IMS study: Settlements save healthcare system, federal government billions
The Supreme Court usually has a lot on its plate in any given year, but this year’s term included a pretty big case for the pharmaceutical industry: the Federal Trade Commission v. Actavis, which concerned legal settlements between branded and generic drug makers that often occur when the latter attempts to market a generic drug before the former’s patents have expired.
In a 5-3 ruling — Justice Samuel Alito did not take part in the case — the court ruled that courts reviewing what opponents call "pay-for-delay" settlements should take a "rule of reason" approach, examining them on a case-by-case basis, rather than a "quick look" approach that would deem settlements illegal by default.
In a typical case, a generic drug maker will file an application with the Food and Drug Administration challenging the patent on a branded drug. The branded drug’s manufacturer will respond with a patent-infringement lawsuit that will put an automatic stay of final FDA approval for up to two-and-a-half years. Rather than going to court, however, most cases are settled.
For opponents of such settlements, like the FTC, the issue is the settlements that involve "consideration," meaning a payment of some sort, which can come in the form of money or a promise by the branded drug maker not to launch an authorized generic. Opponents say the deals keep drugs out of patients’ hands for longer than they should, while generic drug makers say the deals get generics into the hands of consumers months or years ahead of patent expiration.
Now, they have a study to support their case.
A new study, conducted by the IMS Institute for Healthcare Informatics on behalf of generics industry trade group the Generic Pharmaceutical Association, found that the U.S. healthcare system has saved $25.5 billion over seven years from generic drugs launched under the settlements.
The study tracked 33 drugs subject to patent settlements between 2005 and 2012 and found that settlements allowed generic drugs to enter
the market an average of 81 months (about six-and-a-half years) ahead of patent expiry.
"For years, opponents of pharmaceutical patent settlements with consideration have stated that settlements create a cost for consumers, the government and others," GPhA president and CEO Ralph Neas said. "This new analysis provides the most current, complete and transparent estimate of the impact of patent settlements on health costs, and it shows that the opposite is true."
The drugs the study looked at included Novartis’ hypertension treatment Lotrel (amlodipine/benazepril). IMS’ study estimates that savings from the generic drug have totaled $237 million since 2011, and as of December 2012, 85% of sales of the drug were of the generic form. The IMS report estimated that patent settlements on the 33 drugs analyzed would save $61.7 billion, in addition to the $25.5 billion already saved, if the current level of savings continues through to the expiration of their patents.
The report also found that of the $25.5 billion saved, $8.3 billion of that went to the federal government. Without the settlements, the report estimated, the total $87 billion in realized-and projected-savings would be reduced by $45 billion. That estimate was based on a 2010 Royal Bank of Canada analysis of patent challenges mounted between 2000 and 2009 that found a 48% success rate for generic drug makers when cases went to trial, odds that Neas has called a "total crapshoot." The GPhA has frequently cited the RBC study to defend its position.
Generic, specialty drugs responsible for lion’s share of prescription growth
The world is turning generic. That’s the takeaway from the latest trends in the drug industry, according to IMS Health. In 2012, according to the healthcare industry analytics firm, dollar sales of drugs fell by 1% to $325.7 billion, but prescriptions grew by 1.2% as generic drugs’ share of total drugs dispensed grew to nearly 83%.
For the 12-month period that ended in March 2013, dollar growth fell by 4% overall, including a 6.2% fall in dollar growth for branded drugs, while generic dollar growth increased by 5%. Prescription volume grew almost 3% overall, but branded prescriptions fell by 16%, and generic prescriptions grew by nearly 8%, according to IMS.
In addition to the growth of generics and the decline of branded drugs overall, specialty drugs — those used to treat complex, chronic health conditions — have seen significant growth as well, a trend that is likely to continue as the population ages and more treatments become available for difficult-to-treat diseases.
Generics and biosimilars
While the use of generic drugs is clearly on the rise, the number of branded drugs coming off patent and creating new opportunities for generic makers to profit is dwindling. Between 2008 and 2012, branded drugs with sales of $101 billion lost patent protection, but between 2013 and 2017, that figure is set to drop to $86 billion due to the drop in patent expiries as part of the patent cliff, according to IMS.
One big opportunity for generic companies lies in biosimilars, knock-off versions of biotech drugs. According to a report last month by pharmacy benefit manager Express Scripts, patients and payers in the United States stood to save $250 billion between 2014 and 2024 "if just a handful of biosimilars were to enter the market." Earlier this year, biosimilars hit a setback as many states considered laws that would make it harder for pharmacists to substitute biosimilars for branded biologics, but many states have rejected those laws.
Though the Food and Drug Administration is bound under the Patient Protection and Affordable Care Act to create an abbreviated approval pathway for biosimilars similar to the one for generic drugs, it has not yet done so. In the meantime, some drug makers are seeking approval for biosimilars using the standard approval process. In July, Sandoz, the generics subsidiary of Novartis and a major supplier of biosimilars in Europe, announced the start of a phase-3 trial of a biosimilar version of Amgen’s Enbrel (etanercept), used to treat psoriasis and arthritis.
According to IMS, of the top 20 drug therapy classes as measured by spending in 2012, six of them were in specialty; but cancer drugs were the largest, accounting for $25.9 billion in spending. Specialty drugs are used to treat complex, chronic and serious health conditions, including cancers, chronic viral infections, autoimmune disorders and such rare illnesses as cystic fibrosis and lysosomal storage diseases. Many specialty drugs are biologics and very expensive, costing tens of thousands per year, and often available only through limited-distribution networks.
Specialty drugs still counted for a little more than a quarter of drug spending in 2012: Of the $325.8 billion spent on drugs, $89 billion, or 27.3%, went to specialty drugs. Non-specialty drugs still dwarf specialty in terms of overall spending, but the kicker is that specialty spending grew by 8.7%, while non-specialty spending fell by 4.2%.
The dramatic rise in the use of generic drugs is happening because many branded drugs are losing patent protection and facing generic competition. Most notable of these in recent years was Pfizer’s cholesterol drug Lipitor (atorvastatin), which lost patent protection in November 2011 and faced competition from Ranbaxy Labs’ generic after years of being the world’s top-selling drug. Now, six drug makers have generic versions, according to the FDA.
But the rise in generics doesn’t mean branded drugs will go away. In fact, approvals of new drugs have reached levels not seen in more than a decade. In 2012, according to IMS, the FDA approved 39 new drugs, including nine primary-care drugs and 30 specialist drugs, meaning those prescribed by specialist doctors. In 2011, 34 drugs received approval, including 22 specialist drugs and 12 primary-care drugs. Such a large number of new drugs hasn’t been seen since 1998 and 1999, when the FDA approved 38 and 40 new drugs, respectively, notwithstanding a spike in 2004, when 36 were approved.
Gaining entry in a limited-distribution world
For traditional retail pharmacies, one of the biggest roadblocks to entry into the specialty arena is the limited availability of many complex medicines. More and more of these high-ticket, high-touch drugs are entering the market via very restricted and exclusive networks as pharmaceutical manufacturers increasingly demand that the pharmacies dispensing those medicines demonstrate advanced clinical, documentation and patient-support capabilities, including the ability to improve adherence rates, conduct risk evaluation and mitigation strategies, and manage and monitor patient outcomes.
"We’ve seen significant growth in limited-distribution drugs," noted Atheer Kaddis, Diplomat’s SVP sales and business development. What’s more, he said, "pharmaceutical companies also are taking some products that were available through an open channel and now driving them into a limited-distribution channel" in search of a higher-touch service model.
Kaddis called the move to limit distribution "a significant threat to retailers, and even to the hospital outpatient pharmacies working with us."
Thus, one of the serious challenges faced by retail pharmacies, said CEO Phil Hagerman, is that "even if they [have] a specialty pharmacy [of] their own, they’re not going to have access to these limited-distribution drugs. In order to get access … you have to get there early and often."
That was a lesson driven home for Diplomat some five years ago. Hagerman said: "We were talking to pharmaceutical companies at drug launch time. We’d say, ‘We’re a big partner for you, and we’ll manage some of this [distribution] for you and be part of your network.’ But we [found] it was often too late. By then, they had decisions made already."
Diplomat now works with pharmaceutical companies very early in the development process to gain full access to some limited-distribution networks for promising specialty medications, often by the time those products are in "late phase 2 or early phase 3" of a new drug’s clinical trials, said the company’s chief executive.
"We focus a lot on the pipeline," agreed Cheryl Allen, VP business development and industry relations. Working closely with the clinical services team headed by VP clinical services Gary Rice, she said, "we … look [out at the pharmaceutical pipeline] about 18 months out."
"We also work with pharmaceutical partners for products already on the market," Allen added. In that capacity, Diplomat provides expertise to a drug company that’s considering moving one of its products from an open-to a limited-distribution network or learn more about "the patient’s needs as they work through the journey" of specialty care, Allen explained.
The need for that expertise is particularly acute among smaller, start-up companies, Hagerman added. "Big pharmaceutical companies have their processes and plans pretty well in place, but a lot of these new drugs are coming to market from the small biotech sector, and some of these companies have never commercialized a product before."
Said Jennifer Cretu, VP information technology and marketing: "Diseases are more complex; costs are rising; regulations are increasing. So the management of our inventory is of absolute importance."