Protecting generics ever after

April 10, 2023
Securing a happy future for health care's success story

If asked what they take for granted, most will respond with an answer that reflects things that have predictable presence in their life.

Like well-stocked grocery aisles, live music or the ability to catch up with an old friend over dinner, we often overlook that which is always readily available — until, for example, a pandemic threatens that accessibility.

In a newly launched campaign, the Association for Accessible Medicines is making one message clear: Generics are the backbone of the American health care system, and are dangerously, albeit unintentionally, taken for granted by both patients and policymakers.

With more than 32,000 FDA-approved drugs, the generics industry has saved U.S. patients an estimated $2.2 trillion over the last decade. And even though generics account for 91% of all prescriptions dispensed in the country, they only represent 18% of drug spending and 3% of overall health care spending.

Generics are by and large, always there. Like magic in a fairy tale, lower-cost alternatives to brand name drugs are a predictable element that patients have come to expect. 

“It’s a testimony to the industry that people take it for granted. It’s a blessing that they can go to the drugstore and get essential medicines even during a global pandemic,” says Christine Baeder, chief operating officer for U.S. Generics at Teva Pharmaceuticals and current AAM board chair and senior vice president. “We’re a success story.”  

From 2009 through 2012, the industry’s net revenue grew at an average annual rate of 8% — a rate of growth 1.5 times faster than that of small-molecule originators. But despite the potential for further growth in generics, achieving it has become increasingly challenging for drugmakers.

“I am very worried about the sustainability of the generics industry,” says Baeder.

Since 2019, generics manufacturers have experienced a 3% average yearly reduction in profit margins.4 In addition, the number of FDA-approved or tentatively approved abbreviated new drug applications (ANDAs) dropped from 1,021 in 2018 to 776 in 2021, signaling a shift in the industry’s landscape.

But the threat to low-cost, accessible medication has implications far beyond slim margins and a potential reduction in the number of new generecized molecules. 

A recent report by the U.S. Senate Committee on Homeland Security & Governmental Affairs found that the between 2021 and 2022, new drug shortages increased by nearly 30%, reaching a five-year record high of 295 active drug shortages at the end of 2022.

That same study highlighted that critical generic drugs -— particularly sterile injectable products regularly used in hospitals — are at a greater risk for shortages. 

Increased competition and price erosion, sluggish communication from regulatory agencies, and unfriendly legislation have created a volatile and unsustainable environment for generics.

Securing the future of the industry — and continued health care savings for patients — will require generic drugmakers to tackle issues head-on and advocate for themselves, establishing boundaries and legislation that will safeguard generics evermore.

Once upon a time

In recent years, a number of new players have entered the generics market, leading to increased competition. These include both established pharma companies expanding into generics, as well as smaller, niche players.

“With low barriers to entry, smaller, more agile generic entrants can dent market share and profitability of more established generics players,” says Milan Kalawadia, chief commercial officer, North America Generics at Dr. Reddy’s Laboratories.

“This causes greater commoditization, and coupled with a lower number of small molecule innovator products for genericization in the first place, the oral solids generics space will not be as attractive as in the past,” says Kalawadia. 

Younger companies like Alvogen and Amneal Pharmaceuticals for example, have rapidly expanded their presence in the generics market through a series of acquisitions and partnerships. U.S.-based Alvogen, founded in 2009, has since established a significant global footprint, with operations in more than 30 countries.

Amneal has had a similar journey. Since receiving its first ANDA approval in 2006, the company has grown exponentially through acquisitions like its Impax merger in 2018. After acquiring Impax, Amneal became the fifth largest generic drug manufacturer in the U.S., with a portfolio of over 200 product families and approximately 149 ANDAs filed with the FDA.

Other major acquisitions in the generics space in the last decade include Pfizer’s 2015 Hospira buy, Teva’s acquisition of Actavis’ generics unit in 2016, and Mylan’s acquisition of Swedish pharma company Meda the same year.

“It’s a very competitive marketplace. While we may feel that we’re doing something unique from a product selection standpoint or that we have a unique capability, the reality is that if you look across the competitors that are out there, somebody is doing what we’re doing,” says Kalawadia.

Increased competition also affects pricing. Market pressures can force generic drugmakers to reduce production costs and lower prices. There is often intense price competition among generic manufacturers, thinning their profits in the process.

“If you’re not cost competitive, you will not succeed in a particular product and then hence the long-term viability of an asset may or may not exist,” says Kalawadia.

But walking the line between being cost competitive and ensuring business profitability can mean keeping certain generics on the market is unsustainable.

“What price erosion is too much? How much pricing pressure can the system take before it breaks?” asks Baeder. “And what you’re starting to see is people leaving the market on certain molecules at an accelerated rate, companies having financial problems.”

This has been the case with generic antibiotics, especially those administered parenterally, where high manufacturing costs and low profitability have driven players from the market. This has culminated in years of persistent drug shortages.

Magic beans

Disparities in the incentivization systems in different countries have contributed to a scenario in which the U.S. generics market may be less attractive to drugmakers. 

While the U.S. still has the largest generics market, Asia has the fastest-growing. 

In comparison to some Asian countries, the U.S. has fewer incentives for generic drug manufacturers. Countries like India and China have implemented policies specifically aimed at promoting the production and export of generic drugs, and often provide direct financial support to manufacturers.

One example is the “4+7” centralized procurement policy in China, which was introduced in 2018 to lower drug prices and increase the availability of affordable drugs. Under this policy, the government selects seven groups of drugs for centralized procurement, and the manufacturers who win the bid are guaranteed a certain volume of sales. This provides a strong incentive for generic drug manufacturers to compete on price and quality to win the bids.

In India, the Department of Pharmaceuticals, under the Ministry of Chemicals and Fertilizers, has established a scheme called the “Assistance to Bulk Drug Industry for Common Facility Centre” to provide financial assistance to bulk drug manufacturers to set up common facility centers.

The centers provide shared infrastructure for research and development, testing and quality control, which can help reduce costs for small and medium-sized companies. Also, companies that invest in research and development can claim a deduction of 150% of the actual expenditure incurred on R&D.

The success of these incentives has been reflected in recent years with the rise of large-scale, low-cost manufacturers in both India and China.

India-based pharma companies, including Dr. Reddy’s Laboratories and Lupin, have been expanding their presence in the U.S. market through acquisitions and partnerships.

At the same time, China-based companies such as Zhejiang Huahai Pharmaceuticals and Shanghai Fosun Pharmaceutical Group are increasing their exports of generic drugs to the U.S. and Europe. 

Meanwhile, this lack of incentives for generics manufacturers was reported as a leading cause of drug shortages in the U.S. in a 2019 FDA report on drug shortages and potential solutions.

In the U.S., Baeder points to one policy-based advantage — the initial 180-day exclusivity granted to the first generic drug manufacturer to successfully challenge the patent of a brand-name drug and receive approval from the FDA. The golden egg at the top of the regulatory beanstalk, this exclusivity period rewards the first company out of the gate by preventing other manufacturers from receiving approval for the same drug.

“It’s often misunderstood. It’s often attacked,” says Baeder.

Critics of the exclusivity period allege that it can cause drugs to get stuck waiting on another company’s approval, which ultimately delays patient access to affordable drugs.

Additionally, the U.S. government has implemented programs to encourage the development of generic drugs, such as the Generic Drug User Fee Amendments (GDUFA) program enacted in 2012, which provides funding to the FDA to help expedite the review process for generic drug applications and ensure the drugs are safe and effective.

Industry groups such as AAM have long pushed for additional policy that would incentivize expanded and new investments by generic manufacturers. Most recently, highlighted by the pandemic, the conversation has been geared towards the role of generic players in creating a more resilient U.S. drug supply chain.

Proposed tools to enable viable investments include grants to build or expand generic drug facilities, tax incentives for construction and production, loans, guaranteed price and volume contracts, further incentives in Medicare and Medicaid programs, and increased regulatory efficiencies.

Winning the race

In the generic drug business, slow and steady doesn’t always win the race.

“I think one of the biggest challenges is you need to continue to be quick to the market with products,” says Kalawadia.

The FDA approval process for an ANDA varies and can take a few months to several years. Per GDUFA, the agency aims to review and act on 90% of standard ANDAs within 10 months of receiving the application. Yet, drugmakers contend this isn’t always possible, owing to the complexity of the application and the agency’s workload.

Manufacturers have been urging the FDA to further streamline this process. “We see a lot of value leaking or more accurately, value delay, in the approval cycle,” Baeder adds.

Approval timelines are often delayed for complex generics. To qualify as a complex product, a drug must have complex active ingredients, formulations, routes of delivery or dosage forms. Given this, complex drugs are less likely to have generics, which means the need for complex generics is high.

But according to Baeder, in the U.S., it can take over 50 months for complex generics to come to market.

“Europe does it faster. That doesn’t mean they do it better, but there are for sure some things that we could learn from in how we partner with the FDA to get those therapies across the line quicker,” says Baeder.

In this back and forth, Baeder says, some companies may miss an opportunity to be first to market.

“We’d love to have more of a live partnership with the FDA in how we bring products to market, ‘Hey, we have a scientific question. What’s your point of view?’” says Baeder. 

The good news is that change is already underway. The FDA recently published updates to GDUFA, now known as GDUFA III. The law allows the FDA to collect user fees from generic drug manufacturers in exchange for faster and more predictable reviews of ANDAs.

Under GDUFA III, pre-ANDA meetings have been introduced to provide assistance with regulatory expectations in the early stages of product development and during the application review process. These meetings encompass product development, pre-submission, and mid-review cycle meetings.

 GDUFA III also offers more clarity in facility assessments.

The new updates recognize that a manufacturing facility’s compliance status may be resolved at some point between being issued a Complete Response Letter (CRL) that included facility-inspection related deficiencies and the time of the drugmaker’s CRL response. If resolving the plant’s’ compliance issues also resolves the facility issues pointed out in the CRL, GDUFA III allows drugmakers to request reclassification of facility-based “major” CRL amendments to “minor” amendments, which will speed up the assessment.

“According to the GDUFA metrics for 2023, 21-25 applicants have already requested a reclassification of their facility-based major CRL,” says Martin Shimer, executive director at Lachman Consultant Services with over 20 years of experience at the U.S. FDA.

During his time with the FDA, Shimer was the deputy director of the Division of Legal and Regulatory Support and oversaw the implementation of new statutory requirements and resolved issues regarding ANDAs. 

After an inspection, if the FDA classifies a generic drug facility as official action indicated (OAI) — meaning the facility’s CGMP compliance status is unacceptable — the drugmaker can request a post-warning letter meeting or reinspection. The new GDUFA III commitment letter allows ANDA sponsors to request reinspection up to two times, which Shimer says is also a significant improvement as they no longer must wait for the FDA to schedule it at their discretion.

Poisoned fruit

Although GDUFA amendments have resolved some issues, generics manufacturers are still struggling to navigate other agency requirements. Chief among them is understanding FDA guidelines for nitrosamine impurities.

“That’s certainly an issue in the approval process,” says Shimer. “A nitrosamine-related issue that leads to a missed goal date ends up resulting in a missed opportunity in some cases, maybe even for a first generic type product.”

What at first appeared to be a few contaminated apples in the barrel of valsartan blood-pressure medications in 2018, quickly escalated. Additional nitrosamine impurities and nitroso dimethylamine (NDMA) contaminants were soon detected in other drugs in the sartans class.

Recently, nitrosamine impurities have also been found in diabetes drugs pioglitazone and metformin, as well as ranitidine-containing drugs which are typically used to treat heartburn. As a result, manufacturers have had to enforce rigorous quality control measures, including regular testing of their products for these contaminants.

According to Shimer, there are multiple elements that can cause contamination. While commonly associated with excipients, water, cross contamination, and other causes, they have also been found to be related to the drug substance itself.   

Drug substance nitrosamine contaminations are related to the APIs and can arise from natural product degradation or from the formulation itself.  

To collectively address these concerns, drugmakers are seeking guidance from the FDA on specific acceptable intake limits nitrosamine issues. On the plus side, Shimer says the agency has been quick to respond and provide guidance on many solvent-related nitrosamines.

Currently, the FDA has guidance and acceptable intake limits for the nitrosamine impurities NDMA, nitrosodiethylamine (NDEA), nitroso-N-methyl-4 aminobutyric acid (NMBA), N-nitrosomethylphenylamine (NMPA), N-nitrosoisopropylethylamine (NIPEA) and N-nitrosodiisopropylamine (NDIPA).13

“There are also USP [United States Pharmacopeia] standards for those, so it’s relatively easier for generic applicants to test and quantify the amounts of those particular nitrosamines in their products,” Shimer adds. 

However, most of the present-day challenges are related to nitrosamine drug substance related impurities (NDSRIs). And according to Shimer, the FDA guidance in this area is less clear. The agency’s “Control of Nitrosamine Impurities in Human Drugs” industry guidance does not outline or specify any acceptable intake limits for NDSRIs.

And as companies start to work through their portfolios on both approved products and drugs in development, they are coming across NDSRIs.

“I’ve seen in the regulatory practice from some of the clients that want to go in and they’ve identified an NDSRI in their pending ANDA or NDA, and then they want some level of assistance and/or guidance from the agency with respect to setting the acceptable intake. And for the most part, it’s crickets,” says Shimer.

This is another opportunity in which looking at what other countries are doing could provide some inspiration.

“The EMA and Health Canada have been more transparent and have more information out there. The FDA doesn’t. It’s causing some issues there as well because limits and things like that that are set in other health agencies are not necessarily accepted by FDA,” adds Linda Evans O’Connor, vice president at Lachman Consultants.

The shoe that fits

In order to maintain a sustainable business model and continue to invest in the genericization of new molecules, generic drugmakers must continue to push for policies and incentives that fit the industry.

Many legislators have expressed concern over the high cost of prescription drugs in the U.S., and they see the increased use of generics as a way to reduce costs. In fact, in 2020, Congress passed the Drug Pricing Transparency Act, which aimed to increase transparency in the pricing of generics. The law asks that drug supply chain entities, including manufacturers, pharmacy benefit managers and health plans provide information that elucidates the reasons behind high price hikes and the introduction of expensive new drugs.

“Everybody wants the same thing, more affordable medications quicker to the American public,” says Baeder.

But rightfully so, policymakers are focused on protecting patients; as such, they want to keep drugmakers from engaging in practices that prioritize profits over health. Yet, according to AAM, these policymakers often operate with misconceptions about how the generics industry is different from innovator companies.

Now, Baeder is asking generic drugmakers to focus on educating policymakers on their industry — how it’s different from the branded drug industry and should be treated as such.

“We need to be able to say, ‘This policy is good for generics,’ or, ‘This policy needs a little tweak to make it not harmful to the generic industry,’ and have them be able to understand why that’s important to the generic industry,” says Baeder.

An example of this, Baeder says, is the cost of inflation penalty associated with Medicaid. Now part of the Inflation Reduction Act (IRA), it’s triggered when the increase of the drug price outpaces the rate of inflation. In this case, the manufacturer is penalized if they increase the price of the drug.

The IRA states that drug manufacturers must pay a rebate to the federal government if the prices of certain drugs covered under Medicare Part B and most drugs under Part D rise at a rate that exceeds inflation. The price change threshold will be determined on average sales and average manufacturer price depending on the drug.

If price increases are higher than the inflation rate, then manufacturers will have to pay the difference to Medicare as a rebate. Baeder points out that this can be specifically harmful for generics because when there are genericized drugs that have been on the market for decades and have already low prices — comparable to a dollar per treatment — companies could still be penalized if they increase the price, even if it’s a matter of a few cents.

Policymakers are sympathetic once educated, Baeder adds, “[Their] intention is not to make it so that a drug that’s 40 years old and therefore has a fully eroded price point in the market has to come off the market because I can no longer cover my cost.”

These ‘tweaks,’ although precise, have a broad impact. “Whether it’s carve outs based on the overall impact on the financials, or it’s a difference in the formula of how things are calculated, they can be very meaningful,” says Baeder.

The rallying cry within the industry is to continue to educate everyone on the importance of generics, and to improve the sector’s reputation.

“The reason that’s important is if you take it for granted, you’re not necessarily an advocate for policies that help support the industry because you’re not even thinking about it,” says Baeder.

Happily, ever after

Ultimately, it’s not only access to affordable existing medication that is at stake if generics begin to stagnate.

In 2022 alone, the generics industry saved the U.S. health care system $373 billion. If generics save the health care system money, then that savings can be reinvested into coverage of more expensive new treatments.

“You need generic medications to create the savings, to free up the funds to focus on all the cool new science that hopefully will cure conditions like Alzheimer’s and cancer,” says Baeder.

“I think the industry is at a real tipping point,” Baeder stresses. “I am very worried about the sustainability of the generics industry, and specifically, I’m very concerned about investment in R&D to bring new products to market.”

Even though the word ‘innovation’ is normally excluded from generics’ mission, many generic drugmakers have moved away from simply making copycat versions of branded drugs. One way generic drugmakers have begun to increase the value of their drugs is by incorporating more user-friendly drug delivery systems, such as pre-filled syringes, than the delivery methods used in the originator drug.

Innovation for generic drug manufacturers ultimately means finding new ways to create value for patients and health care providers, while also ensuring that products are as safe and effective as the branded versions. At its core, innovation for generics also means having the capital to identify new molecules that have not yet been genericized.

In the midst of news announcing layoffs and company dissolutions that can paint a grim picture of the pharma industry, Baeder is urging drugmakers to continue working on improving the reputation and value proposition of generics.

“Fundamentally, all industries compete for money and for investment, and you don’t want to get to the place where you’re the most unattractive investment in the room.

About the Author

Andrea Corona | Senior Editor

Andrea Corona serves as the Senior Editor of Pharma Manufacturing — a leading source of news and insights for pharma professionals — and is responsible for creation of editorial content, moderating webinars, and co-hosting the "Off script" podcast. Her editorial journey started as an as associate editor at Biocompare, an online platform providing product information, industry news, articles, and other resources to support scientists in their work. Before Biocompare, she was a digital producer at Science Friday, focusing on adapting radio segments for the web and social media management. Andrea earned her bachelor's degree in journalism and biology from the State University of New York, at Purchase College.