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Profits at center of biosimilars debate

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Profits are at stake on all sides of a fierce Indiana Statehouse fight over a bill that would regulate the dispensing of generic biotech drugs.

House Bill 1315, which is scheduled for a Senate floor hearing on Monday, would require pharmacists to check with a patient’s physician before automatically substituting a generic version of a biotech drug for a brand-name version.

This kind of substitution happens all the time now with chemical drugs, such as the brand-name cholesterol drug Lipitor and its generic version atorvastatin.

One reason it does is that the makers of generic drugs and the health insurers that pay most of the bill for prescription medicines make sure pharmacists benefit financially for doing so.

Generic drugmakers would rather pay higher profits to pharmacies than run their own sales and marketing efforts to convince pharmacists to dispense generics. And health insurers, such as Indianapolis-based WellPoint Inc., have strongly encouraged generic substitution as a way to reduce their own spending on medical claims. Current biotech drugs, such as the cancer drug Avastin, can cost tens or even hundreds of thousands of dollars for each patient per year.

The profit margins for retail pharmacists on atorvastatin, for example, are more than double what they are for branded Lipitor, according to an analysis by Philadelphia-based Pembroke Consulting.

Also, large distributors of drugs, such as Cardinal Health and McKesson Corp., make profit margins of 18 percent on generic drugs, compared with margins of just 2 percent on brand-name drugs, according to Pembroke.

The only problem for pharmacies is that the fat margins on generic drugs diminish over time. So with overall spending on prescription medicines declining in 2012 for the first time in history, drugstores are relying on a steady stream of patent expirations on brand-name drugs to keep their bottom lines healthy.

But the wave of blockbuster patent expirations will end in 2016, and after that, pharmacies need a new batch of drugs going generic. The obvious source for that new batch is the world of biotech, or specialty drugs, where several drugs' patents have already expired—but the drugs have faced no competition from generics.

The health reform law of 2010 included the first regulatory pathway to allow generic versions of biotech drugs, although the rules are still being hammered out by the U.S. Food and Drug Administration.

“Drugstores must either embrace the low-cost generic revolution or figure out how to penetrate the specialty market. Otherwise, they'll find it hard to climb out of the rabbit hole,” wrote Adam Fein, president of Pembroke Consulting, in a March 7 blog post.

But makers of brand-name drugs, such as Indianapolis-based Eli Lilly and Co., would benefit greatly if generic biotech medicines cannot immediately steal away sales once the patents on their brand-name drugs expire.

For example, U.S. sales of Lilly’s antipsychotic drug Zyprexa plummeted 88 percent in the 12 months after the drug’s U.S. patent expired in October 2011.

By contrast, Lilly’s biotech insulin Humulin has continued to rack up annual sales of more than $1.2 billion, even though its patent expired in 2000.

Currently, biotech drugs account for only one-quarter of all U.S. sales of brand-name drugs, according to data from IMS Health, a Connecticut-based market research firm. But nearly all large pharma companies, including Lilly, have staked their futures on using biotechnology to reverse a drought of new breakthroughs.

Last year, Lilly garnered more than $5 billion in sales from biotech drugs, or about one-quarter of all its drug sales. Of the 13 drugs Lilly has in Phase 3 clinical trials, eight of them are biotech drugs.

Lilly has thrown its support behind HB 1315, which was authored by Rep. Ed Clere, R-New Albany, at the request of biotech drug pioneer Genentech Inc., which is now a subsidiary of Switzerland-based Roche Group.

The stated concern of the drug companies is that, because biotech drugs are so much more complex than traditional chemical drugs, they will not be interchangeable like chemical drugs are. In industry parlance, biotech drugs are called biologics and their generic versions are called biosimilars, because they cannot be exactly the same as the original.

Clere told The New York Times in January that his bill “doesn’t do anything to prevent or discourage the use of biosimilars.”
 

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  • Zyprexa legacy
    Eli Lilly did make $69 billion on Zyprexa (Olanzapine) and they still expect to capture 20% of the US market as well as a billion year on ZyprexaXR. The patent only expires in the US and some Euro,Lilly announced they have an *authorized* distributor of generic Zyprexa. I am keenly interested in how they resolve remaining Zyprexa litigation. PTSD treatment for Veterans found ineffective. Zyprexa can cause diabetes. I took Zyprexa Olanzapine a powerful Lilly schizophrenic drug for 4 years it was prescribed to me off-label for post traumatic stress disorder was ineffective costly and gave me diabetes. -- Daniel Haszard

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  1. Cramer agrees...says don't buy it and sell it if you own it! Their "pay to play" cost is this issue. As long as they charge customers, they never will attain the critical mass needed to be a successful on company...Jim Cramer quote.

  2. My responses to some of the comments would include the following: 1. Our offer which included the forgiveness of debt (this is an immediate forgiveness and is not "spread over many years")represents debt that due to a reduction of interest rates in the economy arguably represents consideration together with the cash component of our offer that exceeds the $2.1 million apparently offered by another party. 2. The previous $2.1 million cash offer that was turned down by the CRC would have netted the CRC substantially less than $2.1 million. As a result even in hindsight the CRC was wise in turning down that offer. 3. With regard to "concerned Carmelite's" discussion of the previous financing Pedcor gave up $16.5 million in City debt in addition to the conveyance of the garage (appraised at $13 million)in exchange for the $22.5 million cash and debt obligations. The local media never discussed the $16.5 million in debt that we gave up which would show that we gave $29.5 million in value for the $23.5 million. 4.Pedcor would have been much happier if Brian was still operating his Deli and only made this offer as we believe that we can redevelop the building into something that will be better for the City and City Center where both Pedcor the citizens of Carmel have a large investment. Bruce Cordingley, President, Pedcor

  3. I've been looking for news on Corner Bakery, too, but there doesn't seem to be any info out there. I prefer them over Panera and Paradise so can't wait to see where they'll be!

  4. WGN actually is two channels: 1. WGN Chicago, seen only in Chicago (and parts of Canada) - this station is one of the flagship CW affiliates. 2. WGN America - a nationwide cable channel that doesn't carry any CW programming, and doesn't have local affiliates. (In addition, as WGN is owned by Tribune, just like WTTV, WTTK, and WXIN, I can't imagine they would do anything to help WISH.) In Indianapolis, CW programming is already seen on WTTV 4 and WTTK 29, and when CBS takes over those stations' main channels, the CW will move to a sub channel, such as 4.2 or 4.3 and 29.2 or 29.3. TBS is only a cable channel these days and does not affiliate with local stations. WISH could move the MyNetwork affiliation from WNDY 23 to WISH 8, but I am beginning to think they may prefer to put together their own lineup of syndicated programming instead. While much of it would be "reruns" from broadcast or cable, that's pretty much what the MyNetwork does these days anyway. So since WISH has the choice, they may want to customize their lineup by choosing programs that they feel will garner better ratings in this market.

  5. The Pedcor debt is from the CRC paying ~$23M for the Pedcor's parking garage at City Center that is apprased at $13M. Why did we pay over the top money for a private businesses parking? What did we get out of it? Pedcor got free parking for their apartment and business tenants. Pedcor now gets another building for free that taxpayers have ~$3M tied up in. This is NOT a win win for taxpayers. It is just a win for Pedcor who contributes heavily to the Friends of Jim Brainard. The campaign reports are on the Hamilton County website. http://www2.hamiltoncounty.in.gov/publicdocs/Campaign%20Finance%20Images/defaultfiles.asp?ARG1=Campaign Finance Images&ARG2=/Brainard, Jim

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