Ethex reaches the end of the road

KV Pharmaceuticals has announced that it is ceasing the operations of its generics subsidiary, Ethex. The move came as a result of a settlement agreement with the US Department of Justice and the US Attorney for the Eastern District of Missouri, which saw Ethex plead guilty to two felony charges, earning a fine of nearly US$26 million. However, KV noted that Ethex was a distribution operation, whilst KV owns all manufacturing and related intellectual property, meaning that KV will be able to continue to operate in the generics sphere in time.

The legal moves should herald the end of a very difficult period for KV, which has threatened to end the firm's existence. In May 2008, KV received complaints from a pharmacy in California and a distributor in Canada of oversized morphine sulphate products. In response, KV recalled specific lots in June 2008; that month Health Canada also issued a warning to consumers not to use the ratiopharm product, ratio-morphine, which was supplied by KV. KV's production began to unravel; in December 2008, the firm voluntarily suspended all shipments of FDA-approved drug products in tablet form, in order to allow the firm to review its manufacturing and quality systems. As part of this, Ethex recalled a single lot of hydromorphone tablets; as with the May 2008 complaint, the issue was one of oversized tablets. The FDA announced an inspection the same month.

This was followed by an announcement in January 2009 that the firm had voluntarily suspended the manufacturing and shipping of all of its products, with most products being recalled. The recall was initiated because the products may not have been manufactured under cGMP conditions. Adding to the firm's problems, in February 2009 it announced the loss of 700 jobs, as KV's lack of income began to bite. However, the situation began to stabilise in March 2009, when the firm announced it had entered into a consent decree with the FDA, giving KV an avenue to restart production once the conditions of the consent decree had been met.

The charges Ethex faced revealed more to the situation. When the May 2008 complaints arose, Ethex was required to submit Field Alerts to the FDA, which are required whenever a manufacturer receives information concerning a significant chemical change in a distributed product. KV did indeed issue a Field Alert for the morphine product, but the Department of Justice alleged that in the internal investigation sparked by this, the firm discovered incidences of other oversized drugs, including dextroamphetamine sulphate and propafenone. The DoJ alleged that these did not lead to Field Alerts being raised, a charge that Ethex has accepted.

In total, Ethex has been fined US$25.8 million in response to its guilty plea, and KV has announced that Ethex will cease operations. The firm is clearly hoping that ending Ethex will put a line under the issues it has faced, and give the firm a clean break to rebuild its operations and reputation. The manufacturing issues that ultimately led to the felony charges are still in the process of being resolved; but the FDA's consent decree should see the firm emerge from under this cloud in time. The news that Ethex wilfully hid the extent of the problems from the FDA, and thus from the public, was a more difficult stain to remove, and so terminating Ethex was perhaps KV's only real option to restore public confidence in its products once production restarts. The firm has sailed perilously close to disaster, but the settlement now announced should hopefully see it move it towards calmer waters.

Ian Platts – Editor, World Generic Markets

FDA pushes for generic drug user fees

FDA Commissioner, Dr Margaret Hamburg, has made an appeal for the introduction of generic drug user fees in order to bring new funding to the FDA's Office of Generic Drugs (OGD). Speaking at the Generic Pharmaceutical Association (GPHA)'s Annual Meeting, Dr Hamburg admitted that the backlog of pending applications was not acceptable, acknowledging that it would soon hit the 2,000 mark, and argued that the situation could only be resolved with the introduction of user fees. In its budget request for FY2011, the FDA proposed that introducing generic drug user fees would add just over US$38 million to its coffers. This, the FDA believes, would go a long way to reducing review times. By the end of the first five years following the introduction of user fees, the additional money would enable a complete review and response for an estimated 80% of applications within 12 months of receipt.

The GPhA responded to the plea for a user fee programme by saying it would welcome re-engaging in negotiations over the issue. The GPhA has generally been cool on the proposal, as its latest response shows. This is not really surprising, as the user fee proposal would of course mean hitting generic firms financially, with firms then having to try to either pass the costs on to consumers by raising prices in an already highly competitive market, or else absorbing the costs themselves, leading to reduced margins and profitability on sales. However, a particular sticking point has always been getting value for money, and ensuring that the increased costs will actually lead to faster approval times and a regulatory process that flows smoothly. The branded industry already has a user fee programme in place; in previous years when the idea of generic drug user fees has been mooted, the GPhA and others have responded by pointing out that unlike the branded industry, the generic industry faces other delays in the form of legal challenges from the branded industry. As a result, introducing user fees may not make a difference to approval times, as generic companies will still have to fight time consuming legal battles. The GPhA has said in the past that it would be willing to go down the user fee route if there was certainty that it would lead to reduced delays. This is a concern that Dr Hamburg has picked up on; in her address, she noted that a fee programme would have to include measurable results, something which has certainly been received positively by the GPhA. Of course, what those measurable results may be, and whether the generic industry agrees with them, remains to be seen.

One criticism that has been raised about a user fee programme in general is that it blurs the line between the industry and its regulators, a criticism that has been levelled at the branded industry's user fee programme. If the industry is paying the regulators, the danger will always be that with the money will lead to undue influence, especially if the regulators need to show they can provide value for money. Whether it is possible to safeguard against this is a particularly tricky issue.

The issue of introducing generic user fees is not new, and has been rattling around the federal government for some years. It is as uncertain now as it has ever been whether or not such a programme will be introduced. Of course, the US is currently in the throes of a bitterly divisive battle over reforming the healthcare system as a whole, which has so far resulted in a stalemate with the legislative bills introduced to Congress thus far unlikely to be passed. Given the political atmosphere in Washington at the moment, any attempt at reform may have to be scaled back and introduced in piecemeal fashion. It is quite possible that a user fee programme may get lost in the process.

Ian Platts – Editor, World Generic Markets

Watson hits 2010 running

Watson Pharmaceuticals has had a busy start to 2010, with a number of events underscoring its future plans. On 28th January 2010, Watson announced that it had completed its acquisition of Eden Biopharm, in a deal worth some US$15 million. The acquisition of the Liverpool, UK-based Eden was part of Watson's larger acquisition of the Arrow Group; Arrow had owned a 36% stake in the firm, a biopharmaceutical development and contract manufacturing company. Eden will become part of Watson's Global Brands Division, maintaining its contract services model whilst providing Watson with biopharmaceutical development and manufacturing capabilities; something which must surely have been a bonus to Watson in its plans to acquire Arrow. A week before, Watson held an Investor Day meeting in New York in which the firm provided an overview of its expanded global operations, during which the firm reported that it expected 2010 revenues to be worth around US$3.5 billion, substantially up on the US$2.5 billion it reported for 2008. Much of the boost will come from the acquisition of Arrow, which Watson is to use to reshape its generics business. The acquisition will give Watson a presence in a number of international markets, whereas before the firm has concentrated its business in the United States. Watson believes its generics business will account for sales worth some US$2.3 billion in 2010.

On 1st February 2010, India's Indoco Remedies announced that it had finalised a generic product development alliance with Watson to develop and manufacture a number of sterile products for the US market. Indoco did not comment on what those products were, but noted that they formed a sizeable chunk of revenues. Indoco will develop, manufacture and supply the products, whilst Watson will deal with the regulatory issues to get them approved, and will then market, sell and distribute them across the US. The agreement was a significant deal for Indoco, giving the firm an alliance with a sizeable generic company. However, it was also an interesting move for Watson: forming an alliance with an Indian firm is not a common occurrence for the firm, and is perhaps a taster of the direction Watson will be moving in.

On the same day, Watson announced that it had entered into a licensing agreement with HRA Pharma through which Watson would become the commercial partner for ulipristal acetate in the US. The product is already marketed by HRA in Europe, and has been filed in the US as an NDA. Watson will make payments to HRA, and the firm commented that the move fitted in with its strategy to expand its position in the women's healthcare market. The agreement will no doubt also add to Watson's innovative products division, a much smaller part of the company than its generics division, but nonetheless significant for the firm.

In a related vein, on 8th January 2010, Watson filed an ANDA with the FDA for a generic version of Duramed's oral contraceptive, LoSeasonique. The ANDA was filed towards the end of 2010, and has led to a patent infringement lawsuit being filed against Watson in the US District Court for the District of New Jersey. Duramed was part of Barr Pharmaceuticals, which of course is now part of Teva, leading to the spectacle of one generic company suing another for alleged patent infringement. This is potentially one of two lawsuits Watson will start the New Year with. On 19th January 2010, Endo Pharmaceuticals announced that it was in receipt of notification that Watson had filed an ANDA for a generic version of Lidoderm, a lidocaine topical patch. At the time of writing, Endo had yet to say whether it would file a lawsuit against Watson as a result, but it seems that this will be a likely course of action. Watson has certainly started the year with a sense of determination.

Ian Platts – Editor, World Generic Markets

Pfizer and Strides collaborate on generics; Luitpold acquires PharmaForce

On 6th January 2010, Pfizer and Strides Arcolab announced a new collaboration, through which Pfizer will commercialise off-patent sterile injectable and oral products in the US, supplied by Strides and two of Strides' joint ventures with South Africa's Aspen Pharmacare: Onco Laboratories and Onco Therapeutics. The collaboration is expected to deliver 40 off-patent products, many of which will be oncology therapeutics, and will bring the total number of products in-licensed by Pfizer's Established Products Business Unit to more than 200.

Pfizer's Established Products Business Unit was created in 2008, and marks something of a departure in Pfizer's thinking about generics, bringing its own generic operations more out of the shadows. Pfizer has previously been known to take an opposing line to generics, although its acquisition of Pharmacia had given the firm Greenstone, a generics subsidiary which Pfizer re-launched in 2004 to manufacture and market Pfizer brands that had lost patent protection. However, the firm seldom talked about Greenstone, even after the re-launch. The Established Products Business Unit similarly had a muted debut, but its efforts to strike deals with generic companies are a new departure for Pfizer. Interestingly, the unit has focused on dealing with Indian generic companies: before Strides Arcolab, the unit signed deals with Aurobindo Pharma and Claris Lifesciences.

Also on 6th January, Luitpold Pharmaceuticals' acquisition of PharmaForce was announced. Luitpold, these days based in New York and a US company of Daiichi Sankyo, is also the owner of American Regent. Luitpold was founded in 1910 in Bavaria, Germany, but established itself in the United States in 1978. It was sold to what was to become Daiichi Sankyo in 1991. Of course, one of Daiichi Sankyo's more recent acquisitions was that of Ranbaxy in 2008, making the Indian giant a stable-mate of Luitpold. Luitpold develops both branded and generic products, with its most recent generic approval being for caffeine citrate in November 2009. The company also provides contract manufacturing services to other pharmaceutical firms.

PharmaForce was founded in 1999, and is a manufacturer, developer and marketer of sterile products and generic injectable products. The firm is headquartered in Columbus, Ohio, and should prove to be a good fit for Luitpold, which noted that the acquisition would further diversify its product portfolio and generate additional growth. The acquisition will also give Luitpold three large facilities.

Ian Platts – Editor, World Generic Markets

Taro / Sun dispute boils over

The long-running bitter spat between Taro Pharmaceutical Industries and Sun Pharmaceutical Industries boiled over during December 2009, as Taro prepared for its Annual General Meeting on 31st December 2009. The two companies have been engaged in a bitter dispute for over 18 months, after Sun entered into negotiations to acquire Taro. The bid began amicably enough, with Sun forwarding a large sum of money to Taro in order for the Israel-based firm to avoid going bankrupt, and Sun's attached bid price for Taro's shares was met with approval from Taro's Board of Directors. However, after that, events became very sour, as Taro's fiscal position improved and the company claimed that Sun's offer was too low. What began as a friendly takeover bid has become increasingly fraught, with the issue being brought to Israel's Supreme Court; the legal issues remain unresolved.

Prior to the AGM, Taro's Chairman, Barrie Levitt, sent a letter to the firm's shareholders, containing the usual encouragement to vote at the AGM. However, the letter, along with a second letter sent out a few days later, took the opportunity to warn shareholders of what Taro believed was Sun's attempts to take over the firm by more stealthy means, through voting down the Taro Board's recommended nominees. Mr Levitt claimed in his first letter that Sun had been trying to take Taro over by every conceivable means bar one: offering a fair price to shareholders for the firm's shares. By way of a warning should Sun succeed, the letters pointed to Caraco Pharmaceutical Laboratories, the US-based company that is majority-owned by Sun. Caraco had a difficult year in 2009, with the FDA shutting the firm's manufacturing plant down and seizing its products; Taro saw this as an example of Sun's management inabilities.

Naturally, Sun refuted Taro's allegations. In a letter sent to Taro's shareholders by Dilip Shanghvi, Sun's Chairman and Managing Director, itself rather an unusual move, Sun claimed that it had been wronged by Barrie Levitt and his family, with complicity from Taro's Board of Directors, in moves which were designed to prevent Taro from carrying out its contractual obligations. Sun's letter countered Taro's allegations about Caraco, and instead turned attention to Taro's financial situation. The letter noted that Taro has been unable to file valid financial data for some time. Sun claimed Taro's share price had decreased by 86% over the past six years, resulting in the loss of US$1.6 billion of shareholder value. In contrast, Sun said that its share price had increased by 406%, adding US$5.1 billion in value for Sun's shareholders. Taro, on the other hand, claimed that its results since 2007 had seen a turnaround and exceptional growth in Taro's sales and profitability.

What were the other shareholders to make of this spat? Predictably for this battle, their response was unclear. Following the AGM, both Taro and Sun claimed that shareholders had more or less voted in their favour. Taro was able to report that shareholders approved the election of all the Directors who had been up for election. However, shareholders had not approved the appointment of nominated external Directors. Sun in turn claimed that the shareholders had sent a decisive message that they would no longer welcome the leadership of Mr Levitt and his Board, seeing the non-vote of the external Directors as evidence. Despite the overall approval, Sun argued that in fact 78% of Taro's minority shareholders had voted against the continued service of current Directors, and claimed that shareholders holding over two-thirds of Taro's equity had voted to remove the Levitt family and their associates. However, this had not been reflected in the overall vote because Taro's capital structure gave the Levitt family extra voting power. In a further move, in January 2010, Sun sent a letter to Taro's Directors threatening legal action if they did not respond to wishes of Taro's minority shareholders and reverse their course of action. Clearly, for these two firms, the bitter claims and counter-claims continue. Perhaps Israel's courts will be the only entity that can resolve their differences.

Ian Platts – Editor, World Generic Markets

Watson completes Arrow acquisition

Watson Pharmaceuticals announced on 2nd December 2009 that it had completed its acquisition of Arrow Group. Watson announced that it had entered into a definitive agreement to acquire Arrow on 17th June 2009, in a deal that would cost US$1.75 billion in cash and stocks. Watson commented that it believed the transaction would be accretive to cash earnings per share in 2010, as a result of Watson needing a relatively small amount of additional debt to complete the deal. Watson added that the acquisition would create a company with over US$3 billion in annual revenues. Watson's total revenues in the year ended December 2008 were worth over US$2.5 billion, and the firm commented that Arrow's revenues in 2008 were worth over US$650 million.

Arrow Group was founded in 2000, and Watson has commented that it is one of the fastest growing generic pharmaceutical companies in the world, with a compound annual growth rate of 67%, taking its revenues from US$18 million in 2001 to the US$650 million reported last year. The firm has three factories, in Canada, Malta and Brazil, with the first two being FDA and EU-approved. Over the past seven years, Arrow has invested more than US$320 million in product research and development and markets over 100 molecules including more than 50 internally developed products. Arrow claims 60 products developed in six years, with 55 European submissions and 50 in the US. Watson noted that Arrow's product development activities are supported by state-of-the-art R&D centres in Melbourne, Australia, and Toronto, Canada. Watson added that as a result of the acquisition, it was also acquiring a 36% ownership interest in Eden Biodesign, a company which provides development and manufacturing services for early-stage biotech companies. This will provide Watson with a foundation for generic biologics.

Arrow has a presence in the UK, Ireland, France, Germany, Poland, Scandinavia, Slovenia, Malta, South Africa, India, China, Australia, New Zealand, Brazil, the US and Canada. Its US presence is in the form of Cobalt Laboratories, which has gained a number of ANDA approvals in recent years, including three first-time generics: acarbose tablets in May 2008; and topiramate tablets and capsules in March 2009 and April 2009, respectively. However, it is likely to be Arrow's international operations that will be of most interest to Watson. The firm had previously considered its operations to be based predominantly in the US and India, with its key commercial market being the US, and so the acquisition of a company with a presence in so many other countries will increase Watson's scope considerably. So too will the included 36% stake in Eden Biodesign, through which Watson clearly sees scope for entering the biosimilars market. With the growing likelihood of a regulatory biosimilars pathway emerging in the US, it makes sense for a company the size of Watson to seek ways to gain a toehold in this arena before the competitive floodgates are opened.

Ian Platts - Editor, World Generic Markets

AARP, PhRMA clash over drug pricing

On 16th November 2009, AARP issued a report that found that manufacturer prices for brand name drugs had risen over the last year, despite a negative general inflation rate. By contrast, the report also found that generic drug prices had fallen over the same period. The report looked at drugs widely used by Medicare Part D beneficiaries; in the case of brand name drugs, the report looked at 219 products, and found that 96% of these had seen price increases, with the remaining 4% seeing no change. Of the top 25 products, as ranked according to prescriptions processed by the Medicare Part D plan provider during 2006, price rises ranged from between 4.8% and 19.7%. The 4.8% rise was for the fourth-ranked drug, Wyeth's Protonix 40 mg tablets (pantoprazole sodium), whilst the 19.7% rise was for Boehringer Ingelheim's Flomax 0.4 mg capsules (tamsulosin hydrochloride), which was ranked at number 17. The top-ranked drug was AstraZeneca's Nexium 40 mg capsules (esomeprazole), which saw a rise of 7.1%, whilst the second-ranked drug, Bristol-Myers Squibb's Plavix 75 mg tablets (clopidogrel bisulphate) saw an increase of 8.2%.

With regard to generics, although AARP's report saw prices decreasing by an average of 8.7%, the breakdown of the top 25 generics paints a slightly different picture. Only four of the top 25 saw any price changes, but in this case, all four had significant price falls. The four were all from Teva Pharmaceutical Industries, and were: simvastatin 20 mg tablets (ranked at number one), which saw a price drop of 77.7%; simvastatin 40 mg tablets (ranked at number two), which saw a price fall of 79.8%; metformin 500 mg tablets (ranked at number four), which saw a drop of 85.2%; and pravastatin 40 mg tablets (ranked at number 10), which saw a drop of 68.9%. Teva accounted for nine of the top 25 drugs, with Sandoz accounting for another nine, and thus between them accounting for 72% of the top 25.

Unsurprisingly, PhRMA, the Pharmaceutical Research and Manufacturers of America organisation, was unimpressed with AARP's report and challenged its findings. Accusing AARP of having a 'skewed view of the world', PhRMA began by arguing that looking at drug prices overlooked the savings they provide in the form of fewer medical procedures needing to be carried out and increased productivity through better prevention and management of diseases. However, turning to the price statistics themselves, PhRMA argued that AARP had taken a selective view, which did not take into account discounts and rebates for brand name drugs. PhRMA noted that the Medicare Trustees had reported that rebates in the Medicare drug prescription programme had reached 20% to 30% for many brand name drugs, and added that there was a 50% discount companies would provide to most seniors and disabled Americans who had reached the 'donut hole' in the Medicare Part D programme. PhRMA was able to provide data from IMS, the Centers for Medicare and Medicaid Services (CMS) and the Congressional Budget Office (CBO) which countered AARP's claims. IMS data showed that prescription drug spending growth had fallen to 1.3% in 2008, whilst the CBO found that drug expenditures grew by 3.2% between 2004 and 2007.

The charges and counter-charges between AARP and PhRMA shows above all that when it comes to healthcare costs, the old maxim remains the case that there are lies, damn lies and statistics. Both organisations can be accused of being selective in their figures, with AARP taking figures that, in not taking into account deals and rebates, provide arguably misleading results. For its own part, PhRMA can also be accused of the same, using figures spread over longer time frames than the AARP report. As is often the case, the truth of the matter no doubt lies somewhere between the two.

Ian Platts, Editor, World Generic Markets