Monday, 29 December 2008

Future President Obama and Generic Drugs and Biologics

Investment analysis website has an interesting article on Yahoo pointing out the effect of one of future President Obama's policies on the finances of pharmaceutical companies. Barack Obama has gone on record as wishing to encourage the use of generic drugs, including generic biologics. His advisors have gone on record as  wishing to speed up approvals of generic drug approvals with the US Food and Drugs Administration (FDA) and also to introduce a new legislative pathway for generic biologics. 

Speeding up the approvals of new generic drugs and biologics is likely to lead to substantial reduction in the value of the patents. The current lethargic FDA approval process in fact leads to effective patent term extensions as generic companies have difficulty in obtaining approval for sale of their drugs on expiry of the patent protection. The value of such patents are therefore enhanced compared to the value that would be expected if products could be put onto the market on expiry of the patent.

Currently the approval process for generic biologics is not yet established. The characteristics of biologics means that the FDA demands full testing, rather than relying on data already on file. This hurdle means that few (if any) generic biologics have been approved - and that it will be some time before generic counterparts to brand name drugs appear. The new administration will continue the work done by the previous Bush administration to put a new procedure in place during 2009. Morningstar point out that this will mean that . Israeli generics company Teva has already welcomed the initiative in a press release before christmas.

Politically the lure of cheaper drugs by increasing the supply of generics once the brand name drugs have come off patent is tempting. The other side of the coin is, however, the reduction of the return on the investment made by the pharmaceutical companies. These depend on the cash flowing in from successful drugs to fund their future research and development. Pushing for greater use of generic off-patent drugs may mean that the US government may have to increase funds for health research to counteract the reduction in R&D dollars spent by pharmaceutical companies.  

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