President Obama wants to see inexpensive generics hit the pharmacy shelves sooner. While that would be good for your pocketbook, it would wreak havoc on drugmakers that sell branded drugs.
Obama's budget proposal includes a provision to reduce a 12-year exclusivity period that biologic drugs have down to just seven years. Allowing biosimilars from companies including Teva Pharmaceutical (Nasdaq: TEVA) and Novartis (NYSE: NVS) on the market earlier would potentially kill the peak-years sales of biotech drugs like Human Genome Sciences' (Nasdaq: HGSI) Benlysta or Seattle Genetics' (Nasdaq: SGEN) brentuximab vedotin.
It's only "potentially" because the exclusivity period is only useful for drugs that have less than 12 years of patent life when they're approved. Those that have more than 12 years wouldn't be affected by a change from 12 to seven years. Amgen's (Nasdaq: AMGN) Vectibix, for example, had about 14 years of patent life remaining when it was approved in 2006. In some ways, this is just a debate over biotech's backup plan.
Small-molecule drugs weren't immune to the president's desire for cheaper drugs. The 2012 budget includes a proposal to allow the Federal Trade Commission to stop settlements between branded and generic drugmakers. In so-called pay-for-delay deals, brand-name drugmakers compensate generic-drug makers to not launch their copycat drugs.
Makers of branded and generic drugs both like the pay-for-delay deals, since they allow both sides to compromise and not have to roll the dice with a court decision. It isn't clear who would be the ultimate winner if pay-for-delay deals go away. Will generic-drug makers win more cases and get a windfall of revenue? Or will they save their legal dollars for cases where they have the greatest chances of winning, leading to less patent challenges and a win for branded drugmakers?
Neither proposal is new and both have had a tough time getting through Congress in the past. There's always a possibility of a compromise, but I'm not sure investors should be all that worried at this point.
On the bright side, if your retirement portfolio drops because the proposals go through, at least you'll need less money to pay for medication in your old age.
