“It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change,” explained Charles Darwin in Origin of the Species, his treatise on natural selection and its role in evolution. For the generic drug industry, this universal maxim is hard at work, and it’s clearly evident the industry’s players are busy adapting to the pressures the current commercial and regulatory environment is presenting.
What does the future hold for the generic drug “species?” Time and profitability will tell, but it is obvious that some entities will thrive and prosper, while others less blessed with scale, cost-efficient operations, competitive agility and financial health will go the way of the mastodon — weakened by poorly understood or controlled processes and risk prone to expensive quality and compliance excursions — destined to be hunted down by faster, more efficient predators.
Global Market Warming
Total spending on medicines globally is projected to rise to $1 trillion in 2013 and to $1.2 trillion by 2016, says IMS Institute for Healthcare Informatics. For generic drugs, the market was worth $110.8 billion globally. In the report “Generic Drugs: World Market 2013-2023,” pharma industry analyst firm Visiongain predicts it will reach $156.9 billion by 2016, reflecting a compound annual growth rate of 5.5%. Visiongain set the U.S. market at $43.1 billion for generic drugs in 2011, making it the world’s largest national market for generics, followed by Germany, a distant second, at $8.6 billion. Visiongain says “the generics market is expected to achieve significant revenue growth over the forecast period owing primarily to the greater demand for cost-effective generic medicines.” (see sidebar: Generic Drugs: Cost Effective Indeed)
2012: A Pivotal Year
For the generic drug industry 2012 was a pivotal year. In 2012, more than 40 branded drugs representing some $35 billion in sales lost patent protection. Reporting for the New York Times, pharma industry observer Katie Thomas said the value of drugs scheduled to lose patent protection will be cut in half to some $17 billion and, consequently, have a negative impact similar to the effect patent expirations are having on the branded industry. While the ultimate effect of a constricting pipeline of generic drug patent expiration opportunities remains to be seen, generic producers, contract manufacturing operations (CMOs), excipient suppliers and other players are responding to market and competitive pressures, evolving and adapting to challenge adversity and win opportunity.
Some are seeking to exploit niche markets and technical acumen by focusing on producing difficult formulations. Others seek market share, global production assets and strategic therapeutic category positions through acquisitions, partnerships and alliances. When one starts looking across the supply chain, it’s obvious this behavior is being repeated again and again. A recent visit to CMO DSM Pharmaceutical Products affirms the pervasive view among industry players that smart collaborations and well-ordered alliances will provide longer-term advantages and healthy revenue streams. According to Wayne Weiner, vice president of Business Development, “DSM is establishing strategic alliances worldwide which build on our technical, manufacturing and regulatory expertise with partners’ understanding of patient needs to bring generic and specialty medicines to market in a reliable and sustainable way; and consistent with DSM’s Quality for Life program.”
Noteworthy, and with a certain irony, large generic pharma is also looking to secure positions in branded pharma to support strategic business goals and attain longer-term financial and business success, pursuing a hybrid business model to help assure sales and revenue, as well as investor returns. Of course, big branded pharma has also, over the years, been busy staking out its territory in the generics space.
Last October, Watson acquired Activis, adopted its name and in the process made itself the third largest generic maker in the world. Seven months later, Valeant Pharmaceuticals was reported to be chasing Activis, as was Mylan which offered $15 billion for the Parsippany, N.J.-based company — an offer it rejected according to a May 14 Reuters report. Just over a week later, media reported that Activis agreed to acquire specialty pharmaceutical company Warner Chilcott Plc. in a $5 billion deal. A Wall Street Journal piece May 21 provided insight: “The Warner Chilcott deal would help Activis — whose core generic-drug business faces difficult market conditions — further diversify into patented, brand name drugs.” According to the report, Activis said the Warner Chilcott acquisition would strengthen its portfolio and boost annual revenue to about $11 billion.
Other companies are creating alliances and defining new partnership models, as well as closely examining, then trimming asset costs or looking to divest noncore assets to achieve similar ends. Teva, widely acknowledged as the global generic drug industry’s leader (ranked 10th by IMS as among the top 20 pharma manufacturers in 2012 by sales of $24.8 billion), has been responding to business environment pressures, busy restructuring itself to compete in the generics industry’s fast-changing environment.
In April, Bloomberg reported Teva is reducing manufacturing operations as part of a $2 billion, 5-year cost-cutting effort, with most of the savings under the plan coming from lowering procurement expenses. Teva CEO Jeremy Levin offered this assessment: “Some parts of manufacturing will be affected, but this is not the major thrust of this,” said Levin.
Teva is also pursuing the production of difficult formulations as is Mylan (ranked 20th on IMS’ top 20 list with $10.5 billion in 2012 revenues) — both looking to create generic versions of Advair, a tough nut to crack because it combines two APIs delivered via a specialized inhaler.