Indian Generics Cos in US market The Uprising!

Indian pharmaceutical companies are already well positioned into some of the generics pharmaceutical markets of developed nations. However, the smaller companies have yet to fully take advantage of this enormous opportunity presented by the generics pharmaceutical market. The generics pharmaceutical market in the U.S. and the potential opportunity that exists for Indian pharmaceutical companies, the current market roles played by the larger Indian pharmaceutical companies, and most importantly, how smaller Indian pharmaceutical companies can take advantage of the giant market. Understanding Pharmaceutical Industry in the U.S Although the pharmaceutical industry has always been an important part of the total health care system in the U.S., the industry is becoming increasingly important in the recent years due to the attention it has received from the government and the private sector. Prescription drug spending and utilization in the U.S. has increased rapidly in recent years. According to the Kaiser Family Foundations report on prescription drug trends, U.S. spending for prescription drugs was $140.6 billion in 2001, which represents more than a three-fold increase since 1990.1 The National Institute for Health Care Management Foundation (NIHCM) reported that overall spending on prescription drugs in the U.S. increased 17.1% from 2000 to 2001. represents 10-11% of health care expenditures in the U.S In addition, according to GAO, part of the increase is attributed to growth in the number of patients diagnosed with conditions that can be treated with pharmaceuticals, and the development of innovative drugs for some conditions.2 At a time when health care costs can account for up to 15 per cent of GDP and expenditure on prescription drugs worldwide continues to grow, generic substitution is the weapon of choice for many governments and health care insurers to provide patients with effective products that are advantageously priced. Spending on prescription drugs now

Kaiser Family Foundation: Prescription Drug Trends, May 2003.

General Accounting Office report: Prescription Drugs, FDA Oversight of Direct-to-Consumer Advertising Has Limitations, October 2002.

Generics overview in US market A generic drug is a prescription drug and is the molecule which is off patent and available from multiple sources, and the product is known by the chemical name, not a trade name.3 A generic drug should possess the same active ingredients in the same dosage form and strength as the original brand drug. For generic drugs to be marketed and sold, it needs to demonstrate similar bioequivalence as the original brand drug. The generic drug also needs to produce the same therapeutic effect and safety profile as the innovators brand name product. Equal standards apply for brand name and generic drugs in regards to drug safety, efficacy, purity, stability, manufacturing, and labelling, which are set and enforced by the Food and Drug Administration (FDA). Thus far, 7,000 generic drugs have been approved by the FDA. The penetration of the pharmaceuticals market in all six major first world markets with generic medications has been increasing over the past five years. It is estimated that some $116 billion of the worlds pharmaceuticals market belongs to the generics industry. This compares to global pharmaceutical sales of $837 billion in 2009 for patented pharmaceuticals. In the US alone, sales of generic products exceeded $22 billion in 2006. Four of the top five US pharmaceutical companies are developers and manufacturers of generic medicines on the basis of number of prescriptions dispensed. The United States is the worlds largest single market for pharmaceutical products accounting for nearly 50 percent of the value of the total world market. According to the Generic Pharmaceutical Association, U.S. retail drug sales for 2006 totalled $221 billion and generic pharmaceutical sales totalled $54.1 billion.4 U.S. pharmaceutical sales grew by 73 percent from $128.1 billion in 2000. Together, the United States and Canada account for more than 50 percent of global sales and U.S. and Canadian generic commodity-type drug sales was estimated at $65 billion in2005.5 In 2005, generic drugs accounted for approximately 63 percent of total U.S.-dispensed prescriptions and, on average, generic drugs cost between 30 percent and 80 percent less than their branded counterparts.6 The average price of a generic commodity type prescriptions was $29.82 compared with the average price of brand-name prescription drug at $101.71. According to the Generic
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Doug Long, IMS Health, Merrill Lynch, Specialty Pharmaceuticals Generics 101: An Introduction to the Industry, Feb 26, 2003.
4 5

France is next spending $457 per capita

followed by Japan at $339. Economist Intelligence Unit. 6 Express Scripts Study Shows Substantial Savings Opportunity for Consumers, states, Health Care Purchasers with Generics, says GPhA, Generic Pharmaceutical Association, Press release, Aug. 16, 2005.

Pharmaceutical Association, the U.S. market for generics grew by 23 percent in 2006 due to a greater acceptance of generics, changes in U.S. FDAs generic drug approval process, Medicare Part , and declining prices driven by fierce price competition. Generic drug sales are projected to grow by 10 to 12 percent over the next 5 years as more blockbuster drugs lose their patent protection.

The role of Indian generic drugs in the U.S. market Indian pharmaceutical companies have made tremendous strides in the U.S. market. Indian companies are exploiting their cost advantages, their strength in reverse engineering, and the largest number of U.S. FDA approved plants outside the United States. Indian companies can manufacture pharmaceuticals for less than half what it costs to manufacture them in the United States, conduct clinical trials for approximately one-tenth the U.S. cost, and conduct R&D for less than one-eighth the U.S. cost.73 India has more than 75 pharmaceutical plants approved by the U.S. FDA and in 2006, and was very aggressive in filing ANDAs in 2004-06 to challenge patents on innovator drugs.74

Competition from Indian and other low-cost countries in the U.S. market will mean cheaper prices for generic drugs and greater choice for U.S. consumers. Price competition continued to intensify in the U.S. market thorough 2006 affecting both U.S. and Indian generics manufacturers. Indian companies compete directly with Teva, Myland, and at least 13 other generic manufacturers in the U.S. market. As 30 of the best selling U.S. patent-protected drugs go off patent by 2010, Indian companies are positioning themselves to offer generic versions of these drugs. Also, nearly $40 billion worth of patent protected drugs will become off patent by 2010. In 2006, the U.S. FDA approved a Ranbaxy ANDA application to offer generic versions of 12 formerly patent-protected drugs with annual U.S. sales of $5.6 billion in 2006. Among these were generic versions of popular drug Zoloft, Valtrex, Zocor, Cefzil, Ambien, Imodium, and Lasix. Likewise, Dr. Reddys received ANDA approval to offer generic versions of other popular drugs like Zofran, Proscar, and Allegra that have sales of several billion dollars during 2006-07.

Strategies for Smaller Indian Pharmaceutical Companies In order for the smaller Indian Pharmaceutical companies to take advantage of this giant market, there are various ways of entering and capturing the market share. This market is highly competitive as these Indian companies are not only fighting with the domestic giants who are currently active in the generic drugs industry, but also with the multinational corporations and many American and European specialty pharmaceutical companies and generics drug companies in this space. In order

for the smaller Indian Pharmaceutical companies to survive, it is vital to look for longer term gain instead of focusing on shorter term outlook. But the newer entrants prove nimbler than the slowing pioneers. Indian pharmaceutical companies led by Glenmark, Aurobindo and Sun Pharma maintained their number one position in the US generics market, by bagging 33.17 per cent or 139 of 419 original Abbreviated New Drug Application (ANDA) approvals from the US Food and Drug Administration (FDA) in 2010. Data from the FDA website for the past two years shows Glenmark, Sun Pharma, Lupin and Aurobindo are going to dominate the US market in the coming years, likely displacing top Indian drug companies such as Ranbaxy Laboratories and Dr Reddys Laboratories. Glenmark and its US subsidiary, Glenmark Generics, received the highest approvals from FDA in the past year, 18, bettering its previous years performance of 11 approvals. Aurobindo Pharma, which led in 2009 with 18 approvals, came close behind with 17 approvals last year.

Comparison of drug approvals in US in 2009 v/s 2010 for Indian Generic firms Sun Pharma and its acquired Israeli subsidiary, Taro Pharmaceuticals, together got 15 approvals in 2010, as against 19 in the previous year. This is despite the fact that Suns US subsidiary, Caraco Pharmaceuticals, which is facing a ban on production in the US due to regulatory issues, did not receive any final approvals for the past two years. Dr Reddys had 17 approvals in 2009, but that number slumped to 11 in 2010. Ranbaxy, facing FDA regulatory issues for its two facilities in India for the past few years, had only seven approvals in 2009 and just three in 2010. Both Dr Reddys and Ranbaxy used to top the chart in previous years, with several approvals every year. Similarly, Wockhardt, which had 14 approvals in 2009, got only four in 2010.

Lupin is also emerging as a major Indian company in the US. It got just three approvals in 2009 but 12 in the past year. Lupin is already among the top five Indian generic drug companies operating in the US market in terms of number of prescriptions, a first among Indian generic companies selling drugs in the US. Other leading Indian companies in the US market include Zydus Cadila, Alembic, Orchid, Strides Arcolab, Torrent, Hetero Drugs, Alkem Labs, Emcure and Unichem, with one to six approvals each in the past two years. BIO- Generics- Aim of Indian Pharmaceutical Companies Enter the bio-generics industry The term bio-generics is used to designate pharmaceutical preparations involving a biologically active substance stemming from modern biotech tools. Similar to the pharmaceutical generics, the bio-generics are essentially similar to an original biopharmaceutical whose substance patent has expired. They are approved through a simplified abbreviated registration process, and are sold under the generic substance name as opposed to a brand name.4 According to IMS Health, the world market for biopharmaceuticals is approximately USD 20 billion. Under the assumption that bio-generics will achieve the same 10-15% long term penetration rate (as in the rest of the generic market), this implies the market size for the U.S. biogeneric is USD 2-3 billion. With large number of patents expiring in the biopharmaceutical areas (15 in next 5 years), the market is very attractive for those who can take advantage of this opportunity.5 There are higher barriers to entry in the biopharmaceutical industry because of the biologically active substance. The manufacturing and chemistry involved in this industry is exponentially more difficult than regular pharmaceuticals. However, I believe Indian companies can start developing the capability to get into this market as their counterparts in Europe, Japan, U.S. and Korea have done. Due to higher barrier to entry, the Indian companies that can establish and operate the bio-generics, early can capture a large share of the market when the patents start expiring in the coming decade. Practical Implications A threat to generics There are cases where generic prescribing is appropriate and vital. However, as has been outlined in an extensive paper developed by the British Pharmacological Society, generic substitution also has the potential to be disruptive to patients medication treatment and impact upon adherence and compliance. There is also potential for under treatment or adverse events in some individuals. A patient could receive a different medication, with a different appearance and dosage instructions on each visit to the pharmacy. In a European study, one-in-three patients who had experienced a
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Polastro, Enrico T. & Little, Arthur D. The Future of Biogenerics. www.contractpharma.com Polastro, Enrico T. & Little, Arthur D. The Future of Biogenerics. www.contractpharma.com

generic substitution had to become accustomed to a different colour or shape of medication. Poor adherence and compliance are known to be associated with worse outcomes and increased costs of the patients therapy for a variety of conditions. These problems would particularly impact elderly patients, who are more likely to be taking multiple medications. Conclusion The United States has some of the highest drug prices in the world and hence an attractive market for many pharmaceutical companies, especially for the Indian pharmaceutical companies who have two main competitive advantages; highly talented pool of chemists and low costs. However, with fierce competition already in place, the Indian pharmaceutical companies have to carefully select their market position within the industry and further define their specialties. With some of the larger Indian pharmaceutical companies already successful in the marketplace, the smaller company should also take advantage of their competitiveness and enter the market. With disciplined

approach to the market, comparative advantages in cost, strength in reverse engineering skills and ability to plan longer term, many smaller Indian pharmaceutical has proven their urge to succeed in this lucrative market. Indian companies have spent millions of dollars filing ANDAs with the U.S. FDA to gain exclusive production rights for many drugs losing their patent protection in the United States. Continued price competition in the U.S. market will mean cheaper prices for generic drugs and greater choice for U.S. consumers.