Moody's report says generic drug companies face greater challenges

Moody's Investor Service said in a report this week that generic drug companies are facing increasing challenges about the prices they want to charge and regulatory oversight of the drugs they make and sell.

The continued push by people and organizations paying for drugs - patients, private insurance companies, employers, governments - will make meeting revenue expectations more difficult.

Supreme Court decisions in June will impact in several ways, all of them raising regulatory, legal and competitive costs for generic companies.

In one case, the court said pay-to-delay or reverse payment deals between generic and branded companies can be scrutinized by courts to determine if there were anti-trust violations.

In a second case, involving Philadelphia's Mutual Pharmaceuticals (a subsidiary of India-based Sun Pharmaceuticals), the drugmaker won the case, but the industry might, eventually, lose in the long run. The court's decision said a generic drugmaker could not be sued in state court over a drug's design flaws because that would contradict current Food and Drug Administration regulations at the federal level. The FDA has since said it is considering rule changes to allow such suits.

Moody's vice president and senior credit officer Jessica Gladstone noted the recent decision by Teva to strike what Teva called an "agreement-in-principle" to settle a patent case involving Cephalon and take a $485 million charge against earnings. An earlier PhillyPharma item on that is here.

"As industry risks rise, generic drug companies' capacity for leverage will decline and better liquidity will be necessary," Gladstone wrote. "Though some changes will take a while to play out, over time operating risks could materially increase, and if they do, our tolerance for leverage at companies' current ratings will go down."