Strong forces continue to shape world pharmaceutical markets, most of which point to continued market share and volume growth for generics. As global R&D spend stays flat, regulations continue to tighten, user fees increase and industry consolidation heats up again, how can manufacturers respond? By analyzing examples of successful industry growth models, what role can information play in helping companies transition to higher value products and services quickly and efficiently? Which sources of information are required to inform these new and different strategies and meet the changing needs of an industry and companies undergoing change?
The world now spends well in excess of one trillion dollars on the drug component of providing healthcare to its citizens. This spending is expected to grow at an average of 5.5% until at least 2018 but with significant regional differences, ranging from less than 2% in many European markets to greater than 8% in many countries in Asia, the Middle East, Latin America and Africa.
Generic pharmaceuticals currently make up around $435B of the total world market and are expected to rise to 36% share of the market by 2017. While generics may have achieved high levels of market penetration – varying from 50 to 60% across Europe, 45 to 50% in Asia and nearly 80% in the US – there is still plenty of room for growth. The dollar growth of generic markets however, is expected to follow that of world healthcare spending, with flat to low single digits in the established markets of North America, Japan and Europe and 10 to 20% in countries like China, Brazil and India.
Strong forces continue to shape world pharmaceutical markets, with most of the key indicators suggesting that the generics industry will continue to benefit from this growth for some time to come. Bear in mind that there is still more than $100B of market potential in brand products that will face generic competition between 2016 and 2019.
The reasons for continued growth in generics are many and diverse with a single issue often creating opportunity as well as risk for manufacturers. As an example, governments, public sector and private health insurers alike will continue to rely heavily on generics to manage the cost of delivering healthcare to patients, creating long-term growth opportunities for the industry. However, the declining budgets and resources on which these organizations typically operate, combined with practices such as “lowest price wins” tendering creates a powerful pressure on manufacturers to offer products at ever-decreasing cost but without sacrificing quality, safety, efficacy or reliability of supply; the net result of which is often decreasing product and profit margins.
Meanwhile, manufacturers also have to contend with a vast array of other complex challenges. The costs of maintaining regulatory compliance across markets is increasing due to tightening regulations, enhanced supply chain tracking and tracing requirements, and new or increasing generic user fees. The US FDA generic approval process is log-jammed with 4,000 ANDAs and an expected approval time of 40 months. With R&D budgets among the world’s top innovator companies expected to remain essentially flat at around $75B for at least the next five years, there are unlikely to be a flood of new launches to the market and therefore fewer generic opportunities in eight to ten years time. On the other hand, increased outsourcing of CMC development and both API and finished dose manufacturing by innovators large and small, creates new opportunities for custom synthesis and CRAMS (Custom Research and Manufacturing Services) companies. Finally, biologic products now comprise more than 40% of the market in many countries and 37% of pipeline drugs in clinical development. As regulatory pathways mature along with stakeholder acceptance, manufacturers must also have a clear strategy concerning biosimilars, regardless of whether they wish to compete in the segment or not.
Before tackling these issues and challenges, it is valuable for business strategy teams to base their thinking around a workable model of the industry. These can serve both as a yardstick for assessing a company’s current position and capabilities, and as a tool for identifying where to go next, what business capabilities are required to reach desired goals and the decision-making tools and information that are required to support these changes. The industry growth model shown in Figure 1 can be useful in this regard.
Figure 1.India’s Jubilant Life Sciences provides a clear example of how a careful mixture of organic growth and M&A along this path can take a small pyridine chemical manufacturer in the 1970s to today’s billion dollar global life sciences company. This transformation has required forward integration into complex intermediates and APIs, specialized finished dose forms and biosimilars. During this process, more than $750M was spent on acquisitions of companies at home and in Europe, the US, Canada.
Let’s consider the major strategic options that a CMO or exclusive synthesis company might employ in order to strengthen their position or move into any of the other areas of growth:
- Domestic, regional or global market expansion.
- Develop new technical platforms, expand technical capabilities.
- Move from a small molecule portfolio to biologics.
- Expand production capacity or product portfolio.
- Move from pipeline synthesis projects to generics APIs or vice-versa.
- Invest in lowering costs, increase efficiency, quality, safety, or supply chain security.
- Displace or acquire competitors, accessing new capabilities.
- Forward integration: acquisition into API manufacturing, or CRAMS.
Similarly, a generic finished dose marketer or manufacturer may consider any of the following approaches to growth:
- Domestic, regional or global market expansion.
- Manufacture increasingly complex dose forms, expand capacity and product portfolio.
- Move from less regulated to highly regulated market operations.
- In- or out-license products to drive market expansion.
- Acquire and promote smaller, branded, niche or specialty products.
- Manufacture and market, or partner to sell biosimilars.
- Litigate “Paragraph IV” patent challenges in the US.
- Partner with innovators to market Authorized Generics.
- Displace or acquire competitors, accessing new capabilities and market presence.
- Backward integration or acquisition into API manufacturing.
While by no means an exhaustive list, it’s readily apparent that any one of these strategic options requires timely, accurate and reliable integrated intelligence and tools by which to test different approaches and base sound decisions upon. For example, in order to expand into new, foreign markets, both the CMO and generic manufacturer will need a thorough knowledge of applicable foreign and international regulations, be able to compare and contrast regulations across countries, monitor changes to regulations over time, and be able to assess the business impacts of any change to ongoing compliance as they establish presence in those new markets.
Typically, we find that companies that can meet the business challenges outlined above successfully, and operate with clear and informed growth strategies, employ sophisticated business intelligence and information systems that:
Contain highly integrated data that encompass the key dimensions of pipeline, product, market, company, regulatory and intellectual property intelligence.
- Include or develop expert analytics that save time and effort, for example estimated generic launch dates that remove the need for knowledge of complex patents and exclusivity rules.
- Provide geographic coverage that matches both current and future business ambitions.
- Are searchable through flexible querying, analysis and visualization tools that can quickly test strategies and generate answers to complex business questions.
By way of illustration, consider a situation that is doubtless occurring at many companies today: an emerging market generic finished dose manufacturer with only domestic solid oral dose experience who has made substantial investments in plant upgrades with the intention of entering the lucrative European and US sterile injectable markets.
A strong, growing product portfolio and development pipeline is a major component of a successful growth strategy for any manufacturer. As a minimum, the company’s information solutions must be able to quickly search and evaluate current, historical and forecast sales, launch and price data, together with patents and exclusivities, generic launch timing estimates, API availability, DMF status, litigation, deals in force, and many other pertinent factors. Their intelligence and tools should be capable of answering a typical portfolio development and product targeting question that follows, generating in seconds a list of matching candidates for further detailed evaluation:
“Which products selling between $200M and $400M in US and Europe with a minimum of 5% revenue growth, sold in vial, ampoule or injection form, serving cardiovascular, CNS and oncology indications, with limited availability of API would see potential generic launches in Germany, Italy or the US between 2022 and 2028?
As a final example, once the portfolio is fixed, there is a need to ask the regulatory intelligence solution some questions that can have a considerable bearing on budgeting and planning:
- What are the Market Authorization (MA) Fee, MA Renewal Fees, Renewal Timelines, MA Extension and Annual Inspection Fees in all European countries and the US?
- What are the expected review times for market authorization applications in all European countries, and how do they compare to the US?
With this information in hand, the business can be more confident in agreeing to development and submission timelines, how much money to budget for each market and know the earliest dates on which product revenue can flow assuming successful regulatory approval.
By many measures, the future looks bright for the generics industry over the coming years but strong competition, tightening regulatory environments and other pressures will demand a continued focus on careful strategy selection, testing and planning. The companies that can harness the power of integrated intelligence and information will be the ones that succeed and continue to create sustainable growth.
Mike has more than a decade of experience working with generic companies and API manufacturers across the world to successfully integrate Thomson Reuters information solutions into their business processes and generate growth. He is currently responsible for ensuring that the Newport line of products continues to develop and meet the needs of a fast-changing industry operating to ever tightening margins and save time, effort and money in product targeting, portfolio development, licensing and API sourcing activities. Previously, Mike held management positions in Deloitte Consulting, PA Consulting and Barnett International/Parexel working with global Life Science companies, is certified in Pragmatic Marketing methodology and has a Master of Engineering in Electronic Engineering from the University of Surrey in the UK.