Bill Wuller remembers watching with amazement when the drug Versed came off patent on June 20, 2000, and its price plummeted like a falling safe.
Manufactured by Roche since 1985, Versed is widely used in hospitals as a sedative to ease surgical patients into anesthesia--and help them forget about it later--and to bring on "twilight sleep" to ventilated patients in the intensive-care unit. With some nine different companies jumping on board with generic versions of midazolam hydrochloride, Wuller, director of pharmacy at 289-bed St. Elizabeth's Hospital, Belleville, Ill., checked the price almost daily until it bottomed out at about 10% of its original cost. In less than three months, he says, what was his second- or third-greatest pharmaceutical expense just became another inconspicuous drug in the hospital's medicine chest.
Although Wuller is reluctant to share exact pricing information, thousands of dollars of savings on Versed was lopped off of St. Elizabeth's expense sheet, he says.
"I remember I kept wondering," Wuller says, "if it can be this cheap this quick, how could it have been so expensive for so long?"
That question raises another: If the savings gleaned from the entry of a generic form of a highly used hospital pharmaceutical goes right into a hospital's pocket, why are hospitals for the most part watching the ongoing drug wars between brand-name and generic pharmaceutical companies from the bench?
"We've had products where over the course of several months, because there are a number of manufacturers, we will get to the point where we are saving almost as much as we spent on the previous year on the product," says Joel Nitti, director of pharmacy services for Consorta Catholic Resource Partners, Rolling Meadows, Ill.
Nitti says members of the group purchasing organization, including St. Elizabeth and approximately 350 other hospitals, spent $16 million annually on Versed in 1999. On an annual basis, they are now spending only $2 million for the generic version--an 88% discount.
A 2-millimeter vial of brand-name Versed that once sold for $4.58 is now selling for 49 cents as a generic product, says William Larkin Jr., senior vice president of pharmacy services for the Greater New York Hospital Association. The trade group's purchasing arm markets the Premier Group Purchasing Services portfolio to hospitals. Larkin says he knows of one multihospital system in New York that went from spending $500,000 per year on Versed to $50,000 per year on the generic version.
"That's a great example of what happens when the system works correctly," Larkin says.
An imperfect world
When the system doesn't work correctly, the opposite holds true. Generics, for a variety of reasons, don't come to market, the price stays high and pharmaceutical company shareholders reap extra weeks or months of high-margin profits--at the expense of consumers, including hospitals. Sometimes patent challenges in the courts forestall the free-market free fall in price. Other times, brand-name and generic drugmakers allegedly strike backroom arrangements in which for a settlement or fee, the generic agrees to bide its time while the brand name basks in precious added months of exclusivity. It's a matter of debate as to whether such deals are legal.
"The whole idea is (for generic and brand-name companies) to get together and decide to settle the case," says Mark Grayson, a spokesman for the Pharmaceutical Research and Manufacturers of America, which represents innovator drug companies. "It could be a perfectly legitimate way of doing business."
Although most everyone agrees that brand-name pharmaceuticals deserve some prescribed time of monopolistic glory as a reward for the research and development efforts that first brought the innovative drug to market, impatience with the process is building. Legal skirmishes are flaring as pharmaceutical companies on both sides of the issue check their watches and call competitors on the legal carpet for unfairly speeding up or slowing down the respective clocks on their patents. Consumer groups also are jumping into the fray, even though most individual patients will have to wait until the generic price cuts trickle down into their health insurance premiums or drug benefit copayments.
As consumers of prescription drugs, hospitals represent a minority interest, which is why they may seem to be an afterthought on the issue. Plymouth Meeting, Pa.-based IMS Health reports that sales to providers--including hospitals, clinics, long-term-care facilities, HMOs and institutions such as prisons--totaled $36.7 billion, or one-fourth, of the $146 billion spent primarily on prescriptions in 2000.
But to give an idea of the potential for savings on a national scale, in terms of number of prescriptions written, generics and brand-name drugs commanded an equal market share in 2000--48.6%, according to IMS Health. Meanwhile, generics grabbed only 15.2% of the sales--$24 billion spent on generics vs. the $124 billion spent on brand-name drugs.
By sheer number, generic drugs dwarf brand-name pharmaceuticals, according to Food and Drug Administration estimates. Through March 20001, the FDA's Orange Book listed a total of 10,372 active drugs--2,696 of which were single-source products, which is generally an indication of a brand-name drug without generic competition. A total of 7,566 were multiple-source drugs. There is an average of six generics for every brand drug, the FDA says.
The stakes are high for hospitals, for which drug savings go right to the bottom line. But for all the potential, hospitals and their group purchasing organizations have done little but sit back and anticipate the arrival of the cheaper drugs to market so that they can adjust their budgets accordingly. For most users, the legal wrangling just gets too complex and confusing to follow on a daily basis, Larkin says.
Deborah Wible, corporate director of pharmacy services for Continuum Health Partners, New York, confesses that she starts paying attention only after the hype dies down and the cheaper generics hit the market. To give an idea of the price break generics offer, Continuum's four hospital partners spend about $45 million on pharmaceuticals yearly, Wible says. She estimates that about two-thirds of that budget is spent on brand products, even though by number, the majority of drugs purchased are generics.
But if hospitals are noticeably missing from the legal front, consumer groups are making up for it. The Boston-based Prescription Access Litigation Project, a coalition of more than 50 organizations, has filed three class-action suits against pharmaceutical companies marketing both brand-name and generic drugs, charging that collusion and illegal tactics have kept lower-price generics off the market. Even the Federal Trade Commission has gotten involved by filing three complaints of its own against six different drug companies for allegedly striking deals that effectively stopped lower-price generics from coming to market. Two of those complaints have since been settled with the companies agreeing to change their behavior.
The FTC also has acknowledged other ongoing investigations, including those of American BioScience, Santa Monica, Calif., and Bristol-Myers Squibb, New York, the maker of the breast-cancer war horse, Taxol. And last October, the FTC launched a wider investigation that is focused on whether brand-name and generic drug manufacturers have entered agreements or strategies to delay competition.
At issue, Larkin says, is abuse of a provision in the Hatch-Waxman Act of 1984. "First-filed" generic companies that have successfully snatched up 180 days of exclusivity might "get in cahoots with a brand to stall the introduction of a drug," Larkin says. That then stalls everyone else, including hospitals.
Hatch-Waxman marked a sincere effort to balance the interests of innovative drug companies spending millions on research and development and the public interest in low-cost generic drugs, says Gerald F. Meyer, former deputy director of the FDA's Center for Drug Evaluation and Research and now an independent consultant. As an incentive to generic drug companies to hit the market as speedily as possible, the bill offers 180 days of exclusivity to the first generic drug to challenge a patent.
"That's a nice incentive because if you didn't have it and 10 companies were applying for the same drug approval, there would be no profit left for anybody," Larkin says. "The abuse has been when a company does put in an application and then they take the easy road and rather than develop it and bring it to market, they just make a deal (with a brand-name manufacturer), which makes their shareholders happy, but the public doesn't benefit."
(In the case of Versed, in the absence of any challenges before its patent expired, a bevy of generics were able to hit the field simultaneously, says Crystal Rice, an FDA spokeswoman.)
The first generic hitting the market typically discounts the brand name's price by less than 40% while enjoying nearly a 40% share of total units sold, according to the Washington-based Generic Pharmaceutical Association, citing a University of Minnesota study. After three years of free-market competition, the generics' share of prescriptions written betters 70%, while the price can be as little as 30% of the brand-name drug.
The Greater New York Hospital Association is getting behind legislation sponsored by Sens. John McCain (R-Ariz.) and Charles Schumer (D-N.Y.) that aims to close that and other loopholes in Hatch-Waxman. One of the provisions will give the 180-day exclusivity to the next-filed generic applicant if the first-filed fails to go to market even after it's approved.
Meanwhile, all of the legal wrangling and court battles must come with a price, although no one seems to have tracked the exact costs. William Nixon, president and chief executive officer of the GPhA, notes research and development costs are blessedly low for generics, allowing the drugs to be priced low. But the savings threaten to be gobbled up by legal fees. The industry as a whole spends "hundreds of millions" annually to fight the legal battles against what it calls "pop-up patents," he says.
"Predictability. Predictability. Predictability," Nixon says. "All the generics want to know is that on this day of this year we can launch our product and build a business model based on that fact. It's guerrilla warfare. They don't know where it's going to come from--which tree in the brush--and how it is going to fire, so they have to have adequate legal preparation for what is a constant source of frustration."
The Taxol example
A close look at the development, marketing and subsequent litigation surrounding the drug Taxol, an injectable chemotherapy treatment that is administered only in a clinic or hospital, helps define the battle lines and the impact on hospitals.
From late 1992 until last year, Bristol-Myers Squibb held the exclusive patent on Taxol, generically called paclitaxel, the largest selling anticancer drug in the world. Worldwide sales have climbed from $161.6 million in 1993 to $1.6 billion in 2000.
With the entry last October of generic competitor Onxol, manufactured by Ivax Corp., Miami, Bristol-Myers' market share is waning. Worldwide sales for the first six months of 2001 were $655 million, according to Bristol-Myers, which on an annualized basis falls about $290 million short of the $1.6 billion high.
Meanwhile, despite initial supply problems, Ivax reports sales of $127 million of its identical version for the first six months of this year. Although suppliers and purchasers typically closely guard drug pricing, a year's treatment of paclitaxel under the brand name would cost $10,000, according to Neil Flanzraich, vice chairman and president of Ivax. Though it enjoys a period of exclusivity, Ivax has been discounting its generic version 20%, Flanzraich says.
Questions have swirled around Bristol-Myers' exclusive right to the drug almost since the compound was isolated from the bark of a pacific yew tree in 1967 by Monroe Wall and Mansukh Wani of the Research Triangle Institute, Research Triangle Park, N.C. The research was funded by the National Cancer Institute as part of an ambitious program that was started in 1958 to screen 35,000 plant species for anticancer properties. By 1970, the scientists had unraveled paclitaxel's complex structure.
But Wall and Wani's research hit a dead end because of supply and ecological concerns, despite a 1989 clinical study with heartening results in the disheartening battle against advanced ovarian cancer. The endangered spotted owl resided in the old growth forests where the yew tree grew. Hoping to solve the supply problem, the NCI put out a bid for pharmaceutical companies wishing to partner with the government to commercialize it.
In 1991, Bristol-Myers signed a commercial development and research agreement with the NCI, winning the contract over three other bidders. In late 1992, the FDA approved Taxol as a treatment for advanced ovarian cancer. Bristol-Myers resolved the supply problems well enough to ensure that every patient who needed Taxol would get it.
By 1995, the FDA cleared for marketing a semi-synthetic form of paclitaxel developed by researchers at the University of Florida, who used needles from a European yew variety in plentiful and renewable supply. In the ensuing years, the FDA approved the drug for a slew of indications, including breast cancer, lung cancer and AIDS-related Kaposi's sarcoma. In total, Bristol-Myers invested approximately $1 billion to support more than 1,000 clinical studies of Taxol since 1986, says Patrick Donohue, a Bristol-Myers' spokesman.
Ivax, which considers generic paclitaxel its biggest product, traces its legal battles with Bristol-Myers to 1997 when it challenged several patents relating to the dosing regimen, Flanzraich says. He maintains many of the patents were bogus, just a way of keeping competition at bay. Those patent disputes were resolved in March 2000 and Ivax was expecting approval by August, Flanzraich says, when much to Ivax's dismay, another patent on Taxol surprisingly appeared in the FDA's Orange Book. The mere appearance of the patent listing threatened to delay Ivax's approval by as much as 30 months.
A small company called American BioScience listed the patent. Claiming it was another ruse by Bristol-Myers, which had struck a deal with American BioScience, Ivax launched another round of lawsuits in six different jurisdictions in August 2000. By September, Ivax's drug was approved and given the coveted 180 days of exclusivity.
Calling Taxol the "gold standard" for many cancers, Bristol-Myers Squibb declined to comment on its legal battles.
"The litigation is behind us at this stage. Ivax has generic paclitaxel on the market, and we've maintained a significant market share competing with our Taxol," Donohue says. "I can only say the company is committed to vigorously defending its intellectual property across the board, including Taxol, and that is our commitment to our shareholders and customers. The company acted in the best interest of its shareholders and customers regarding the legal issue concerning Taxol."
Flanzraich says Ivax has spent more than generic companies usually spend on research--more than $10 million. An almost equal amount was spent on litigation, although he says he cannot give precise figures. The company is suing Bristol-Myers for damages in Florida and New Jersey, he says.
Pursuing the savings
With the legal battles behind it, Ivax began shipping its product in October. The company announced in late May that it received FDA approval for an additional source of raw material for its paclitaxel product, resolving all the supply problems. Citing the competitive aspects of the business, the company declines to discuss its suppliers.
Although Ivax's exclusivity on generic paclitaxel expired in April, no new competitors entered the scene until late July: Mylan Laboratories, Pittsburgh, and Bedford Laboratories, a unit of Germany's Boehringer Ingelheim International. But other generics are widely acknowledged to be waiting in the wings. Flanzraich says Bristol-Myers still is hanging on to a 70% market share, giving Ivax and its army of generic competitors plenty of room for growth.
Flanzraich says Ivax has contracts with group purchasing organizations serving 70% of the provider market, 40% of which are hospitals.
At least four of those hospitals are part of Continuum. Wible says the New York partners have been purchasing Ivax's generic product since June, a 14% cost savings.
Nitti of Consorta says the group purchasing organization never had a contract with Bristol-Myers for Taxol. Citing confidentiality, he declined to say why. However, he fully expects to have a contract shortly with one of the companies manufacturing generic paclitaxel, he says.
"We expect between a 15% and 30% savings," Nitti says.
Usually, St. Louis-based AmeriNet will negotiate a contract with a generic within a week of its approval, says Allen Dunehew, vice president of pharmacy. Typically they are sole-source agreements that guarantee the lowest pricing possible. Because of the supply problems, there was a delay in sealing a contract with Ivax until last month, Dunehew says.
Similarly, Ivax announced earlier this month that it has entered a multiyear agreement with Irving, Texas-based Novation, which purchases for more than 2,300 healthcare organizations. Shipments will begin in September. Citing the timing of the announcement of all its pharmacy contracts earlier this month, Novation declined to comment.
With Wall in his 80s and Wani in his 70s, both Taxol researchers are still working away in their Research Triangle Institute laboratories, scouring the natural world for potential sources for drugs, says Reid Maness, its public affairs director. Neither researcher ever made a penny from Taxol, nor did the not-for-profit RTI, which has been only a spectator in the patent wars.
"We watch it with interest because we're in this kind of research to find things that help people," Maness says. "We were glad to see wide distribution, and we were also glad to see Bristol-Myers Squibb step up and make the investment in the first place and make it available. This doesn't improve anybody's health until it's on the market."