The American healthcare reforms might surprise us by the year-end. Many Indian pharmaceutical companies and healthcare analysts believe that although generics have for long been a forte of Indian drug companies?having made their mark globally as a supplier of high quality and low-cost drugs?real growth opportunity from the $30 billion US generics market is around the corner. They?re dead right and their reason for optimism: favourable US government support, significant blockbuster drugs going off-patent and an increasing number of consumers seeking affordable drugs for cancer, diabetes, metabolic and cardiovascular disorders, neurodegenerative diseases etc.
Recent developments in the US healthcare market have strengthened the belief of Indian pharmaceutical companies that generics are in high demand as a means to control drug spending. The US government is taking decisive measures to encourage doctors to prescribe generic medicines, pharmacists to distribute generics, and consumers to recognise their value and accept them. In many cases, competitive pricing structures are also being established to promote generics. The US government has introduced various policies that encourage faster generics entry into the market once a product goes off-patent. It will provide inducements to companies that enter the market early, encourage patient co-payments that will facilitate selection of cheaper (generics) products, thereby strengthening the demand for generics.
The Obama administration seems to be strongly pro-generic and indications are that state and federal insurance programmes such as Medicare and Medicaid are likely to be altered to nudge an increase in the use of generics. Additionally, the government aims to bring an additional 47 million Americans under medical insurance coverage.
The demand for low-cost drugs is likely to increase further, thereby giving a further impetus to generics. Even otherwise, the fragility of the current US economy will ensure that healthcare costs will be kept under check by increasing the percentage of generic prescriptions.
Naturally for Indian generic companies, prospects appear to be high and their optimism does not rest on the impending US healthcare policy changes alone. At their end, they are sprucing up their act to grow their business in the US, both through own products as well as through mergers and acquisitions. Recently, DRL realigned its global generics strategy to focus on certain key geographies like the US, India, Russia & CIS and Germany, where the operations are already very large contributing to approximately 90% of the company?s global generics revenues. ?We intend to aggressively step up our presence in our key markets with this strategic prioritisation. The exercise would lead to redeployment of resources within the organisation,? says Satish Reddy, MD and COO, Dr Reddy?s Laboratories (DRL).
On the regulatory front, the US Food and Drug Administration (USFDA) may become less of an obstacle for Indian pharmaceutical companies as new proposed guidelines prohibit FDA from delaying approval of generics, unless the delay is in interest of public health. Even if the delay is needed, USFDA must inform the applicant within 30 days and describe issues. Healthcare analysts inform that with a new USFDA chief in place soon, the regulatory proposal is expected to be made a practice, much to the relief of the Indian pharmaceutical companies who have been hauled up on various occasions by the USFDA on alleged manufacturing malpractices.
?Increased inspections and focus by the USFDA on quality standards in manufacturing, storage and transportation of pharmaceutical products will ensure delivery of high quality generic products in the US market,? says Uday Baldota, vice-president, investor relations, Sun Pharmaceuticals. The US has a market share of about 30% in the $100 billion global generics market and this market is expected to grow at a CAGR of 12% between 2007 and 2012. It is expected to become a $52 billion market in 2011, projects a KPMG study.
Perhaps the key growth driver of the generics market is that over $47 billion worth of drugs are expected to go off-patent over the next three years, representing a rich pipeline for the generic manufacturers. By 2012, all eight of the small molecule drugs in the top 10 drugs in terms of global sales will have become generic. This will result in the commoditisation of important markets, such as cholesterol and ulcer markets?the two big drug classes, where Indian generic companies are seeking a strong presence in terms of their drug portfolios. ?Indian companies are keenly focused on exploiting this opportunity of blockbuster drugs going off-patent,? says Hitesh Gajaria, executive-director, KPMG India.
Without any doubt, the US is one market that is relatively mature when it comes to generic medicines. ?Historically, the US government has promoted the usage of generic prescriptions while giving innovator companies a fair deal with the formation of the Hatch-Waxman Act in 1984. It is the rest of the developed world that follows US trends,? says D Saharsh Rao, president?contract research, Neuland Laboratories. ?Generics will continue to be encouraged in the US as more citizens will get covered under the Medicare and Medicaid programmes due to further changes in government policy,? he adds.
According to Baldota, the generic pathway in the US has been regularly fine-tuned in multiple ways: regulatory (FDA) learning, amendments to or additional Acts facilitating generic drugs and development of a body of jurisprudence. Every once in a while when new hurdles are discovered, there is a sustained effort to overcome these in order to ensure that generics reach the market as early as possible, without unduly robbing the inventors of new drugs of their fruits from large, risky, and protracted R&D investments. ?Continuing healthcare reforms by the current administration is an extension of the past trend and a dire necessity of the moment, as the US passes through one of the harshest economic periods in its history,? he stresses.
Interestingly, all Indian pharmaceutical companies taken together have annual revenues of less than $2 billion from the US generic market alone. The opportunity, as it seems, is much larger. In this direction, Dr Reddy?s has filed 20 abbreviated new drug applications (ANDA), of which 69 are pending approval and has launched over 16 new products in North America. ANDA is filed by generic companies to market their products in the US. Some of DRL?s brands include Sumatriptan, Fexofenadine, Glime-piride, Oxaprozin, Ondansetron, Simvastatin, Ciprofloxacin, Finateride.
On its part, Sun Pharmaceuticals plans to file 30 ANDAs with the USFDA during this fiscal. Last year, Sun Pharmaceuticals along with its American subsidiary, Caraco Pharma, got the USFDA go-ahead to launch nine generic products in the US market. For Aurobindo Pharma, there has been an increased usage for its HIV drugs in the US market. The company has USFDA approval to sell 45 products in the US. According to Saharsh Rao of Neuland Laboratories, the company will continue to play a key role in growth of the US generics market by supplying generic active pharmaceutical ingredients (API) to Indian and global generic companies. ?We actively supply over 10 APIs into the US market and have a wholly owned subsidiary located near San Diego, California,? he adds.
At the same time, launching generics of blockbusters or for that matter of any product going off-patent may be good for cash flow in the beginning. Building a sustainable and profitable global generic business requires much more, point out healthcare analysts. Not surprising, market dynamics are changing the generics business, which over time may lead to consolidation. One classic example of consolidation is Aurobindo-Pfizer relationship where both cost and volumes are combined for better reach and affordability. Pfizer has bought the rights from Aurobindo to sell 75 generic drugs as pills and 12 as injectables in the US and Europe.
The agreement is the first of the partnerships Pfizer is seeking with generic drug makers to add $1 billion in revenue over the next four years from selling copycat medicines. It would not be an overstatement to say that Indian pharmaceutical companies are making a mark in the US generics market and going forward, we can expect their marketshare to further increase.