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The take home message for
delegates at IIR’s Global Generic Strategies conference,
held in Barcelona in March-April 2004, was that the traditional
line between research-based pharma companies and generics
house is blurring, as companies on both sides of the industry
divide finally come to realise the benefits of a mixed portfolio.
Neil Turner of PPR Communications, a division of IMS Health,
reports on why big pharma is getting into generics and how
generic companies are moving up the value chain.
Big
pharma looks to generics...
Keynote speaker
Rory O’Riordan, President of the European Generics Association
and COO of Clonmel Healthcare (a subsidiary of German generics
giant Stada), opened proceedings. "Big pharma is getting
into generics
and generic houses are getting into drug discovery," he
said. "Novartis, for example, does everything – prescription
originals, biopharmaceuticals and generics. Fixed definitions
don’t work anymore," concluded O’Riordan, "They’re all pharma
companies."
In big pharma’s case, even
the largest, most research-focused companies are looking
at the generics sector. Pfizer, for example, acquired several
generic businesses as a result of the Pharmacia takeover:
Greenstone is a separately run generics business that helped
retain 70% of alprazolam volume after Xanax went
off patent. "Pfizer seems to realise the value of a generics
business when the company’s products come to the end of
their patent lifecycles," commented O’Riordan, "Well over
a year after the merger with Pharmacia, Pfizer still owns
these generic businesses." Furthermore, he predicted that
several big pharma companies will buy generic companies
in the next two years.
...while generics
look to raise margins
On the other
hand, generic companies have a strong interest in entering
the branded market with patent-protected products. "Generic
prices vary up to 35% in the UK market, for example," noted
O’Riordan, "It’s a very volatile market, so the stability
of the patented market – especially in terms of higher,
more predictable prices – is extremely attractive in terms
of market planning."
O’Riordan cited
several examples of generic companies moving up the value
chain by diversifying into the originals sector. Clonmel’s
own parent company, Stada, has been acquiring mature brands
as a counterpoint to the exposure it has on the generic
side. While such relatively small brands might not have
a place in the portfolio of larger research-based companies,
they can turn a useful profit in the hands of more specialist
marketeers like Stada.
Teva has gone
a step further. With its development of Copaxone
(glatiramer acetate) for relapsing-remitting multiple sclerosis,
Teva has challenged the historic divide between generic
companies and the fully integrated R&D-based pharma
giants. Importantly, adds O’Riordan, "Teva doesn’t run Copaxone
through its generics company – it’s managed separately."
Ranbaxy is another
company that has shown ambitions beyond both its domestic
market in India and its core business in generics. The company’s
controlled-release formulation of the antibiotic erythromycin
is a prime example of a product that adds value to the original,
in this case through the incorporation of a modified release
mechanism. In addition to moving away from the low margin
commodity approach to generics by investing in higher margin
‘supergenerics’, Ranbaxy also has an active research pipeline,
with four new molecular entities in clinical development.
Having espoused
this brave new world, O’Riordan finished by playing devil’s
advocate. Citing a recent report, he said that while some
big pharmas were entering the generics market in an ambitious
way, others were still leaving it. Aventis, for example,
recently sold its generics business. And with total sales
of around $2 billion each, the world’s two largest generics
businesses – Novartis' Sandoz and Teva – are still smaller
in size than a major branded blockbuster.
Germany leads
the way
In his talk on biogenerics,
Federico Pollano, Head of Business Development with BioGeneriX,
the biopharmaceutical unit of the ratiopharm/Merckle group,
highlighted the favourable operating environment in Germany,
Europe’s leading generics market:
- a well-established generics
sector that is accepted by both patients and healthcare
practitioners alike (generics take a 68% share of the
patent-free market)
- high growth potential owing
to increasing pressure on healthcare expenditure
- high margins because of
comparatively low price erosion
- few restrictions on initial
pricing
- limited restrictions on
reimbursement
The positive attitude to generics
in Germany,
which accounted for 51% of European generic sales of $7
billion in 2002, is demonstrated by take-up rates. Four
years after launch, average generic penetration reaches
45% at a discount of 30% to the original. Generics’ overall
position is broadly similar to Germany in the Netherlands
and even stronger in the UK. The less developed generic
markets of southern Europe, where price differentials between
originals and generics are on average less, still have some
catching up to do: in 2002, generics accounted for only
4% of the Spanish pharmaceutical market.
Generic take-up
rates and price differentials in selected European markets
| Country |
Average
penetration after 4 years (%) |
Average
difference between brand & generic price after
4 years (%) |
| UK |
55 |
80 |
| Netherlands |
35 |
50 |
| Germany |
45 |
30 |
| France |
5-15 |
30 |
| Italy |
5-15 |
25 |
| Spain |
5-15 |
25 |
Source: IMS Health
Wake up call
Summing up, conference
chairman Graham
Lewis, IMS' Vice President
Europe, Pharma Strategy, cited the example of generic simvastatin,
Merck & Co's Zocor, in Germany as evidence of
the changing shape of the generics market. "With simvastatin
in Germany, we have seen a generic event on a major product
that has cannibalised market share from other statin brands,"
he said. "This has not been seen before in the US and Europe."
Though the German effect has not been repeated in the UK,
where patents have also lapsed on simvastatin, IMS forecasts
a bright future for generics. "We predict that topline growth
in the pharmaceutical industry to 2008 will remain at 8-10%
but real growth will be 1-1.5% lower because of discounts
and clawbacks," commented Lewis. "The provision of a Medicare
drug benefit will add approximately 1% to growth from 2006.
But, above all, generics will grow ahead of originals."
In a final wake up call to big
pharma, he warned: "The status quo won’t work going forward.
None of the top 10 pharma companies grew strongly last year
and five of the top 10 grew below the market average." And
while big pharma obsesses over the loss of sales to parallel
trade, Lewis believes
the industry should be much more concerned by the threat
of reference pricing – a development only made possible
by the growing influence of generics on the pharmaceutical
business.
Neil
Turner is Editor at PPR Communications, a division of IMS
Health: for further information about PPR, please visit
pprconciseguides.com.
The PPR Concise Guide to Generics can be bought
direct at IMS' Online Store. |
