The Teva (Hebrew for "Nature") press release begins as follows:
“Teva Pharmaceuticals USA, the world's leading generic pharmaceutical company, today announced the start of its "Patient First" project as part of the Year of Affordable Healthcare campaign. The initiative, available at: www.yearofaffordablehealth.com/patients, features a first-hand perspective of everyday Americans as they struggle with the enormous and sometimes insurmountable expense of paying for their prescription medicines.”
And ends:
“Teva's Year of Affordable Healthcare is a nationwide campaign to recognize the important role that generic drugs play in providing competitive and more affordable healthcare. In addition, the campaign calls upon federal legislators to enact further reforms, including passage of a competitive regulatory approval pathway for generic biologics to increase American access to affordable and lifesaving medicines.”
The full press release can be found here.
But – just how much will FOB legislation really change the cost equation? Well, for starters, that’s the wrong question. The right question is (not surprisingly) more complicated. And it’s a two-parter: How much will FOB legislation change the cost/quality equation?
If we can stipulate that quality (aka: safety) cannot be sacrificed for cost (Can we, in fact, stipulate that? Hope so.) – then the answer to cost reduction is maybe 20% or so. Significant, yes? Game changing from a spend perspective? Well – it ain’t chicken feed, but neither is it manna from heaven.
The first point to consider is that FOBs aren’t generics in the Hatch-Waxman sense. (Note: Always take a corrective 2X4 to anyone who utters “generic biologics.”) FOBs will require robust (aka: expensive) clinical trials and complicated (aka: expensive) GMPs. That’s just the nature of the beast.
The next point is that the above will restrict the number of classic “generics” companies who can play in the FOB space (and Teva is at the top of that short list). The ramp-up is too expensive and the risk is too high.
And there are three kinds of risk. The first is failure in either the clinical trial or the GMP aspects of the proposition. The second is that the profit margins are radically different from small molecule generics. And the third is that innovator companies are likely to stay in the game post patent-expiry. It’s that third issue that’s the biggest as well as the least discussed. So, let’s talk about it.
Since the ante for being in the FOB game is high (trials, GMPs), the cost differential between FOB and innovator product will be significantly less (20% or so if you go by the EMEA experience). So, the question becomes, can innovator companies lower their prices by 20% or so on “brand names” and have that be a profitable proposition. Answer: Yes.
Will costs come down? They will. But don’t look for the same precipitous decline in prices that we’re used to seeing from Hatch-Waxman generics. As far as Teva’s “Patient First” program is concerned – kudos. But safety first trumps all.
