Originals and generics: together, not instead

The Reincarnation of Big PharmaValery Yudin, "Weekly Pharmacy" No. 27-2009

For many years, the largest pharmaceutical companies, representatives of the so–called Big Pharma, have been working on how to prevent competition from representatives of the generic business - lobbied for the adoption of legislation that would extend the term of patent exclusivity, challenged in courts the right to produce generic versions of original drugs, conducted thousands of clinical trials in the hope then patent another method of application, etc. However, now many of the representatives of Big Pharma have found themselves in such a situation that they are forced to join the number of those who have been opposed all this time…

... More and more often faced with the problem of the expiration of patent exclusivity for their original medicines, representatives of Big Pharma, continuing their way, are increasingly inclined to a hybrid brand-generic model (hybrid brand /generic model).

Four of the five largest multinational pharmaceutical corporations in the world ― Pfizer Inc., GlaxoSmithKline plc., Sanofi-aventis and Novartis International AG ― began to actively occupy a position in the generic business, and other major players in the pharmaceutical market followed their example.

So, at the end of May this year, Pfizer announced that it was expanding its product portfolio of generic medicines through the conclusion of two deals with companies based in India (Pfizer is seriously counting on emerging markets). Pfizer has expanded the agreement concluded with the Indian Aurobindo Pharma India by licensing commercial rights to 60 generic medicines for more than 70 developing countries in addition to 70 drugs for which an initial agreement was concluded in March this year.

Pfizer also announced a deal with another Indian company, Claris Lifesciences Limited, which includes 15 generic drugs for parenteral administration, which Pfizer will market in the United States, Europe and Australia under its own trademarks.

And more recently, on June 10, David Simmons, president of one of the established products unit of Pfizer, announced that the company plans to expand the range of generic medicines through licensing agreements, acquisitions and in-house developments. The generic drugs market, he noted, is huge, while growing faster than it might seem at first glance, and that is why Pfizer is now making efforts to "grow" this division.

Two days later, the head of Pfizer's emerging markets unit, Jean-Michel Halfon, announced which markets in developing countries the company was making additional bets on. In addition to India, China, Brazil, Mexico, Russia, Turkey and the Middle East were named after him. In this regard, it is expected that annual sales in these markets will provide the company with an additional $3 billion by 2012. Moreover, the Middle East is called one of the most promising regions for sales growth.

Almost at the same time, Novartis announced that it was ready to pay 925 million euros ($1.294 billion) for the portfolio of parenteral generic drugs of the oncological division of the Austrian company Ebewe Pharma, which specializes in anti-cancer drugs such as carboplatin, cisplatin, doxorubicin and epirubicin (Novartis acquires the oncological division of Ebewe Pharma").

This company already has extensive business experience in the generic drugs market. So, since 2003 it has its own generic division "Sandoz". Since then, other generic companies have been merged under this brand, including the Canadian "Sabex Holdings Ltd." (August 2004; transaction price ― $ 565 million), the Danish "Durascan" (July 2004; in 2003 it was estimated at $ 25 million), the German "Hexal AG" (which is also a key player in the market of similar biological products) and the American "Eon Labs" (the latter both in June 2005; the transaction was valued at $ 7.4 billion).

As for Sanofi-aventis, this year the company is particularly active in relation to acquisitions in the field of generic business. So, in March, it finally took over the Czech company Zentiva (the deal is estimated at $ 2.34 billion), which occupies a confident position in Eastern Europe and Russia. The following month, Sanofi-aventis acquired two more companies: the private Mexican firm Kendrick Farmaceutica (the amount of the transaction was not disclosed), as well as the Brazilian Medley Pharmaceuticals Ltd. (the transaction was valued at $ 688 million).

The next company to expand its presence on a multinational scale is GlaxoSmithKline, which in March this year acquired 16% of the largest generic company in Africa, Aspen Pharmacare (the deal is estimated at $410 million. USA) (GlaxoSmithKline acquires a 16% stake in Aspen Pharmacare). These companies have also expanded their strategic partnership, including the acquisition in 2008 from Aspen Pharmacare of the rights to 20 generic drugs, which GlaxoSmithKline will market under its own trade names in 95 emerging markets, including China and India, from 2010. In addition, in March, the British pharmaceutical giant signed an agreement with the American Prasco Laboratories, which will ensure the marketing and distribution of many generic GlaxoSmithKline drugs in the United States. And more recently, the British company announced the conclusion of an agreement with the Indian generic manufacturer "Dr. Reddy’s». Thanks to this agreement, GlaxoSmithKline gets access to the existing product portfolio of Dr. Reddy's", as well as products that will appear in the future, in total to more than 100 drugs from the group of antidiabetic, cardiovascular, gastroenterological, painkillers and oncological drugs that it will market in emerging markets outside India.

Another European company, Swiss Roche, acquired the American biotech company Genentech at the end of March this year (the deal is estimated at $46.8 billion).

Merck &Co. took a more unexpected and rather bold step by entering the generic drugs market segment, last December founding a new division ― Merck BioVentures, which will focus on similar biologics, also called bioengineers. Such a project ― the first for an American company that had previously been engaged in original drugs ― will begin with a biopreparation intended for the treatment of anemia in patients undergoing dialysis; the company expects to get at least 5 other generic biopreparations into its bio-product portfolio by 2012.

In order to help strengthen itself in this growing sector, Merck &Co. announced in February that it plans to acquire a portfolio of similar biopharmaceutical products from the American company Insmed Inc. along with its production facilities located in Boulder, Colorado (the deal is estimated at $130 million). The product portfolio of this company includes two products that affect granulocyte colony stimulating factor (granulocyte-colony stimulating factor), which are currently undergoing phase III and I clinical trials, respectively.

Merck&Co. is also strengthening the presence of its generics on the Japanese market, where its subsidiary Banyu Pharmaceutical Co. Ltd. is located, which signed a deal with Mylan Inc. to promote two key generic cardiovascular drugs on the Japanese market.

Japanese companies are also equally impressive. So, in October last year, Daiichi Sankyo completed the acquisition of the Indian Ranbaxy Laboratories Limited, investing a total of $ 4.6 billion in it. (Daiichi Sankyo and Ranbaxy are nearing the completion of the transaction") and proposing to create a hybrid brand-generic business (although subsequent problems in production and the introduction of stricter standards for the approval of medicines by regulatory authorities led to record losses for Ranbaxy amounting to 335.8 billion Japanese yen, or 3.5 billion dollars)..

According to Glen Giovannetti, head of the research group in the field of global biotechnology at Ernst & Young, despite the financial crisis, which, of course, had an impact on investments in biotechnology, 2008 was still a record year for mergers and acquisitions of companies ("The crisis will make the current model of the biotech business unviable").

However, not all companies leave their original drugs in a helpless position. So, Pfizer has found a rather original way to maintain the image of brands, starting in May of this year to implement the "MAINTAIN" program in the United States to provide free access to more than 70 medicines of its own production for those who have lost health insurance due to job cuts. Free treatment with original drugs will be available for 1 year or until the unemployed person receives an insurance policy again (Pfizer offers free Viagra to the unemployed in the USA). Thus, Pfizer is trying to support not only the market of its shares, but also encourages patients to take original drugs, and not switch to their generic versions as a way to save money.

As already mentioned above, the most important problem that all major representatives of Big Pharma face sooner or later is the end of patent exclusivity. Approximately 70 original drugs are expected to expire in the next 4 years. For example, Pfizer Corporation has a number of products, including a megablockbuster, the drug Lipitor/Liprimar (atorvastatin), used for hypercholesterolemia.

According to some estimates, Sanofi-aventis drugs, whose sales account for more than 20% of all sales of this company in the US pharmaceutical market, will soon face competition from generics, including products such as Plavix/Plavix (clopidogrel; marketed jointly with Bristol-Myers Squibb), Eloxatin/Eloxatin (oxaliplatin) and Taxotere/Taxotere® (docetaxel).

A big concern for Novartis is that its blockbuster antihypertensive drug Diovan/Diovan® (valzartan), with annual sales of about $ 5 billion, will lose patent protection in 2012; several other drugs are also on the verge of expiration of patent protection.

The drug of the company "Merck&Co." Cozaar/Kozaar (losartan) faces the need to resist competition from generics already in 2010.

However, the end of patent exclusivity is just the tip of a growing generic iceberg. According to Ian Schofield, Advisor to the editors (Consultant Editor) of the journals "Scrip", "Regulatory Affairs Journal" and "Good Clinical Practice Journal", the global generic drug market is increasing by about 10-15% per year, and its growth is likely to continue for several more years, especially in the USA. With the coming to power in the United States of the government of Barack Obama and the Democrats, who make up the majority in both chambers of Congress, political support for the generic medicines market is increasing. And since price sensitivity is growing in the pharmaceutical market (price sensitivity is the perception of the price of goods and services by various segments of the market, depending on their socio―demographic, personal and psychographic characteristics), and reform in the healthcare sector is looming on the horizon, Americans are becoming inclined to purchase cheaper generic drugs.

An increase in the volume of the generic drugs market is also expected in Japan. Thus, over the past 3-4 years, its volume in the land of the Rising Sun has increased by about 7% per year, and the government of this country is taking steps to further increase it ― at least to 30% by 2012 (Schofield I., 2009). This favorable situation in the Japanese market is already attracting foreign companies. So, "Teva Pharmaceutical Industries Ltd." established a joint venture (equally owned venture) with the local "Kowa Pharmaceutical Company Ltd.", and the Icelandic "Actavis" with "Aska Pharmaceutical" organized in November 2008 a joint venture "Actavis ASKA Co. Ltd." ("ASKAPharmaceutical" ta "Actavis" they opened the spilne pid priemstvo").

In Europe, price pressure (the impact of the scale of competition and the pricing policy of competitors on the actions of this firm, that is, the manifestation of price competition) contributes to the fact that most national governments support the consumption of generic drugs in order to reduce the growing costs of healthcare. Thus, according to the report of the National Audit Office of Great Britain (National Audit Office) in 2008, the National Health Service managed to save almost 400 million pounds (657.3 million dollars) through the use of cheaper generic drugs in the healthcare system, especially for the therapeutic group of statins (Financial Management in the NHS: Report on the NHS Summarized Accounts 2007-08. Twenty-second Report of Session 2008-09; www.publications.parliament.uk ).

At the level of the European Union, a dual system of approval of generic medicines acted as a green light for generics: on the one hand, a more streamlined decentralized procedure was introduced, and on the other, a centralized procedure for their approval, which provides generic drugs with access to all EU markets. Legislation concerning similar biological products has also been developed in Europe.

That is why, in this context, the steps taken by Merck &Co. in the direction of similar biopharmaceutical products are not without meaning. Thus, the European experience has shown that the market for similar biologics has potential, and legislation regarding the approval of these drugs in the United States is very similar to the European path (for example, two bills on bioengineering drugs are currently being considered by Congress).

Another factor stimulating the reorientation of representatives of Big Pharma to generics is the significant growth of emerging markets, which are beginning to make up more and more of the business of multinational pharmaceutical companies, says, for example, Ian Haydock, editor of Scrip magazine in Asia. Quite a striking example is the same Pfizer, which plans to take first place in these markets and, according to J.M. Halfon, the management of the corporation even has ideas on how to achieve this, despite the economic downturn (Pfizer is seriously counting on emerging markets).

The importance of pharmaceutical markets in developing countries for Big Pharma will only continue to grow, and global strategies for their development will now increasingly take into account both medical needs and commercial opportunities of such countries. At least such thoughts were voiced in the reports of two speakers who spoke at the IBC Drug Discovery and Development Japan conference in Tokyo, Japan, which was held in early June. Both speakers ― representatives of GlaxoSmithKline and AstraZeneca ― outlined a relatively rosy picture for Big Pharma in emerging markets compared to modest growth forecasts in the US and Europe, mainly due to reforms in the healthcare sector and cost control.

Of course, some companies have already noted favorable opportunities in emerging markets over the past few years, and they were the main reason for the already mentioned acquisition of Ranbaxy by Daiichi Sankyo.

However, it has only recently become apparent how fast emerging markets are growing. So, Judith Hills, Vice President of GlaxoSmithKline for Asia-Pacific, Japan and Emerging Markets (Vice President, Asia-Pacific, Japan and Emerging Markets) at the above-mentioned conference said that, according to her company, the volume of the top 10 emerging markets by 2015 will grow in in total, up to 168 billion dollars. compared to approximately $67 billion in 2005. The reason for this is an increase in the number of middle―class people in these countries who need better drugs and medical care, as well as an increase in the number of chronic diseases, especially cardiovascular diseases.

The growth rate of total sales in emerging markets, which include Central and South America, Africa and most of Eastern Europe and Asia, has increased by more than 2 times, and the population of developing countries may reach 5 billion people by 2015, ― said J. Hills. GlaxoSmithKline alone had sales volumes in these markets last year reaching 2.3 billion pounds ($3.75 billion), an increase of 12%.

In these markets, this company has well-represented branded generics among its main products, as well as Seretide (fluticasone+ salmeterol) and Augmentin /Augmentin (amoxicillin clavulanic salt); vaccines are the second key area of interest of GlaxoSmithKline, estimated at about 1.6 billion pounds (2.6 billion dollars).

Patrick Keohane, head of AstraZeneca's R&D division in the Asia-Pacific region and Japan, noted that sales of the company's products in emerging markets reached $4.27 billion last year, their growth was 16%. At the same time, in China, for example, only $8 is allocated per capita per year, so the company had to look for answers to the question: how best to meet the medical needs of such markets, which could not but affect the R&D strategy.

According to P. Kehen, AstraZeneca's strategic effort to enter the biologics market has now come to the fore, and it is such products that now account for about a quarter of new drugs in the company's portfolio. And, most likely, AstraZeneca will continue its steps towards the development of biological products, which became possible thanks to the acquisition of MedImmune Inc. in 2007.

But although Asian and other developing country markets can give representatives of Big Pharma excellent opportunities for growth, problems such as intellectual property protection, parallel imports and counterfeit drugs still cause concern to multinational corporations.

There is nothing surprising in the fact that representatives of Big Pharma are betting on the generic market, looking at a hybrid brand-generic strategy as a way to find the most optimal way, spurred on by economic and regulatory conditions. But will such a strategy work? Most large multinational corporations obviously think that way and have already made the appropriate decision. Other companies whose drugs will face the expiration of patent exclusivity after a while may soon adopt the same strategy of reorientation to the generic business. So, such drugs of the AstraZeneca company as, for example, Arimidex / Arimidex (anastrozole), Symbicort / Symbicort Turbuhaler (budesonide+formoterol) and Seroquel/Seroquel™ (quetiapine), in the next couple of years will face the same competition from generics, although the company has not yet made steps towards the generic drugs market.

Indeed, the path of generic medicines will not be to everyone's taste. Companies whose business is based on R&D and which have not yet been affected by the burden of ending patent exclusivity are unlikely to follow this route ― Roche, Bayer Schering Pharma and Abbott Laboratories Inc., for example, are only partially exposed to competition from generics. A few years ago, Roche stated that it was not interested in generic products mainly because not many products would lose patent exclusivity in the near future.

However, the situation may change, and as the generic market continues to grow, generic companies will occupy a larger and larger share of the main markets. And this is already happening. Thus, Teva is starting to expand into the Japanese market, while Mylan is strengthening its position in India and in the large Eastern European generic markets. Lupin Pharmaceuticals Inc., an Indian company, has acquired 51% of Multicare Pharmaceuticals Philippines Inc. medicines and is looking for a favorable opportunity to develop its business in Asia, Eastern Europe and Latin America.

So who can R&D companies that plan to enter the generic drug market rely on? One obvious target is ratiopharm, the No. 1 generic company in Germany, which has been put up for sale by the Merkle family that owns it. So far, no more or less clear contender has emerged, although many have been named, including Sanofi-aventis and Teva, and later, according to Bloomberg reports, investment groups Apax Partners and Warburg Pincus.

Another possible target is the Icelandic company Actavis Group, which recently introduced a generic version of pantoprazole to the market in Germany, Ireland and the Netherlands, after the patent exclusivity period for the original Protonix drug of Wyeth expired on May 6. Actavis was put up for sale in January of this year, although then the sale process was suspended, obviously due to the fact that potential buyers considered the asking price too high.

At the same time, the reorientation of Big Pharma to the generic market does not end there. It is likely that soon we will witness the reverse process, when the largest representatives of the generic business will take over R&D companies. Teva is probably planning to take the first step in this direction. At least, the head of this company, Shlomo Yanai, recently stated that Teva is currently in search of acquisition objects in order to get the opportunity to diversify in the market of patented medicines. He also promised that this acquisition could be equal or even greater in size than the takeover of Barr Pharmaceuticals, Inc. (Teva plans to develop in the market of original drugs). And, most likely, Teva will focus on those companies that have recently appeared in their product portfolio or may soon have new drugs, or branded generics, especially in those therapeutic classes where Teva is not very active.

Will this be just an exception or will it be the beginning of the end for haute pharma, when everything gets mixed up and the output will be a solid brand-generic hybrid?

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06.06.2009