Changewave Research: Generics and Drug Industry Trends

ChangeWave Research: Generics and Drug Industry Trends

ChangeWave Research Report:

Generics & Drug Industry Trends - 2004

Overview

It’s been two years since the Alliance’s “Generic Drugs Rocket Takes Off” report, which showedthe shift to generic drugs was far more damaging than big pharmaceutical firms were at the time willing to admit.

During the week of September 30 – October 5, 2004, we conducted a survey of our Alliance medical industry members on generics & drug industry trends. A total of 139 medical industry members participated, including 82 doctors. Here’s what we found:

(A) Generic Drugs

Health Professionals More Willing to Prescribe Generics Today. Seventy-three percent (73%) of allrespondents say that health professionals are more willing to prescribe generics today compared with a year ago.

Insurance Providers Continue to Push for Generics. Eighty-one percent (81%) of all respondents report there is more pressure on consumers today from HMO’s and Health Insurance Providers to use generics compared to a year ago.

Generic Displacement. The number one drug category that doctors expect to be displaced by generics when they become availableisAntibiotics for Respiratory and Sinus Infections (73%). Seventy-one percent (71%) of doctors also think Low Dosage Statins for Cholesterol are likely to be displaced by generics.

Most Popular New Generic Drugs. Zithromax (79%) was the drug doctors report they will be most likely to prescribe once a generic version becomes available, followed by Biaxin (73%), Diflucan (71%), Paxil (65%) and Zoloft (63%).

Shift To Generic Zocor Likely. Better than one-in-four (26%) doctors say that the majority of their practice’s patients using low dosagestatins will switch or be switched by their insurance companies to generic Zocor when it becomes available in 2006. Another 24% of doctors say between 31% - 50% of their patients will switch.

Generic Pravachol Will Also Take Share. Eighteen percent (18%) of Doctors say that when Pravachol goes generic in 2005, more than half of their practice’s patients who use low dosage statins will switch or be switched to generic Pravachol. Another 22% say that between 31% and 50% of their patients will switch.

Modest Shift from Prilosec to Nexium.Twelve percent (12%) of doctors report that more than half of their practice’s patients who used Prilosec before it went generic have now moved to Nexium. Another 7% of doctors say between 31% - 50% of their patients have switched.
Teva Best Positioned for Growth – Next 12 Months. By a wide margin, respondentsratedTeva (51%) as the generic company best competitively positioned for growth in the global market over the next 12 months.

Exclusivity Rights Could be a Problem for Generic Companies. Significantly, 42% of respondents believe that the FDA’s new position on exclusivity rights will result in decreased profit margins for generic companies.

(B) Drug Re-importation

Where Patients Will be Told to Buy Drugs. Just over half (52%) of the doctor respondents say that if drug re-importation is legalized, their patients will be told to purchase drugs “…from a distributor located in and regulated by a developed nation (Europe, Canada, Japan, South Korea).”Only 11% say their patients will be told not to purchase re-imported drugs at all.

Drug Prescribing and Filling. Forty-four percent (44%) of doctors say their patients will receive and/or fill more drug prescriptions if drug re-importation is allowed, while 38% say it will not affect drug prescribing or fill rates.

Drugs Most Likely to be Re-Imported: Lipitor (27%) was named as the drug most likely to be filled through re-importation, followed by Celebrex (10%).

(C) Medicare Drug Discount Cards

Medicare Discount Cards Appear Underutilized. Twenty eight percent (28%) of doctors say that only 1-10% of their practice’s patients who qualify use some form of Medicare Drug Discount Card. And only 5% say that “more than half” of the patients in their practice who qualify use some form of the Card.

Medicare Drug Discount Cards Having Little Affect on Number of Prescriptions. A majority of doctors surveyed (51%) believe that Medicare Drug Discount Cards are not affecting the number of prescriptions being written. Only 18% believe they have resulted in an increase in the number of prescriptions written.

Bottom Line: Healthcare professionals are more willing to prescribe generics today compared with a year ago, and pressure from HMO’s and Health Insurance Providers to use generics has also increased over the past year. Respondents believe the two biggest generic drug categories on the horizon are Antibiotics for Respiratory and Sinus Infections, as well as generic Statins. Zithromax is the generic drug doctors say they will be most likely to prescribe once a generic version becomes available, followed by Biaxin, Diflucan, Paxil, Zoloft, Zocor and Pravachol.

The ChangeWave Alliance is a group of 4,800 highly qualified business, technology, and medical professionals in leading companies of select industries—credentialed professionals who spend their everyday lives working on the frontline of technological change. ChangeWave surveys its Alliance members on a range of business and investment research and intelligence topics, collects feedback from them electronically, and converts the information into proprietary quantitative and qualitative reports.

Helping You Profit From A Rapidly Changing World ™

Table of Contents

Summary of Key Findings...... 4

The Findings...... 5

(A) Generic Drugs...... 5

(B) Drug Re-importation...... 13

ChangeWave Research Methodology...... 16

About ChangeWave Research...... 17

I. Summary of Key Findings

Introduction

It’s been two year since the ChangeWave Alliance’s “Generic Drugs Rocket Takes Off” report showed the shift to generic drugs was far more damaging than big pharmaceutical firms were willing to admit.

During the week of September 30 – October 5, 2004, we conducted a survey of our Medical Industry Alliance members on current Generics & drug industry trends. A total of 139 medical industry members participated, including 82 doctors.

The findings focus on three key areas:

(A) Generic Drugs

(B) Drug Re-importation

II. The Findings

Generics and Drug Industry Trends

Doctors (n = 82)

Total Respondents (n = 139)

(A) Generic Drugs

(1) Question Asked: How willing are health professionals to prescribe generics today compared with a year ago?

Doctors / Total
Respondents
Significantly More Willing Today Than a Year Ago / 28% / 28%
Somewhat More Willing Today Than a Year Ago / 41% / 45%
No Change From a Year Ago / 29% / 22%
Somewhat Less Willing Today Than a Year Ago / 1% / 1%
Significantly Less Willing Today Than a Year Ago / 0% / 0%
Don't Know / 0% / 4%

Health Professionals More Willing to Prescribe Generics Today. Seventy-three percent (73%) of allrespondents say that health professionals are more willing to prescribe generics today compared with a year ago.

(2) Question Asked: How much pressure are HMO's and Health Insurance Providers putting on consumers to use generics today compared with a year ago?

Doctors / Total
Respondents
Significantly More Pressure Today Than a Year Ago / 45% / 44%
Somewhat More Pressure Today Than a Year Ago / 35% / 37%
No Change From a Year Ago / 17% / 13%
Somewhat Less Pressure Today Than a Year Ago / 0% / 0%
Significantly Less Pressure Today Than a Year Ago / 0% / 0%
Don't Know/No Answer / 2% / 6%

Insurance Providers Continue to Push for Generics. Eighty-one percent (81%) of all respondents report there is more pressure on consumers today from HMO’s and Health Insurance Providers to use genericscompared to a year ago.

(3) Question Asked: In some instances, entire categories of branded drugs - such as antihistamines - have been displaced by generics. Which of the following categories of drugs do you think will be displaced by generics when one becomes available? (Check All That Apply)

Doctors / Total
Respondents
Antibiotics: Respiratory and Sinus (e.g., Zithromax) / 73% / 68%
Low Dosage Statins for Cholesterol Control (e.g., Zocor) / 71% / 70%
Anti-Fungal (e.g., Diflucan) / 57% / 58%
Antibiotics: Major Infections (e.g., Biaxin) / 52% / 47%
ACE inhibitors - Anti-Hypertensives - (e.g., Acupril) / 49% / 42%
Anti-Nausea/Side Effects from Chemotherapy (e.g., Zofran) / 49% / 42%
Channel Blockers - Anti-Hypertensives - (e.g., Procardia) / 46% / 43%
Type II non-insulin diabetes: (e.g., Amaryl) / 44% / 40%
None of the Above / 4% / 3%
Don't Know / 7% / 11%
Other / 4% / 3%

Generic Displacement. The number one drug category that doctors expect to be displaced by generics when they become availableisAntibiotics for Respiratory and Sinus Infections (73%). Seventy-one percent (71%) of doctors also think Low Dosage Statins for Cholesterol are likely to be displaced by generics.

(4) Question Asked: In 2005 and 2006 a host of well known drugs, including several blockbusters, come off patent. For which of the following drugs will you - or the institution/practice you work in - be willing to prescribe a generic when it becomes available? (Check All That Apply)

Doctors
Zithromax (Azithomycin) (2006) / 79%
Biaxin (Clarithromycin) (2005) / 73%
Diflucan (Fluconazole) (2005) / 71%
Paxil (Paroxetine) (Already Available) / 65%
Zoloft (Sortaline) (2006) / 63%
Zocor (Simvastatin) (2006) / 59%
Pravachol (Pravastatin Sodium) (2005) / 54%
Celexa (Citalopram Hydrobromide) (2005) / 50%
Duragesic pain patch (2005) / 50%
Zofran (Ondansetron) (2005) / 49%
Amaryl (Glimepiride) (2005) / 35%
Aredia (Pamiotronate disodium) (2005) / 22%
Don't Know / 2%
Other / 2%

Most Popular New Generic Drugs. Zithromax (79%) was the drug doctors say they will be most likely to prescribe once a generic version becomes available, followed by Biaxin (73%), Diflucan (71%), Paxil (65%) and Zoloft (63%).

(5) Question Asked: In 2006, Zocor will go generic in the U.S. When Zocor does, what percentage of your practice's patients who use low dosage statins (20mg or under, such as Lipitor, Zocor, Pravachol) do you estimate will switch or be switched by their insurance company to generic Zocor?

Doctors
1-5% / 1%
6-10% / 4%
11-20% / 7%
21%-30% / 15%
31%-50% / 24%
More Than 50% / 26%
Do Not Work in a Practice / 5%
Don't Know/No Answer / 18%

Shift To Generic Zocor Likely. Better than one-in-four (26%) Doctors say that the majority of their practice’s patients using low dosagestatins will switch or be switched by their insurance companies to generic Zocor when it becomes available in 2006. Another 24% of doctors say between 31% - 50% of their patients will switch.

(6) Question Asked: Zocor went generic in the UK this summer, and Pravachol should go generic in the US in 2005. When Pravachol goes generic in the U.S., what percentage of your practice's patients who use low dosage statins (i.e., 20mg or under, such as Lipitor, Zocor, Pravachol) do you estimate will switch or be switched by their insurance company to generic Pravachol?

Doctors
1-5% / 2%
6-10% / 6%
11-20% / 7%
21%-30% / 15%
31%-50% / 22%
More Than 50% / 18%
Do Not Work in a Practice / 4%
Don't Know/No Answer / 26%

Generic Pravachol Will Also Take Share. Eighteen percent (18%) of Doctors say that when Pravachol goes generic in 2005, more than half of their practice’s patients who use low dosage statins will switch or be switched to generic Pravachol. Another 22% say that between 31% and 50% of their patient’s will switch.

(7) Question Asked: Since Prilosec came off patent its maker has made a major push to shift patients to Nexium. What percentage of your practice's patients who used Prilosec before it went generic have now moved to Nexium?

Doctors
1-5% / 10%
6-10% / 5%
11-20% / 7%
21%-30% / 13%
31%-50% / 7%
More Than 50% / 12%
Do Not Work in a Practice / 6%
Don't Know/No Answer / 39%

Modest Shift from Prilosec to Nexium. Twelve percent (12%) of doctors report that more than half of their practice’s patients who used Prilosec before it went generic have now moved to Nexium. Another 7% of doctors say between 31% - 50% of their patients have switched.

(8) Question Asked: Which of the following major Generic companies do you believe are best competitively positioned for growth in the global market over the next 12 months? (Choose No More Than Two)

Doctors / Total
Respondents
Teva / 41% / 51%
Barr / 10% / 10%
Dr. Reddy's / 10% / 10%
Mylan / 10% / 17%
Watson / 7% / 7%
Ivax / 6% / 4%
Impax / 5% / 6%
American Pharma Partners / 2% / 2%
Andrx / 1% / 3%
Alpharma / 0% / 1%
None of the Above / 1% / 1%
Don't Know / 48% / 37%
Other / 1% / 3%

Teva Best Positioned for Growth – Next 12 Months. By a wide margin, respondentsratedTeva (51%) as the generic company best competitively positioned for growth in the global market over the next 12 months.

(9) Question Asked: The FDA has recently changed its position on generic drug exclusivity. In response, big Pharmaceutical companies are increasingly licensing generic versions of their drugs before they come off patent. Some analysts believe this is lowering the profit margins of generic companies (such as Impax Labs, who have large numbers of 6-month exclusivity agreements). What do you believe will be the impact of the FDA's change in position on generic drug exclusivity?

Decreased Profit Margins for Generic Companies / 42%
Very Little Effect / 9%
Lower Drug Costs / Increased Availability / 7%
Reduced Exclusivity / 5%
Other / 36%

Exclusivity Rights Could be a Problem for Generic Companies. Significantly, 42% of respondents believe that the FDA’s new position on exclusivity rights will result in decreased profit margins for generic companies.

Sample of Alliance Member Responses:

(a) Decreased Profit Margins for Generic Companies (42%)

JAM8235 writes, "It will lower the profit margin of the generic companies."

CLE2459 writes, "Lowers profit margin for both, but need to see if increased volume/sales makes up the difference.”

SBE5857 writes, "Temporary reduction of generic profits, but long term trend is still UP. Expect generic drug manufacturer to consolidate. The Medicare 2006 Part D to fire up net returns. The incentive for seniors to keep out of the "doughnut hole" will strengthen the demand for generics in the private sector, as physicians will now have to write generics for twice the number of patients (demand). Why? The total percentage of patients who will save big bucks will experience a "change quake" in growth."

ELK5836 writes, "I foresee a number of generic companies going belly-up due to a reduction of profit margins."

ASH6535 writes, "Lower the profit potential for generic drug company at the same time sustain the profit potential for big pharma."

STE3218 writes, "Lower margins, more competition. Better for consumers."

KUR3102 writes, "Some hit to generic profitability."

SCR5921 writes, "Somewhat lower earnings visibility for generic drug makers."

GAN3623 writes, "I believe it will reduce some of the profit margins of the generic companies."
HER4689 writes, "Decreasing profit for generic companies."

MOJ6686 writes, "…lower profits to generic manufacturers."

ALA8640 writes, "Might moderately decrease profitability of big pharma but definitively harm purely generic company due to the ‘brand name effect.’"

ZAL8484 writes, "Lower profit margins, but the manufacturing cost is usually so low and the marketing cost greatly reduced that profits will still be good."

SSL1154 writes, "Very complicated question. Probably generic margins will drop. But as newer and better drugs become available, doctors will easily prescribe them and offset many financial advantages to generic use. Eventually, if something is very widely used, it will become commoditized, e.g., digoxin, thyroid."

SR10005 writes, "I believe big pharma will have a very large impact on the generic makers’ bottom-line profit if they start to make their own generics available before patent expiration."

GDA7384 writes, "...The concept of branded generics merits a mention. In other words prior to the lapse of a patent, the brand owner introduces a second branded version of its patented drug in order to capture market share (perhaps at a discounted price). Having gained share, the brand can then compete directly with new entrants when generics are more widely available after patent expiry."

(b) Very Little Effect (9%)

JEF7251 writes, "True, this may lower margin, but net profitability is dependent upon length of time the generic is (I am assuming now non-exclusively) licensed prior to coming off patent, so is situation dependent. Ultimately the company is building some brand equity and may posses specific knowledge or complementary IP regarding manufacturing process, etc., which needs to be taken into account as well, so I think the net effect upon valuation of generics companies will be negligible."

MAD2680 writes, "Very little or nothing. Large phama can not afford to use resources and distribution channels to protect some small amount of loss in branded revenue at most likely lower margins."

WID2493 writes, “Do not see any big changes as generic companies and big pharma will adjust and change such that profit margins will not be impacted too much."

KEN1900 writes, "Hopefully it will lower drug costs to patients."

FER6743 writes, "It will make those drugs coming off patent more immediately available and less expensive."

DAV2704 writes, "Overall, less expensive drugs."

(d) Reduced Exclusivity (5%)

BIO9114 writes, "Fewer independent filings for drugs to claim the exclusivity.”

ELS7356 writes, "Wider use of generics...Exclusivity will be greatly reduced."

(e) Other (36%)

JES5551 writes, "Joint lawsuits and/or more explicit liaisons between big pharma and generics, such as Novartis has been doing. This allows both control and gains for the big companies."

AGR0426 writes, "License opportunities do provide more long term stability for the generic mfrs with opportunities for other joint ventures. Maintaining a balance that allows the generic to boost profits by direct marketing (if they have access to or have a proper distribution channel) will be key."

RJR3451 writes, "I am (a chiropractor) working with MD's, they choose to write 99% brand name. Generics do not truly have the quality needed. The FDA ruling will allow the patient to try generic and brand meds earlier, and return to the name brand.”

LEO7024 writes, "To a certain extent, some gen-cos will have to re-think their ventures and look more closely at the margins. There will be some decreased competition."

7MA6556 writes, "Big-pharma will increasingly move toward generic drug offerings and takeovers of generic drug companies (like big pharma Novartis - second biggest generic drug company in the world today).”

JC41152 writes, "Earlier availability of 'generics', potentially larger 'area under the curve' (sales over time) for some generic companies, even if at lower margins. Potential source of revenue for big-pharma in future."

WSU8151 writes, "I think its a short term profit protection move...once the generics hit the market, big pharma looses big time, as the insurance companies' formularies switch to generics almost overnight. The pharmacies then are forced to substitute the generic in place of the branded medication...often without the knowledge of the prescribing physician."

WIL1338 writes, "FDA is basically not responsible for trade agreements. Their job is to assess drug safety and efficacy. Exclusivity is a trick from major US pharma companies to maintain profits. As a result of not giving exclusivity major companies will make marketing deals with other companies, saving them development costs as well as time, and keeping part of the money in the pocket for the major pharma."

OCC0893 writes, "A temporary blip in the timeline of reducing pharmaceutical product costs for US consumers."

KID4411 writes, "…Most of my patients (if not all who rely on insurance), are automatically switched to generic (without my or the patient's consent/or even discussion). The problem is... at least in psychiatry, that most of my patients…do notice a difference (negative) when switched from brand name to generic, frequently asking to switch back to brand name. If a patient is naive to meds, the generic difference does not seem to be as pronounced. Bottom line... in my child, adolescent, and adult psychiatry practice...most of my patients stay on brand name when given the choice."

JAN7532 writes, "Unfortunately, the FDA is in bed big time with the big pharma companies, which is bad for the consumer as well as the practitioner. I think eventually this will change. A great deal of education of parents will be required regarding quality control – i.e., bottles that are not opened or re-packaged by a middle man/distributor will be key to our recommendations. Also, I think you will see overall prescribing for all the statins coming down SIGNIFICANTLY in the next 2 years with the increased use of Policosanol as a safe, otc alternative to the statins."

(10) Question Asked: Which generic company(s) do you think will be most negatively affected by changes in the FDA's position on generic drug "exclusivity"? (Choose No More Than Two)