"Generic drugs are just the beginning," says the advertisement in the medical magazine. Featuring a picture of a faceless physician, the ad asks: "What's next . . . generic physicians? . . . Slow down the takeover. Prescribe by brand name . . . "
In another ad in the same magazine, a drug company asks: "Would you fly a plane with no name? Specify the drug name . Because there is something in a name: Confidence."
These advertisements are two of the salvos in the fight by major drug companies against the rising use of low-cost generic drugs. Although about 80 percent of generic drugs are made by large companies, they are concerned that the sale of drugs by generic rather than brand name will hurt pharmaceutical innovation--especially if revenues are siphoned off by small firms that do no research but manufacture only drugs developed by others.
The fight is being waged in the courts, Congress and doctors' offices across the country as the big firms try to keep control of the market they have dominated for decades through the prescription and sale of drugs primarily by brand name, with few substitutions permitted.
Despite some lingering concerns from pharmacists and doctors about their effectiveness and safety, generic drugs have finally won medical, legal and public acceptance. Almost all states have lifted their laws barring drug substitutions for brand-name drugs and, as a result, the market for brand-name drugs is slowly but steadily eroding.
According to a study for the industry by the marketing research firm Frost & Sullivan Inc., the generic drug business has grown faster than the total pharmaceutical market. While the market expanded by 10 percent from 1977 to 1979, generics grew by 12.6 percent during that period. By 1979, 14 percent of all new prescriptions written by physicians were for generic drugs, up from 7 percent in 1970.
For consumers, generics have meant lower drug bills; in some cases, prices for a drug ordered by generic name is one-fifteenth as much as for the brand name drug.
But for the major drug companies heavily involved in research, the rise in generics has generated concerns over their profits and raised questions over whether they can continue to invest as much as they have in the past in researching and developing new drugs.
That is why the Pharmaceutical Manufacturers Association (PMA) has been vigorously lobbying Congress for legislation to extend the 17-year patent protection period in which companies can market their new drugs without competition from other firms.
At the same time, major drug companies are suing the generic firms, trying to block them from making their drugs look exactly like the brand name drugs. Drug companies assert not only that color is proprietary, but also that look-alike drugs could lead to deception of consumers. For example, they say some pharmacists could substitute generics for brand-name medicine but charge the higher brand-name price without the knowledge of consumers. Consumers should be able to know what company made the drug, PMA says.
On the other hand, the small generic companies say deception can be easily discovered and violators prosecuted. What's more, they say, many consumers--especially the elderly who take many drugs--take medicines by color and would get confused if generics were different. This could discourage doctors and pharmacists from substituting generics for brand name drugs and damage the small firms, perhaps fatally.
The drug companies' attitude is "predatory, overreaching and threatening to the generic industry," says Jacob M. Schein, chairman and chief operating officer of Henry Schein Inc., a 50-year-old company that has an interest in a generic manufacturing facility and distributes generic drugs.
"We are not a highly profitable industry. We work on thin margins" that would be squeezed if the court suit and congressional legislation are decided against the generics, Schein adds.
PMA and major drugs companies contend they are not trying to wipe out the generic firms. "Generics increase competition, and that's part of the free enterprise system which we embrace very warmly," says Eli Lilly Co.'s director of government programs, James Gorrell. But, Gorrell adds, competition should come only after the patent protection has been allowed to run its full course.
Lilly, like many other major drug companies, manufactures its own line of generics. One congressional aide said that the fact that about 80 percent of generics are made by the major research-intensive firms proves that major drug companies have "capitulated" on generic drugs.
"They have essentially given up the struggle to keep generic drugs from being marketed. Now, they are just fighting a rear guard action to keep generics made by the smaller nonresearch firms from sweeping full-scale into power. They are trying to hold on to what they still have in the market and recoup a little of what they've lost."
The fiercest battle is being waged in Congress over the legislation to extend patent life. PMA's president, Lewis A. Engman, has made the legislation his top--and only--legislative priority.
He explained why in a speech earlier this year: "When a company discovers a promising new compound, it must patent it right away or risk losing it to a competitor. The patent is generally issued within two years, and the 17-year-term begins to wind down right away. But the drug at the time of the patent issuance is almost never ready for the market. On the average it takes seven to 10 years of development and testing to secure FDA approval. Which means that effective patent life is 17 less seven to 10, or about half as long as Congress originally decided was required to provide innovators adequate investment incentives."
As a result, Engman now says, "we've created a situation where the incentive for building a better mousetrap is twice that for coming out with a new drug to cure cancer. That's an incredible state of affairs."
According to Engman and the drug companies he represents, that state of affairs is being translated into less research and development and fewer new drugs--especially as the cost of bringing new drugs to market increases.
"We're not talking about simple research programs anymore--not benches and test tubes," says Tom Landin, director of corporate communications for Smith Kline Corp. "We now use machines that cost millions of dollars to develop third-generation antibiotics, recombinant DNA and molecular biology. The current constraints are a disincentive for research companies. Fewer companies are doing research in the U.S. than in the past."
Drug company officials point out that between 1954 and 1958, 51 companies were engaged in R&D on human pharmaceuticals, with 14 percent of them foreign firms. Between 1972 and 1976, the total had dropped to 40 firms, of which 22 percent were foreign.
"It's not the pharmaceutical companies that lose--we're doing just great," says Lilly's Gorrell. "It's the sick people that lose--because we are spending the same number of dollars on research as we always have in relation to sales. But relatively fewer of those dollars are going to human pharmaceutical research. Rather, they are going to research agricultural products, medical devices and cosmetics."
The argument that patent extension would reverse that trend persuaded the Senate to pass by voice vote earlier last year a measure to allow drug and other research companies to recoup time lost in the patent life as a result of complying with the government's premarket test and review regulations--up to a maximum of seven years.
The measure is now before the House Judiciary Committee, where consumer groups and the small generic drug firms are lobbying hard to defeat it.
According to these groups, many drugs already enjoy more than 17 years of patent protection because firms pyramid new patents on top of old ones as they improve the manufacturing process or change the chemical makeup of a drug. As a result, the Generic Pharmaceutical Industry Association says, the nation's top selling drugs are protected from competition for an average 18.5-year period.
Extension of the patent life even further could make it uneconomical for generic companies to produce drugs, since many have about 25-year lives, replaced by newer and more effective medicine. Consumer groups say less competition and higher prices would follow.
Generic companies also dispute PMA's argument that R&D has been declining, contending that these expenditures have remained stable at between 8 and 9 percent of total sales.
The House Judiciary Committee is not expected to consider the legislation until next March, at the earliest. But opponents of the measure are not hopeful, considering that half the committee members have signed up as cosponsors.