Date: 14 February 2011     

Source: Reuters                                                            

Link: http://www.reuters.com/article/2011/02/14/usa-budget-healthcare-idUSN1430012220110214

Big pharmaceutical companies could face increased competition from generic drugmakers under two proposals put  forth by the Obama administration on Monday despite earlier savings extracted from drugmakers as part of last year`s healthcare law.

President Barack Obama, as part of his 2012 budget proposal, called for cutting the number of years drugmakers could exclusively market brandname biologic drugs to 7 years from 12.

He also set his sights on ending controversial "pay-for-delay" deals that affect traditional, chemical drugs by giving the U.S. Federal Trade Commission power to block them. Under such pacts, brandname and 
generic drugmakers settle patent challenges with payoffs that delay lower-cost rivals from reaching the market.

The proposals face a tough challenge of getting through the divided Congress, but could alter the landscape for consumers` access to cheaper medicines.

They quickly drew industry protests.

While branded and generic drugmakers are divided over the biologics issue, "both the brand and generic drug industries will fight tooth and nail to preserve pay-to-delay settlements which provide substantial benefit to the industry," Bernstein analyst Aaron "Ronny" Gal said in a research note.

Still, they are unlikely to deliver a huge overall blow to the $890 billion global drug industry in which companies such as Pfizer Inc (PFE.N: Quote, Profile, Research, Stock Buzz) and Merck & Co Inc 
(MRK.N: Quote, Profile, Research, Stock Buzz) can see at least $1 billion a year in revenue from just one blockbuster medicine.
The Obama administration is turning to drugmakers to help squeeze out some savings to help reduce the deficit and cover other health initiatives such as the implementation of the health law passed last March that included about $80 billion in savings negotiated with brand name companies.

U.S. Health Secretary Kathleen Sebelus was unapologetic about the extra savings from industry, and saying the administration wants the best outcomes for patients. "This is a move in that direction," she told reporters.

The two proposals aimed at getting cheaper, generic medicines to the U.S. market would together save about $11 billion over 10 years.

The proposal impacting brandname biologics is a more dramatic version of a similar provision included in the health law in which brandname drugmakers won 12 years of exclusive sales under an new U.S. Food and 
Drug Administration approval process to allow generic versions of biologics.

Such medicines treat conditions ranging from cancer to arthritis and are made from proteins, which can make them more complex to manufacture and more costly.

Generic drugmakers had fought for a shorter period of exclusivity, and on Monday the administration said 12-years of protection harms consumer access to much needed drugs.

Its 7-year proposal "strikes a balance between promoting affordable access to medication while at the same time encouraging innovation to develop needed therapies," the White House said in budget documents.

The measure would start to see savings of $80 million starting in 2015 and altogether could save $2.3 billion from 2012 to 2021, it estimated.

The "pay-for-delay" plan would save $540 million starting in fiscal 2012 and nearly $8.8 billion through 2021, it added.

In a statement, branded industry group the Pharmaceutical Research and Manufacturers of America said both measures would discourage industry investment into research and development and could stifle new medicines.

The Biotechnology Industry Organization said reducing exclusivity to 7 years would prevent biotech firms from recouping their investments. Meanwhile, the Generic Pharmaceutical Association applauded the 7-year 
biogeneric plan but called Obama`s move on "pay for delay" misguided.

The patent plan was likely weighing on shares on Monday for some generic drugmakers that benefit more from the "pay for delay" payouts, said Bernstein`s Gal.

Shares of such as Watson Pharmaceuticals (WPI.N: Quote, Profile, Research, Stock Buzz) were down 1.6 percent in afternoon trading while Mylan (MYL.O: Quote, Profile, Research, Stock Buzz) was up 0.2 
percent. Others such as Teva Pharmaceutical Industries (TEVA.TA: Quote, Profile,Research, Stock Buzz) and Hospira (HSP.N: Quote, Profile, Research, Stock Buzz) are less exposed, said Gal, adding that savings from ending the deals may be even larger.

Obama`s budget also renewed the call for generic drugmakers to pay fees for the FDA to review new generic medicines.

Other proposed fees would cover FDA reinspections of drug and device companies after manufacturing problems are uncovered. Hospitals and others participating in an outpatient drug pricing program known as 
340B are also targeted.

Additionally, the administration calls for food safety industry fees starting in 2013 and pledged to work with Congress to enact them.

Keywords: Pharmaceutical / Medicines / Obama / Budget