Pharma Inc prepares to scale patent cliff, eyes $50-billion market

Written by Jayati Ghose | New Delhi | Updated: Oct 3 2013, 14:03pm hrs
Pharma industryIn all, the $100-billion US branded-drug market would lose patent protection by 2018 due to a 'patent cliff'.
With the $50-billion drug market potentially up for grabs over the next five years due to a flurry of patent expirations, leading Indian drug companies are reinventing the high-risk-high-reward para-IV route. A generic company's preemptive para-IV submission allows it to challenge a patent and launch a generic version of the drug at the risk of being sued by the innovator or sell a drug that has just gone off-patent with the patent holder being the only competition.

According to sources, Indian pharmaceutical giants like Glenmark, Sun, Dr Reddy's Laboratories (DRL) and Lupin and others are primarily betting on the first-to-files (FTFs), a category of para IV which is the most lucrative one. In all, the $100-billion US branded-drug market would lose patent protection by 2018 due to a 'patent cliff' and half of this market is likely to be available for aggressive generic majors, willing to fight the patent holder in court rooms.

Para-IV filings have been a key a strategy of firms like DRL until a few years ago, but has of late lost some sheen as litigation and failure costs outweighed benefits.

Pharma brands off patents

The situation is now going to get better for Indian companies. For one, the impending patent cliff has increased the market potential for them manifold and secondly, the innovators have of late begun to collaborate with generic players rather than drag them to litigation.

In 2014, at least four branded drugs Cymbalta, Nexium, Clarinex and Celebrex with a sales potential of $12 billion will lose patent protection in the west. Companies like Sun Pharma, DRL, Lupin, Aurobindo, Alembic, Ranbaxy and others have already filed para-IV certifications to get FDA approval to sell their generic versions.

Under the US laws, an Abbreviated New Drug Application (ANDA) filed with a para-IV certification states that the generic product does not infringe on the listed patents, or that those patents are not enforceable. If the generic company is the first-to-file a para IV, it gets 'exclusive rights' to sell the generic version of a branded drug, for 180 days, with only the patent holder as the other player in the market.

Indian generic companies are targeting $40-45 billion of opportunity (patent cliff) through para-IV filings. Dr Reddys, and Lupin have been the most prolific filers for Para IVs due over the next five years, followed by Sun Pharma, Glenmark and Aurobindo respectively, said Milind Bhangale, senior analyst at Dolat Capital.

In the six-month-exclusivity period for the successful para-IV challenger, it usually prices its product slightly below the branded version, take a big share of the market from the patent holder overnight and maintain its price point until other generics enter the market and erode the price and segment margins.

According to an EP Vantage analysis, around $33.5 billion 'at-risk sales' are expected from patent expiration in 2015, the peak year.

One of the major focus area for Glenmark is sole FTF so that you can maximise on the opportunity, said Glenmark Pharma chairman and MD Glenn Saldanha. He, however, added that sole FTFs are not easy to get and are smaller in size in terms of opportunity.

Another pharmaceutical company executive, however, said that the para-IV filing space is getting crowded with 10-15 companies filing para-IV certifications, compared to three to four players a decade ago. The significance of FTFs are also diminishing since in many high-value drugs more than one player files ANDAs on a particular day, the executive added. Competition in this space is also expected to increase as global pharmaceutical companies, in anticipation of the upcoming patent expiration, are focusing their resources and attention to the generics market.

Revenue potential from 'patent cliff' is expected to taper off after 2018 with the number of drugs going off patent petering out. In 2020, patents for drugs worth only $2 billion would expire.

To overcome this scenario, top generic players are shifting focus to niche therapy areas like oral contraceptives and complex high-value generics to fuel growth in the US market.

Recently, Glenmark made its first filing of oncology injectables in the US market and plans to launch two new products in the dermatology segment (currently, it has 22 derma products in the US) this financial year.

We will continue to file at least three to five derma products every year. We have around 11 oral contraceptives (OC) approved and another eight pending approval. The OC segment will continue to generate increased revenue for us over a period of time before competition intensifies over a three- to five-year period in the OC space, said Saldanha.

Lupin, which entered the OC segment in September 2011, recently got an FDA approval to sell generic version of Warner Chilcott's Ovcon 35 tablets that had annual US sales of about $22.3 million.

Companies are moving from simple-dosage forms like tablets towards new drug delivery systems, which includes injectables, sprays, aerosols and topicals. These can be used to compete with drugs whose formulation patents have not expired, said analysts.

Indian generic players are also focusing on quality filings over quantity to mitigate the risk of volatility on account of sharp price erosions in the plain-vanilla generic drug market.

Patent cliff is the cluster of time (years) in which a number of significant high sales brand-name drugs lose patent protection. This provides a huge revenue potential for generic players who can enter the market with copycat versions of an innovator drug.