Generic Drugs Partner On Volume; Pharma Pressured Into Innovation Alliances

The growing demand for generic drugs is driving the need for more partnerships in the pharmaceutical business. As branded pharmaceutical patents expire generic drugs increase in volume driving demand for strategic alliances on two fronts:
1. Price driven generic drugmakers composed of smaller companies must stay competitive by consolidating volumes
2. Price pressures from senior patients are pushing the pharmaceutical industry to quicken innovation needed to capture new patents and health solutions for other age groups.

Sigma Global Corporation, a generic drugmaker specializing in chronic conditions, today announced a strategic distribution deal with TOP RX, INC., a pharmceuticals distributor for more than 59 manufacturers of FDA-approved generic drugs. According to Sigma CEO Craig Presnell, "This relationship will allow Sigma Global Corp. to service large healthcare organizations efficiently and cost-effectively." Sigma's market is primarily composed of senior patients.

More than 53 percent of prescriptions in the U.S. are filled with bioequivalent generic drugs, according to the Pharmaceutical Research and Manufacturers of America. An unprecedented number of top-selling drugs are scheduled to go off patent within five years, a potential savings of $23 billion to seniors and the Medicare system, Mark Merritt, president of the Pharmaceutical Care Management Association, (PCMA) told the Washington Post. Commonly used by older people 14 drugs are due to go off patent by 2010, including the cholesterol drugs Zocor and Pravachol, the antidepressant Zoloft and the prostate medication Proscar. The report projects a saving of $13 billion for Medicare if generic competitors reach the market as scheduled.

Pharmaceuticals continue to fight the trend by misespousing the notion that branded products are superior in quality. Some patients and physicians hesitate to prescribe generic medications because of quality concerns. The FDA, however, is responsible for monitoring the bioequivalency of generics. In theory the only differences between the brand-name product and the generics are the price and the name.

Manufacturered by smaller pharmaceutical companies who do not invest in R&D on new drugs allows for the reduced cost of generic medicines. The large pharmaceutical companies shoulder the cost of research and development and the cost of bringing a new drug to market. They cite these high costs as the primary reason for higher prices and the need to recover "innovator" brand costs before the patent expires. Generic manufacturers are able to charge significantly less.

In reaction, pharmaeuticals are focusing on mergers, acquisitions or co-marketing deals to stay ahead of the generic scheme. The result is a boom in new funding for life sciences research by smaller companies. In-house research on diseases is no longer the only target area for these companies. Health, wellness and beautifying products...including drinks and foods...are now part of the complementary medical portfolio pharma investors are exploring. The hot, hot area for partnerships are small biotechnology and nanotechnology companies. These companies are producing new drugs, treatments and wellness formulations for a variety of ages and lifestyles. In most cases, small innovators do not have the sales or marketing capability. The large pharmaceutical companies or their venture surrogates are on the prowl for value by funding early stage developmental synergies. They seek to revamp their traditional pipelines with volumes that work around the generic stream.