Specialty Pharmaceuticals – US generic pharmaceuticals – May 8, 2015

US generic pharma industry basics explained

This primer is our attempt to explain, in a somewhat simplified manner, the
complicated workings of the US generic pharma industry. We outline the processes
involved in getting a small-molecule generic product to the market in the US; such
products typically have no unique brand names. We also address biosimilars briefly.
We do not address individual companies/quantify future industry opportunities here.

Hatch-Waxman spawned the modern US generics industry

This Act (1984) allowed a generic to rely on FDA’s previous finding of safety and efficacy of the brand and not have to repeat extensive clinical testing, ie, generics
could use an abbreviated new drug application (ANDA) pathway. Among other
things, the Act enables generics to begin development prior to brand patent expiry,
and rewards generics for successfully challenging patents by awarding 180-day
exclusivity to first filers. At the same time, it also awards exclusivities to brands, and
allows brands to reclaim some patent time lost during development.

Vaulting over regulatory and legal hurdles for approval

From an FDA standpoint, a generic has to prove that its product is bioequivalent or
has the same therapeutic effect (within statistical variability) as the brand. From a
legal standpoint, attempting to bring a generic to the market before a brand’s
patents expire triggers litigation, which can be a lengthy/complicated process.
Sometimes, brand-generic settlements help resolve patent litigation. Separately,
Citizen Petitions (CPs) filed by branded companies (or affiliates) are used as a tactic
in some instances to delay generics from getting to the market.

Substitution, demographics, economics drive utilization

In the US, generic drugs are significantly cheaper than their branded counterparts
and enjoy mandatory substitution, which ensures usage. Generics made up roughly
80% of all prescriptions in 2014 (per IMS), but we note generic penetration is
usually well north of 90% for molecules where generics are available. An aging
population and a healthcare system that is increasingly focused on cost-cutting
further drive utilization. Moreover, other supply chain components (distributors,
pharmacy benefit managers, payers) actively participate in driving up generic use as
they stand to gain more dollars from generic products vs. brands.

Will GDUFA result in faster generic product approvals?

The Generic Drug User Fee Amendments of 2012 (GDUFA) was enacted to
address the backlog of pending ANDAs, reduce ANDA review times, and increase
facility inspections globally. Implementation is ongoing and the industry appears to
be cautiously optimistic on GDUFA’s potential ability to shorten approval timelines.

BPCI Act paved the way, biosimilars landscape evolving

Biologics are becoming an increasingly meaningful portion of the market (~23% of
the total IMS market in 2014, growth outpacing traditional pharma). Future growth of
generic pharma will be increasingly tied to biosimilars (copies of biologic brands)

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Date: May 8, 2015