The time it takes for a typical drug to get to the market can be as long as fifteen to twenty years from discovery of the compound through completion of the clinical study phases. Therefore, in the US when you account for time spent in discovery, the actual patent life of a drug can be somewhere between seven to twelve years post marketing. Branded agents are sold under the name the manufacturer chooses to market it’s drug under, and the generic drug is sold under the chemical agent’s name (example: Lipitor/atorvastatin).
According to the U.S. Food and Drug Administration (FDA), A generic drug is the same as a brand name drug in dosage, safety, strength, how it is taken, quality, performance, and intended use. Before approving a generic drug product, the FDA requires many rigorous tests and procedures to assure that the generic drug can be substituted for the brand name drug. The FDA bases evaluations of substitutability, or “therapeutic equivalence,” of generic drugs on scientific evaluations. By law, a generic drug product must contain the identical amounts of the same active ingredient(s) as the brand name product. Drug products evaluated as “therapeutically equivalent” can be expected to have equal effect and no difference when substituted for the brand name product.
An Abbreviated New Drug Application (ANDA) contains data that, when submitted to FDA’s Center for Drug Evaluation and Research, Office of Generic Drugs, provides for the review and ultimate approval of a generic drug product. Generic drug applications are called “abbreviated” because they are generally not required to include preclinical (animal) and clinical (human) data to establish safety and effectiveness. Instead, a generic applicant must scientifically demonstrate that its product is bioequivalent (i.e., performs in the same manner as the innovator drug). Once approved, an applicant may manufacture and market the generic drug product to provide a safe, effective, low cost alternative to the American public.
However, there are two different types of generics: multi-source and single-source. “Single source generic” status is generally given to the manufacturer of a generic drug that successfully challenges the patent of the innovator drug. This is done to encourage the creation of low cost generic alternatives for consumers. The single-source status provides the generic manufacturer with a 6-month exclusivity period to allow it to recoup the costs for challenging the innovator patent. Therefore, single-source generic agents may only drop in price by 10-15% as compared to the branded agent. When this happens with a blockbuster drug like Lipitor, consumers may get confusing information from their health plan about the status of the brand vs the “generic” drug.
You may recall that Pfizer was in the news recently for offering select payers an additional discount on Lipitor to make it more appealing financially to place Lipitor on tier 1 in place of the single source generic atorvastatin; maybe they were offering a discount of 20 % as an example. This strategy only works if the payer is able to block the generic from being dispensed at the pharmacy because many pharmacies are incentivized to dispense the generic instead of the brand. That’s why one would typically expect to see the branded agent flip to the generic — almost overnight by as much as 90%!! But Pfizer was hoping to hold on to as much as 40% of their Lipitor share by utilizing the strategy of discounting Lipitor deeper than the single source atorvastatin.
Who gets hurt in the “Pfizer” type strategy you might wonder? Payers get a deeper discount, and members get to have the branded agent at the tier 1/generic copayment level, so what’s the big deal? The problem is that it undermines the 6 month exclusivity period granted to the generic manufacturer that successfully challenged Pfizer’s patent; it ultimately may have the unintended effect of dissuading generic manufacturers from challenging patents of blockbuster agents if they feel they can’t capture enough share during the 6-month exclusivity period to recover their court costs. It’s almost as bad as the strategy that some pharmaceutical companies use to pay off generic manufacturers to delay or postpone the release of their generic equivalent agents!
When no exclusivity period exists, multiple manufacturers will generally prepare to make a generic version of a drug once a branded drug’s patent expires or is delisted from the OrangeBook (see below for link). When this happens, the price for the generic agents can drop dramatically overnight and that’s when you’ll see a health plan or payer institute a maximum allowable cost or “MAC”. This means that the plan or payer will only pay a set amount, or “maximum” amount per script no matter who manufactures it (generally the lowest price from all manufacturers). When a MAC is instituted, you can expect the branded drug to be placed on third tier, and the generic products to be placed on 1st tier.
Finally, contrary to what one would think about supply and demand, the branded agent generally increases in cost quite a bit after generics are available; so for the small percentage of the public that refuse to take the generic alternatives for whatever reason, they will pay more than ever for the branded drug.
Note: at this point in the U.S., as much as 70% of the small molecule market has generic equivalent agents.
FDA website:Drug Information: http://www.fda.gov/Drugs/informationondrugs/ucm079436.htm#PPatents and Exclusivity: http://www.fda.gov/Drugs/DevelopmentApprovalProcess/ucm079031.htm#How%20many%20years%20is%20a%20patent%20granted%20for?OrangeBook: http://www.accessdata.fda.gov/scripts/cder/ob/default.cfm