with the FDA."

That's because, in the US, sales of Ranbaxy - a unit of Japan's Daiichi Sankyo Co - have suffered after the FDA banned the company in September 2008 from importing more than 30 generic drugs because of violations of certain manufacturing practices at two of its plants.

What's more, in February of this year, the FDA halted the review of drug applications from Ranbaxy's Paonta Sahib plant, alleging that it had falsified data.

The current issues facing Ranbaxy aren't indicative of the state of generic drug companies as a whole, but they do illustrate the pressures facing the generic drug market in terms of getting the FDA on their side and then winning market share as well.

In the coming years, however, patents for blockbuster drugs like Lipitor, Viagra, and Plavix will expire; while drugs like Wellbutrin and Zithromax already have generic competitors, giving way to a new range of generic drug heroes, who will find their own place in the pharmaceutical market.

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