Amid public outcry over rising costs of brand-name drugs, the prices of generic medicines have been falling, raising fears about the sustainability and profitability of major generics companies. But some in the business are turning lemons into lemonades and seeing a world of opportunities instead. These firms are putting their special expertise in chemistry to work. Some firms that manufacture active pharmaceutical ingredients, for example, are hopeful and have started using their niche chemistry know-how to offer extra services. Many have moved into regions that would position them to make their own generic drugs, while others are providing specialized design services. They are also working on generics before patent protections expire on particular drugs. Coupled with this, the U.S. Generic Drug User Fee Amendments should translate to a more certain market with less approval times and a greater focus on quality.
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FDA facilitating improved access to generic drugs
The FDA’s Office of Generic Drugs (OGD) has witnessed a lot of success, especially the first year after the Generic Drug User Fee Amendments Reauthorization (GDUFA II) was implemented. The goal of the FDA is to advance the international harmonization of technical and scientific standards for the development of generic drugs. As a result, developers stand to gain by implementing a single drug development program and utilizing common elements of applications while filing for approval in many markets. This will not only help developers to seek approval in the US, but gain better access to other markets. Harmonization will enable global approval for high-quality generic medicines. It’ll also lead to increased competition as developers can use their information and data across many applications in various jurisdictions. This will lead to decreased costs and less complexity to the development and approval process.
Another key development in facilitating the entry of generics by the FDA is by bringing generic competition to a class of branded drugs, referred to as complex drugs. These drugs are expensive like costly injectable drugs, as well as metered dose inhalers use to reverse asthma. Under the traditional approach, these drugs were hard to “genericize”. As a result, they were subjected to zero competition from generic developers. However, in January 2019, the FDA approved the first generic version of Advair Diskus, for treating asthma.
While the FDA has made considerable progress in fostering greater competition by resolving hurdles that can make it difficult to win generic versions of some complex drugs, accelerating the speed of approvals, and regulating ways that branded manufacturers game the system to extend drug monopolies, there’s still a lot of work to be done.
Opportunities and Challenges
Generic companies are now finding it increasingly difficult to roll out new products since originator products that go off-patent are getting tough to develop, produce and commercialize. That said, on comparing the situation of generic companies with that of industrial or telecommunication companies, it’s evident that they have a broader and richer field of opportunities to choose from. Very soon, more than $217 billion worth of originator patents will lose their patents, and they span the entire range from biologics, oral solids, injectables, and inhalers to over-the-counter (OTC) medicines.
Industry experts suggest that generics will possibly have the luxury of approximately $60 billion in net growth by 2024. It’s now time for companies to make a careful evaluation of where to invest before deciding on their next product.
Opportunities and challenges vary greatly from one product category to the other as discussed below:
Oral Solids
Oral solid dosage forms (both capsules and tablets), continue to be the dominant mode of delivery in the pharma market. They are the biggest source of growth, with $88 billion supposed to go off patent by 2018. For many drug products, they are the most preferred alternative since they continue to offer the cheapest solution. They’re also relatively easy to manufacture compared to their big molecule counterparts besides being patient-friendly, particularly among the geriatric and pediatric populations.
However, all is not well. In the US and the UK, where they’ve turned out to become a true cost game, manufacturers are finding it very difficult to compete. In the Netherlands and Germany generic markets, persisting price competition has been aggravated by the launch of tenders, which has resulted in the discounting of over 95% on some products. In order to succeed, these companies will have to boost their manufacturing and operational capabilities and set smooth supplier networks. Most emerging leaders are renowned generic players or manufacturers in India.
On the contrary, cost is simply one of the determinants in most emerging markets since competition seems to be a branding game with lucrative margins. And certainty of branded generic models has been decreasing in recent years.
Biosimilars
With some of the world’s leading biologics continuing to face patent expirations in the coming days, the biosimilars market is set for an unprecedented growth. The global biosimilars market size is predicted to reach a value of $61.47 billion by 2025, and is expected to expand at a CAGR of 34.2% over the same period, based on a new report by Grand View Research. The US has many opportunities in the field of biosimilars despite a growing number of challenges. The most significant driving factor is patent expirations. Roche’s MabThera/Rituxan (rituximab), for instance, which was approved by the FDA in 1997, lost its patent in September 2016. Several firms like Pfizer, Boehringer Ingelheim, and Amgen are focusing on developing a biosimilar drug of rituximab.
In addition, reduced cost of biosmilars, when compared to patented biologics and fruitful outcomes in clinical trials, are anticipated to improve market growth. Currently, there’s an explosion in the pharmaceutical sector for the development of biosimilars, which is a cost-saving option to biologic drugs. Regulatory avenues have developed globally, biosimilars are being widely accepted and investments are shooting through the rooftop as over 200 players are involved. However, questions are hovering over the regulatory requirements for biosimilars, especially in the US.
Hazy regulatory requirements
The US accounted for over 50% of branded biologics sales globally worth $188 billion in 2017. For biosimilars, prolonged delays between the approval process and launch have become a norm in the US. In some ways, the biosimilars market in the country behaves more like a branded rather than a generics one. In each therapeutic category consisting of biobetters, biosimilars and originator biologics, different brands compete on rebate and price.
So far, the abbreviated biologic license application (aBLA) pathway hasn’t approved any biological product, and the FDA has been unclear about certain approval aspects, such as interchangeability and indication extrapolation. The biggest obstacle to approval is mainly because of the aBLA’s intellectual property provisions. Furthermore, just a handful of companies will be able to cater to the tough requirements for analytical characterization, technical development, manufacturing capabilities and clinical trials. Some companies have started reevaluating their investments in biosimilars. Merck, for instance, recently dissolved their partnership with Korea-based Hanwah to manufacture a biosimilar for generic Enbrel.
Rebate issues
At a time when European sales of biosimilars are booming, the US market remains flat. As of June 2018, 11 biosimilars were approved by the FDA, out of which just three are being actively marketed now. The others are awaiting patent expiry (Erelzi [etanercept]), or are tied up in patent disputes (Amjevita [adalimumab]). The uptake for biosimilars in the US remains low. Biosimilars face a range of challenges like contracting provisions (and those linked to rebates) that shield new entrants, restricted co-pay differences and a dearth of incentive mechanisms for physicians. The rebate wall prevents competition by shielding biosimilar uptake and access. Improved contracting models have to be put into place so that patients can gain access to inexpensive biosimilar treatments.
In the US, biosimilars are in a transitional mode, with companies of all sizes competing for limited market resources. However, one thing is certain. If a biopharmaceutical is a popular selling brand, the firm will undoubtedly target biosimilars. Humir, for example, which is the world’s best-selling drug, is the most competitive biosimilar. So far, seven players have reached a lawsuit agreement with Aberdeen, and waiting for the launch of a biosimilar product by 2023. Despite the uncertainty, players are reluctant to give up the field of biosimilars.
Respiratory products
Inhalers are an enormous opportunity with a huge market, with around 100-150 million people suffering from asthma in 2017, according to a report by WHO. Add to this, $19 billion were predicted to go off-patent by 2018. Rapid industrialization, particularly in BRIC nations along with improved access to healthcare has resulted in a continuous rise in asthma diagnosis, which has led to a huge global opportunity. Pharmaceutical companies, particularly the generic players, are finding ways to leverage on this market, and the best technique is to capitalize on long-established therapies that are now off-patent.
On January 30, 2019, the FDA approved the first generic version of the popular Advair asthma inhaler from GSK, which was a major breakthrough since many players were waiting for this moment for several years. Developed by Mylan, Wixela Inhub is available in three strengths for ages 4 and above. Two more popular branded inhalers went generic in January-Ventolin HFA and Proair HFA. All three inhalers became available to patients in February, and many have quickly switched over to the more affordable alternatives.
However, only a few players will have the necessary capabilities to gain approval in controlled markets, with commercial success being an uncertainty. In the US, the regulatory approval process remains unclear because of the absence of published guidelines for generic inhalers that can be substituted. Also, dry powder inhaler (DPI) guidelines come with expensive and difficult development programs. Furthermore, the commercial costs are anticipated to be higher for respiratory products compared to biologics considering the expenses rendered by originators for promoting.
Replicating off-patent therapies to manufacture cost-effective, ‘no brand’ or ‘own’ alternatives has a well-established and long history. However, the replication of a DPI entails an in-depth understanding of complex interactions between formulation and device, and of areas like aerosol science and fluid dynamics, which shouldn’t be underestimated by R&D teams.
Injectables
Injectables are a high-margin and attractive segment with immense potential and is expected to expand at a CAGR of approximately 13.6% from 2017 to 2025. In 2016, the global generic injectables market was valued at more than $49 billion. According to a report by Georgia Public Health Association (GPHA), 90% of injectable prescriptions in 2015 in the US were for generic injectables, which have mainly been driven by a remarkable series of patent expirations. Huge doses of generic injectables are globally sold every year, with monoclonal antibodies being the biggest revenue generator, and many in the industry are hopeful that they will continue to dominate the injectable market for the next few years. Other clusters of opportunities include local and general anesthetics, opioid analgesics, skeletal muscle relaxants, antidotes for opioid poisoning etc. Cardiovascular diseases and cancer segments are expected to witness highest growth opportunities due to the introduction of several antibodies-based generic injectable products.
Inflation of biosimilar products with off patenting of key patented drugs is anticipated to drive growth of the generic sterile injectable market. For example, major brands like Cancidas, Invanz, Cubicin, Humira and Remicade went off patent in 2017, which resulted in the entry of generic products. Some of the major players are bolstering their positing in their market with a series of M&As. For example, Baxter International Inc. entered into a major collaboration with Dorizoe Lifesciences in 2017 from India, to develop over 20 generic injectable products targeting cardiovascular diseases, cancer and infectious diseases. Rapid expansion by important market players is another reason behind the huge growth of the global generic injectable market.
However, due to the complexity of manufacturing coupled with the level of rigorousness involved in the process, production of generic sterile injectables is often challenging. This has led to frequent drug calls on account of safety issues, which in turn has partially restricted the growth of the global generic injectable market.
Important success elements in generic injectables include the degree and nature of portfolio differentiation, the scale and age of manufacturing facilities, the ability to polish the commercial model in an expanding competitive market, and the degree of quality and manufacturing assurance talent. By and large, the winners in this segment will be big players with equally big portfolios and reduced costs, and small players with unique offerings.
OTC
With patents expiring and generic drugs becoming easily available, companies are hopeful of penetrating in the Over the Counter (OTC) market. Since these drugs do not require a doctor’s visit, they are both cost-and time-effective. Many global regulatory bodies who decide which drugs should be sold based on a prescription and which should be available OTC, are now shifting a growing number of medicines from the prescription to OTC space. The OTC opportunity is massive, with the market slated to exceed $178 billion by 2024. It’s also attractive because of the stability of its cash flows and longevity of its brands. Although profit margins are muted, there are pockets of faster growth such as vitamins, dietary supplements and tonic drinks.
Generic players from Germany and France have now started moving into the OTC sector and they see it as an adjacent business. According to Consumer Healthcare Products Association (CHPA), making a switch to generic OTC drugs could save 73% than branded versions. A recent study by economists at the University of Chicago and Brown University discovered that pharmacists and doctors preferred generic versions of OTC drugs over brand-name ones.
But not all generic companies will be able to tap into this opportunity in competitive and International Nonproprietary Names (INN) markets since the skill set of OTC players will be way superior. The best approach will be in establishing partnerships with heritage consumer firms that can commercialize the products. The generics players will need to manufacture the products in a cost-efficient manner and quickly adapt to new formulation requirements and improved innovations. For instance, Teva, the world’s largest generic pharma, partnered with P&G to develop and market OTC medicines to establish a new entity called PGT Healthcare.
A perquisite for success: Functional excellence
It’s a prerequisite for generics companies to have functional excellence if they want to tap on to this ocean of opportunities. They will have to master the intricacies involved in the product development, supply and commercialization process. The main ingredients of success for these companies include building centers of competence, having a clear operation agenda, creating opportunities for innovative talent, and consistently looking out for the next brilliant goal. A classic example in this case would be India, which is currently one of the biggest manufacturers of generics. They have the world’s top performing manufacturing facilities, and conversion costs per production unit are less than 10% of industry standards.
Although confronted by a tough market and whole lot of challenges, generics companies have the potential to generate considerable value and capitalize on rich growth opportunities. The government needs to introduce new policies to avert market distortions and ensure that players do not adopt the same destabilizing approach of patent-based pharma companies that created the dire need for cost-effective generics in the first place.
