Threats and Opportunities for the Generic Industry
KATE KUHRT
JUNE 2006
AT FIRST GLANCE, MANY OPPORTUNITIES
• Increasing demand for low-cost
therapies
Proportion of Population Aged 60 or Over
– Aging population
• US Medicare Drug
reimbursement
• Reference pricing in Europe
20
10
0
World
More Dev
– Government involvement
30
Less Dev
– Increased generic
substitution
Percent of Population over 60
– Consumers becoming more
cost sensitive
40
1950
1975
2000
2025
Source: United Nations, DESA, Population Division
2050
GENERIC OPPORTUNITIES IN THE U.S.
• Products with $100B in branded drug sales are coming
off patent in the next 7 years
• Patent challenges by generic companies
25
20.1
18.4
30
15.2
15
12.4
10
12.3
10.5
10.0
Top 5
Sales
10
5
0
2006
20
2007
2008
2009
2010
2011
2012
Source: Newport Strategies’ Horizon Global system
0
Number of drugs coming off
patent (Newport Constraint Date)
Sales Billions USD
20
40
A CLOSER LOOK…
• Rapid price erosion in the U.S. and UK
• Diminishing margins on both dose and API sales
• New regulations in Germany (AVWG)
• Settlements between generics and brand companies are
delaying generic entry in the U.S.
• ANDA approval backlog in the U.S.
• Fewer new launches by innovators over the past years will
translate into fewer opportunities for generics down the road
5-10% of $100 billion over 7 years, divided among many players and
products, does not necessarily translate into a lot of money for
every generic company
DOWNWARD PRESSURE ON DOSE PRICES
• Demand
– Purchasers focus on price
U.S. ANDA Approvals
– Past relationships matter less
400
361
• Supply
– Generic filings and approvals at alltime high
– A number of new entrants, many
from India, often with access to
low- cost APIs
– Overcapacity in manufacturing
– Focus on market share rather than
bottom line
– Authorized generics in the U.S.
Office of Generic
Drugs (OGD) approvals
– Reverse auctions
300
Indian
approvals
296
232
241
2000
2001
320
284
200
100
0
2002
2003
2004
Source: Newport Strategies’ Horizon Global system
2005
DOWNWARD PRESSURE ON API PRICES
• Demand
– Dose manufacturers focus on price
Number of U.S. DMFs
– Past relationships matter less
• Supply
– Overcapacity in manufacturing
– Record number of DMF filings
– Availability of low-cost APIs from
India and China
• (Too?) many plants FDA
approved
992
1,000
900
772
800
Number of DMFs
– Willingness to take the risk and go
with less-known API sources
Indian DMF's
600
580
639
400
200
0
2001
2002
2003
2004
2005
• Many companies hold COS
Source: Newport Strategies’ Horizon Global system
COPING STRATEGIES
• Consolidation
• Geographic diversification
• Backward integration into API
• Sourcing from India, China, and other low-cost
countries
• Alliances with companies in low-cost countries
• Moving manufacturing to low-cost countries
• Focus on niche products
COPING STRATEGIES: CONSOLIDATION
COPING STRATEGIES: CONSOLIDATION
• Likely to see a period of consolidation in pursuit of
– Top-line growth
– Opportunities in new markets
– Synergies
• Result: Industry will likely be dominated by a handful of global
players plus many small players
• Barr’s rumored $2.1B acquisition of Pliva
– Biogenerics
• 2005 deal to develop a generic version of Amgen Inc.'s
Neupogen
– New dose forms
– Presence in emerging markets
– API
COPING STRATEGIES: GEOGRAPHIC
DIVERSIFICATION
• Opportunities in Europe
– Counterweight to the U.S. generics market
• DRL-Betapharm, Matrix-Docpharma, Ranbaxy-Terapia
– Competition among Indian companies driving up prices of
companies
– Commoditization of German generic market?
• Japan
– Merck KgaA in Japan since 1998
– In November 2005, Ranbaxy increased equity stake in JV with
Nippon from 10% to 50%
– In March 2006, Teva applied for approval to sell drugs in the
Japanese market
– Dr. Reddy's considering setting up an office in Tokyo or Osaka
by the end of next March
COPING STRATEGIES: BACKWARD
INTEGRATION INTO API
• Recent example: Watson - Sekhsaria
• Pros
– More control over cost and access to API
• Decreasing number of established API manufacturers still
independent
– Different parts of the value chain may make money in different
products
• Cons
– No one plant can make all APIs required by a typical generic
– Making just enough for captive use often not economical
– Other dose companies wary of buying API from a competitor
COPING STRATEGIES: MOVING
MANUFACTURING AND R&D TO LOWERCOST COUNTRIES
• Applies to both API and dose manufacturing
• Recent example: Watson
– Acquired from DRL a small solid oral dose plant in Goa
– Increased investment in an FDA-approved Chinese/Taiwanese API
manufacturer
• Sandoz – multiple units in India
• Teva – scientists in Faridabad, acquired Regent Drugs (JK)
• Apotex – manufacturing and R&D facilities in Bangalore
• Ratiopharm – R&D center in Goa
• Stada
– “Complementation of existing Group-owned production sites in GER, NL,
and IRL by production sites in “Low Cost Countries” Russia, Vietnam
(50:50 JV) and China (currently only local orientation)” (Stada Corporate
Presentation 2006)
COPING STRATEGIES: ALLIANCES WITH
INDIAN COMPANIES
• Zydus Cadila
– Distribution agreement with Mallinckrodt
– 50/50 JV with Mayne for cytotoxic dose and APIs
• Glenmark
– Development and supply agreement with KV for 8 ANDAs
– Agreement with Invagen for 7 products
– Deal with Konec for nitroglycerin and with Interpharm for
naproxen
• Lupin
– Injectable ceph generics with Baxter
– Oral ceph generics with Watson
COPING STRATEGIES: SOURCING FROM
INDIA & CHINA
• Many highly qualified API sources in India and China
• India
– 68 FDA-inspected API manufacturing sites
– 33 FDA inspections in FY2005 (20 API, 7 Dose, 3 API/Dose, 3 Labs)
• 22 NAI (no action), 11 VAI (voluntary action), 0 OAI (official action)
• China
– 69 FDA-inspected API manufacturing sites
– 15 FDA inspections in FY2005 (14 API, 1 repacker)
• 6 NAI, 9 VAI, 0 OAI
• Are FDA inspections in India and China less stringent?
COPING STRATEGIES: SOURCING FROM
INDIA & CHINA
• Generic companies’ willingness to use second- or
third-tier API manufacturers is particularly
damaging157
to Italian182
API manufacturers
195
1,059
# of API manufacturers
100%
80
ROW
60
40
Italy
20
China
India
0
Established
Less Established
Potential Future
Local
Source: Newport Strategies Horizon Global ™
COPING STRATEGIES: FOCUS ON NICHE
PRODUCTS
• Products with small sales no longer count as
“niche”
– Even $20M products attracting a lot of interest
• Margins in difficult formulations likely to remain
higher
– Inhaled products, certain injectables
• Biogenerics
– Teva, Sandoz, Pliva
FUTURE
• Will focus on price backfire?
• Is the number of suppliers going to decrease
enough to give the remaining players more
negotiating power?
• What will be the impact of generic entries from
China?
THANK YOU!
Kate Kuhrt
Director, Generics and API Intelligence
Thomson Reuters
215 Commercial Street
Portland, Maine 04101
USA
+ 1 (207) 871-9700 x26
kate.kuhrt@thomsonreuters.com