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Published on Saturday, December 26, 2009 by Reuters

Generics Chafe Under Big Pharma's Reform Shadow

by Susan Heavey

WASHINGTON - The massive U.S. Senate healthcare reform measure passed on Thursday with support from the multibillion drug industry, but makers of cheaper generic rivals are feeling left out in the cold.

In this Feb. 20, 2008, file photo, a shopper walks toward the pharmacy at a Little Rock, Ark., Wal-Mart store. It's an annual ordeal for many seniors living on a budget. Medicare's coverage gap for prescription drugs, $3,610 next year, has steadily gotten bigger since the benefit's inception. But if Democrats have their way on health care overhaul, the dreaded 'doughnut hole' will shrink by $500 right away and go away altogether by 2019.(AP Photo/Danny Johnston) Generic drugmakers face several obstacles in the bill backed by Democrats that they worry will dampen a potential increase in use even as more people gain access to health insurance and prescription medicines.

The hurdles include extensive protections against generic versions of pricey biotech medicines, an incentive for Medicare recipients to use more brand-name drugs, and a possible end to payments from brandname makers to delay the launch of copy-cat medicines.

"The bill passed by the Senate unfortunately amounts to a treasure trove to brand drug companies," said Generic Pharmaceutical Association President Kathleen Jaeger, whose group represents Mylan, Watson Pharmaceuticals and Teva Pharmaceutical Industries, among other companies.

President Barack Obama has often pointed to generics as a key way to cut costs, but big pharmaceutical makers such as Pfizer and Merck came to lawmakers and the White House with an $80 billion, 10-year pact to cut prices and pay additional taxes to help fund the expansion of health insurance coverage.

Generic drug makers are hoping they can influence the final shape of the bill as the Senate version must still be combined with an earlier version passed by the House of Representatives before it becomes law.

To be sure, roughly 30 million more insured Americans are expected under the Senate's $871-billion bill, giving them access to prescription medications, including generics that already make up about roughly 60 percent of the U.S. prescription drug market.

But Bill Marth, chief executive of Teva's North American operations, said Democrats missed a chance to further boost use: "It's frustrating," he said. "Maybe some people have just lost sight of what the bill is supposed to do."

SETBACK FOR BIOGENERICS

Most notable is the setback for generic versions of biotech drugs, also known as biogenerics or follow-on biologics.

Like the House bill, the Senate bill gives the Food and Drug Administration power to allow biogenerics onto the U.S. market. Such protein-based medicines treat cancer and other conditions but can cost tens of thousands of dollars a year per patient.

Generic makers welcomed the pathway to approval, but the bills provide for a 12-year period of exclusivity for brand-name drugs before a biogeneric can be approved. The Obama administration had sought just five to seven years of protection.

Most Democratic lawmakers sided with the longer period backed by the branded industry and its lobby group, the Biotechnology Industry Organization. BIO argued the longer period was needed to recoup development costs.

With both the House and the Senate supporting longer protections, that seems unlikely to change during negotiations on the final bill despite calls from generic companies to drop the provision altogether and tackle it separately next year.

MEDICARE GAP

A move to eliminate the prescription drug coverage gap under the government's Medicare insurance program could weaken incentives for elderly and disabled patients to seek cheaper alternatives, Jaeger and others said.

Patients currently pay a portion of the cost until their total drug bill reaches $2,700. They then pay full price until they spend another nearly $3,500, when the benefit kicks back in.

Les Funtleyder, an analyst at Miller Tabak, said that sends many Medicare patients to generics who often stick with the cheaper version rather than switch back and forth.

"If you're already on the generic, you're probably not going to change the next year," he said.

The Senate bill includes a 50 percent reduction in the gap as part of the deal with the Pharmaceutical Research and Manufacturers of America, which represents brandname pharmaceutical companies.

But top Senate Democrats last week vowed to completely close the gap during negotiations with the House, which would eliminate the gap by 2019.

Generic makers also face a potential ban on certain patent litigation settlements deals with branded rivals.

Critics charge such pacts delay more affordable generics from reaching the market, while drugmakers say the settlements still bring the generics to market before patents expire but eliminate the uncertainty of court trials.

A ban is included in the House bill but not the Senate, where a separate bill barring the deals passed a Senate committee in October. Congressional negotiators will have to decide whether to incorporate the ban now or tackle it later.

Eliminating the deals will create a lot more uncertainty for generic drugmakers, said Morningstar analyst Brian Laegeler.

"They wont be able to settle. They will either have to win or just not play," said Laegeler, who put the likelihood of a ban in the final healthcare bill at 75 percent.

© Thomson Reuters 2009.
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