Press "Enter" to skip to content

Factors that influence the development of generic drugs in the US

Copyright © DrugPatentWatch. Originally published at Factors that influence the development of generic drugs in the US

By: Pankaj Mondal, DrugPatentWatch Staff Writer

The trillion dollar pharmaceutical sector has been dominated for long by a few giant firms that manufacture and supply the major branded prescription drugs. However, recent trends point to the upsurge of the latest pharma blockbusters: generics.

Approximately 60% of people in the US take prescription drugs and generics account for almost 88% of these drugs. The use of generic pharmaceuticals in emerging markets is also on the rise as greater access to healthcare and regulations favoring the use of cost-effective drugs facilitate growth potential in developing nations.

The US generic drug industry has been heavily profitable for pharmaceutical companies from emerging economies. Most of these companies have outperformed the market by leveraging technology and low manufacturing costs. However, there are some major factors that restrict the development and production of generics in the US. These have an impact on manufacturers and also the strategies used by regulators to incentivize the development of generic drugs in the country.

Here are some of the most common factors.

Hatch-Waxman Act

The Hatch-Waxman Act, sometimes called as The Drug Price Competition and Patent Term Restoration Act, was carefully designed by Congress with competing objectives in mind; fosting innovation while also encouraging greater public access to generic drugs. This act established the abbreviated new drug application (ANDA) that entails generic manufacturers to demonstrate that the generic is bioequivalent to a reference listed drug (RLD) or a generic product. The only condition is that the extent and rate of absorption of the generic drug should be the same as that of the RLD when administered at the same molar dose under the same conditions. The generic drug should also have the same efficacy and safety profile.

The generic manufacturer also has to file a certification of patents listed in the Orange Book. While filing an ANDA, the manufacturer has to choose from one of the following four options, which are as follows:

  • A Paragraph I filing when the innovator has not created the required patent information in the Orange Book.
  • A Paragraph II filing when the drug is already off patent.
  • A Paragraph III filing when the patent for the product exists but the generic firm wants to enter the markets following the expiry of the patent.
  • A Paragraph IV filing when the ANDA applicant’s product or the use of its product does not violate the innovator’s patents listed in the Orange Book or when the applicant affirms that such patents are not valid or enforceable.

Before identifying a new development target, generic manufacturers should first understand the competitive landscape about generic competitors, following which they should formulate a tangible decision to proceed with. In some cases, manufacturers adopt the re innovation technique, which involves producing the next generation of generics with refined and revised features of products that are already successful. This method involves modifications to the originator generic and requires a submission to the FDA for a new drug application instead of an ANDA. In this approach, generic manufacturers often compete within a specialized area of drugs required to treat conditions like rheumatology, oncology, or cardiovascular.

180 Day Generic Drug Exclusivity

The Drug Price Competition and Patent Term Restoration Act gives 180 days of marketing exclusivity to generic drug applicants and elaborates a number of conditions under which an ANDA submitting a paragraph IV certification (mentioned above) would fail to be eligible to be the authorized generic manufacturer of a given drug.

This provision was originally meant to provide a stimulus to generic manufacturers to challenge those patents covered in an originator’s ANDA as unenforceable, invalid, or not being infringed upon. As such, it encourages potential generic manufacturers to launch their products into the market. The downside however, is that it keeps all generic versions off the shelves for longer periods of time by preventing other generic manufacturers from rolling out their products into the market during this phase.


A top priority of Federal Trade Commission (FTC) in recent years has been to strongly oppose a costly legal ploy that is being used by a growing number of drug manufacturers to suppress the competition offered by low-cost generics. These manufacturers have been able to stifle competition by offering patent settlements that pay generic manufacturers to stave off the launch of generics to the market. Consequently, these settlements effectively sidestep competition for a huge number of branded drugs. Pay-for-delay has posed a serious threat to the timely development An FTC study stated that these deals cost taxpayers and consumers higher drug costs to the tune of $3.5 billion annually.

Based on an FTC report in 2014 the number of pay-for-delay deals reduced to 21 from 29 in 2013, and there were 40 pay-for-delay deals in 2012. The 2014 drop was preceded by a 2013 Supreme Court decision in the FTC versus Actavis case where the former scored a whopping $1.2 billion settlement from Teva Pharmaceuticals over allegations that a company it acquired deliberately delayed a generic version of Provigil, a sleep-disorder drug from hitting the market.

Debbie Feinstein, director of the FTC’s Bureau of Competition, says that although it’s too early to know if the downward trend will last, it’s encouraging to witness a huge drop in the number of pay for delay settlements. While the recent ruling will possibly cut down the amount of such settlements, major pharmaceutical companies will continue to depend on a strong pipeline of new products through M&A as well as R&D efforts.

Access to REMS Drugs

Prospective ANDA sponsors require supplies of RLDs to conduct bioequivalence and other testing in order to support their ANDAs. Generic manufacturers may not get access to RLD supplies when the branded drug product is unavailable through regular distribution channels as it may be subjected to distribution restrictions. This is imposed either voluntarily by the RLD holder or through a Risk Evaluation and Mitigation Strategy (REMS).

Since some branded manufacturers argue that providing sufficient supplies of the RLD to prospective ANDA sponsors would breach their REMs, FDA has devised a process to give assurance to the branded firm that the Agency has thoroughly perused the generic company’s bioequivalence protocols and found out that they include safety protections which can be compared to those in the REMS.

The Fair Access for Safe and Timely (FAST) Generics Act bill, which was passed recently, shuts down some of the loopholes that generic companies say are being exploited by branded companies. Under this act, it would be illegal for any manufacturer to restrict access to their product through agreements restricting the sale, distribution or resale of a drug product, irrespective of whether it has a REMS program or not. Generic companies will also be allowed to make a written request to FDA to gain access to a product, which could perhaps oblige the NDA holder to grant access.

This guidance from FDA can be of tremendous help when branded drug firms refrain from providing supplies of RLDs to prospective ANDA sponsors.

Competitive Pricing

The tiny contingents of pharmaceutical companies that produce cost-effective versions of branded drugs often get broadsided by players in the distribution chain. Top wholesalers pressurize drug manufacturers for reduced prices to undercut one another in the battle for contracts. At the same time, group purchasing organizations consolidate and grab onto more negotiating power, creating a hurdle for generics that comprise a major chunk of those purchases.

While this indicates lower prices for government programs and employers, and also for independently owned pharmacies, the brunt of the battle is being felt by generic manufacturers. Shares of Teva, the world’s largest seller of generic drugs, dropped 24% in August this year, which is a 6% decline in the prices of generic product in the same period last year. Prices have clearly deteriorated as an outcome of contract negotiations and analysts say that it could take many years before prices stabilize and that is if they ever recover. Also, the prices of generic drugs tend to fall drastically when a drug loses patent protection and a host of companies begin producing it.


A growing population coupled with aging target demographics will possibly drive consistent demand for pharmaceuticals. Furthermore, intensifying efforts to reduce healthcare costs will further buoy the generics industry. Generic pharmaceutical companies will further benefit as insurers and government policy makers continue to endorse and seek lower-cost drug options. However, the task of generic drug development seems to be a cumbersome one as described above. With suitable regulatory environment and other market forces, generic manufacturers will get the much-needed momentum to develop new drugs that will restrict healthcare spending. This will also make low-cost drugs easily accessible to the overall population in the country.

Make Better Decisions with DrugPatentWatch

» Start Your Free Trial Today «

Copyright © DrugPatentWatch. Originally published at Factors that influence the development of generic drugs in the US
DrugPatentWatch - Make Better Decisions