GENERIC TIDE IS RISING
Expiring patent protections and pressures on makers of brand-name drugs bode well for the generic pharmaceutical industry
A. MAUREEN ROUHI, C&EN WASHINGTON
It has become a ritual. mornings and evenings, I take one tablet of gemfibrozil to regulate the level of triglycerides in my blood. Like many baby boomers, I now must take certain medications regularly to stall diseases associated with aging.
At drugstore.com, a year's supply of gemfibrozil currently costs $156, compared with $1,038 for Lopid, the equivalent brand-name product. The 85% savings reflects gemfibrozil's wide availability because of multiple sourcing.
||INNOVATION Generic companies rely on R&D to bring generics to market rapidly.
In 2000, the average cost of a prescription filled with a generic drug was $19.33, versus $65.29 for a brand-name product.
It behooves anyone who has to pay the full cost--uninsured patients, senior citizens without prescription benefits, health insurance companies, states, and national health systems--to insist on generic drugs if available.
Growing expenditures on drug prescriptions fuel the clamor for generics. The Centers for Medicare & Medicaid Services estimates that prescription drug spending in the U.S. was $117 billion in 2000, 17.5% more than in 1999. Although the growth of this spending is forecast to slow from 2001 and on, the rate will stay at double digits, and spending will reach $366 billion in 2010.
Meanwhile, blockbuster drugs with global sales of almost $82 billion in 2001 will have lost U.S. patent protection by 2007, according to a new report by Datamonitor, a business information company. This is bad news for brand-name drugs, because generics quickly erode their sales. For example, in 2001, sales of Bristol-Myers Squibb's Glucophage (metformin hydrochloride) were more than $2 billion, according to Neal Hansen, the report's lead author. The diabetes drug lost patent protection last January, and within one month, more than 85% of the market was taken over by generics, he tells C&EN.
For generic companies, Glucophage itself was not a huge opportunity because 12 generic versions were launched in two weeks, Hansen says. A better opportunity is something like AstraZeneca's Prilosec (omeprazole), for which Andrx, of Fort Lauderdale, Fla., has final Food & Drug Administration approval to market a generic version.
In this case, Andrx has first-to-file exclusivity on the 40-mg formulation. When this Andrx product hits the U.S. market, it will be the only generic 40-mg Prilosec allowed for 180 days. Andrx enjoys this exclusivity because it challenged AstraZeneca's unexpired patents protecting Prilosec (see page 53). "Andrx does not need to drop the price so much for a while. They could make $900 million in six months," Hansen says.
"THE CLIMATE is very good if you're a generic drug company," Hansen says. "Globally, cost containment in health care is a high priority. Any move to increase the use of generics is very much favored." Especially if a Medicare prescription drug benefit is passed, generic drugs are poised to be more dominant in the U.S. pharmaceutical market than they have ever been before.
|WORLD LEADERS IN 2001
Top 10 sold more than $9 billion worth of generic drugs
|$ MILLIONS GENERICS
|a Generics sales include industrial business. b For year ending June 31, 2002. c Estimate. d Fiscal year ends March 31. e Calculated from totals, excludes ratiopharm. na = not available. SOURCE: Datamonitor
Thirty-five blockbusters are coming off patent by 2007
The global market for generics was $27 billion in 2001, up 11.3% from 2000, according to the Datamonitor report. That rate of growth is higher than the 8% estimated for the global pharmaceutical market as a whole. The $82 billion opportunity from expiring blockbuster drugs--those with sales of at least $1 billion per year--is just for starters, Hansen says. "Companies will be looking to make generic versions of the $500 million drug and the $50 million drug. When you start considering what's beyond the blockbuster market, the market opportunity is huge."
Generic companies also can seize opportunities that result from the uneven penetration of generics in various markets, especially in Europe. For example, the market shares of generics in Belgium, France, Italy, and Spain were each less than 4% in 2001. However, growth rates of generics from the previous year were highest in these countries, ranging from 53% in France to 291% in Italy, according to estimates of Stada Arzneimittel, a German generic drugmaker based in Bad Vilbel.
France, Italy, and Spain traditionally have been unreceptive to generics because in those countries generic drugs usually have been priced only slightly lower than innovator products, according to Enrico T. Polastro, a vice president and senior industry analyst at Arthur D. Little Benelux. Physicians, pharmacists, or patients thus have little incentive to accept generics, he says. But the situation is changing. Many European countries are moving toward increased use of generics. In France, for example, doctors are being required by the government to meet a certain volume of generic prescriptions.
Datamonitor projects a higher growth of generics in Europe than in the U.S. U.S. generic firms "have not bothered to enter European markets, because it is a drag to get approval country by country," Hansen says. But regulatory changes are under way that will make it easier to launch generics across the European Union.
GENERIC COMPANIES are positioning themselves for a share of the coming bounty. Success will depend on innovation.
Commodity generics require little or no innovation, are easy to manufacture, and yield only slim profits. Many companies avoid these products, preferring only specialty products--that is, generic drugs that have some barrier to entry.
For example, the entire generics portfolio of Biovail, Toronto, consists of oral, once-daily, controlled-release medications. The technological barrier to entry in this segment is significant, according to Kenneth G. Howling, Biovail's vice president of finance.
Impax Laboratories, Hayward, Calif., also concentrates on products requiring controlled-release technology. "The more difficult a product is, the more interesting it is for us," Cornel C. Spiegler, Impax' chief financial officer, tells C&EN. Spiegler cites as examples Claritin D-12 and Claritin D-24, Schering-Plough's 12- and 24-hour extended-release antihistamine/decongestant combos. These products are so difficult to make that only two companies, Impax and Andrx, have developed generic versions so far, he says.
Although Andrx has been expanding its presence in the immediate-release market, "we believe there is more revenue and profit opportunity in developing sustained-release versions" of drugs, says Richard J. Lane, Andrx' chief executive officer.
Andrx has a suite of sustained-release technologies that it applies to different products in various ways. Its generic Prilosec is an example. AstraZeneca's patent for delayed-release Prilosec specifies a three-layer coating, Lane explains. Andrx designed around that, producing delayed-release omeprazole that has only two layers. In addition to Prilosec and Claritin D-24, other products for which Andrx has designed around the patents of innovator companies include Wellbutrin SR (sustained-release buproprion hydrochloride), an antidepressant from GlaxoSmithKline, and Tiazac (extended-release diltiazem hydrochloride), an antihypertensive drug from Biovail.
Other products with significant barriers to entry are injectable drugs and drugs with special regulatory requirements, such as a patient-monitoring system to track side effects.
TO MAXIMIZE profits from their technological expertise, many generic companies make it a top priority to be the first to file a generic version with patent challenges so that they can enjoy the six-month marketing exclusivity. This strategy can bring massive revenues in the short term.
For example, when Barr Laboratories, Pomona, N.Y., launched a generic version of Prozac, it made $311 million in the first six months. But when the exclusivity ended, sales dropped to $54 million in months seven through nine, and sank to $2.5 million in months 10 through 12.
However, the scenario is different for generics in European markets, where generic drugs maintain relatively high market shares for a long period. Take, for example, the top five generic products of Stada: omeprazole, lactulose (a synthetic sugar to treat constipation), ranitidine (a drug to treat heartburn and acid reflux), amoxicillin, and ibuprofen. "All these products are still growing," a spokesman says. Even ranitidine, which has been on the market for 10 years, grew 36% from 2000 to 2001. That's because, in Europe, generic companies have well-organized sales forces that visit doctors and cultivate product loyalty, the spokesman explains.
Booms in revenues elate investors, and busts turn them sour. "The main aim of generic companies is to even out the boom-and-bust cycles by generating a sustainable revenue stream and a sustainable increase in profitability," Hansen says.
"The key is to have a very active development program," says Marvin Samson, president and CEO of Sicor, Irvine, Calif. "You can't rely on just one product being approved."
Sicor specializes in a market with few players--injectable drugs, which are some of the most difficult to manufacture. "We won't be in the situation of generic Prozac," Samson says. When Barr's exclusivity on Prozac expired, 18 other companies jumped in, and prices plummeted in the ensuing bloodbath. On the other hand, for every product it develops, Sicor has at most four competitors, and price erosion is not severe, he explains.
Developing products that are more user-friendly is another focus of Sicor. For example, Sicor's oncology products are ready-to-use liquids in unbreakable plastic, rather than glass, vials. A glass vial would break when dropped, spilling a potentially toxic drug, which might have to be cleaned using special procedures.
An additional part of Sicor's strategy is to develop branded products. These could be improved old drugs--for example, a drug that must be injected once a day might be formulated for once-a-week application--or brand-new drugs. Although Sicor will not be developing new chemical entities, Samson says the company--with $320 million in cash--is very well placed to acquire a proprietary drug or a late-stage development product.
Many companies are not so keen to be the first to file because of the litigation associated with that route. Andrx, however, is "very committed to first-to-file patent challenges," Lane says. "Litigation is part of the cost of doing business. Big pharma invests in R&D; generic companies spend on litigation to defend their own patented technologies," he adds.
"The main aim of generic companies is to even out the boom-and-bust cycles by generating a sustainable revenue stream and a sustainable increase in profitability."
MORE RECENTLY, Andrx has ventured into branded products by improving off-patent drugs. Last July, the company launched Altocor, which is an extended-release version of the cholesterol-lowering drug lovastatin (originally marketed by Merck as Mevacor). Because lovastatin is an immediate-release product, Altocor is not a generic copy. "Using our technology, we've redesigned the drug, improving its absorption and efficacy profiles," Lane tells C&EN.
Altocor is an example of a "supergeneric" or "branded generic." It's better than the original; it represents a higher level of innovation than specialty generics; and the company gets full patent protection and a minimum of three years of marketing exclusivity. However, the supergeneric maker must go through a different approval process--not the Abbreviated New Drug Application, which applies to generic versions--requiring limited animal toxicology studies and clinical trials to demonstrate that its version is effective.
Branded generics are particularly prevalent in Europe, according to Polastro. They are sold at limited discounts under distinct trade names, and they are actively promoted to physicians. Because "generics" usually refer to commodity products that are sold at deep discounts, Polastro prefers using the term "multisource pharmaceuticals" to refer to the full range of drug products based on an active ingredient that is no longer protected by patent.
An oral version of Bristol-Myers' anticancer drug Taxol (paclitaxel) that is being developed by Ivax Pharmaceuticals, Miami, is another example of innovating an off-patent drug. Taxol is an injectable drug, and generic versions are now available from multiple sources, including Ivax. An oral drug would be far easier to take than an injection. "If Ivax can launch the oral product, they can take market share from the injectable formulation and make quite a lot of money," Hansen says.
The ultimate that a generic company can do in terms of innovation is to turn itself into a proprietary company. Biovail is far along in this direction. "In terms of R&D, we're going forward strictly on the branded side of the business," Howling says. "We will continue to enjoy the revenue streams from our generic products, but we're not developing any more generic products."
Similarly, Impax is developing a portfolio of brand-new drugs for diseases of the central nervous system. Already it is planning to file two Investigational New Drug Applications in 2003 and more in 2004.
MORE AND MORE generic companies are concentrating on difficult-to-develop products and building a brand-name portfolio to achieve sustained revenue flow and profitability. Another track toward this goal is niche generics, which are, according to Spiegler, generic versions of small-volume brand-name products with annual sales ranging from $5 million to $25 million.
||DONE Vials of injectable drug come off the manufacturing line at Sicor's facilities in Irvine, Calif.
||EXPANDING Based in Germany, Stada is extending its reach to the U.S.
Because Impax is a relatively small company, being first to file to get market exclusivity is not a top priority, Spiegler says. Instead, Impax looks for products that are of little interest to big generic companies. Teva Pharmaceuticals, the largest generic company in the world, "is not going to spend time and money targeting a brand-name product with only $25 million in sales," he explains. "It could use the same resources for a product with $100 million in sales."
An example of a niche product in Impax' portfolio is generic oral Brethine (terbutaline sulfate), a bronchodilator from Novartis Pharmaceuticals. Sales of Brethine were about $17 million before generic competition, Spiegler says.
Stada's U.S. operations also are concentrating on niche products. Last year, Stada extended its reach to the U.S. by acquiring the Cranbury, N.J.-based generics subsidiary of Mova Pharmaceuticals, a company headquartered in Puerto Rico. The U.S.-based generics operation is still small, according to a spokesman. Sales in 2001 were $26 million, and the forecast for 2002 is $40 million. By focusing on products that have few competitors, he adds, "this operation, we believe, can reach sales of $100 million within three years."
The drug target's market characteristics are also key factors that generic companies examine when deciding what products to develop. A spokesman for Ranbaxy Laboratories, based in New Delhi, India, says the number of players in the market and the level of competition are key factors. And Stada will offer any product that's out of patent if it has a high enough sales volume.
"The demand for low-cost medicines is enormous, the number of megabrands coming off patent is significant, and the opportunity to build and create value is wonderful."
ANOTHER KEY FACTOR is the source of the active pharmaceutical ingredient (API), because most generic companies buy all their active ingredients from fine chemicals companies. One exception is Sicor, which has API manufacturing capacity and supplies some of its own raw material needs, as well as those of other pharmaceutical companies.
In the past, generic companies simply waited for agents of API manufacturers to call with product lists, notes Jean Hoffman, president and CEO of Newport Strategies, a Portland, Maine-based company that analyzes technical intelligence related to generic drug development, manufacture, and marketing. Now that generic companies are focused on challenging patents, they need sophisticated API manufacturers with whom they can partner, she tells C&EN. The generic company's relationship with an API supplier is becoming more like that of an innovator's, she says.
When a generic company is trying to circumvent a patent, how fast the API manufacturer can develop an alternative non-patent-infringing process is critical to the generic company's success in gaining first approval, Hoffman explains. But it's not just about technology, she adds. It's also about the API manufacturer's competitiveness, regulatory history, and manufacturing capabilities; what other products it manufactures; and whether it can provide the API in the specific way the generic company demands.
Polastro believes that generic APIs are a very attractive segment of the fine chemicals industry. Yet in this industry, generic APIs are not in the portfolios of some key players. But change may be afoot.
Lonza, for example, which is well known for its commitment to exclusive synthesis for innovator companies, is "evaluating entry" into the generic market, a spokeswoman tells C&EN. The interests of current customers will weigh heavily in making any decision, she says. Similarly, Degussa Fine Chemicals does not focus on generic APIs. Nevertheless, it will consider opportunities that fit in its portfolio, a spokesman says.
|STATE OF THE ART Worker prepares to load a reactor at CU Chemie Uetikon's new facilities for manufacturing active pharmaceutical ingredients in Lahr, Germany.
CU CHEMIE UETIKON
LIKEWISE, Isochem, the pharmaceutical arm of SNPE Group, "has never been deeply involved and does not intend to be involved in the generic market," according to a spokesman. But if an opportunity arises to make a good-value-added generic API with total transparency to innovator customers, "we are ready to do it," he says.
On the other hand, Honeywell Specialty Chemicals is not expanding its portfolio of generic APIs, which are manufactured in Honeywell's Arklow, Ireland, site. The business is focusing on innovative APIs for growth, says Jens-Peter Wulf, manager of life sciences fine chemicals.
Some in the fine chemicals industry hold the view that exclusive API synthesis for innovator companies and generic API manufacture are incompatible activities that would engender conflicts of interest. That view is not borne out by fine chemicals companies that are engaged in both.
Cambrex, for example, has more than 80 APIs in its generics portfolio and is committed to adding six to eight more per year. At the same time, it has an exclusive synthesis business, although on a smaller scale. Sales of generic APIs in 2001 were about $114 million, or 23% of total revenues, while exclusive APIs contributed about $61 million, 12% of total revenues.
Clariant historically has been involved in generics and considers generics a vital segment of its pharmaceuticals business, according to David Maddox, head of Clariant's pharmaceuticals business unit. "A multicustomer business offers stability and long-term predictability and balances the higher risk, higher reward investments we make with our primary customers on innovator drugs," he says.
However, innovator companies are Clariant's major pharmaceutical customers. Generics represent only up to 30% of Clariant's pharmaceuticals business. "We go into generics only when there is a good fit, in technology or raw materials," Maddox says. "And very often, we get into generics in support of our pharmaceutical customers during the later stages of the life cycle of their brand-name products."
A key part of Clariant's service to its innovator customers is developing late-stage options for drugs that are coming off patent, Maddox says. One option is process improvements, which, by lowering API production costs, allow brand-name drugs to be price competitive against generics. Another option is moving production to a country where costs are lower, such as India.
For Hovione, in Loures, Portugal, exclusive APIs and generics are equally important. "In terms of strategy, the ideal for us would be a 50-50 split between these two activities," Guy Villax, Hovione's CEO, tells C&EN. "Having this mix of products is critical in managing the ups and downs of the pharmaceutical business."
Manufacturers of generic APIs take a huge risk. They select a product based on the feasibility of inventing a different manufacturing route, develop the process chemistry, and assemble the drug master file--or registration dossier for European customers. Then they find buyers.
But it's not that straightforward. Finding a reliable source of raw materials is fundamental, Villax says. For example, Hovione just announced the availability of the API for generic Zocor (simvastatin), Merck's blockbuster cholesterol-lowering drug, which had worldwide sales of $6.67 billion in 2001. Zocor's patent protection is due to expire in 2005.
Simvastatin is produced by methylation of lovastatin, which is a fermentation product. Hovione has partnered with CKD Bio, a Korean company, to develop and market simvastatin. "Our partner is very strong in fermentation, and we're very strong in synthesis. The combination will make reliability of supply a very strong argument for generic companies to prefer us as suppliers," Villax says.
Furthermore, whenever a drug loses patent protection, the amount of API needed to supply the market more than doubles, Villax explains. "Because of the enormous volumes involved, success in generic APIs requires good understanding of the supply chain, especially where it is weakest and most susceptible to competition," he says.
At CU Chemie Uetikon, Lahr, Germany, sales from generic APIs are only about a quarter of those from exclusive synthesis. "We do not develop generic APIs and then go out and sell," Ingo Graefe, head of marketing, sales, and purchasing, tells C&EN. "We develop generics only if a customer is interested."
Furthermore, because the company is small, it cannot take on generic APIs for blockbuster drugs. So it goes for low-volume products. An example is terazosine hydrochloride, the API of Hytrin, Abbott Laboratories' drug to treat symptoms caused by enlargement of the prostate gland, as well as hypertension. CU Chemie Uetikon is supplying the API to Geneva Pharmaceuticals.
Graefe finds no reason for conflicts of interest to arise when API manufacturers work with both innovator and generic drug producers. "If you are always fair and clear to everybody, there is no conflict," he says. The situation hasn't come up, but if a generic company inquires about an API that is being supplied to an innovator for a drug that has come off patent, Graefe says, "we will respect the wishes of our longtime partner. If the innovator says no, we will tell the generic company, 'Sorry.' "
The conflict-of-interest issue is a myth, Polastro says. "I don't see any problem, provided that the parties stick to ground rules, which are mainly common sense. For example, do not apply technology that you have acquired or developed for an exclusive contract to a generic project, or do not make a product under exclusive contract for the generic market."
Despite the efforts of fine chemicals companies, many APIs of interest to generic companies still are not readily available. The API of Premarin is an example, says Richard L. DiCicco, president of Technology Catalysts International, in Falls Church, Va.
Premarin (conjugated estrogens) is Wyeth's drug to treat menopausal symptoms. The API comes from pregnant mares' urine. According to IMS Health, a health care information company, almost 71 million prescriptions for estrogens were dispensed in 2001, of which more than 45 million were for Premarin, which had sales of more than $2 billion.
Until last year, the API was not available to generic companies. Now one source is available--Natural Biologics, in Albert Lea, Minn., which is working with Barr Laboratories to develop a generic Premarin. Given the challenges of developing alternative ways to prepare the API, big rewards await any other company that could make the product available to other generic drugmakers.
"The prospects for generics have never been brighter," Andrx' Lane says. "The cost of medicines continues to grow at a rate that's creating tensions and problems everywhere, the demand for low-cost medicines is enormous, the number of megabrands coming off patent is significant, and the opportunity to build and create value is wonderful. And that's before one puts into place some type of Medicare provision. And that, I think, will happen."