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International Generics 2.0: Embedding new Learnings in a re-drawn Map

This post deals with overall introduction to the International Generics industry

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 :stuck_out_tongue: ]
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 :wink:) with the basics.

Absolute Basics

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:

Summary of US FDA’s framework for approval of New Drugs.

The distinction between New Drug Development and Generic Drug Development:

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. During 10 year period of 2009-2018, 271 New Drugs were approved by US FDA - making it an average of around 30 drugs per year. [The comparable number for biologics is 85 but we are NOT discussing biologics and biosimilars here.]
  • 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.
  • Regulatory exclusivity - Drug & Health regulatory agencies like US FDA provides exclusivity other than patents. A snapshot of the type of exclusivities provided by US FDA is given here.
  • Clinical Trials are essential for proving - safety, effectiveness, efficacy. Done in 4 phases - Phase 1 : 20-80 (normally healthy) volunteers - objective is to see drug safety / adverse reactions. Phase 2 : A few hundred patients(100 to 500) - objective is drug safety + efficacy. Phase 3 : Upto 3000-4000 patients - drug efficacy / effectiveness, whether the drug’s benefits outweigh its risks / adverse reactions. Drug approval is done after Phase 3 results. However, Phase 4 continues post drug approval to check long term impact of the drug on human body.

Generic Drugs:

  • Drug Development Cost - 1 Million USD to 5 Million USD . So this is around 1% to 5% of the Brand / Innovator drug. [1 Mil. - Simple products, 2-3 Mil. Complex Products, 4-5 Highly Complex/Speciality products.] [Most generic companies sell products in many regulated markets/territories. Their drug development process is focused on the first market where the product is intended to be launched or the most promising market. For making product filings in other markets, they reuse as much data and protocols that were developed for the first filing. The cost for dossier extension would be around 0.5 to 1 Million USD.]
  • Time taken to develop the generic (from the API stage) - 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?
The term encompasses generic drugs market across the world - having regulated as well as non-regulated / semi-regulated markets. Normally, when reference is made to International Generics, it is for regulated markets i.e. those countries/territories where a health and drugs regulatory agency (like US FDA, MHRA UK, EMA EU, ANVISA Brazil) has codified (rather stringent) regulations for submitting an application (normally known as Dossier or US Specific ANDA) that is reviewed and approved explicitly before the drug can be launched in the respective market.
Not only does the final drug (known as Formulation or FDF - Finished Dosage Form) require submission of application, but an application - Drug Master File (DMF) or Active Substance Master File for the Active Ingredient (i.e. the medicine in its raw form - called as Active Pharma Ingredient / API / Bulk Drug) is also required.

What does generic drug development process look like?
Companies pursuing generic drug development will have the following processes and operating models:

  1. Product selection - This is the stage where company identifies drugs which have a sizeable market (or even promising therapies in advanced Clinical Trials Stage - like Stage 3) in a particular geographic territory/country and across all the major regulated markets where the company intends to market the drug. The company creates a “business case” or “project initiation document” that captures the following:
  • Volume - In terms of No. of tablets, No. of capsules (for Oral Solids), other units - ml, mg, gms etc. for other routes of administration like Opthalmic, Injectables, and Dermatological products. Volume is of paramount importance; because while the annual Brand Sales for a drug may be a few billion dollars, it may be driven solely by exorbitant prices (one pill selling at 1000 USD) and low volumes. So even if 3-4 generic companies can crack the code and get their marketing approval, the resultant market maybe a tiny fraction of the brand market.

  • Price per unit/SKU and Market Size - Volume multiplied by the prevailing / expected price per unit/SKU will give the Market Size (Value) In $ Million. Guesstimates of annual brand drug sales and probable generic sales are worked for the next few years. This is done primarily using Industry specific databases / solutions provided by organizations like - IQVIA, [Please do watch the forecast link video given on the IQVIA page - will give you the overall idea of what is involved in the process], IPD Analytics, Clarivate Analytics Cortellis, Symphony Health etc. Expected competition from other branded drugs that treat same disease indication, generic competition, and Price Erosion scenarios are worked out. [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.]

  • Guesstimating the expected market size involves several intricacies like:
    (a) Products which are not facing any generic competition when the business case is being worked out - The Gross-to-Net data for Brand drug sales may not be accurate. (This problem is specific to US Market)
    (b) Products already facing generic competition when business case is being worked out -
    Brand Net Sales + Generic Net Sales -> with market share captured from Brand as well as Generics and Price erosion to both the market sizes need to be applied.
    (c ) Existing Brand Sales may NOT reflect the appropriate base value of the market size ($ Mn and/or Vol. / Units) - Brand sales Value (price) or Volume is going to get affected by another competing product [different NDA / Brand small drug product] which treats the same disease maybe through a different mechanism of action. i.e. instead of Generics, a piece of the existing pie is taken away by a different Brand/Innovator.

  • IPR Landscape around the world and priority of market launches - If generic companies launch their products after all patents of the brand/innovator expire then their operations are NOT going to be commercially viable. Heart of running a successful generic company is getting the IPR Strategy right! And Pharma IPR is a complicated matter. The company will scan IP landscape across all the territories and decide the development and launch strategy for each territory. The IP needs to be scanned for FDF/Formulation as well as the basic drug APIs. Generally, the dossier / ANDA development will be done for the most promising territory (say USA) and then it is extended to other markets; reusing data and protocols as far as possible.

  • API (Active Pharmaceutical Ingredient) Source - Well the equation is simple - No API = No FDF / Forumation. Companies who are vertically integrated will try to have their own API in the filing. If the API is not inhouse then it will tie-up with an API manufacturer. As a part of derisking strategy, more than one API source may also be used in filing - because API switching after drug approval is a long process taking minimum 6 months.

  • Estimated cost of manufacturing (Conversion Cost) - Depends on the type of product and expected commercial batch size. Normal Oral Solids could be between $5 to $15 per 1000 tablets/capsules, Oncology / High Potency drugs would be significantly more expensive because they require special containment facilities.

  • Company’s competency (R&D and Manufacturing) in developing the drug.

  • After evaluating the above parameters (and maybe some more), the company decides whether it should add a drug to its R&D grid/pipeline. Depending on the outcome of subsequent stages, some of the selected drugs may not see the finish line.

  1. R&D / Chemistry stage to develop API (Active Pharmaceutical Ingredient - the real medicine which strikes the disease) drug development - also known as Chemistry - because we are developing/synthesizing new molecules. Actually, strictly speaking, not new molecules, but development of existing molecules through literature search and reverse engineering.
    API drug development can be done in-house or APIs can be outsourced from an API manufacturing company. Or a combination model - some APIs are manufactured Inhouse and some are bought from API suppliers.
    Manufacturing APIs need KSM (Key Starting Material). Again the KSM maybe made inhouse or (generally is) bought from KSM suppliers.
    The development of API starts in R&D center of the company at a Lab-Scale. The molecule is developed using literature available on the API used by the brand drug and studying the API (through dissolution and other analytical methods) . Route of synthesis is decided, tweaked and analytical tests are performed to check whether the molecule developed is same as the desired API. Pubchem can be accessed to understand chemistry of the molecules/compounds.

  2. Scale up of API - Molecule developed in R&D is at Lab-Scale i.e. would be upto few grams to few 100 grams. The reactor sizes would be like 1KL- 3KL. Once it is established that R&D has successfully developed the molecule at Lab-Scale, it is scaled up to higher batch sizes in pilot plant or commercial plant. The larger size batches manufactured are preserved / stored for recording stability data and all the necessary documentation for Active Substance Master File / DMF is prepared. In case of vertically integrated companies, the ASMF / DMF would be filed only around 4-6 months before their Dossier / ANDA submission. Because filing an ASMF / DMF too early would reveal the drug development pipeline to competitors.
    Successful Scale-Up is of paramount importance. One cannot assume that if a 1 KG batch is stable and consistently successful then 20 KG, 200 KG or 2000 KG will also be successful simply by increasing the ingredients and reactor sizes by factor of 10x. The typical properties of each API make each stage of Scale-Up challenging. [On a lighter side if a non-technical person like me tries to do scale-up from 20 KG to 200 KG by increasing the ingredients and reactor size by 10x then we can expect to see some SpaceX style rocket launches from the reactors :rofl:]
    All finalized batches of API have Certificate of Analysis (COA) which certifies their properties and accompanies the regulatory submission or shipment to customer site / captive facility. The API manufacturing process looks like this. Its like a typical chemical manufacturing/synthesis process with lots of bad odor and high temperature around the manufacturing facility.

  3. Formulation Development - Just as the case is with API, the company may (a) Do Formulation development in-house (b) Get it done externally - outsourced external devp. © Do in-house development for some drugs and outsourced for some. Formulation development first happens at lab scale inside the R&D center. The formulation development of generics is always done with reference to a Reference Listed Drug (RLD). Scientists access literature related to the brand/innovator (or the RLD if the brand/innovator is not available) drug, and use reverse engineering techniques involving dissolution and analytical methods to develop the formulation. Once the drug is formulated at lab scale, depending on the route of administration of the drug, the appropriate Bio-Equivalence activity is carried out in various phases.

  4. Bio-Equivalence (BE) - Reiterating what I wrote earlier. BE 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. There are different BE strategies for different types of drugs. Pharmacokinetics of the generic and RLD/Brand drug are to be compared and their difference is to be demonstrated as statistically insignificant. BE is normally done in first in the Pilot phase with limited no. of volunteers (would be less than 20) and drug dosing / drug application results are checked. If Pilot phase results are not successful then depending on the situation - either the protocols are redesigned and por even the formulation may have to be redeveloped. Once the Pilot phase results are promising then BE is taken to Pivotal stage. Pivotal Bio stage is a full-fledged BE study with greater no. of volunteers (upto 40). If Pivotal Bio fails then the company may either go through reiteration of protocol redesign, formulation development, Pilot BE and Pivot BE or looking at the market scenario, product potential and time and resources required for redevelopment, the company may decide to stop the drug development process at this stage. If Pivotal Bio is successful then preparations are done for technology transfer to scale-up the batch size and manufacture the drug at Pilot Plant / Commercial Plant for exhibit / regulatory submission batches.

  5. Scale-Up and Exhibit Batches - Upto Pivotal Bio stage, the formulated drug was being manufactured at Lab-Scale. (e.g. Few 100s or 1000 tablets.) Once Pivotal Bio is successful, all the blood, sweat and tears are ready to create the ground for manufacturing Scale-Up / Test batches (net practice) followed by Exhibit / Submission batch. [Scale-Up batches would be of the size around 100,000 Tablets.]
    The current regulations require 6 months of stability data for the exhibit/submission batches. The entire set of documentation for filing Dossier/ANDA is prepared during this 6 month waiting period. On elapse of 6 months, the stability data is included in the Dossier/ANDA application and it is sent to the regulator! Phew! :relieved:

  6. Regulatory approval (or rejection) and IPR clearance - The general reviewing and approval process is explained succinctly here. After the application is filed:

  • First hurdle to clear is RTR (Refuse to Receive) - Though one can contest against RTR, but not having RTR is what companies aim (and hope) for.

  • If its ANDA filing then the patent certification (Para I, II, III, IV filing) is of great importance.
    Note : In US filings, ANDA filing (Para IV) is considered an act of Patent Infringement and the US FDA is involved in the Para IV filings with 30 Month Stay etc. In other markets, actual commercial launch is considered as an act of Patent Infringement and their Drug & Health Regulatory bodies are NOT involved in the patent litigation between Innovator and Generics.
    US ANDA filings related core part: Quoting directly from US FDA website:

  • The Hatch-Waxman Amendments amended the Federal Food, Drug, and Cosmetic (FD&C) Act and created section 505(j). Section 505(j) established the abbreviated new drug application (ANDA) approval process, which permits generic versions of previously approved innovator drugs to be approved without submission of a full new drug application (NDA). An ANDA refers to a previously approved new drug application (the “listed drug”) and relies upon the Agency’s finding of safety and effectiveness for that drug product.

  • The timing of an ANDA approval depends in part on patent protections for the innovator drug. Innovator drug applicants must include in an NDA information about patents for the drug product that is the subject of the NDA. FDA publishes patent information on approved drug products in the Agency’s publication “Approved Drug Products with Therapeutic Equivalence Evaluations” (the Orange Book) (described in more detail below). The FD&C Act requires that an ANDA contain a certification for each patent listed in the Orange Book for the innovator drug. This certification must state one of the following:

  • Para I that the required patent information relating to such patent has not been filed`

    Para II that such patent has expired;

    Para III that the patent will expire on a particular date; or

    Para IV that such patent is invalid or will not be infringed by the drug, for which approval is being sought.

  • A certification under paragraph I or II permits the ANDA to be approved immediately, if it is otherwise eligible. A certification under paragraph III indicates that the ANDA may be approved on the patent expiration date.

  • A paragraph IV certification begins a process in which the question of whether the listed patent is valid or will be infringed by the proposed generic product may be answered by the courts prior to the expiration of the patent. The ANDA applicant who files a paragraph IV certification to a listed patent must notify the patent owner and the NDA holder for the listed drug that it has filed an ANDA containing a patent challenge. The notice must include a detailed statement of the factual and legal basis for the ANDA applicant’s opinion that the patent is not valid or will not be infringed. The submission of an ANDA for a drug product claimed in a patent is an infringing act if the generic product is intended to be marketed before expiration of the patent, and therefore, the ANDA applicant who submits an application containing a paragraph IV certification may be sued for patent infringement. If the NDA sponsor or patent owner files a patent infringement suit against the ANDA applicant within 45 days of the receipt of notice, FDA may not give final approval to the ANDA for at least 30 months from the date of the notice. This 30-month stay will apply unless the court reaches a decision earlier in the patent infringement case or otherwise orders a longer or shorter period for the stay.

  • The statute provides an incentive of 180 days of market exclusivity to the “first” generic applicant who challenges a listed patent by filing a paragraph IV certification and running the risk of having to defend a patent infringement suit. The statute provides that the first applicant to file a substantially complete ANDA containing a paragraph IV certification to a listed patent will be eligible for a 180-day period of exclusivity beginning either from the date it begins commercial marketing of the generic drug product, or from the date of a court decision finding the patent invalid, unenforceable or not infringed, whichever is first. These two events - first commercial marketing and a court decision favorable to the generic - are often called “triggering” events, because under the statute they can trigger the beginning of the 180-day exclusivity period.

  • In some circumstances, an applicant who obtains 180-day exclusivity may be the sole marketer of a generic competitor to the innovator product for 180 days. But 180-day exclusivity can begin to run - with a court decision - even before an applicant has received approval for its ANDA. In that case, some, or all, of the 180-day period could expire without the ANDA applicant marketing its generic drug. Conversely, if there is no court decision and the first applicant does not begin commercial marketing of the generic drug, there may be prolonged or indefinite delays in the beginning of the first applicant’s 180-day exclusivity period. Approval of an ANDA has no effect on exclusivity, except if the sponsor begins to market the approved generic drug. Until an eligible ANDA applicant’s 180-day exclusivity period has expired, FDA cannot approve subsequently submitted ANDAs for the same drug, even if the later ANDAs are otherwise ready for approval and the sponsors are willing to immediately begin marketing. Therefore, an ANDA applicant who is eligible for exclusivity is often in the position to delay all generic competition for the innovator product.

  • Only an application containing a paragraph IV certification may be eligible for exclusivity. If an applicant changes from a paragraph IV certification to a paragraph III certification, for example upon losing its patent infringement litigation, the ANDA will no longer be eligible for exclusivity.

  1. Commercial launch :rocket:
  • Once the regulatory approval is received, the company may launch the product with no IPR litigation (clean launch) or with ongoing IPR litigation (At-Risk Launch).

  • If the generic company loses IPR battle, then “At-Risk” launch can prove to be quite costly. Teva and Sun had to pay USD 2 Billion to Pfizer for at-risk launch of Pantoprazole (Protonix). Apotex paid 76 USD Million to Astra Zeneca for Omaprazole (Prilosec).

  • The company can have its own front-end / subsidiary company in the foreign market or can launch the product with a marketing partner.

  • Depending on the product(s) involved in the agreement, the model with marketing partner may take any of the forms:
    (a) Pure profit sharing - Products from India are transferred at an agreed Transfer Price (COGS+ Manufacturing Margin). Profits are calculated on quarterly basis (after accounting for Net Sales, COGS, SG&A and other expenses). The profit sharing is generally in the range of 20 percent to 50 percent of the net profits earned on products. The SG&A (Selling General & Admin Expenses) are however charged flat as a % on the Net Sales number. In many cases this SG&A itself is a substantial profit for the Marketing Partner. Generics does NOT require field-force. The fixed cost structure doesn’t change much by taking new marketing agreements.
    (b) Pure Transfer Price model - The manufacturer sells at fixed transfer prices to the marketing partner. The manufacturer margin is fixed irrespective of the prices in market. The upside of profits from net realizable price in market belongs to marketing partner. However, if market price is under pressure then the marketing partner will work on negotiation towards revised transfer prices.
    (c ) Hybrid of (a) and (b) - Upto certain level of market prices the transfer price is fixed. Beyond a level there is profit sharing etc.

  • For selling through own front-end - most regulated markets require country level and state level registrations of the company. Also there are restrictions on who can register the company (i.e. only local nationals are allowed in many cases). The supply chain is generally managed through 3PL. The front-end team broadly performs demand forecasting, contracting, negotiations, market intelligence and competition sensing functions. Generics do NOT require any field-force marketing efforts.

Some recommended Industry Resources

Character limit reached for this post. Will continue in subsequent posts.

19 Likes

@NauticalTwilight
Thank you for putting your hands up! Love it!

Just the other day, we are attempting an International Generics Market activity scan and did notice that it isn’t as if activity (ANDA filing & Approvals e.g.) has diminished across the board, there were big pockets pretty active. @spatel has done great work in doing as complete market map as we can, and will benefit tremendously with some guidance from industry insiders like you - like where to focus more efforts on, how to read between the lines, connecting the dots for market opportunities (esp. after the biggies vacated lots of space); basically use you and others experienced pharma professionals in US generics markets as a solid sounding board for our inspired hunches.

We think there is a new kind of game in International Generics emerging, and some players are proving to be better prepared and better skilled at execution. We are collecting more data points and trying to get better at asking second order questions to both industry professionals like you and Pharma Managements for us to get a better grip on subject.

Your timing couldn’t have been better :slight_smile:. Hope this inspires more pharma international generics industry insiders to put their hands up. Certainly, we feel there is suddenly again more opportunity in International Generics available, and some businesses are poised to benefit well, provided there is a method to the madness. This is a Variant perception - unlike the general consensus against Generics currently - and needs to be validated. As we mentioned before, its still a hunch. But guys like you can help us knuckle down and prepare hard by equipping us to ask more second order questions.

Thanks a lot for the report. Btw, just want to prompt you to recheck to ensure that this report is available for public consumption for free. If it is NOT, then we may be violating someone’s IP and you should immediately remove it. At VP we try to be a responsible community to ensure we are not violating anyone’s intellectual property. Kindly recheck, and act accordingly.

2 Likes

Q4CY 19 Raw data post 2001.xlsx (987.9 KB) Have updated latest DMF filings data as below

If we see the pace of recent filings, following companies clearly stand out:
Alembic Pharma, Alkem Labs, Granules India, Laurus Labs, Piramal and Shilpa Medicare

Source data sheet attached too.

5 Likes

Thank you for posting the update. Hope the numbers reflect only Type II DMFs. (The raw file contains all DMF entries hence re-confirming]

We are all waiting for @crazymama to update his Tableau dashboard. If he has some time to spare then I am ready to learn and take it forward.

Editing this post based on subsequent reply by @valuequest

Actually only Type II DMFs are the Drug Substance / API applications. It so happens that in this case there are no other (Type III, IV or V) DMFs filed by the Indian companies so their DMF numbers are correctly depicted (did a random sample check for 3-4 companies).
But please keep only Type II Active DMF and filter out all other DMF types. This will change the no. of Worldwide total active filings and the corresponding % of Indian companies.

  • Normally, vertically integrated companies would submit DMFs around 6 months before their ANDA filing.
  • Submitting a DMF early would reveal their pipeline product to competitors.
  • Submitting it too close to ANDA filing may be a bit risky from regulatory clearance perspective.
  • Though a DMF is neither approved nor rejected by the FDA. It is simply referred when an ANDA or NDA application is received for the particular drug.

Yes numbers excludes Type I DMF, includes all other DMFs.

I have done a similar check on ANDA approvals as well, data sourced from US FDA
(Source: https://www.accessdata.fda.gov/scripts/cder/daf/index.cfm?event=reportsSearch.process&rptName=1&reportSelectMonth=12&reportSelectYear=2019&nav#navigation)

In this as well, just by the numbers, following mid caps clearly stand out - Ajanta Pharma, Alembic Pharma, Alkem Labs, Shilpa Medicare and Torrent.

8 Likes

Note: Contacted IQVIA, and they gave permission to cite their publicly available reports. The citation to be given is:
Full Report Name . IQVIA Institute for Human Data Science. Month/Year of the Report publication

This post is about US GENERICS MARKET- EVOLUTION OF INDIAN PLAYERS, IQVIA/IQVIA Institute for Human Data Science, February 2019.
Unless otherwise indicated, all charts, excerpts used in this post are from the aforementioned report.

The report can be downloaded from here.
[Please download the report ASAP. IQVIA may archive it in future.]

This is a brief report - around 12-15 pages with charts and graphs. So does not warrant summarizing much. Everybody should read it in full.

Nevertheless, I would like to drive home the point that US generics is a BUYER’S Market.

Sharing a paragraph and reference to couple of images from Page 6 of the report.

Blockquote

About a decade ago, US had more than 10 pharmaceutical distributors contributing to ~80% of the US generic market. However, the last decade has been witness to consolidation (Figure 5) so much that the top 3 players — WBAD, Red Oak and McKesson OneStop, have contributed to >80% of the US generics market (Figure 6).

Blockquote

image
McKesson, CVS Health, AmeriSourceBergen(ABC) are ranked 7, 8 and 10 on Fortune 2019 list (by revenue).
Following them are Cardinal Health and WalgreensBootsAlliance at 16 and 17.

CVS and Cardinal Health have a JV for generic sourcing. The resultant JV company is Red Oak Sourcing. And CVS also aquired Aetna Health Insurance. So, ladies and gentleman, CVS is in Wholesale Distribution (through Red Oak / Cardinal JV), Retail Pharmacy, Health Insurance (Aetna) and PBM (Pharmacy Benefits Manager). CVS is in the entire value chain of US drugs distribution! Maybe someday FTC will scrutinize it - but till then it has enough muscle to bully suppliers.

And the other folks - Walgreens, McKesson, ABC, Cardinal, et.al are known bullies. Well if you command 80% of market share in wholesale distribution and have downstream retail presence as well then suppliers (drug manufacturers) are going to be at your mercy!

Perhaps the only saving grace currently for Drug Suppliers is that the US Government still DOES NOT have a mandatory reference price limit and tendering system for its Medicare (Part D) and Medicaid programs. The US Govt. is the insurer (payor) for around 30%-35% of the US population through these two schemes. Currently, the laws DO NOT allow US Govt. to influence prices under these two programs. Will have a separate post elaborating that.

Imagine being a me-too drug supplier having 10 competitors and selling perfect substitutes of the products/drugs in such a market!!!

8 Likes

Companies having FDF (Finished Dosage Form) / Formulation plants in USA will benefit.
Opportunity size is unknown. Will try to get a sense of what is the potential opportunity.

More on this here:

  • Still unable to get an idea of the market size access opened by this ruling. Would request folks holding pharma shares (of any company having its manufacturing facility in US) to reach out to the Investor Relations and get the overall magnitude of impact.

  • Also, need clarity on the situation in which an Indian company has Contract Manufacturing agreement with organization having its plant in US. By looking at the intent of the ruling, CMO FDF manufacturing should also qualify for this Govt. procurement program. But better to have an authoritative clarity on the matter.

  • Clearly Unfavorable for companies who DO NOT have any FDF manufacturing facility in USA.

  • This also reminds us that the overall risk profile of companies having NO FDF manufacturing facilities in USA is higher than their peers. Companies that have several manufacturing facilities in India and NONE in US need to have a hard look at their strategic risk profile. Because, any regulation which promotes more localized manufacturing will reduce the market size accessible by them.

  • We need to tabulate which companies DO NOT have any manufacturing plants in USA and ask their Management in the next round of concalls / Q&A that are they (sort of) compelled now to either own a US manufacturing facility or have a CMO arrangement with US based entities.

3 Likes

Hi NauticalTwilight,

Thanks for reigniting the pharma discussion which was almost lost in the dust. I need some help regarding the capabilities of front end teams of generic pharma cos. Few questions on US front end:

  1. About pricing and the kind of pricing pressure being experienced in US generic market currently. Has it reduced currently or remains cut throat?
  2. How does a front end help in taking advantage of supply side issues for few products like sartans being experienced in US markets currently?
  3. Views on front end marketing team of companies like Alembic, Ajanta compared to larger peers like Sun, Lupin, DRL.
1 Like
  1. About pricing and the kind of pricing pressure being experienced in US generic market currently. Has it reduced currently or remains cut throat?

The US Generics Market is primarily a BUYER’s market. Have explained the macro scenario in previous post.

The Top 3 Wholesalers/Distributors have 80 percent of market share. Generic drugs being perfect substitutes of each other are all me-too products. The supplier generally doesn’t have a say in the prices if the market consists of more than 5-6 competitors. And if Apotex is a competitor in any drug then rest assured the price erosion would have hit peak levels - 98-99 percent (or the maximum erosion possible given the cost of manufacturing and distributing the drug + a nominal margin of 5%-10% -> In some cases some products might be sold at loss as a part of overall product basket - loss leading / bundling strategy).

Lets take example of a typical Oral Solid drug:
The manufacturing cost components are: API, Excipients, Packing Materials, Capsule Shell (if its a Capsule) and Conversion Cost.
Other than API, the bunch of capsule shell (for capsules) + excipients + packing materials + conversion cost is generally around 2 cents per Tablet / Capsule. So for a pack of 30s, this translates into 60 cents per Bottle. Now API cost is highly variable - depending on the strength (5mg, 10mg, 500mg etc.) and cost of API. [Normally the general oral solids will be having total manufacturing cost of 3 to 4 cents per tablet]. For our case lets assume its 1 cent per Tablet. This makes the total manufacturing cost to be 3 cents per Tablet -> 90 cents per Bottle for 30s. Add to it Freight (5 percent to 10 percent) and other Selling & Distribution costs (another 10 percent). This makes the total COGS per bottle at around 1.1 Dollars. Now if after the price erosion, the brand drug has hit around 1.2 Dollar levels then the manufacturer may decide to stay in market for a small manufacturing margin and cost recovery. Anything below this level would mean suspension of selling till market prices improve and an attempt to have some drastic cost reduction (if possible).

At this price level if existing manufacturers or prospective entrants (who receive approvals later) do not find it viable to sell, then they simply do not launch or temporarily (which may eventually become permanent) discontinue the product.

Couple of important charts and data points from IQVIA’s report
Medicine Use and Spending in the U.S. A Review of 2018 and Outlook to 2023 - IQVIA/IQVIA Institute for Human Data Science - May 2019:

Exhibit 19 on Page 25 of the report shows, the ratio of Generization of Molecules to No. of ANDAs approved has rised steeply from 1:2 (2013) to 1:10 level in 2018.
Also, see the ratio of ANDAs not launched in the diagram and the numbers speak for themselves.

And this is the market situation when the Chinese API folks are not aggressively pursuing US generics formulation side of the business.

Further, important points to note from another IQVIA Report - US GENERICS MARKET- EVOLUTION OF INDIAN PLAYERS - IQVIA/IQVIA Institute for Human Data Science - February 2019

Page 5 - Figure 4: Express Scripts’ Prescription Price Index.
Quoting from report The prescription price index which measures inflation in prescription drug prices by monitoring changes in consumer prices for a fixed basket of commonly used drugs has fallen to 26.27 as opposed 93.67 in 2008 for generics

Page 11 of the report - Quoting from the section on Right Portfolio Selection:
Large Indian players like Cipla are now focusing on right portfolio selection as indicated by their MD “I do not think we are going to file more than 20 products in a year, but we will choose them well. Nowadays, in the US, you think you have a very good product but there are eight companies filing the product on day one and then there are another five after that. We are running our R&D machinery really hard and the outcome may not be what we want. So we will try and do less filings but focus on the ones that are lot more complex

Above two charts and this quote by Cipla’s MD summarizes the prevalent situation - which is like the new normal.

On one hand while there is massive consolidation on the demand side, for mid-sized and small size generic pharma manufacturers (most Indian companies in the US space), there is a double whammy with some huge consolidation on the supply side as well:

  • Actavis merged with Allergan in 2015. [Allergan managed to escape Valeant Pharma and Bill Ackman’s (almost) hostile bid and should thank heavens for that! Because turn of events later revealed how pharma companies like Valeant can engage in brazen unethical practices to squeeze every dollar out of patients / insurers in the US health care market. [This story deserves a separate post (with some pop corn) in itself - will do that in coming days].
  • Pfizer nearly acquired / merged with Allergan (only a few months after the Actavis-Allergan merger) but had to call off the deal due to opposition of the tax inversion strategy by US Govt.
  • Few months down the line in 2016 - Teva (drunk high on its Copaxone profits) which was unsuccessful in acquiring Mylan, went ahead and acquired Allergen’s generics business. But market dynamics have not been kind to this rather ill-fated acquisition.
  • 2015-16 timeline for Teva-Mylan-Valeant-Actavis-Allergen-Pfizer deals (including attempted deals) was such that we need US pharma analysts with the Amit Shah - “Aap chronology samajhye” meme to explain us the exact sequence of events.
  • Moving ahead, in second half of 2019, Pfizer and Mylan announced creation of Viatris - a new entity to be formed through the merger of Upjohn (Pfizer’s off-patent branded and generics business) and Mylan.
  • Net,net - Teva-Actavis-Allergen is one entity (as far a generics business goes) and Pfizer-Mylan (generics) is one entity. So the landscape changed from five big players becoming two gigantic players.

[The materiality of above in context of US generics market needs to be added in a subsequent post.]

Having spoken about the demand side and supply side consolidation, would share some thumb rules for judging what might be the price erosion in the market:

  1. 2 to 4 competitors [the great American dream for every generics manufacturer. Sole-FTF is now shifted to history section of the Industry] - who understand each other without talking (if they talk - will face FTC’s music) . Lower Limit - 80 to 90, Upper limit 90 to 95 percent [depending on the product cost and how soon the market formation happens] (Also, provided Apotex is NOT in the list.)
  2. 5 to 7 competitors - Lower Limit - 90 to 95, Upper Limit 95 to 97 percent erosion.
  3. 8 and more competitors - Nearly 98-99 percent erosion. Those who are extremely cost effective will sell, others will not commercialize the ANDA or discontinue. This has been explained in a previous paragraph in this post.

The REAL Price Erosion experienced by each manufacturer can differ by a few percentage points. The real net selling price realized by manufacturers/suppliers is known only to them. I repeat, The real net selling price realized by manufacturers/suppliers is known only to them and in some circumstances even they are not 100percent sure of what the final Avg. NSP (Average Net Selling Price) will be. :astonished:
Welcome to the world of US Gross to Net (G2N) sales. You are now getting initiated :nerd_face: into the US pharma industry’s secret cult after which you will find Indian taxation (and other arcane laws) simple :exploding_head:

G2N (GTN) - Gross-to-Net is the smoke screen used to mask the real prices realized by manufacturers/suppliers. The Flow of drugs and financial movement in US drug supply chain is COMPLICATED.

[Instead of conducting CAT and JEE exams, IITs and IIMs can ask students to explain how the US pharma funds flow in the industry :rofl: ]

For manufacturers, guesstimating the Avg. NSP (Net Selling Price) of competitors requires industry databases and multiple data points to triangulate. For people who have no access to highly priced industry databases, the exercise is almost impossible. We can have a general sense of the prevalent drug price in the market through US Govts. NADAC or sites like www.goodrx.com for drug prices. Type any drug - Valsartan 320, Celecoxib 300 etc. the range you will find is likely to drive you crazy.

To summarize:

  • Generally there is fierce price erosion in most of the drugs
  • Market price realized by a manufacturer CANNOT be known by others.
  • People having access to industry databases can guesstimate manufacturer prices.
  • People having no access to industry databases have a higher chance of winning the lottery ticket than getting correct information about the drug prices realized by manufacturers.
  • Market share can be known reliably through industry databases. [Haven’t spoke about this aspect yet - will think how to flesh it out]

Hope this addressed the query satisfactorily :slight_smile:

Response to Points 2 and 3 in subsequent posts.

26 Likes

Excellent post!
I had a few questions.

  1. Is there a reason why Chinese companies are not agressive in formulations?
  2. Is the price erosion same for all types of products? Eg. Orals or injectables

@NauticalTwilight
Thanks for the ongoing education which is real value-additive for us. I will return to this thread when I have more time to go through at leisure.

Meanwhile, I am sure you will address the issue of “shortages” when you have the time in your own lucid way.

But suppose I were to meet a Pharma Industry sourcing Expert, what kind of questions should I look to ask to get a better picture on source of shortages, why some businesses prove nimble enough to execute well on shortages more or less consistently; Sun and Lupin had supposedly mastered the Art? They had like real-time tabs on pharma stock-points across the country? Et al

Any guidance on right questions to ask will be good.
Please answer when you can and in your natural flow. No hurry.

1 Like

2. How does a front end help in taking advantage of supply side issues for few products like sartans being experienced in US markets currently?

Let’s start with the role of the front-end entity. Manufacturers have the option of setting their own subsidiary (front-end) with some locals on-board (generally foreign nationals are not allowed to apply for registration) or tie-up with a local entity (partner-model). Due to local laws in US (and most other regulated markets), you need a local entity which is registered with the Drugs & Health authority and has necessary federal or state government licenses to supply drugs in the specific territory. The drugs are sold on the label of this local entity. For example - see this label. The drug is manufactured by Intas and is sold on Label of Bluepoint Labs.

Functions performed by the front-end entity - Companies selling ANDAs DON’T need field force.
The market for ANDAs is already established by the innovator. The front end folks are doing relationship management, contracting, competitive intelligence - market sensing (demand-supply scenario) and price negotiations with the major entities - distributors, group purchasing organizations, other aggregators. A front end team of 20 odd people can rake in sales upto 500 Mil. USD (around 100 products basket/portfolio).

The cost of having such a front end would be around 8 - 10 percent of sales. (Depends on the price realization levels.) The major expenses being 3PL (Warehousing, Distribution, Logistics Management) and Employee Cost.

If a manufacturer goes with partner model - having a different entity as the front-end - then the profit share to be given to the marketing partner (front-end entity) varies from 20% to 50%. Assuming a 20% margin on Sales, the profit would be 100 Mil. USD. for sales of 500 Mil. Meaning a payout of 20 to 50 Mil. USD to the partner. But this is not the only cost associated with marketing partner. There are two significant reasons for which the company must have its own front-end entity:

  • Market sensing, financial controls and prevention of revenue leakage - If one doesn’t have its own front-end then it is impossible to know what the real market picture is (in terms of competition, price erosion, market share) and what the real sales and profit numbers are [due to G2N (Gross-to-Net) smokescreen]. Also, if partner sells the manufacturers product as loss-leader / bundling item in the basket, there is nothing that the manufacturer can do about it.

    Front-end entity gets access to EDI reports related to activity levels of the products sold by it. EDI 852 being one of the prominent ones. Channel inventory, consumption pattern etc. are available from these reports given by the distributors. Also, by having its own front-end, the manufacturer gets data from unofficial trade sources across the supply chain. This is vital first-hand inventory data that is not available when manufacturer is selling through a marketing partner operated front-end. If there are limited time drug shortages or one-time price opportunities, then there are high chances that manufacturer may not be aware of this market situation at all as the information will not be passed from the marketing partner to the manufacturer.

    Even when companies have their own front-end, they have been taken for ride by the people in-charge of US operations. The peculiarities of US market are such that without having hands-on control over the front-end, the possibility of getting scammed is real high. Take a look at this case filed by Emcure (parent of Heritage Pharma) against the CEO and a Senior Executive of Heritage (Jeff Glazer and Jason Malek). [PDF document can be downloaded from the site - gives a perspective of what the white folks think of their Indian promoters. We wish racism was dead but the unwritten rule in US front-end is only white folks at the front :frowning_face: ]

Defendants Jeffrey Glazer and Jason Malek exploited their positions as the two most senior executives at Heritage Pharmaceuticals Inc. (“Heritage” or the “Company”) to orchestrate a long-running criminal conspiracy that severely damaged Heritage. Before they were fired in August 2016, and over the course of at least seven years, Glazer and Malek looted tens of millions of dollars from Heritage by misappropriating its business opportunities, fraudulently obtaining compensation for themselves, and embezzling its intellectual property. Glazer and Malek accomplished this brazen theft by creating at least five dummy corporations, which they used to siphon off Heritage’s profits through numerous racketeering schemes. Through one particularly audacious scheme, Glazer and Malek, together with other co-conspirators, secretly arranged deeply discounted sales of Heritage products to their dummy corporations or through complicit third parties willing to act as straw buyers in return for bribes. Glazer and Malek then illicitly pocketed the profit that resulted when the transaction’s true end-purchaser—in each case, one of Heritage’s own customers—paid the market price for Heritage’s products.

The above case happened even when the front-end (Heritage) was Emcure’s own subsidiary. In cases where products are sold through partners, the less said the better! :expressionless:

  • Benefiting from windfalls - When product(s) have low competition (due to limited FDA approvals) or drug shortage situations (e.g. Sartans mentioned by you), due to the absence of price control regulations, the revenue per unit and profit margin potential is HUGE. In such situations, the profit margin is easily 80 percent to 90 percent of selling price. These One Time opportunities (Drug Shortages due to API supply side issue or FDA Import Alerts or other such reasons) bring HUGE WINDFALL gains to the drug manufacturer. The BUYER’s market gets inverted into SELLER’s market in such situations.

    We need to understand a bit on how the contracting mechanism works. The front-end entity (manufacturer’s own or marketing partner) has Master Contracts with distributors/wholesalers, group purchasing organizations, pharmacy benefit managers, other demand aggregators. These master contracts lay down the typical (GTC) General Terms and Conditions of the commercial relationship between the parties. Payment terms, service fees (charged by distributors to front-end), process related to - ordering, returns, destruction, chargebacks, grievance and dispute resolution mechanisms etc. are mentioned here.
    Once the Master Contract is done, product-wise agreement / term-sheets are created in reference to the master contract. The product-wise agreement will be having:

    Quantity of the product to be supplied (lets say 30,000 Bottles of Valsartan) within a certain duration of time (say 3 months) at the specified agreed price (say 5$ per a certain SKU - maybe a bottle of 30s, 160 mg). The agreement will also specify financial compensation to be paid if the front-end label is unable to supply the agreed quantity within the given timeframe. There are clauses on the accuracy of forecasts to be given by Distributors. They can't increase demand from 1000 units to 1 Million units without giving the necessary turnaround time to the manufacturer / front-end entity. So the agreement is fair on both ends.

    Now if a particular front-end entity (label) is unable to supply the agreed quantity then Failure to Supply penalty clause gets triggered.
    The distributor will buy drugs from market (any willing supplier) and the difference between market price (paid by the distributor) and the contract price (agreed between distributor and front-end) has to be reimbursed by the front-end entity.
    Example - Lets say Solco Healthcare (Zhejiang Huahai’s front-end) has agreement to supply 100,000 Units of Valsartan 160 Mg 30s count to McKesson at 3 $ per bottle. This supply needs to be done in a period of 3 months between July 2018 to Sep 2018. However due to the NDMA impurity issue, Solco is unable to supply any quantity to McKesson. As per their terms of agreement, McKesson will charge Failure to Supply penalty on Solco. The quantity would be as per agreement - lets say 6 weeks of supply (so around 50% of the time duration covered by the agreement) - 100,000 * 50% = 50,000 bottles. If McKesson gets this 50,000 quantity from Novartis at 100 $ per Bottle then Solco has to pay McKesson 100 - 3 = 97 * 50,000 = 4.85 Million USD.
    So due to supply issue, Solco has to pay 4.85 Million USD Failure to Supply penalty on a supply agreement which was for 0.3 Million USD value :exploding_head:
    Solco (front-end) will recover the charge from the manufacturer - in this case Zhejiang Huahai. Though when front-end and manufacturer are of the same group (like in this case) then overall its the group’s profits that have tanked.
    Contractually speaking - Failure to Supply is levied by Distributor on Front-End Entity (Label) and the same is charged by Front-End Entity to the Manufacturer. So manufacturer carries the ultimate risk of Failure-to-Supply.

    Lets assume that Zhejiang Huahai was able to resolve the API impurity issue in 1 year and Solco was ready to resume supplies in July 2019. If at that time, the aggregate supplies for Valsartan (from all manufacturers) were still lower than the market size (volume) of Valsartan then Solco would be having the upper hand in negotiating the price for supplies with the distributors. The same 160 Mg 30s count that were earlier negotiated with McKesson at 3 $ per bottle can now be very well negotiated for 30 $ per bottle (yes 10x price!). If McKesson doesn’t agree for this price while Cardinal / Red Oak is ready to take it then Solco will NOT supply anything to McKesson and give its supplies to Cardinal / Red Oak.

    So, we need to remember that agreement for supply of products (X quantity of Y product at Z per-unit price within specific time duration) is transactional and dynamic in nature. Either party (the front-end or the distributor) can request for a change in price / quantity and if the other one doesn’t agree then they are free to buy/sell with other parties. Generally there are no long term binding agreements for supply of generic finished dosage formulations.

Any drug manufacturer having sales of more than 50 Million USD in US Market MUST have its OWN front-end. Else it is going to miss out on 10s or 100s of Millions of USD.

3. Views on front end marketing team of companies like Alembic, Ajanta compared to larger peers like Sun, Lupin, DRL

The right person to answer this is someone who has been in Marketing / Bus. Devp. and has worked in US Front-End entity. I do not have the necessary exposure to comment on how the front-end teams of Indian manufacturers fare against each other.

If we look at role of Front-End Entity involved in selling ANDAs then it is mainly Networking, Contracting, Market Intelligence, Negotiations, Demand Forecasting, and oversight of Logistics. So all folks having relevant Industry experience should do fine from skillset and delivery point of view.

Having competent people for selling ANDAs doesn’t seem too big a challenge to me. The greater challenge is to have ethical people at the helm on front-end and the necessary financial and operational controls to avoid involvement in anti-trust activities and also ensure that manufacturer is not short-changed by the front-end folks.

A big drug-price fixing litigation is ongoing currently. Full case document can be read here.
I have mentioned about how Heritage Pharma duped its Indian parent in the section above. To make matters worse for Emcure, Heritage is also part of this drug price fixing scandal. Its a double whammy for Emcure - its business profits were siphoned off on one end and on the other end it is also charged of illegal / anti-trust conduct in the US. These are the land mines that Indian manufacturers need to safely navigate through and avoid getting into.

With 505(b)(2) products, the efforts of getting the prescriptions written from Doctors and putting the product on Formularies with Insurance companies and Pharmacy Benefits Managers (PBMs) will require significant efforts.

That’s my take on these matters. Happy to discuss further :slight_smile:

3 Likes

Thanks @NauticalTwilight. This is a pretty useful thread. I have a few questions around the sector and would love your thoughts on them

  1. How lucrative is the US market now. With the base business continuing to show erosion and subpar performance of complex/specialty/niche generics by any standard, how should one view the ROCE of the US markets.

  2. A lot of companies like DRRD, Cipla, Sun (in recent concall) have recalibrated their investments in US and have decided to focus more on the domestic market. Does this signal realization of low profitability in the US market? There is clearly more allocation to the domestic market now with more MRs, inlicensing etc. How does this change the dynamics of the sector

  3. How do “pharmering” markets play a role in the growth of Indian exports going forward. Which would be the most attractive markets and what are the dynamics of those market (eg. Brazil?? africa??)

A post on overview of US Generic Drugs Market

To get the functioning of US Generic Drugs Market, it is essential that you first watch these videos (courtesy: Brookings Institution + Khan Academy). Without understanding the concepts given in these videos, it is not wise to discuss the US market.

So here we go:

Introduction to US Health Care

Overview of Medicare - Federal Health Program of the USA

Overview of Medicaid - Federal+State Partnership Health Program of the USA

Medicare Part D (Prescription Drugs reimbursement) and Formularies

Ok; now we look at the US Generic Drugs landscape.

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:

  1. There are NO drug price control regulations in any form whatsoever. (The exception being drugs procurement for Veterans). 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.

  2. 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. [In contrast Medicare Part A (Hospitalization) and Part B (Doctors’ fees for medical services) have price regulations]

  3. Hatch Waxman Act of 1984 provides marketing exclusivity to the first generic filer(s) (FTF - First to File) who file an ANDA with Para IV certification at NCE-1 Date.

    A combination of the first two factors (No price control regulations and no negotiation / tendering / reference price system by Govt.), 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 :neutral_face:
    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.

Good time to remind ourselves that how Indian Supreme Court stepped in to help our cancer patients and dimissed Bayer’s patent rights for Nexavar.

Bayer’s Nexavar patent rights dismissed by Supreme Court in India

EpiPen drug price increases

EpiPen drug price increases

Mylan CEO questioned on EpiPen and her face-palm moments

Martin Shkreli - the face of unabashed American capitalism

Given the existing legislations, the US market is so lucrative for generic manufactures/suppliers because when the right opportunity comes (in the form of limited early competition or drug shortages) or the window to create an opportunity is available (mostly through unethical and anti-trust means) then within a year a single drug itself can sky-rocket the revenues and profits by 10s or 100s of millions of dollars.

US Govt. (Federal as well as States) are working towards new legislations that will radically change the landscape.

IQVIA report on US prescription drug market

IQVIA/IQVIA Insitute for Human Data Science published its report titled Medicine Use and Spending in the U.S. - A Review of 2018 and Outlook to 2023 in May 2019. The report came along with a webinar. 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. For the webinar, if you get an error on registration (too many existing registrations) then use your corporate email id or outlook.com email id.

Key Takeaways

  • 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… :clapper: ]
    Gross-to-net Estimates used by IQVIA:

  • 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.

  • Top 10 Therapy Areas covering around 4 Billion (i.e. around 70% of the prescriptions)

  • 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](https://www.fda.gov/dru gs/generic-drugs/2019-office-generic-drugs-annual-report) in working towards higher accessibility of Generic Drugs. :clap: :clap:
    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.

  • 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 report].
    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]

  • Estimated Prescription Drug Market upto 2023 - growth of around 3% - 6% is expected.Total net spending on medicines is expected to reach $405−435 billion in 2023, up from $344 billion in
    2018 and includes spending across all channels and product types.


  • Top 10 Therapeutic Classes by Non-Discounted Spending (shows Invoice Level Data i.e. the Gross Sales and NOT net sales)

Section on highlights from IQVIA’s report: Medicine Use and Spending in the U.S. - A Review of 2018 and Outlook to 2023 [May 2019] is complete.


Some relevant excerpts from US FDA’s report on Drug Shortages

US FDA published a report in October 2019 and updated in Feb 2020 - *Drug Shortages: Root Causes and Potential Solutions

Unfavorable pricing dynamics.

  • Page 22
    Over the past few decades, sectors of the health care system – including hospital systems, group purchasing organizations (GPOs),12 wholesalers, and the pharmaceutical industry – have consolidated to achieve efficiencies and increase negotiating power with suppliers and customers. For example, GPOs have consolidated their market power, so that by 2018 the four largest GPOs accounted for about 90 percent of the market for medical supplies in the United States (Bruhn et al. 2018). As a result, GPOs have been able to negotiate low prices, especially for multi-source generics.

    Furthermore, prevalent contracting practices often constrain the ability of manufacturers to raise their prices, while leaving them open to price challenges from competitors who may try to undercut them to gain market share. When a manufacturer is confronted with a price challenge, the management usually has a choice of either meeting the challenge by lowering its price, even to an unsustainable level, or losing market share. As a result, prescription drug manufacturers may face “a race to the bottom” and in some cases end by selling the drug at or below its cost to manufacture.

  • Page 41

    Manufacturers of generic drugs state that they face a challenging business environment, which limits their ability to invest in manufacturing and reduces their incentives to launch new products or maintain existing ones. They say that they are under intense pricing pressure due to cost reduction efforts by health care providers and the negotiating power of a consolidated GPO sector, which enables GPOs to extract price concessions.

    Manufacturers of generic drugs also believe that current contracting practices create a high level of business uncertainty as they generally do not guarantee that a certain volume of products will be purchased at an agreed upon price. Contracts often contain clauses that leave the manufacturer vulnerable to predatory pricing from competitors that are willing to undercut them to obtain market share, even at unsustainable prices. As a result, some generic drugs have low profit margins or are even selling for less than they cost to produce. Their sponsors may not have resources to invest in manufacturing or redundant capacity for these generic drugs.

Source of US market supplies
Page 28
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Page 29
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Note: US FDA’s content sharing policies are extremely friendly. Refer the last section Linking to or Copying Information on the FDA Website on this website page.

Unless otherwise noted, the contents of the FDA website (www.fda.gov) — both text and graphics — are not copyrighted. They are in the public domain and may be republished, reprinted and otherwise used freely by anyone without the need to obtain permission from FDA. Credit to the U.S. Food and Drug Administration as the source is appreciated but not required.

5 Likes

@Donald,
Thank you for the welcome note :slight_smile:

Subsequent to the initial posts, have redesigned the entire thread.

IQVIA reports attached have been removed. The links are given in posts for people to download.
IQVIA has granted permission to share excerpts of the report by giving citation to the relevant reports - have followed that protocol.

Looking forward to discussions and interaction on the topic.

Thank you

Regards


Response to @pk89

  1. Why are Chinese companies not aggressive in formulations? Very valid question! And I do NOT have any convincing answer on this one. From what I heard from my colleagues, they did not focus on International Generics opportunity - they found it easier to manage API. :roll_eyes:
    The question was raised in a Pre-COVID-19 world. Post COVID-19, the Chinese folks won’t be seen through benign lens. I sense the era of distributed manufacturing (as compared to the existing concentrated manufacturing) is going to see sunrise now.

  2. Is the price erosion same for all types of products? Eg. Orals or injectables
    A generic drug is a generic drug. Irrespective of the dosage form and route of administration.
    Price Erosion is simply dependent on the number of competitors. The buyers are highly consolidated. The big suppliers are getting consolidated. So price erosion will always reach at the level where only the most cost-efficient suppliers for a drug remain in the market.

Please refer the example I gave in the earlier post:


Response to Donald

@Donald - My response is given in the following section.
Would like to know more from you about the Sun and Lupin success story in this area. Will be helpful if you can share some links to some articles on that? Or is it from there Annual Report or Conference Call of a particular period?

Drug Shortages in US Market

Federal Food, Drug, and Cosmetic Act (FD&C Act) - 21CFR - 356c.(h)(2) says:
The term “drug shortage” or “shortage”, with respect to a drug, means a period of time when the demand or projected demand for the drug within the United States exceeds the supply of the drug.

Lets take hypothetical example of Valsartan.
Assume that the annual demand (market volume) of Valsartan tablets (across all its strengths) is 500 Million Tablets in US.
Drugs@FDA database shows that following companies (15) have marketing approval for Valsartan:
• Novartis Pharmaceuticals Corp, • Alembic Pharmaceuticals Ltd, • Alkem Laboratories Ltd, • Amneal Pharmaceuticals of New York LLC, • Aurobindo Pharma Ltd, • Hetero Labs Ltd Unit V, • Ivax Pharmaceuticals Inc,• Jubilant Generics Ltd, • Lupin Ltd, • Macleods Pharmaceuticals Ltd, • Mylan Pharmaceuticals Inc, • Ohm Laboratories Inc, • Prinston Pharmaceutical Inc, • Square pharmaceuticals ltd, • Unichem laboratories ltd

Now due to the NDMA impurity issue in Valsartan’s API, Prinston (Solco / Zhejiang Huahai group) and several others had to recall the drug from the market and could not supply till the NDMA impurity is sorted out at API level.

This led to a situation where only those companies which used API sources that had synthesized API differently and did NOT have the NDMA impurity issue at API level could supply the formulation in US.

Lets assume that Alembic, Lupin and Jubilant were the only three entities which could sell drugs in the US market whereas all others were restricted till they resolve the NDMA impurity issue in the API.

Further - based on their existing API and Formulation capacities - lets assume that Alembic, Lupin and Jubilant can supply 200 Million, 150 Million and 100 Million Tablets of Valsartan in the next 1 year time horizon. [The corresponding API quantity - assuming 160 mg strength as weighted avg for entire Valsartan family - comes to 32 MT, 24 MT and 16 MT.]
This leads to a shortage of 50 Million Tablets annually [500 - (200 + 150 + 100)].

This being a situation where the existing API and formulation product is designated unsafe for human consumption, the channel inventory in US as well as inventories of formulation / API at manufacturers’ end (all those manufacturers who are undergoing the NDMA impurity issue) if of NO use. So the drug shortage is imminent.

What would happen in this scenario?

  • Formulation Manufacturers who are unable to supply due to API issue -
    Will reach out to their API supplier (their own company dept. in case of vertically integrated folks) to get the NDMA impurity removed (or within the tolerable / permissible limits as the case maybe).

  • API manufacturers facing the NDMA impurity will go back to basic chemistry of the drug and search for a synthesis method / route that successfully eliminates the problem. This will atleast take a few months - maybe more. The new route / process needs to be cost efficient as well. Perhaps not all API manufacturers can turn around with a new compliant process that gives Valsartan with the acceptable characteristics. Those who are able to get the desired output will have to file a new Drug Master File again. This entire process will definitely take minimum 1 year (as minimum of 6 months stability data needs to be included in the DMF submission).

  • Formulation manufacturers will use the new API and manufacture submission batches. But before they can ship the goods to US, they will most likely need to file Prior Approval Supplement (PAS) or if US FDA is benevolent enough then Changes Being Effected 30 (CBE-30) form with the US FDA.
    PAS needs to be approved by US FDA (typical approval time is 4 months to 10 months - depending on the type of change filed) before the drug can be shipped to US. While CBE-30 is only a 30-day advance intimation/notification before shipping the drug product to US.
    So depending on the case, at formulation end the restoration of supplies will take anything from 3 months to 1 year; making the minimum time of supply restoration - 15 months to 24 months (API + formulation).

  • Coming over to folks who got their API chemistry right in the first attempt - Alembic, Lupin, Jubilant.
    They get increased market share (now its a 3 player market for atleast 1.5 years) - between 40 percent to 25 percent for the companies - based on their throughput ability. Also they get far greater realization on their formulation supplies.
    The increase in price could be well upto 10x. If the Net Selling Price for a bottle of 30s of 160 mg Valsartan was 1.5 Dollar earlier (basically around 5 cents per tablet) then the revised NSP could well be 15 Dollars per bottle (50 cents per tablet).
    At a market volume of 450 Million - this translates into 225 Million Dollars per year molecule - to be shared between the three!!!
    Perhaps they may not be able to capture the entire market volume in first year - if the batch sizes of API and formulation do NOT allow them to reach the required throughput. They may try to increase the batch size - at API as well as formulation level (if the constraint is present on both ends then on both manufacturing processes). Again, increase in batch size beyond a factor may require PAS so will not happen immediately.

Based on the above understanding regarding drug shortage caused due to API unavailability, lets explore drug shortage situations comprehensively. Lets build upon the content given in US FDA’s report on Drug Shortages : Root Causes and Potential Solutions - A Report by the Drug Shortages Task Force – 2019 – updated 21-Feb-2020.

Quoting from Pages 33 and 34 of the report:

When FDA adds a drug to the shortage list that it is required to maintain pursuant to the Food and Drug Administration Safety and Innovation Act of 2012 (FDASIA) it identifies one of the following reasons for the shortage:

  1. Requirements related to complying with good manufacturing practices
  2. Regulatory delay
  3. Shortages of an active ingredient
  4. Shortage of an inactive ingredient component
  5. Discontinuation of the manufacture of the drug
  6. Delay in shipping of the drug
  7. Demand increase for the drug, or
  8. Other reason

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It is extremely essential to understand Point 2 (Regulatory delay) before we proceed further. Because timeline of most supply side issues is compounded and stretched due to the regulatory requirements involved in the process.

21 CFR 314.97 gives the reference of 21 CFR 314.70 for procedures relating to Supplements and other changes to an approved ANDA.

Quoting from Page 29 and Page 44 of the report:

  • In general, after a drug has been approved by FDA and is on the market, a manufacturer wishing to expand capacity through alternative suppliers (e.g., for API) or alternative manufacturing sites (e.g., for the finished product) must submit a regulatory filing to have the new supplier or manufacturing facility approved by FDA.

  • Many drug manufacturers supplying the U.S. market are in fact global operations that also supply other regions. Making post-approval changes to update manufacturing operations generally requires that they seek approval not only from FDA but the regulators in the other markets. According to industry observers, many post-approval changes to regulatory filings require prior approval by the regulatory authority of every country individually, and this can be over 100 countries for globally marketed products. The global approvals for changes can often take years because of varying requirements and timelines across different regulatory authorities, and this creates disincentives for timely improvements to manufacturing operations that could reduce the risk of drug shortages.

  • Under FDA regulations, a pharmaceutical firm making “major” manufacturing changes (which can include the remediation of a facility) must submit a Prior Approval Supplement (PAS). FDA approval of a PAS can take up to 4, 8, or 10 months depending on whether an inspection is required, and the applicant meets certain requirements.

  • By contrast, firms making “moderate” manufacturing changes must generally submit a Changes Being Effected in 30 days (CBE-30) supplement at least 30 days before the drug product is distributed. Changes that are moderate in nature and qualify for submission as a CBE-30 may be implemented by the sponsor after 30 days have passed and prior to completion of any review by the FDA. Because the CBE-30 process is much faster than gaining approval of the PAS, these industry representatives said it would be preferable to have more manufacturing changes made in response to a supply disruption handled through the CBE-30 pathway.

I would group the reasons for drug shortages as under:

  1. Supply side issues - Formulation level
  • Facility level import alert / ban - When the formulation facility fails to adhere to compliance / GMP and the company cannot supply products from that facility till FDA gives a green signal. This would generally impact supplies for > 6 months. Perhaps close to a year or more.

  • Change in formulation site / facility - If the product manufacturing is shifted to a manufacturing site having a different FEI (FDA Establishment Identifier) then PAS will get triggered. So minimum of 6 months time lag will occur before the supplies can begin from the different facility. During the transition phase if the organization is able to continue supplies from the existing facility then drug shortages and supply disruption may not occur. The facility change could be due to strategic de-risking, commercial considerations (lower conversion cost, proximity to the customer market) or technological superiority of the other site.

  • Batch failures - If few batches of a particular drug fail and the quantity is significant in relation to the market volume of drug then there can be temporary drug shortage in the market. Orphan Drug Products (serving to needs of <200,000 patients) are likely to see such scenarios. If the root cause of batch failure is such that remediation measure needs PAS then the drug shortage duration will extend to upto a year. If batch failures are remediated with CBE-30 or CBE-0 measures then the shortage remains only temporarily for 3-4 months.

  • Adverse drug reactions or effects - Formulation products for which significant / severe adverse drug reaction reports are received or there is safety concern raised by US FDA. The sartans NDMA incident will fall in this category. Root-cause identification and remediation will have to be done by the manufacturer. Again the remediation measures will need to be checked for PAS , CBE-30 or CBE-0. The timelines associated with resumption of supplies will depend on the regulatory pathway approved.

  • Transit damage / contamination - If a significant quantity of product was shipped together and there is transit damage or contamination which leads to product being rejected at US warehouse then there could be a temporary shortage in the market. Drug product shipments are done in temperature controlled environment and accompanied with Data-Loggers which keep a record of the environment condition (temperature, humidity etc.) in which the shipment is happening.

  • Changes in inactive substances, packing, labeling - Whether the changes is major or minor will be decided and in case FDA has directed the change as a major change then again PAS route needs to be taken.

  • Changes in manufacturing process / equipments / batch sizes - If there are changes made in manufacturing process, different set of equipments are used (which need to be validated for the drug product) or batch size is drastically changed (generally increased by 10x or more) then again regulatory clearance [PAS / CBE-30 or CBE-0] is required before the supply can be done. In cases where PAS is invovled, expect minimum 6 months time lag in supplies.

  • API source change (or new route API) - If API source is changed i.e. the API is sourced from a different FEI (FDA Establishment Identifier) than the current FEI. Also, cases where FEI is same but API has a new route DMF (adopted for commercial reasons like cost reduction or technical reasons). API from new FEI will mostly go through PAS route - so will easily need around 1 year for the change to be effected. New route API from same FEI may be allowed through CBE-30 route so can be done in a few months.

  1. Supply side issues - API Level
    All the events which lead to non-availability of API at the formulation manufacturing facility. Major changes at API level, change in API facility site will need submission of a new DMF with 6 months of stability data.
  • Facility level import alert / ban on the API facility

  • Change in API manufacturing site / facility

  • Batch failures of API

  • Changes in manufacturing process / equipments / batch sizes of API

  • Chemistry level changes required in the basic synthesis of drug substance

  1. Demand surge in the market - There are several drug products which are prescribed for same disease indication and have the same mechanism of action. If we take the example of Sartans family [used for managing hypertension and are Angiotensin II Receptor Blockers (ARBs) in their mechanism of action] then patients will be prescribed that member of the sartans family which is best suited based on patients medical history and give minimum possible side-effects to a particular patient. Lets say Valsartan, Olmesartan and Telmisartan are the most prescribed drugs in this category. Now if US FDA receives significant adverse effect reports on Valsartan or finds that long term use of Valsartan is having unanticipated significant side-effects in a sizeable population of patients then it may decide to ban or suspend marketing of Valsartan. In such a scenario, as doctors start prescribing the other two sartan drugs (Olmesartan and Telmisartan) in place of Valsartan, the market size of Olme and Telmi will significantly increase in a short period of time.

Hope the above section throws adequate light on why drug shortages occur (the source of drug shortages) and why it takes time for the demand void to be filled in completely.

Coming to the other question raised by you:
why some businesses prove nimble enough to execute well on shortages more or less consistently; Sun and Lupin had supposedly mastered the Art? They had like real-time tabs on pharma stock-points across the country? Et al

Information / Visibility on drug products stock across the country -
There are two primary official sources of information:

  1. Industry databases (IQVIA, Bloomberg, Symphony, Integrichain etc.) provide weekly data on label-wise market share (label stands for the front-end entity which sells the drug products in US market) of each drug product.
  2. Channel Inventory (stock at Wholesalers / Distributors and Pharmacies) relating to drug products supplied by the front-end entity and consumption pattern/trend information is available from the distributors through EDI 852 report. They charge service fees for the information provided by them. Getting weekly EDI 852 reports will be costlier than getting monthly EDI 852 reports. The front-end entity decides the frequency of getting this information.

While 1. provides market share data of all labels selling a particular drug product, 2. provides channel inventory and consumption only related to sales made by the front-end entity.

The third source of channel inventory and warehouse stock levels of competitors is through unofficial channels :neutral_face: Networking, relationships, unwritten quid-pro-quos will allow this information to flow.

Once a manufacturer is hit by an event which will lead to inability in supplying, the market share of its label will go down. But, due to channel inventory and warehouse inventory, this loss of market share might take 2-3 months to reflect in the published data. Unless ofcourse the situation relates to drug recall - then market share data will nosedive within 15 days.

Given the above facts, I don’t think that specific manufacturer(s) have positioned themselves to benefit from drug shortages. It is mostly a matter of lady luck smiling on the manufacturer(s). Once people sense an opportunity through the unofficial channels, they need to check with the plant sites about capacities, batch sizes, and raw material availability at formulation as well as API sites.

At best, as a measure of readiness, they would have validated products with large batch sizes at the time of commercial development and filing. Example - even if they know that the are likely to use commercial batch size of 500,000 tablets (say based on market share assumption of 10-12 percent), they would have done validation batch upto 10x i.e. 5,000,000 tablets / capsules so that when the opportunity comes they can do a quick turnaround.

Also we need to take cognizance of the fact that fulfilling 100% market demand may not be the best commercial decision from the manufacturer’s point of view. After they have supplied the immediate quantity relating to Failure-to-Supply fulfillment of the label which is unable to sell, they will watch the market actions of competitors and may decide to sell lower quantity at higher prices.

There are too many variables involved and the profits earned during drug shortages have to be attributed to luck - having the right capacities and material availability at the right time.

This is my take of the scenario. Happy to discuss further on this.

Thank you :slight_smile:

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@sagararya

Please find my response hereunder:

1. How lucrative is the US market now. With the base business continuing to show erosion and subpar performance of complex/specialty/niche generics by any standard, how should one view the ROCE of the US markets.

The general trend of generic drug products in US market is high competition and low prices. Both the reports (IQVIA and FDA) quoted in US drug market overview post clearly bring this to the fore.

Having said this, we need to remember that there are no drug price control regulations in US. So there would be few drug products which for some reasons do not have enough competition. If the market volume (size) of these drug products is large enough then manufacturers can earn a fortune from sales of these products.

As individuals we do NOT have access to any of the highly priced Industry databases. So we do NOT know how does the competitive landscape look for the Indian manufacturers that we wish to evaluate. Even access to industry databases would give only the market share and volume of units sold; the data of Net Selling Price realized by them remains elusive.

US FDA has recently started publishing data on No. of Para IV filings. However, for filings done before June 2019, it is largely incomplete with respect to no. of companies which filed PIV (on presumably the NCE-1 date.) For filings done after June 2019, the eligibility for 180-day exclusivity is yet to be filled up. Once the US FDA comprehensively updates this data source, we can have a general sense of the competition level for newer drugs.

I would quote Cipla’s MD from the IQVIA report on Indian generic manufacturers:
I do not think we are going to file more than 20 products in a year, but we will choose them well. Nowadays, in the US, you think you have a very good product but there are eight companies filing the product on day one and then there are another five after that. We are running our R&D machinery really hard and the outcome may not be what we want. So we will try and do less filings but focus on the ones that are lot more complex.

Regarding ROCE:
Most generic manufacturers would have shared R&D and manufacturing capabilities. ANDAs developed for US will be extended as Dossiers for other regulated markets at lower incremental costs. Also API and formulation manufacturing capacities will serve drug products for all regulated markets. Costs that could be strictly segregated would be Bio-equivalence (limited cases), IPR, Filing Expenses, Business Development and US Front-End office expenses. These expenses do not constitute a high proportion of overall expenses incurred by the companies.

If any company is engaging into R&D and creating manufacturing facilities purely for US market - there is high probability that ROCE will be poor. Fresh investments in manufacturing facilities are likely to destroy value. There is surplus mfg. capacity available in US. Being asset light and using long term CMO should be the preferred option.

2. A lot of companies like DRRD, Cipla, Sun (in recent concall) have recalibrated their investments in US and have decided to focus more on the domestic market. Does this signal realization of low profitability in the US market? There is clearly more allocation to the domestic market now with more MRs, inlicensing etc. How does this change the dynamics of the sector.

I am not tracking any of the pharma companies as investor so don’t know what the folks are upto. Will refer to the conference call transcripts and get back on this one.

Lower profits in US are a reality - the extent to which company is hit by this will depend on their overall exposure to US market and the portfolio of their products. Torrent for example has a geographically diversified sales portfolio so will not be so much affected by US profits going down. Whereas a company like Alembic which is far more dependent on US market so will take a hit in coming times.

With respect to domestic Indian pharma market - my knowledge is zero :grimacing: So pardon me on this front. Other VP members who track Indian pharma would be able to respond on this.

You have mentioned Inlicensing - if you could elaborate on that?
Indian Drug Manufacturers are in-licensing drug products for sale in domestic market? In-licensing from whom? Local R&D companies or International products being in-licensed for Indian market?

3. How do “pharmering” markets play a role in the growth of Indian exports going forward. Which would be the most attractive markets and what are the dynamics of those market (eg. Brazil?? africa??)

In the International Generics arena, companies with a geographically diversified sales portfolio are going to survive and thrive. Companies largely dependent on US market need to act fast and even after acting fast they may not be able to reap benefits of ROW (Pharmerging) regulated markets because once the market has 5-7 stable suppliers (including the local arms of Big Pharma MNCs) then there is nothing great to be gained for new comers.

Attractiveness of ROW regulated / Pharmerging markets -
I have been seeking reliable data on this front for the past 1 month. Haven’t been able to lay my hands on it so far. IQVIA has one report for Global medicine usage but it is quite shallow in comparison to the US report.
I plan to make post on ROW regulated markets once I get reliable and sufficient data.

Regards

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