About 1000 Words: Pharmaceutical sector
Understanding how the US generics market operates can be quite tiresome. We try to demystify the drug approval process
As home-grown pharma companies are making their presence in the US generics market, investors not only have to increasingly contend with complex jargons but also require a better understanding of the regulatory framework.
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Getting a clearer picture of the generic drug approval process will help investors understand the risks involved in the generics business. Bagging the exclusive 180-day marketing rights can send the profits of generic companies soaring.
Take the case of Dr Reddy's, which bagged the exclusive rights to market fluoxetine, the generic version of Eli Lily's blockbuster drug, Prozac last year. The company's profits for fiscal 2003 vaulted over 200 per cent higher mainly driven by fluoxetine sales. Now its the turn of Ranbaxy, India's largest drugmaker by sales.
The company bagged the exclusive rights to market Cefuroxime axetil, the generic version of GlaxoSmithkline's blockbuster antibiotic drug, Ceftin. The profits for the nine months ended September 2002 were higher by 107 per cent. Revenues from Cefuroxime axetil accounted for more than 50 per cent of the company's profits.
Besides hefty profits, there's another compelling reason for why generic companies vie with each other to bag the exclusive marketing rights. Once the patent expires and the post 180-day exclusivity period, drugs are available at a 80 per cent discount to the innovator's price.
The entry of more generic players leads to a supply glut pushing down prices lower. So how do companies go about bagging the 180-day exclusive marketing rights and what are the risks involved? We try to demystify the generic drug approval process.
In 1984, the Haxman-Hatch Act paved the way for generic drugs to be launched in the United States. This Act allows the Food and Drug Adminstration (FDA) to approve applications to market generic versions of blockbuster drugs without conducting clinical trials.
A generic drug is similar to an innovator drug product in dosage form, strength, route of administration, quality, performance characteristics and intended use. Generic drug applications are termed as abbreviated new drug applications (ANDA's) because they are generally not required to include preclinical and clinical data to establish safety and effectiveness.
It is enough if the generic manufacturers establish that their product is bioequivalent (i.e., performs in the same manner as the innovator drug). They only have to conduct studies showing that their product has a similar bio-availability.(i.e. how the drug is absorbed in the blood).
Every ANDA filed must contain a certification for each patent listed for the innovator drug. There are four options available to applicant to certify against the listed patents. These options are termed as paragraphs.
A certification under Para I states that the required patent information relating to such patent has not been filed; Para II filing states that the said patent has expired; Para III states that the that the patent will expire on a particular date; Para IV states that the such patent is invalid or will not be infringed by the drug, for which approval is being sought.
Normally its the ANDA's with a para IV certification that triggers all legal complications. After the generic company files an ANDA containing a Para IV certification and the application is substantially complete, the company gives a notice to the innovator. Within 45 days of receiving this notice, the innovator can initiate legal action claiming infringement.
If the patent holder files a patent infringement suit within 45 days of the receipt of notice, FDA cannot not give final approval to the ANDA for at least 30 months from the date of the notice. This 30-month stay will apply unless the court reaches a decision earlier in the patent infringement case or orders a longer or shorter period for the stay.
As an incentive for being the first generic applicant, the company is allowed to exclusively market the product for a period of 180 days before other generic players are allowed, Only an application containing a paragraph IV certification may be eligible for exclusivity.
Earlier, the FDA earlier maintained a policy that the applicant challenging any one patent under a paragraph IV certification would get the sole exclusivity. However, recently, the FDA has changed its stance and now allows applicants to share exclusivity if two companies claim to have