Generic competition: when one door closes, another opens

For consumers, the prospect of drugs going off-patent may well be a blessing. But for the pharmaceutical companies behind the branded medication, the onslaught of generic competition is seemingly far from positive.

One study suggested that the overall cost of developing a prescription drug is $2.6 billion, from research to marketing approval (“Innovation in the pharmaceutical industry: new estimates of R&D costs”, Tufts Center for the Study of Drug Development, published in the Journal of Health Economics, 2016).

Sanya Sukduang, partner at Finnegan Henderson Farabow Garrett & Dunner, says that America’s Hatch-Waxman Act recognises the significant investment that pharmaceuticals inject into developing new drugs and provide an incentive, through a range of regulatory and statutory provisions (such as market exclusivity and patent grants), for companies to continue developing novel therapies.

Yet, upon patent expiry, the floodgates are opened and generic manufacturers can produce and sell comparatively inexpensive versions of the branded drug.

As generic competition reduces the pricing/market share of the branded drug by more than 80% in just 12 to 18 months (“Global Generic Pharmaceutical Industry Review”, Bank of Tokyo-Mitsubishi, 2016), it’s particularly important for drug developers to avoid the “patent cliff” of expiries.

Pharmaceutical companies’ revenue may “fall off the patent cliff” if a number of leading products go off-patent at a similar time, resulting in a sharp decline in revenue that businesses may struggle to recover from. On the other hand, the total cost savings for US drug buyers over one full year after generic approval of a branded product is estimated to be $16 billion (US Food and Drug Administration [FDA], “Estimating Cost Savings From Generic Drug Approvals In 2017”, 2016), meaning that off-patent medicine is more accessible and affordable for consumers. LSIPR investigates some of the highest revenue-earning drugs that are expecting generic or biosimilar competition for the first time over the coming months.

Drug: Lyrica (pregabalin)

Brand owner: Pfizer

Use: Treatment of seizures, fibromyalgia, and nerve pain

Off-patent: December 2018

Pfizer’s blockbuster drug Lyrica, which was first approved by the FDA in December 2004, is set to lose patent protection in the US in December.

Lyrica generated annual global sales of $5.1 billion in 2017 (with $3.46 billion coming from US sales), contributing to Pfizer’s remaining the largest pharmaceutical company last year, according to prescription sales data provided by EvaluatePharma in 2018.

Novartis came second globally, but with $41.9 billion in sales, it has some catching up to do to beat Pfizer’s total of $47.6 billion.

Pfizer may well be prepared for the challenge of Lyrica going off-patent in the US, as its patents for Lyrica expired in the EU a few years ago.

Pfizer then did not pay the renewal fees to bring a supplementary protection certificate (SPC) into force in May 2013, leading to the reportedly rare occurrence of a pharmaceutical company allowing an SPC to lapse.

In addition, Pfizer’s data exclusivity on Lyrica’s marketing authorisation expired in 2014, meaning that generic firms could use Pfizer’s trial data in order to obtain a marketing authorisation.

Consilient Health, a UK pharmaceutical manufacturer, launched a generic version of Lyrica in 2015 at a price 25% less than that of Pfizer’s branded drug.

Mylan and Teva’s generic versions of Lyrica are also already available in many European markets. Pfizer’s Financial Report 2017 said that globally, Lyrica revenues decreased by 11% in 2017 year on year as a result of the drug going off-patent in Europe, while US-based sales of Lyrica in 2017 increased by 10% year on year.

One measure Pfizer has taken in the midst of losing US patent protection is to pursue a six-month patent term extension for paediatric exclusivity for Lyrica. If granted, the extension would prevent generic competition until June 2019 at the earliest.

A spokesperson for Pfizer told LSIPR that it will soon be submitting data from its paediatric epilepsy clinical programme to the FDA for a paediatric exclusivity determination, but regardless, “Lyrica continues to be an important treatment option for the conditions for which it is approved”.

Pfizer took another step to protect itself last year, when it secured FDA approval for an extended release version of the drug, called Lyrica CR, for treatment of pain caused by shingles or diabetic peripheral neuropathy (but not fibromyalgia).

According to a chart by medical information provider Therapeutic Research Centre (TRC) on “Anticipated Availability of First-Time Generics”, companies such as Apotex, Mylan, and Teva are looking to produce generic versions of Lyrica from mid-2019.

Drug: Seretide/Advair (fluticasone propionate/salmeterol)

Brand: GSK

Use: Treatment for asthma and chronic obstructive pulmonary disease

Off-patent: September 2010

GSK’s US patent on Advair expired in 2010 and an additional patent on the Diskus inhaler used to deliver the drug lasted until 2016. The difficulty of making the drug-and-technology combination has kept GSK safe from generic Advair competition—so far.

Advair sales have been declining in the US (10% fall between 2016 and 2017) but at $2.1 billion, they still accounted for more than a fifth of GSK’s total US pharmaceuticals turnover last year.

In its Annual Report 2017, GSK suggested that the introduction of an Advair generic in the US in 2018 could halve US sales of the drug. If no generic Advair appears on the market in 2018, GSK estimated that its overall profits this year could grow by 4 to 
7% (despite an expected 20 to 25% decline of US Advair sales).

Whether an Advair generic appears or not, GSK appears to have protected itself against the “patent cliff”: the report said that, aside from in relation to Advair, GSK does “not expect to face significant generic erosion in the US until the mid-2020s”.

As a further protective measure, the company is transitioning its respiratory portfolio to emphasise newer products and avoid the “pricing pressures” suffered by Advair over recent years.

Generic manufacturers including Mylan and Hikma/Vectura have both filed for FDA approval of their versions of Advair, according to TRC, but regulatory hold-ups in the FDA’s complete response letters are delaying approval.

In June, Mylan said that its Abbreviated New Drug Application for its generic Advair had priority review at the FDA, meaning it could still be approved this year.

Last year, Teva released two generic inhalers containing the same active ingredients as those in Advair. The product contained a lower dose, meaning it is not a direct generic but rather a lower-priced alternative.

Speaking to LSIPR, a spokesperson for GSK explained: “The possible introduction of generic competition to Advair Diskus, regardless of when it may occur, is an event we have anticipated and planned for and we provided investors with financial guidance earlier in the year to that effect.”

Drug: Cialis (tadalafil)

Brand: Eli Lilly

Use: Treatment for erectile dysfunction

Off-patent: September 2018

Cialis gained FDA approval in 2003, a year after it was approved in the EU, and last year it generated $2.3 billion in global sales—almost double that of competing treatment Viagra, produced by Pfizer, which created $1.2 billion in revenue in 2017.

Although Cialis is Eli Lilly’s second best-selling product, global sales of the drug declined by 6% last year and revenue in the US decreased by slightly more (8%).

Eli Lilly’s 2017 Financial Report put this down to lower demand, partially offset by higher realised prices, but with that in mind it’s likely that the pharmaceutical company is somewhat prepared for the steeper revenue decrease ahead.

At $1.4 billion, sales of Cialis in the US still accounted for 6% of Eli Lilly’s worldwide revenue 
last year.

Last year, Eli Lilly opted to settle patent litigation by agreeing that generic versions of Cialis can enter the US market from September 27, 2018.

Eli Lilly’s primary patent covering Cialis actually expired last November and, although another patent covering Cialis’s unit dose was not due to expire until 2020, the settlement agreement Eli Lilly reached with generic manufacturers brought the date forward to September 27.

The settlement included a “royalty-bearing licence agreement”, according to Eli Lilly, perhaps suggesting that the company prioritised financial certainty over asserted patent rights in making the deal.

In its Financial Report, Eli Lilly said the upcoming loss of exclusivity will cause a “rapid and severe decline in revenue” and have a “material adverse effect on our consolidated results of operations and cash flows”.

Teva, which was party to the settlement agreement with Eli Lilly last year, has already gained FDA approval to market generic versions of Cialis in the US.

Meanwhile, Eli Lilly’s Cialis dosage patent has been at the centre of court proceedings in Europe after the SPC covering tadalafil expired last year.

In most European markets Eli Lilly has failed to prevent generic competition from Teva and Mylan, among others.

Earlier this year, the District Court of the Hague invalidated the tadalafil dosage patent after Teva initiated invalidity proceedings.

Similar proceedings have occurred in the UK, at the request of Teva, Mylan and Actavis, and also in Germany and Belgium.

The UK Court of Appeal and Germany’s Bundespatentgericht (Federal Patent Court) both invalidated parts of the Cialis patent due to a lack of inventive step, although the UK matter is currently pending before the Supreme Court.

Drug: Neulasta (pegfilgrastim)

Brand: Amgen

Use: Injectable treatment to stimulate white blood cells and reduce risk of infection

Off-patent: October 2015

Amgen’s Neulasta went off-patent three years ago in the US, but the pharmaceutical company is expected to face its first biosimilar competition this year.

In 2017, Neulasta sales in the US ($3.9 billion) equated to 17% of Amgen’s total revenue ($22.8 billion). However, it appears that Amgen has been preparing for biosimilar competition to shield itself from potential losses related to Neulasta.

In 2015, when Neulasta went off-patent, Amgen introduced the Neulasta Onpro kit in the US. The injector delivery device helps patients to administer their dosage of Neulasta at home.

Amgen’s Letter to Shareholders 2017 said that the Neulasta Onpro accounted for more than 60% of Neulasta units sold in the US last year. The device is due to launch in Europe later this year, after the European Medicines Agency (EMA) recommended approval of the injector.

The letter noted that Amgen operates in a “highly competitive environment”, and finding new ways to make medicine delivery easier “can offer important opportunities for differentiation”. Amgen’s Neulasta Onpro is certainly a move in the right direction, and may help it stave off competition for longer.

The US is not the only place where Amgen faces biosimilar competition in relation to Neulasta. Its SPC issued by major EU countries for its European Neulasta patent, including France, Germany, and the UK, expired in August 2017.

In the second half of 2017, the EMA accepted both Sandoz’s and Mylan’s proposed Neulasta biosimilars for regulatory review.

As the Neulasta sales figures are divided between US sales and rest of world (ROW) sales, it’s tricky to determine the extent to which Amgen’s Neulasta revenue in Europe was impacted by this, but Neulasta ROW sales had decreased by 17% year on year by the end of 2017.

The Letter to Shareholders said this fall was driven by lower unit demand, rather than biosimilar competition.

In June, Mylan and Biocon announced that the FDA had approved Fulphila (pegfilgrastim-jmdb), the first biosimilar to Neulasta in the US. After the announcement that FDA approval had been granted, Mylan’s shares rose 5.2% while Amgen’s dropped by 1.7%.

Fulphila was launched in the US shortly after it received FDA approval, at a wholesale price of 33% lower than that of Amgen’s Neulasta.

Coherus Biosciences, Mylan, and Sandoz are also working on biosimilar versions of Neulasta.

After the FDA issued a complete response letter to Coherus last year, the company resubmitted its Biologics License Application. A response is expected by the end of the year.

Drug: MabThera/Rituxan (rituximab)

Brand: Roche

Use: Injectable treatment for autoimmune diseases and some cancers

Off-patent: From mid 2018

Roche’s Rituxan was approved in 1997 in the US, and last year it pulled in $4.4 billion in America—making US sales responsible for more than half (55%) of the amount that the drug made globally in 2017 ($7.6 billion).

Roche’s primary patents for Rituxan began to expire in mid-2018.

Speaking to LSIPR, a spokesperson explained: “The IP for biologics can involve multiple patents and patent timelines for each individual product and therefore it is more difficult to give an exact date for patent expiry for biologic medicines.”

Roche’s Financial Review 2017 estimated that the first biosimilar versions of Rituxan could appear on the US market before the end of the year,

The report added the caveat that there are “many uncertainties” involved in determining when the FDA will approve the biosimilar versions.

As the first biosimilars were launched in several European markets in 2017, after Roche’s ‘composition of matter’ patents for the drug expired, Roche may well be prepared for the upcoming biosimilar competition in the US.

Celltrion and Sandoz both gained European approval for their biosimilar versions of Rituxan in mid-2017.

According to Celltrion, its biosimilar, Truxima, took away roughly a third of Rituxan’s market share in the UK and the Netherlands in the four months following its release.

Roche’s Financial Review said the entry of biosimilars had a “negative impact” on sales of Rituxan in Europe, which was 11% lower year on year in 2017.

However, the figure was much higher in the final quarter of the year once the biosimilars had been introduced: Roche’s European sales of Rituxan dropped by 26% in the last three months of 2017.

Overall, global sales of Rituxan grew 1% last year despite the drop, helped by a year-on-year increase of 6% in the US.

Regardless, Roche is currently on the brink of the “patent cliff, as its three blockbuster oncology drugs are set to go off-patent very soon. After Rituxan, Roche’s Herceptin patent will expire (2019), followed by its Avastin patent (2020).

Last year Roche’s oncology division was responsible for more than half of its total global sales, and Rituxan, Herceptin, and Avastin made up more than 75% of the oncology division’s sales.

Given that the US is Roche’s biggest market, the introduction of biosimilar competition to three of those drugs in the US, over three years, is bound to make a dent in Roche’s revenues.

In terms of upcoming generic competition, Celltrion and Sandoz are both preparing to launch versions of Rituxan in the US. Both have received complete response letters from the FDA, and Celltrion re-submitted its Biologics License Application for the drug in May.

Conclusion

A recent study estimated that $251 billion worth of global pharmaceutical sales are “at risk” between 2018 and 2024, as patents covering blockbuster drugs and biologics expire (“World Preview 2018, Outlook to 2024”, EvaluatePharma, 2018).

Loss of exclusivity will almost always result in a decline in product sales, even if generic equivalents are not immediately released, but patent expirations do not have to prompt the end of a revenue stream.

For example, Sukduang says, the Hatch-Waxman Act incentivises pharmaceutical companies to continue to develop new drugs, allowing them to offset the declining revenues of drugs that have gone off-patent with the sale of new, innovative therapies.

Ultimately, how pharmaceutical companies prepare for generic competition plays a crucial role in how well they survive patent expirations. Only time will tell the extent to which Pfizer, GSK, Eli Lilly, Amgen, and Roche have prepared accordingly.