Generic Drugs: Still a Growth Market?

Is there enough money in generic drugs?

That’s the question generic manufacturers might start asking themselves once IMS Health releases its official market growth numbers for 2007. A glimpse at the preliminary figures suggests there is, but the money may be getting harder to find.

Growth in the generic drug market slowed considerably last year, to 3.8%—the same rate as the overall prescription drug market, according to IMS Health corporate director of market insights Diana Conmy. She gave a preview of the 2007 data at the Health Industry Group Purchasing Organization’s National Pharmacy Forum last week. You can find her analysis of the branded industry in our earlier post.

Conmy found the low-single digit growth rate for generics “surprising” given the segment’s past performance. “I checked this number and checked it twice, because historically, we have seen generics growing over the last couple of years somewhere between 10% and 20%,” she said. “So to come in at the end of the year at 3.8%...is quite dramatic.”

Not surprisingly, the cause behind that slowdown is an increased level of price competition in the generic drugs market, Conmy said: “It has become an extremely competitive place to earn a profit and keep profitable within this segment."

“The generic erosion curves are much steeper. There is more of a willingness by generic manufacturers to enter the market 'at risk.' And there are just more players getting into the very large and meaty primary care markets that are going off patent,” she said. Indeed, one such product, Merck’s osteoporosis drug alendronate (Fosamax), saw competition from three generics (including a Merck-authorized product) last week.

Given that level of competition, is there a point at which the price for a generic is too low? IMS Health's 2007 numbers indicate the generic drug market may have already reached that threshold. The second half of the year was essentially the antithesis of the economic rule of supply and demand, Conmy said: a “tremendous reduction” in the price of generics in the marketplace without a corresponding increase in volume levels.

Instead, growth within the generic market is solely coming from new approvals, and any exclusivity that manufacturers can scrape together. That, in turn, is why generic manufacturers are becoming more aggressive in terms of “at risk” launches--launches like generic clopidogrel (Bristol-Myers Squibb's Plavix). The end result, Conmy said, is that while generic utilization continues to increase, the brands are still holding onto the dollar share.

But there are some bright spots: branded generics (like in the pain and ADHD markets) are still doing quite well: branded generics rose 11.1% last year, according to IMS Health. And there's still room for growth under Medicare Part D: despite the Center for Medicare & Medicaid Services' interest in increasing generic use under the drug benefit, generic utilization was no higher than in the general population in 2007, Conmy said.

And last year could turn out to be a one-year blip on the growth chart--especially given tough comparisons over the high-flying year of 2006. But for generic manufacturers looking at the 2007 data, it's still not a comfortable place to be. How the generic industry responds will determine who comes out on top in an increasingly competitive market.

The Blockbuster Model is Dead, Sort Of

The numbers are in, and it’s not a pretty picture.

No, we’re not talking about today’s Potomac presidential primary. We’re referring to the latest IMS Health figures on the state of the pharmaceutical industry, and as Diana Conmy, corporate director of market insights put it, they are “sobering and possibly a little alarming.” Conmy was kind enough to preview the 2007 numbers for the Health Industry Group Purchasing Organization’s National Pharmacy Forum; the official data won’t be released for a couple more weeks.

Unfortunately for industry, Conmy’s numbers don’t leave much to cheer about. The US market growth for pharmaceuticals and biotech products slowed to 3.8% in 2007—the worst growth rate since 1961.

Part of that is a result of tough comparisons against the big pay-off pharma received from Medicare Part D in 2006. But a lot is simply due to a general market slowdown for the drug industry. While some of the latter months of 2006 saw market growth approaching 12%, by December 2007, month-over-month growth was in the negative range, Conmy reported.

And if you’re thinking the next big launch will turn around that trajectory, think again. New chemical entities aren’t contributing as much to market growth as they have in the past. In fact, if you look at the average launch curves for the top 10 new chemical entities over the past several years, 2007 had the weakest results since 2003. “Fewer of these NCEs are top-performing, contributing much less to growth,” Conmy said.

So what does this mean for the blockbuster model? Well, as Conmy put it—and Windhover publisher Roger Longman keeps driving into our heads—“the blockbuster model isn’t dead, but perhaps the primary care-driven market is.”

And it sure seems that way: 2007 marked the first time that industry saw a decline in the number of primary care blockbusters (29 in 2007 versus 33 in 2006), IMS data show. At the same time, there was an increase in specialty care blockbusters (30 in 2007 versus 25 in 2006).

That’s evidenced by the fact that the primary care market declined over the last seven months of 2007, contributing a negative 18% to overall market growth for the year, while specialty care contributed a positive 118%. The growth rates per therapeutic area tell the same story: specialty care grew 10.5%, while “branded products” grew 2.9%--a rate almost a full percentage point below the total market.

In fact, of the four launches for 2008 that Conmy believes have blockbuster potential, three are specialty products: UCB’s certolizumab (Cimzia) for Crohn’s disease, Bristol-Myers Squibb’s ipilimumab for melanoma and Wyeth’s desvenlafaxine (Pristiq) for depression. (The fourth potential blockbuster on Conmy’s list is MedImmune’s respiratory syncytial virus antibody Numax.)

So is there any good news in all these doom and gloom? Luckily for pharma, there are lessons to be learned. Here’s the bottom line: specialty care is increasingly where pharma needs to be. And given the generally slower uptake of specialty care products, executives may have to adjust their expectations when it comes to launch curves.

That kind of “slow and low” attitude has another benefit in today’s increasingly risk-averse environment. “You might hear manufacturers say that ‘our strategy is more lower octane, so we can have a more controlled environment, we can make sure it’s safe, and we don’t have any major incidents,’” Conmy says.

That’s quite a departure from the “fast and furious” model of the DTC-infused primary care market. My, how far we’ve come.

While You Were Hanging Your Stockings By the Chimney with Care

"It's a major award!"

Not many creatures stirring this pre-holiday weekend, but we couldn't resist keeping up our weekly roundups of what you might have missed anyway. Basically, not much. We guess it isn't a surprise that you won't find us keeping up the not-quite-rigorous blogging pace this week and the beginning of next, though surely we'll pop up from time to time to amuse those of you hard at work. For the rest of you, bundled up on the couch watching "A Christmas Story," be careful not to shoot your eyes out this week.

• Winner: IMS Health: Maine's state law that restricts access by medical-data companies to doctors' prescription information is unconstitutional, says a Federal Judge, according to an AP report in today's WSJ. You could have seen this one coming if you a) thought a previous ruling in New Hampshire pointed toward a similar result in Maine or b) you read about this on Friday (hey we told you it was a slow weekend).
• The Boston Globe ran a Q&A with CMS boss Kerry Weems on Sunday. Weems is on the road encouraging consumers to shop around for the best medicare plans.
• The Times profiles Renovo CEO Mark Ferguson, whose career has taken him from "dentist to alligator biologist to pharmaceutical chief executive eyeing an estimated £6 billion virgin blockbuster market."
• Ben Goldacre's Bad Science reminds us that particularly around the holidays, some health studies are too good to be true.