Monday, July 13, 2009

The End of Generics as We Know 'Em

Generics is a dying industry, according to Claudio Albrecht, ex-CEO of generics group Ratiopharm. Never mind the wave of patent expiries causing so much sweat at Big Pharma, or the cost pressures leading governments and payers everywhere to promote generic usage. The sector, as traditionally conceived, must change or be no longer.

Albrecht’s talking about oral, small molecule generics. He’s talking about pills like simvastatin, which cost just pennies and are now commodities, soon to be dominated by high-volume price-dumpers. The future, Albrecht declared at a recent London conference organized by investment bank Bryan Garnier, is in hard-to-make generics and biosimilars, as branded drugs increase in complexity—and as branded players get smarter with their lifecycle protection strategies.

“Innovative products are the future of generics,” he hailed, somewhat contradictorily. But if you think about it, the top selling patented drugs, after the forthcoming round of expiries, will be biologics. So the traditional small molecule generics companies need to learn, fast, how to develop and sell them. Otherwise, in 5-7 years, “the generic industry won’t have an answer.”

By then generics will be a device business, too—more and more drugs will be injectable, and/or require some kind of delivery system. Look at insulin—it’s all about pens, that’s really how Novo and others have protected their franchise and will continue to do so, most likely, despite no substance IP. The increase in product complexity will ultimately lead to targeted therapies—and probably no generics at all as a result.

Big Pharma, struggling to find and fund ‘new’ drugs as traditionally defined, are cottoning onto this changing universe. Hence some are making moves (in some cases back) into generics, mostly hard-to-make injectable generics (look at Sandoz’s €925 million cash acquisition of Ebewe in May) or biosimilars and follow-on-biologics (remember Merck/Insmed) further blurring the boundaries between the innovative and generic sectors as a result.

Where does that leave the traditional generics guys, though? It’s not so easy for them to jump into R&D—most spend far too little to even hope to compete in the new world of complex generics with their likely lower substitutability and higher margins. Ratiopharm and Actavis are up for sale. Most of the others that spend less than $200 million a year (compared to over $650 million for Teva or Sandoz) will have to re-invent themselves, too.

Meanwhile if the challenge of increasing product complexity’s not enough, health care reform in Europe’s largest market ,Germany, has already radically changed the game for generics firms. This was a comfy branded generics market where high prices allowed firms to fund doc-focused sales forces. No longer. Payers now rule the roost and determine, through highly competitive price-based tendering, whose generic version will be dispensed in pharmacies for the following two years, shutting out the losers entirely. (See our forthcoming IN VIVO feature for more on how such contracts are spreading to patented drugs, too.)

Small wonder that Betapharm, and others, have fired all their doc-focused sales forces. Generic prices have fallen 30% since 2005 in Germany, a slide that will continue.

So who will be the winners in the new generic world-order? Not necessarily the small molecule lot that have honed their first-to-file skills. Teva and Sandoz, having invested in biologics and manufacturing, are well-placed.

But, less obviously, so are smaller players like UK respiratory-focused Vectura, formulation experts, sitting slap bang in the middle of these converging innovator and generics spaces: the company has two deals on value-added generics with Sandoz, as well as a tie-up with Novartis around a proprietary drug formulation, and a device deal with Boehringer Ingelheim.

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