NOTE: Posts in this thread are being edited by me.
Week beginning 1st March 2020 we should be in good shape.
Till then, it is better not to refer this thread as I will shuffle around things, remove and add stuff. Please bear with me during this week for editing.
At the outset, kudos to all the folks (@crazymama @ankitgupta @ananth @Donald @spatel ) who as industry outsiders tried to crack the International Generics puzzle and have been making their best efforts to track Indian pharma industry. I have some past working experience in the Industry and am happy to share my understanding of the subject and look forward to collaborate with interested folks. [@stockcollector]
Thanks to @Donald for creating this thread dedicated to International Generics (IG). [Having opened this thread in VP Expert Network, he should also get ready to open his wallet to foot my bill for anti-anxiety medicines that I need to consume to write posts that justify the Expert tag ]
This thread intends to cover all aspects of the IG value chain (R&D to Sales in International Market). In a few months, all of us (who are interested in understanding this domain) should have greater clarity (or confusion - some of the existing notions must get shaken!) on functioning of this industry segment, the key risks from investors’ point of view and understand the limitations (due to information asymmetry) that retail folks have to deal with.
Laudable work has already been done by VP community folks in the following threads: [If there are more, kindly point them and I will add them to the list]:
Though many members are already familiar with various aspects of the International Generics(IG) business, I am going to initiate coverage (this is the closest I will ever get to write an Equity Research report ) with the basics. And actually in IG, getting the basics right is a commendable achievement (no exaggeration! yes absolutely no exaggeration - or on second thoughts maybe I should get my IQ checked ).
For people who are new to the sector, it is essential to understand the fundamentals of New Drug Development (also known as Brand / Innovator / New Chemical Entity) and Generic Drug Development.
New Drug Development
- Developing a new medicine that has specific mechanism of action and target disease(s) indication.
For example - drugs like Ramipril, Perindopril are ACE Inhibitors which are used to treat hyper-tension and heart related ailments. This video will make it clear:
Now, the process of New Drug Development:
The distinction between New Drug Development and Generic Drug Development:
Overview of the International Generics Scenario
Brand / Innovator / NCE (New Chemical Entity) Drugs:
- Drug Development Cost - [upto bringing the drug to market] - Around 1 Billion USD. [Varies depending on the type of drug - but this is taken as a general benchmark number]
- Time taken to develop the new drug - Around 10 Years
- Out of 1000s of potential molecules, only a few get designated as drugs capable of treating a disease wherein their benefits of treating the disease indication outweigh their side-effects.
- Patent term period - 20 years . There are complexities and nuances - but in a general sense the new drug gets a patent term of 20 years. There are various patents related to the new drug. The most basic being a composition of matter patent that is held for the mother compound (the new chemical entity / compound) and its derivatives. Patents can be challenged through non-infringing routes of development or a direct invalidation challenge to the patent claims filed by the innovator. The patent term begins from the date of filing. And by the time the drug is finally approved for marketing by a regulatory authority (like US FDA) around 8 years maybe lost by the innovator company. Hence there are patent term restoration rules.
- Clinical Trials are essential for proving - safety, effectiveness, efficacy.
- Drug Development Cost - 3 Million USD to 5 Million USD [So around 3% to 5% of the Brand / Innovator drug]
- Time taken to develop the generic - Around 3-4 Years
- Generic is developed based on literature published by the Innovator - reverse engineering is done for generic drug development.
- Can be launched only after Innovator’s patent term (in the relevant territory) has lapsed OR the patent is challenged by generic. But, normally, CANNOT be launched upto 5 years from Innovator’s launch because of Data Exclusivity granted to Innovator drugs. [i.e. the Generic CANNOT submit its drug application using Innovator’s data]
- NO Clinical Trials.
- Instead Bio-Equivalence is used to demonstrate that the rate and extent of generic drug’s absorption in the body (or at the intended site) when compared to Brand/Innovator does NOT have statistically significant differences. Get this fact clear - Generics do NOT have to prove efficacy / effectiveness of the drug!!. Innovator has already proved that the benefits of using drug outweighs the risks and hence is suitable for treatment of certain disease indications.
What is International Generics and why do health / drug regulatory authorities allow approval of generic drugs?
- IQVIA / IQVIA Institute (previously known as IMS) is the go to source for understanding macro scenario of all the major IG markets.
US Market Overview
When you read articles referenced in the following sections (or watch the videos) there would be several terms and scenarios that might sound alien. So if you wish to read (and understand ) core concepts of the US Drug Market, it is essential that you first watch these videos (Brookings Institution + Khan Academy). These are the building blocks on which the subsequent sections are built upon:
With a population of 330 Million (33 Crores), what makes the US drugs market the most sought after territory/region? [Context - population of Uttar Pradesh + Maharashtra = population of US]
Primarily its because the spirit of Free Market and Capitalism has prevailed over everything else in the US. [Living in India, I DO NOT have any right to enter in ethical or moral discussions regarding US drugs market.] BUT be very clear that the reasons drug manufacturers / suppliers are obsessed with US are:
There are NO drug price control regulations in any form whatsoever. Neither for Brand/Innovator drugs, nor for generics. This is in stark contrast to how the drug pricing system works in most developed and developing nations.
The US Government, through its Medicaid and Medicare (Part D) plans is the payor (Insurer) for prescription drug bills of nearly 35% of the US population. BUT, as of now, its laws/regulations DO NOT allow the US Govt. to negotiate for prices by using mechanisms such as tenders and reference price system.
A combination of the above two factors, have led to the scenario where companies can increase drug prices to absurdly high levels and face no legal consequences. Because its Free Market Capitalism
Huge price increases made by companies like Mylan, Turing, Valeant have caused public uproar in the past and there is a US Senate report on these (seemingly unethical?) but perfectly legal practices. [The executive summary of the US Senate Report is around 10 pages - can be read to get a gist of the topic.]
Also, the following videos will drive home the point the above articles are talking about. Watch them to reinforce the situation covered by above articles. And there is a good reason why these are being presented to you before any other information.
Forget the 180 day exclusivity and all the FDA stuff, these two points summarize the potential of rewards and on the flipside - if (actually when) regulations/legislations change - the risk of having a bloodbath in prices and huge consolidation on the supplying side. The prevailing situation CANNOT continue for long. [Will come to that after you have watched the videos.]
Given the existing legislations, the US market is so lucrative for manufactures/suppliers because when the right opportunity comes (or the window to create an opportunity is available) then within a year a single drug (even a generic one) itself can push the revenues and profits by millions of dollars. US Govt. (Federal as well as States) are working towards new legislations that will radically change the landscape.
IQVIA published its report and released the webinar in May 2019 for the year 2018. The report deals with US prescription drugs market - comprising of branded as well as generic drugs. Over-the-counter (OTC) drugs which require no prescription are NOT covered in this report.
Note: Please download the report ASAP - may get archived in future. If you get an error on registration (too many existing registrations) then use your corporate email id or outlook.com email id. For this report and webinar, they have stopped taking registrations from gmail/yahoo type personal email ids.
The Net Market Size (when referring to US Market, always clarify whether the Brand or Generic sales value referred to is “Gross” or “Net”) of US prescription drugs was around $350 Billion USD. Net reflects the actual realizable sales value by the manufacturer / supplier.
(Supplier in this context is the US front-end company - which could be the manufacturer’s own group company / subsidiary or a different organization with which the manufacturer has tied up. If the manufacturer and supplier are not of the same group, then realization by manufacturer will be as per the revenue or profit sharing terms with the supplier.)
The Gross invoice value was around $480 Bil. USD. This reflects the price at which billing happens from the manufacturer / supplier. The gap between 480 and 350 represents the smoke screen created so that real market price realized by sellers CANNOT be found out. [As the conversation goes in “The Dark Knight Rises”: Theatricality and deception are powerful agents to the uninitiated - Hans Zimmer background music… ]
5.8 Billion prescriptions dispensed in 2018. [Context entire US population is around 330 Million. And these prescriptions could be for different time duration - 1 week / 30 days / 60 days / 90 days - depending on chronic or acute disease treatment]. Apart from conveying a general sense that US folks tend to take a lot of prescription drug medication, this statistic doesn’t give any insight into the Market Volume of drugs.
Generics comprise 90% of prescriptions dispensed in volume terms (i.e. units sold of tablets, capsules, injections etc.) *. This reflects success of the Hatch-Waxman Act (or if you wish to sound smart then “Drug Price Competition and Patent Term Restoration Act of 1984”) and the US FDA’s efforts in working towards higher accessibility of Generic Drugs.
Generics volume in market was 75% in the year 2009. So there has been steady increase over the years.
In Value Terms (Net Market Size), Generics share is around 20% i.e. around 70 Billion USD. Over the coming years, off-patent drugs or Para-IV generics will add to this number, while price erosion across the entire generics basket will reduce the number. [Price Erosion defined: Assume the Brand / Innovator drug was sellling at 100$ per bottle. If the Generic drug sells at 2$ per bottle then 98% is the price erosion. I will add Glossary of all the terms - or will find a URL where it already exists.]
So Generics are 90% in Volume Terms and 20% in Value Terms.
Innovator/Brand drugs are 10% in volume terms and 80% in value terms.
Net per capita spend in 2018 was $1,044 (2009 value was $1,000 - so it has gone up only 4.4% in around 10 years.) 330 Million (US Population) * 1044 will roughly give 350 Billion USD Market Size.
Generic competition has intensified fiercely over the last few years. * The ratio of drugs genericized to ANDAs (launched + not launched) has expanded from roughly 1:2 (in 2013) to 1:10 (in 2018). [Please refer Exhibit 19 on Page 25 of the IQVIA 2018 report. Will share screen-shots only if IQVIA gives its permission.]
So for each new drug which becomes generic, on an average there are 10 competitors in the market now. [The era of Sole-FTFs is long over! These days its common to have 10-15 shared FTFs]