Generic firms are finding the pricing pressure receding somewhat in their industry - but only because regulatory pressures are making it difficult to stay on the market.

"We had traditionally used a 10 percent" erosion rate for pricing, Watson CEO Paul Bisaro said on his firm's Jan. 21 analyst call. "This year, based on sort of past performance over the last couple of years, we went to a high single-digit number."

"FDA is a little slower in getting products approved. That's helped pricing," he said. "That means less and less people are coming out with products, so you're having more stable competition over a longer period of time."

The mushrooming delays at FDA's Office of Generic Drugs have led industry to get more serious about a user fee program (see ¹ Also see "ANDA User Fees: Industry Takes Holistic Approach, Wants Whole New Office" - Pink Sheet, 8 March, 2010.), but as Bisaro's remarks illustrate, review backlogs - and manufacturing problems - can be beneficial for the firms left on the market.

However, "you've got to be a little careful with that because that can be distortive in the way you look at your projections going forward," Bisaro said. "So I think it's more appropriate there than ever to be a little bit conservative."

Thomas Russillo, Watson's executive VP of global generics, emphasized on the call that strong performance in one year can in fact lead to greater pricing erosion the next. "When you introduce a metoprolol or a potassium, any large blockbuster drug and get competition on it, it by itself can create a huge percentage of erosion. So you really have to look at the base products, not necessarily just the blockbuster drugs that have just been launched."

Both metoprolol (the generic for Toprol XL ) and potassium (the generic for Micro-K ) are examples where Watson has benefited from competitors' manufacturing problems.

Watson is poised to potentially capitalize on another regulatory delay in a profound way. Through its acquisition of Arrow, Watson acquired an authorized generic of Pfizer's Lipitor with a guaranteed launch date. So if Ranbaxy, which holds the right to launch a pure generic as part of a settlement, can't clean up its regulatory act by next fall, Watson could have the largest generic launch ever all to itself (² Also see "Ranbaxy Loses Tamsulosin Launch Opportunity To Impax; Analysts Raise Doubts About Nexium, Lipitor" - Scrip, 3 March, 2010.).

Goldman Sachs analyst Randall Stanicky noted during a Feb. 17 presentation at the Generic Pharmaceutical Association's annual meeting that there is "not a lot of data around generic pricing that's public. But there's no question pricing has been one of the biggest things driving performance."

"And a lot of that has been linked to supply disruptions and competitors leaving the market," Stanicky said. "As long as we're seeing this continue to play out, we're going to see pricing continue to move higher across a lot of specific products and, on some products, unusually higher."

- M. Nielsen Hobbs ( ³ n.hobbs@elsevier.com )

Does FDA Control Generic Drug Prices? Not Entirely

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