Generic drugs, not so easy

As patents run out over the coming years, many are placing their bets on generic drug manufacturers. Indeed the generic drug market has been growing at a rate of more than 10% a year, with a market value of $269.8 billion in 2012 projected to reach $518.5 billion by 2018. The current flurry of company stock buying activity exemplifies this – Singapore’s Temasek holdings have invested close to $600 million on three Indian drug companies that dole out generics – Sun Pharmaceutical, Glenmark Pharmaceutical and Intas Pharamaceuticals. Sun Pharmaceutical itself recently spent $3.2 billion acquiring another big Indian generic drug-maker, Ranbaxy Laboratories from previous owner Daichii Sankyo, making Sun Pharmaceutical Industries the fifth largest generic drug maker. Notwithstanding, Pfizer also bought over Hospira, another generic/biosimilar manufacturer, not too many months ago.

Though it may appear inevitable that generic drugs will eventually replace all their branded counterparts due to their lower cost, setting up a generic drug company is not without its challenges. First, many countries have tendering systems for drugs to keep prices low. This means only companies who have won the tender by having the cheapest drug, will get their drug listed in public health plans or as the recommended drug to take to patients. This places some pressure on companies to produce their drugs in an extremely cost-efficient way to edge out their competitors. In the same way, over the counter generic drugs that do not depend on prescriptions are distributed by wholesalers that also negotiate prices with generic drug manufacturers. And almost always the larger generic drug manufacturers are able to win wholesalers due to their larger market share and ability to be more operationally cost-effective.

Out of the top 15 best-selling drugs in 2014, 8 were biologics and the top 3 were all biologics – Humira, Remicade and Rituxin. One of the key reasons that pharma companies are churning out more and more biologics these days is that they are more difficult to copy. Biologics are complex molecules and their synthesis is just as multi-layered and complicated. In fact, no two biologics are ever the same. Thus the challenge to get a biosimilar (a biologic with very similar properties) passed by regulatory authorities is likely to be higher compared to a small molecule. So far, the FDA has only approved one biosimilar, Sandoz’s Zarxio which mimics Amgen’s cancer therapy Neupogen. Hence, generic drug manufacturers need to be familiar with biologic production to keep up with this trend.

Finally, generic manufacturers have to contend with strict quality control laws by regulatory authorities. Indian drug maker, Ranbaxy Laboratories, has come under fire by the US FDA for lapses in good manufacturing practices. These concerns were extreme enough to warrant bans imposed on the sale and distribution of drugs coming out of Ranbaxy sites in India as well as one US site. Major concerns involved the sanitary conditions of the laboratories as well as the practice of discarding batch failure results after successful retests were performed. Ranbaxy themselves pleaded guilty to making false claims on its drugs, often failing to run “stability” tests resulting in possible impurities that may reduce the shelf-lives of these drugs. These troubles were probably what prompted Japanese giant Daiichi Sankyo to sell all its Ranbaxy and subsequent Sun Pharma holdings very quickly.

The scale of success is almost always in favor of larger sized manufacturers (e.g. Teva, Sandoz, Mylan) as alot of their growth depends on how cheap they can make a drug. For a small generic drug company to survive, there is an intense need to focus on niche areas or to create supergenerics – which are improved versions of the original drug. So generic drug manufacturers have their work cut out for them, no one said making drugs (copies or not) was easy.

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