Mapping out the next generics wave

From 2012 to 2017, global spending on medicines will increase from $205 billion to $235 billion, according to IMS Health. By 2017, 36% of the spend will be on generics, a number that is 9% more than the percentage in 2013.

As a result of the patent cliff, generic drug manufacturers have thrived while branded pharmaceutical manufacturers have suffered. Branded pharmaceutical manufacturers are expected to suffer even more in the coming years, as many more important patents will lose exclusivity.

A recent paper from the Centers for Medicare and Medicaid Services concluded that plan sponsors have been able to successfully control costs by using tiered co-payment and benefit management practices to encourage the use of generics, and that a “shift toward generic utilization cut in half the rate of increase in the price of a prescription during 2007-2009.” What is less clear, they noted, is how new market entrants with very few competitors — like specialty therapies — will influence future costs.

The patent cliff

Between 2013 and 2016, $73 billion in branded medications are expected to lose patent protection, according to IMS. While many manufacturers dread the loss of patents, patent expiries of traditional drugs generally help contain spending growth across the country. This will be especially important starting in 2014 because increased access to health care via the Affordable Care Act and lower patent expiry levels will cause spending levels to start to rise again during this year. In fact, IMS’s November 2013 report, “The Global Use of Medicines: Outlook through 2017,” estimates that market growth will double in 2014 as a result of these factors.

IMS also predicts that loss of exclusivity, along with slower transitions to new medicines and increased market access issues, will cause absolute spending on brands to decrease $113 billion by 2018, which is considered the end of the patent cliff. In addition, $83 billion in brand spending will shift to generics with lower prices.

Among the most notable products slated to lose patent protection in 2014 alone include: Nexium (esomeprazole magnesium), Cymbalta (duloxetine), Copaxone (glatiramer acetate) and Symbicort (budesonide and formoterol fumarate dihydrate). Although there are varying annual sales numbers on these products depending on the information source, these products represent roughly $16 billion dollars in patent loss.

In 2015, other important patent expiries include, but are not limited to: Abilify (aripiprazole), Gleevec (imatinib), Namenda (memantine) and Celebrex (celecoxib). Many of these drugs were scheduled to lose exclusivity in different years, but court proceedings will prevent the release of generic versions of these drugs until 2015.

Finally, in 2016, blockbusters Crestor (rosuvastatin calcium) and Benicar (olmesartan medocomil) are scheduled to lose patent protection.

The last phase of the generics wave

Just beyond the patent cliff, a huge generic wave will swell. The last big generic wave was around 2011 to 2012, and analysts predict another wave will begin to build over the next 12 months. Small-molecule drugs will increasingly be dispensed as generics, and the loss of patent exclusivity will cause an increase in spend on generics of about $40 billion dollars over the next five years, according to IMS.

This is not to say that the drug market will be devoid of innovation — however, many of the innovative medicines in development will be in the specialty or orphan drug sector. Thus, the age of the traditional small-molecule blockbuster will come to a close, at least temporarily. IMS estimates that more than half of research projects are currently for specialized medications, and nearly one-third of all projects are biologics. In fact, IMS predicts that there will be an average of 35 new molecular entities launched per year for the next five years, for an average total of 175 new products by 2018.

By around 2016, there are expected to be fewer growth opportunities for generic drug makers. However, companies can look into generic biologic manufacturing, or biosimilar production. There will be fewer competitors in this market, specifically because follow-on biologics are so difficult and expensive to produce, and because they follow a different regulatory procedure than do traditional generics. Much more is required in terms of clinical trials, and there are steep regulatory and marketing hurdles with biosimilars. At the pharmacy level, there are issues with substitution depending on a person’s state.