Generic drug makers boost R&D spending

Drug Store News, June 21, 2004 by Michelle L. Kirsche

NEW YORK -- Strong generic growth trends show increased market penetration, with drug makers effectively positioning generics at the forefront of a changing pharmaceutical landscape fueled by importation and Medicare reform. And in a perfect trifecta, the nation's top three generic drug makers generated record profits in the first quarter, significant increases in research and development spending and increases in generic over branded sales.

Senior executives at all three companies discussed their firms' strong growth and future prospects at a Credit Suisse First Boston Specialty Pharmaceuticals/Generics conference last month. Underscoring those prospects: big investments by the three drug makers in R&D to keep the me-too drug pipeline humming.

Ranked by IMS Health as the No. 1 manufacturer of generic prescriptions, Teva Pharmaceuticals USA reported for the first time in the company's history that quarterly sales exceeded $1 billion, up 40 percent over first quarter 2003. Excluding one-time charges for the acquisition of Sicor, a multinational company specializing in generic biopharmaceuticals, Teva posted a net income of $205 million, up 49 percent over the year-ago period.

In addition to sales of Sicor products, Teva benefited in part from sales of 14 new drugs. It also boasts a pipeline that as of the end of the first quarter contained 109 product applications, including Sicor applications, awaiting final approval by the US. Food and Drug Administration. Collectively, Teva reported its generic products in development have annual U.S. branded sales of more than $67 billion and include 18 potential first-to-file abbreviated new drug applications for branded drugs worth $15 billion.

Neil Flanzraich, vice chairman and president of Ivax Corp., the No. 2 ranked generic drug maker, reported during the conference that Ivax doubled its manufacturing capacity in 2003 to keep up with demand for generic drugs. The company has 43 ANDAs pending, including eight potential first-to-file drugs with $10 billion in related brand sales.

The company spent 58 percent more in the first quarter of this year versus the same quarter last year on research and development, but did not break down that percentage between branded and generic drugs.

Watson Pharmaceuticals, ranked the third-largest generic drug maker, splits its product portfolio 50/50 between branded and generic drugs. With the even split, first quarter results showed that its brand division revenue decreased from $183.8 million in 2003 to $169.4 million in 2004, while its generics revenue increased 57 percent, to $225 million from $143.2 million.

Watson president and chief operating officer Joseph Papa, also presenting at the CSFB conference, said Watson is moving its generics portfolio toward exclusive generic opportunities that present a more attractive pricing environment. He also noted that Watson's oxycodone and acetaminophen tablets, the generic equivalent to Endo Pharmaceuticals' Percocet, which Watson launched in October, are a strong indicator of "how quickly generics penetrate the markets in which they compete."

According to Papa, the market for oxycodone/APAP is 82 percent generic, and Watson's version to date has achieved 41 percent of generics sales.

Also aligned with the upswing in research and development spending, Watson increased its portion 32 percent, to $30 million, in a show of strength behind its generic pipeline. Watson had 25 ANDAs on file with the FDA at the end of the quarter and more than 70 products in the pipeline.

Alpharma, ranking fifth on IMS Health's list, said it would increase its research and development spending 25 percent this year, with the majority of that boost coming at the end of the year to support an increase in ANDA filings to at least 10 for 2004.