Generic Drug Makers Hurt By Latest Federal Government Budget

Amid the government's budget plan that helped restart a brief-shutdown left one key act on the cutting room floor that had Big Pharma breathing a sigh of relief.

In the wee hours of Feb. 9, the Creating and Restoring Equal Access to Equivalent Samples Act, which ultimately seeks to lower the cost of new drugs by making generic versions of these life saving medicines available sooner, was not included in the government's spending bill.

The Creates Act as the bipartisan measure has come to be known, would have made it more difficult for companies with name brand medications to delay generic development.

The exclusion on the measure from the budget is a major blow generic drug companies like Teva Pharmaceutical Industries (TEVA) , Sun Pharmaceutical Industries Ltd. , Fresenius, Lupin, and Aspen Pharmacare. All of those companies are listed in the top 15 in generic revenues by Evaluate.

At the same time, the absence of the measure is a companies such as Mylan NV (MYL) , Novartis AG (NVS) , Pfizer Inc. (PFE) , Sanofi SA (SNY) and Allergan plc (AGN) , who all are also in the top 15 generic companies, benefit from the failure of the Creates Act since they are still protected from legal actions by generic companies seeking drug samples.

The Congressional Budget Office said the measure would have saved the federal government $3.8 billion over 10 years since it would have resulted in increased generic drug manufacturing and dropped costs for Medicaid and Medicare. Consumers would have realized more savings as the generic drugs would have been priced considerably lower than the brand name medications.

The act had the backing of an unusual mixture of supporters. The act itself was sponsored by Senator Patrick Leahy, D-Vt and had co-sponsors that included Senators Amy Klobuchar, D-Minn., Mike Lee, R-UT., and Chuck Grassley, R-Iowa. Texas republican Ted Cruz also supported the act. The measure also had the backing of conservative group FreedomWorks, the liberal organization Families USA, patient groups Patients for Affordable Drugs NOW and Campaign for Sustainable Rx Pricing, insurers Anthem, Kaiser Permante, Blue Shield of Calif. and pharmacy/retailers WalMart and CVS Health (CVS) .

Not surprisingly the measure also had the backing of the Association for Accessible Medicines, the advocacy group for the generic drug manufacturers. The AAM blamed the failure of the Creates Act to make the budget on the lobbying efforts of Big Pharma.

Pharmaceutical Research and Manufacturers of America or PhRMA said it believes CREATES would lead to more litigation and drive up healthcare costs.

The measure would allow generic drug makers to take pharmaceutical companies to court over their failure to provide drug samples to the generic drug makers for research purposes. The generic companies use the samples to not only reverse engineer the drugs but also to manufacture generic versions that must be tested by the Food and Drug Administration to ensure safety as well as efficacy. Currently drug companies can slow down the process by failing to make the samples available or slowing down delivery.

The Creates Act would also prohibit pharmaceutical companies from excluding generic companies from taking part in shared safety protocols, with the FDA able to approve alternative protocols for generics.

"Pharma Bro" Martin Shkrelli's company, Turing Pharmaceuticals Inc., used the delay ploy in keeping generic companies at bay, according to court documents. Shkrelli became the scourge of the drug industry after famously taking a medication from $13.50 a pill up to $750. He was also convicted of securities fraud and his actions led to drug pricing being an issue in the 2016 presidential primaries and campaign.

The final budget did include changes to Medicare Part D which will eliminate a loop hole regarding drug pricing, the so-called donut hole, which will bring some drug prices down.

"We applaud Leaders McConnell and Schumer for including a provision to close the donut hole a year early," Ben Wakana, president of Patients for Affordable Drugs NOW, said in a statement to TheStreet. "This change will lower drug costs for some Medicare Part D patients. But, only roughly 15 percent of Americans are covered by Medicare. Closing the donut hole doesn't help the other 85 percent of Americans struggling under high drug prices. And it doesn't fix the patent abuse problem the Creates Act solves. We will continue our work to pass the Creates Act as soon as possible. It is good policy, it enjoys broad bipartisan support, and it lowers drug prices."

A spokesman for the Association for Accessible Medicine told TheStreet, "This is a defeat for the millions of patients across America who would have benefited from the Creates Act. Congress missed a meaningful opportunity to bring down drug costs for these patients. We now expect patient advocacy for a Creates Act fix to intensify since the problem of brand company games and shenanigans to artificially extend monopolies is only getting worse."

The failure of the Creates Act to find its way into the budget means that measure is still alive as a bill. It is the fourth time a similar measure has been offered and with the bipartisan support as well as the popular backing would seem to make the bill a strong candidate for passage. But the fact it failed to make the cut in the budget is a testament to both the politics and the money flowing in Washington.

Finger pointing over the Creates Act being left out ranged from successful lobbying by PhARMA to Republicans and Democrats horse trading for other inclusions. And both parties blamed the other for the Creates Act's fate.

It's worth noting that PhARMA has stepped up its lobbying efforts in the last year, increasing its spending on lobbying from $20 million in 2016 to $25 million in 2017. The organization also spent more than $7 million on a PR campaign to position drug companies as explorers of the outer reaches of the research universe looking for discoveries that improve people's lives, cure diseases and change health outcomes.

PhARMA did release a statement on the budget, but it did not touch on the Creates Act. "Our industry has long supported efforts to make prescription drug coverage more affordable for Medicare Part D beneficiaries. Rather than prioritizing lowering seniors' out-of-pocket costs, this proposal provides a massive bailout for insurance companies and undermines their incentives to reduce Part D costs, and incentive that has worked well for more than a decade."

In recent weeks critics of the measure have indicated that new FDA Chairman Scott Gottlieb has been aggressive in his support of speeding up the process for approving generic drugs in the hopes of stoking more competition in the marketplace and driving down drug prices. They wanted to wait to see if the FDA could succeed before supporting the Creates Act.