10 October 2007
Increasing Competition will force Generic Drug Companies to Consolidate or Perish
New market opportunities are potentially offered by the development of biosimilars
In 2006, global sales of generic pharmaceuticals were $77 billion
Two strategies, consolidation and meeting the challenge of supplying generic versions of biological molecules or biosimilars, will be vital to stay competitive on the fast-changing landscape of generic companies over the next ten years.
The generic pharmaceutical industry has long cast off its 'poor relation' image to be recognised as a high-revenue generating segment of the pharmaceutical industry. In 2006, global sales of generic pharmaceuticals were $77 billion.
However, there are now several significant issues that will have considerable impact on the growth prospects of generics companies. Key among those are the vast increase in competition in the sector and the long-term decline in synthetic molecules which offer new generic opportunities, says the report Consolidation in the Generic Pharmaceutical Industry.
Increased competition will limit market growth
Top generics companies will see eroding revenues from increased competition, especially on two levels. One, China is expected to be able to exploit its cost advantages to emerge as a towering producer of cheaper generic medicines in the battle for cost leadership. Second, increased uptake of authorised generics in the US, at least in the short term, is adversely impacting revenues of those generics companies which anticipated having 180 days of market exclusivity for being the first to market a new generic product.
Consolidation is a vital strategy
Consolidation is a popular and effective strategy to sustain growth and offers multiple benefits such as an increase in marketing muscle and reach. The generics industry has already seen several important mergers and takeovers to redress deficiencies or to drive growth. Market leaders Teva and Sandoz have long been vying for market leadership by making a number of acquisitions to develop their generics businesses. Indeed industry buzz has it that Teva has a growing interest in Asia, particularly Japan.
There is likely to be strong emphasis on acquisitions in lower cost manufacturing environments, especially in Asia, particularly India and eventually China. Author of the report, Dr. Peter Norman says, “The acquisition of a local manufacturer with a significant market share remains the easiest way to expand market share in difficult-to-reach markets. Markets in India and Latin America will be the ones most sought after,” he adds.
Biosimilars hold the key
It is widely recognised that there has been a progressive decrease in the number of novel therapeutic entities reaching the market and an increase in those that are recombinant biological agents. This in turn means a decline in the number of new generic opportunities for synthetic therapeutics although the impact of this deficiency will not be felt for some ten years. The report finds that new market opportunities are potentially offered by the development of biosimilars even though the cost of developing facilities to produce recombinant biological products and the access to the technological capabilities to do so are both major entry barriers for companies. Still several generics companies have recognised the need to pursue these opportunities and it is highly likely that a new class of generics companies – those devoted to developing and/or producing biosimilar products – will emerge.
In fact, the Financial Times ran an article which said Novartis, through its subsidiary Sandoz/Hexal, has become one of the pioneers in biosimilars with the launch of the human growth hormone (hGH) Omnitrope, and Epo alfa for patients with kidney failure. It also found that Teva and other leading industry players including Barr, Ratiopharm and Dr Reddy's of India are also researching products that could gain regulatory approval soon.
