12th June 2013
Indian pharmaceutical companies’ profits have grown hugely in recent years. Contrary to claims that India’s robust generics industry is driven by being ‘the drug store for the developing world’, overwhelmingly the growth of the industry is from sales to established country markets in the US and Europe. But predictions for continued growth may prove to be optimistic.
In 2012, Dr Reddy’s sales to the US soared by 133% making US sales 44% of the company’s total sales. Lupin’s US sales grew 63%, and Sun Pharma’s 104% while Wockhardt reported a 95% increase in consolidated net profit, driven (71%) by sales to the US and the EU.
The patent cliff windfall
The catalyst for the recent robust growth for Indian companies in these markets has been the ‘patent cliff’, a phrase used to describe the expiry of pharmaceutical patents on a range of drugs over a short period of time.
In 2012, Indian manufacturers such as Ranbaxy, Sun Pharma and Lupin seized the opportunity created by the regulatory circumstances in the US, as well as the nature of the drugs coming off patent, which were largely small molecule blockbuster drugs with high sales volumes and low production costs, to significantly boost their profits.
There were three key reasons for their success. Firstly, Indian generic manufacturers were able to leverage the fact that their production facilities were US Food & Drug Administration or FDA-accredited and that their expertise in reverse engineering originator products was well established.
Secondly, by being the ‘first to file’ for generic approval by the FDA for sales in the US market they benefitted enormously from the six months of market exclusivity that is given to the first generic entrant into the US. They were therefore, for a short period of time, able to dominate the market at comparatively higher prices without competition from other generics.
And finally, unlike in India, where public confidence in the regulation of drug quality is very low, US consumers are confident in FDA regulatory oversight and accept that FDA-approved generics will be bio–equivalent and interchangeable with the original product. Indeed, in 2011 in the US, generics were dispensed 94% of the time when a generic form of the drug product was available. In contrast, those in India able to afford them often insist on originator branded generics because the brand is a proxy for quality.
US regulations that provide a period of market exclusivity for generic drugs mean that Indian companies benefit significantly from patent expirations only in the short term. Take Ranbaxy, for example. At the end of 2011 the company received approval to launch the first generic version of the blockbuster drug atorvastatin (generic Lipitor). Armed with six months of market exclusivity and manufacturing capacity in India and elsewhere, Ranbaxy generated nearly $600 million in sales over a six month period from this single product.
Future growth uncertain
However, following the expiration of market exclusivity and the onset of competition from other generic producers, analysts estimated Ranbaxy’s sales of atorvastatin to tumble to $60-65 million. The drop in the company’s share in sales of the drug in the US market further escalated after the November 2012 recall of 41 batches of the product.
This scenario among major Indian generic pharmaceutical manufacturers will continue through 2013: sales from first entry generics will initially be robust but will quickly evaporate when the six month period of market exclusivity expires. Some industry watchers believe that windfall profits from the “patent cliff” phenomenon will continue for Indian companies as more drugs come off patent.
Failing public confidence
But these predictions reflect a misunderstanding of the nature of the next wave of drugs coming off patent, a significant proportion of which are biologics. Unlike small molecule generics, follow-on biologics are not equivalent to the originator product. Hence the name: biosimilars. These products are much more complex to manufacture and require for each new version significant clinical trials to prove safety and efficacy.
Further, predictions of future robust growth ignore the impact a growing lack of public confidence in India’s ability to regulate drug quality standards by enforcing good manufacturing requirements and ensuring drug safety and efficacy by adequately regulating clinical trials. These requirements will be a significant pre-requisite for any biosimilar entry into established markets in North America and the EU.
This is a condensed summary of an article that first appeared in the May edition of Pharmaceutical Executive Global Digest and the first in a two part-series on the Indian drug industry’s growth prospects in western markets. The views expressed are entirely those of the author.
Christopher Ward is Senior Partner, World Health Advocacy, a health policy and communications consultancy based in Hamilton, Canada, and Washington DC. USA. World Health Advocacy clients include governments, civil society organizations and health industries including pharmaceutical companies. Mr Ward served for many years in elected office in Canada. In the Ontario Legislature he served as Parliamentary Assistant to the Minister of Health and was responsible for carrying the legislation that established the Ontario Drug Benefit Program, which remains the largest publicly funded drug plan in Canada. Subsequent to his service in the Ministry of Health he became Minister of Education and later Government House Leader. From 2008 to early 2013 Ward worked for PhRMA in Washington DC where he was responsible for international stakeholder outreach programs.