Generic Drugs: Discounted cost, Discounted ethics?

I have been frequently asked why generic drugs are cheaper than brand name drugs. Are they cheaper because they’re of “cheaper” quality or do not work as well? The answer is no (in theory at least). In spite of many people who will swear that generics don’t work as well as their brand name counterparts, generics are cheaper in cost because they required less financial investment for the company that makes them. How is that?

I want to address this question because it raises some interesting ethical issues that have come to light in the press recently and promise to continue…but I’ll get to those later. First, let’s look at why generics are cheaper in cost. To do that, we have to understand a little bit about how drugs are developed.

When a company wants to sell a drug in the US, they need the approval of the Food and Drug Administration (FDA). The company must file an application to the FDA that proves that the drug is 1) safe, and 2) effective. This is referred to as the drug’s Safety and Efficacy profile. In order to get the data to prove this, the company had to go through 6 major hurdles:

1) Identify a chemical or molecule with the desired effect. This involves a lot of screening through candidates to find the one or several that look promising. This is the research phase of R&D.

2) Show that the chemical or molecule (I’m just going to call it a drug from now on) can be manufactured in large enough amounts to not only test it in drug trials, but also be able to sell it. This is often referred to as the commercialization phase of the development portion of R&D.

3) Show that the drug is likely to be safe in humans. This involves testing it in animals. It must be shown to be safe in an animal (usually several species of animal) before it can be allowed to be given to a human. This and the next step belong to the Non-clinical phase of drug development.

4) Show that the drug is likely to be efficacious (i.e., beneficial) in humans. Again, this involves animal testing.

5) Show that the drug IS safe in humans. This is the Clinical phase of the drug testing. This starts by giving the drug to healthy people and measuring the results to make sure no damage is done.

6) Show that the drug IS efficacious in humans. This is when the drug is given to patients who have whatever the condition is the drug is trying to help. This can involve testing the drug in thousands of people to make sure enough data is gathered to know if the drug works.

If all of these steps are successful, the company can put all the data together and send it to the FDA to prove that the drug should be approved for sale. Going through the 6 steps above can often take 15 to 20 years to complete and cost greater than $1 billion (yes, that’s with a “b”) dollars. That’s a lot of time and money. To make it worse for the company involved, over 80% of drug candidates fail to make it all the way through all 6 steps and get approved. So in short, it costs lots of money to look for and develop new drugs.

So when a drug does make it all the way through, the company sells it at a high price to recoup their investment costs and make a profit to keep the company going and fund future research to find the next new drug. The company can be helped in keeping it’s price high if they can get a patent on their new drug. If their drug is awarded a patent, the company is given exclusivity for selling it, usually for 17 years from the time the patent is granted. This means no one else is allowed to sell that drug until the patent expires. (Hint: this leads to the first ethical dilemma that I’ll get to in a moment).

So why are generic drugs a lot cheaper? They are a lot cheaper, because when a company applies to the FDA for approval to sell the drug, a lot of the hurdles that the FDA puts in place have already been cleared by the company that made the original brand name drug. In fact, even the name of the application sounds easier. The brand name drug maker had to file what’s known as a New Drug Application (NDA) to the FDA to get approval. The generic drug maker files what’s known as an Abbreviated New Drug Application (ANDA). As you can guess, the “abbreviated” NDA is quite simpler. The generic drug maker doesn’t have to start from scratch and toil through laboratory, animal, and human screens to find a winner. The winning drug candidate has already been chosen for them. They don’t have to redo all the lab testing that the original company did. Instead, they just have to prove that their generic drug is identical to the brand name drug. This is known as bioequivalence, namely that the generic drug has the same chemistry and biology that the brand name drug has with identical effects on the human body.

In other words, the generic drug is physically and behaviorally identical to the brand name. (Hint: this leads to the second ethical dilemma that I’ll address). This is still quite a lot of work to prove bioequivalence, but nowhere near what the research and development costs of the original brand name were. So because it was a lot cheaper to develop, the company can charge less for it. Also, because they had to prove bioequivalence, the generic drug is (hopefully) just as good as the brand name.

OK, so what are the ethical dilemmas I’m interested in that have resulted from this scenario?

The first involves the issue of granting patent exclusivity to a company that makes a new drug or method of using the drug. This legal protection is a huge incentive for a drug company. Knowing that they will have this exclusivity is what allows them to take the huge risks of research and development to find new drugs. Without this protection, a company could spend billions of dollars in developing a drug and as soon as it gets approved, another company could start selling the same drug at no prior development cost of their own. If you were the original company, you’d probably think twice before developing another new drug any time soon.

So patent protection is a very good thing to motivate companies to invest in the future and create new drugs and medicines. However, as you may have been hearing about in the news recently (OK, probably not if you’re watching CNN or your local evening news), generic drug companies in countries with large amounts of people living in poverty want to ignore these patents. They’re claim is that getting cheaper drugs now to poor people who otherwise cannot afford them outweighs the legal issue of patent infringement and they should not have to wait until the patents expire. This issue has come up several times in the recent past in several Asian countries such as India and Thailand. So is this a bad thing?

I wholeheartedly believe in getting drugs to the people who need them, especially the poor, but I have several problems with this. First, ignoring patents can greatly damage the business incentive to develop new and better drugs. Second, allowing companies to create generic drugs in violation of patent law is likely leading down a path where legal regulations can be too easily dismissed. This can lead to the dangerous situation in which the drugs are being massed produced with the focus on low cost rather than quality manufacturing with regulatory and legal oversight. Even if the “ethical” generic drug manufacturer who ignores the patent protection for the sake of the poor maintains good quality, they have opened the door for counterfeit manufacturers to get into the action. This may too easily lead to less potent, or worse, tainted or contaminated generic drugs.

If you think this problem would be restricted to the poor countries, think again. I would guarantee that as soon as cheap generic drugs became available in poor countries while only the brand name drugs (because of patent protection) are available in the wealthier countries, a black market distribution would be set up almost overnight by some unscrupulous distributors.
So my worry is that while the idea of breaking the legal patent rules for the sake of the poor may be idealistic, breaking patent laws under the guise of a Robin Hood hero may do a lot more than rob from the rich and give to the poor. It could very well lead to hurting both drug companies and patients. In fact, they could be giving a double negative whammy to patients. In the short term, patients may suffer from “cheap” generic drugs of poor quality that could jeopardize their health. In the long term, patients may suffer from the lack of new, better drugs because companies weren’t willing to take the investment risk.

But before you decide that I’m totally in defense of the brand name drug companies, let me now talk about the second ethical dilemma. Let’s assume now that a generic drug company respects the patent laws and waits it out for a patent to expire on a brand name drug. Now that the patent has expired, the company can get approval to sell the generic drug. Remember, to do so, it must prove to the FDA their generic drug is bioequivalent to the brand name drug. Well now is when the maker of the brand name drug can start playing some “is it ethical” games.

One game they can play is to strike a deal with the generic drug maker. Basically, they can make a deal that the generic drug maker will not make a generic drug to compete with their brand name drug in return for whatever favors can be negotiated. This may be cash payments or partnerships on other drugs.

Is that unethical?…probably not, but it’s not exactly great from a patient standpoint. However, there is another thing the brand name company can do that is even more controversial (I think). The brand name company can file a patent infringement lawsuit against the generic drug maker. A government statute known as the Hatch-Waxman Act stipulates that such a lawsuit delays any FDA approval of the generic drug for 30 months or until a court rules in favor of the generic drug maker (unlikely to happen quickly). This gives the brand name drug company extra time to sell their drug at full price. For brand name drugs, some bringing in greater than $1 billion dollars a year in revenue if it’s a real blockbuster, this can be some serious cash!

The Hatch-Waxman Act is definitely not bad or itself unethical. In fact, it has been a terrific law for getting generic drugs approved while providing a nice protection to make sure patents are not infringed upon. But what the brand name drug company does during those 30 months could get a little sketchy. A brand name company may use those 30 months to change the nature of their approved drug. Maybe change the dosing, change a tablet to a capsule, etc. Now what happens? The brand name drug company can try to get their patent extended if their new formulation or drug activity can be shown to be superior to the original version.

Now don’t get me wrong. If the new version is truly better, than the patent extension is deserved. What’s not so clear cut is when the change is slightly (or arguably not) better. Does an incremental increase deserve patent protection and therefore protected high drug costs versus the benefit a patient population may get from having lower costing generic versions? Or think about this one… remember the concept of bioequivalence? The generic drug maker had to show their drug was identical to the brand name drug. However, they may have just had the target moved on them while they were in legal limbo. The brand name drug is now in a new format, different from what they were trying to compare with and be identical to. The brand name drug maker may try to claim that their new improved drug is no longer bioequivalent to the generic drug trying to get approval.

Improving a drug is a wonderful endeavor and should be pursued. What is less wonderful is if the brand name drug company improves it’s drug but waits to apply for approval of the improved version and subsequently the patent extension only at the last moment of patent life, trying to maximize the full amount of total patent protection. That may be good business and profit protection, but it can be terrible for the financial burdens on patients and health care payors.

So you can see the ethical issues I raise center on the same general issue: At what point is the financial burden on the patient more important than the patent protection of the high cost drug? Unfortunately, like most major problems facing the world today, the answer is neither simple nor clear.