Changing Fortunes in the Generics Wars

Times may be a-changing for generics companies. Last month, Ivax won FDA approval for its generic version of Bristol-Myers Squibb's blockbuster cancer therapy Taxol.

Times may be a-changing for generics companies. Last month, Ivax Corp. won FDA approval for its generic version of Bristol-Myers Squibb Co. 's blockbuster cancer therapy Taxol (paclitaxel). The decision, which comes after months of legal wrangling, gives Ivax six months exclusive access to a $1.7 billion drug and is expected to hit BMS's sales as early as the fourth quarter of this year, slashing Taxol revenues by as much as a half.

"The decision came as a bit of a surprise," says Corey Davis, an analyst at Hambrecht & Quist. "Three months ago, it looked like BMS could hang on." BMS had indeed hung on pretty well to unchallenged sales of its second best-selling drug since 1997, using a cocktail of new indications, improved dosages, and delivery patents to stave off generics. With $35 billion worth of their drugs due to lose exclusivity over the next few years, many other branded companies have invested in similar defensive tactics, often succeeding in delaying generic competition long enough for the impact to be minimal. One other recent, high-profile exception, however, is Eli Lilly & Co. 's Prozac,which lost two years of patent life following an equally unexpected ruling in August allowing Barr Laboratories Inc. to sell a generic as early as next February.

Ivax hasn't exactly had an easy ride. It won a court decision in March over the validity of parts of the Taxolpatent, and had tentative approval to launch the drug in August. But with $80 million per month at stake, that was unlikely to be the end of the story. In steps American BioScience Inc. , a little-known Californian company, which announced that on August 1 it was granted a patent on a range of single-unit dosage forms of paclitaxel. Although BMS had effectively recognized this patent by buying an option to take a non-exclusive license to it, ABI had to sue the company to get it to list the patent in the Orange Book, which it eventually did, on August 11.

BMS didn't mind, though. The actions brought it another 30 months' exclusivity on Taxol—the FDA's policy being to delay generic approvals while legal fights are settled. As Ivax lost a third of its value in one day, it looked as if branded pharma's well-oiled delaying tactics were working again.

But then the courts changed their mind, and decided the ABI patent was not valid. What's more, the FTC launched a probe into BMS and ABI's "anti-competitive behavior"—just as it did in the Lilly deal and others, such as Andrx Corp. 's cash settlement with Aventis SA over its generic version of diltiazem (Cardizem CD) (see "Andrx's New-Style Generics," IN VIVO, September 2000 . New proposed legislation aims to stop pharmaceutical companies exploiting loopholes in the Waxman-Hatch Act and balance the field in the patent battles. It advocates banning cash settlements between generics and branded companies and defining more clearly when the 180-day marketing exclusivity period begins, and what the qualifying criteria are.

"This marks a wind of change for generics companies," says Ian Sanderson, an analyst at SG Cowen & Co., who had expected Taxolto stay protected until 2002 (but has now cut 2002 sales estimates of the drug from $2 billion to $750 million).

It looks like the markets have felt change in the air, too. Generic stocks have increased by an average of 98.4% since the beginning of the year (see table), fueled also by political pressure on drug spending. Ivax has climbed 108% over that period despite the glitch. Barr Laboratories is up 149% and Andrx is up 166%.

Others are reluctant to draw trends, however, pointing out that the Lilly and BMS cases were both distinctive, each dealing with a patent type which had never previously been challenged. "This is not a sea-change from the FDA and the courts," insists Davis. "Drug [companies] will win a few, and generics will win a few."

It may indeed be too early to put up a score. BMS is appealing both the ABI patent rejection, and the decision granting Ivax access to a 3-hour infusion formulation of paclitaxel. The chances of success aren't great but Davis expects BMS will "pull a legal rabbit out of the hat." If it doesn't, BMS will have to fall back on its last lines of defense: brand loyalty (which is strong), claims that the generic is "not identical," and raw material supply limitations. Generic paclitaxel (unlike Taxol, which is semi-synthetic) is a natural compound isolated from the bark of the Pacific yew tree. Quantities in the bark are low, and it is difficult to extract. Sanderson reckons this may limit to 50% the share of the market generics can supply, even after Mylan Laboratories Inc. , Watson Pharmaceuticals Inc. , and Boehringer Ingelheim GMBH 's Ben Venue Laboratories join the show—all three are waiting in the stalls to push prices down further once Ivax's exclusivity period expires.

BMS's best defense is to find a better treatment. The company will file a patent on a new dosage of oral taxanes (chemically related to paclitaxel) at the end of next year, and has also been quick to announce a research alliance with Roche to create a more effective breast cancer drug through blending Herceptin and Taxol. Research suggests such a combination may be three times as effective as Taxol alone. Both moves come too late to deflect the blow, though.

So it looks like BMS may have lost this battle. "They were a bit too confident in their legal position," says Sanderson, adding that BMS could have instead worked harder on new dosage forms for Taxol. But with billions of dollars at stake and ever expanding legal ammunition on both sides, it is far from clear who is winning the war.