Profits at stake in fight over generic biotech drugs

Profits are at stake on all sides of the fierce statehouse fight over a bill that would regulate the dispensing of generic biotech drugs.

House Bill 1315, which is scheduled for a Senate floor hearing on Monday, would require pharmacists to check with a patient’s physician before automatically substituting a generic version of a biotech drug for a brand-name version.

This kind of substitution happens all the time now with chemical drugs, such as the brand-name cholesterol drug Lipitor and its generic version atorvastatin.

One reason it does is that the makers of generic drugs and the health insurers that pay most of the bill for prescription medicines make sure pharmacists benefit financially for doing so.

Generic drugmakers would rather pay higher profits to pharmacies than run their own sales and marketing efforts to convince pharmacists to prescribe generics. And health insurers, such as Indianapolis-based WellPoint Inc., have strongly encouraged generic substitution as a way to reduce their own spending on medical claims. Current biotech drugs, such as the cancer drug Avastin, can costs tends or even hundreds of thousands of dollars for each patient per year.

The profit margins for retail pharmacists on atorvastatin, for example, are more than double what they are for branded Lipitor, according to an analysis by Philadelphia-based Pembroke Consulting.

Also, large distributors of drug, such as Cardinal Health and McKesson Corp., make profit margins of 18 percent on generic drugs, compared with margins of just 2 percent for brand-name drugs, according to Pembroke Consulting.

The only problem for pharmacies is that the fat margins on generic drugs diminish over time. So with overall spending on prescriptions medicines declining in 2012 for the first time in history, drug stores are relying on a steady stream of patent expirations on brand-name drugs in order to keep their bottom lines healthy.

But the wave of blockbuster patent expiries will end in 2016, and after that, pharmacies need a new batch of drugs going generic. The obvious source for that new batch is the world of biotech, or specialty drugs, where there a bunch of drugs whose patents have already expired—but have faced no competition from generics.

That’s because the health reform law of 2010 included the first regulatory pathway to allow generic versions of biotech drugs, although the rules are still being hammered out by the U.S. Food and Drug Administration.

“Drugstores must either embrace the low-cost generic revolution or figure out how to penetrate the specialty market. Otherwise, they'll find it hard to climb out of the rabbit hole,” wrote Adam Fein, president of Pembroke Consulting, in a March 7 blog post.

But makers of brand-name drugs, such as Indianapolis-based Eli Lilly and Co., would benefit greatly if generic biotech medicines cannot immediately steal away sales once the patents on their brand-name drugs expire.

For example, U.S. sales of Lilly’s antipsychotic drug Zyprexa plummeted by 88 percent in the 12 months after the drug’s U.S. patent expired in October 2011.

By contrast, Lilly’s biotech insulin Humulin has continued to wrack up annual sales of more than $1.2 billion even though its patent expired in 2000.

Currently, biotech drugs account for only one-quarter of all U.S. sales of brand-name drugs, according to data from IMS Health, a Connecticut-based market research firm. But nearly all large pharma companies, including Lilly, have staked their futures on using biotechnology to reverse a drought of new breakthroughs.

Last year, Lilly garnered more than $5 billion in sales from biotech drugs, or about one-quarter of all its drug sales. Of the 13 drugs Lilly has in Phase 3 clinical trials, eight of them are biotech drugs.

Lilly has thrown its support behind HB 1315, which was authored by Rep. Ed Clere, R-New Albany, at the request of biotech drug pioneer Genentech Inc., which is now a subsidiary of Switzerland-based Roche Group.

The stated concern of the drug companies is that because biotech drugs are so much more complex than traditional chemical drugs that they will not be interchangeable like chemical drugs are. In industry parlance, biotech drugs are called biologics and their generic versions are called biosimilars, because they cannot be exactly the same as the original.

Clere told the New York Times in January that his bill “doesn’t do anything to prevent or discourage the use of biosimilars.”