Crisis-resistant generic
Mark Zavadsky, own correspondent of the Expert magazine in Hong Kong
Over the past six months, the SGI Global Generics index, which takes into account the dynamics of the stock price of companies producing generics (generic drugs), has decreased by 4%. At another time, this would indicate problems in the industry, but today it speaks about the optimism of investors. Indeed, over the same period, SGI Global Health, reflecting the situation in the healthcare industry as a whole, fell by more than 40%.
The companies themselves are extremely positive. All the generic manufacturers interviewed by the correspondent of the "Expert" are either expanding production or holding current positions. There is no question of layoffs of staff or reduction of output. At the Asia Generics-2008 Asian Congress, held in Singapore in mid-November, very little was said about the current crisis in general, generic manufacturers are more concerned about other problems.
"We are working on such a low margin that the crisis does not change much in our activities," Harvinder Popli, director of the Indian company Ranbaxy, told the Expert. Generic drug manufacturers are doing business on volumes that may increase significantly in the coming years. Reducing healthcare costs is becoming one of the main tasks of the authorities of the largest developed countries of the world, and manufacturers of cheap medicines are ready to provide their options for solving this problem.
"We will take the market share that we will be allowed," says Thomas Runkel, vice president of the Icelandic manufacturer Actavis. If next year the US Congress passes a law regulating the production of generic versions of biological drugs (bioengineers), which today are practically impossible to sell in developed countries, then the potential revenues of the industry may increase dramatically.
Everyone has their own pipe
Today, the industry of generic manufacturers is extremely heterogeneous – the share of the ten largest companies accounts for no more than a quarter of the global supply. The market is highly fragmented and localized, only a few major players can boast a presence in several regions of the world.
Generics usually mean medicines with an expired patent (in the standard case it is ten years), after which the drug can be produced by any company that is able to prove the identity of its copy to the source code in the relevant regulatory authority.
Dozens of medicines with annual sales of billions of US dollars lose protection every year (see the table). The task of the generic manufacturer is to have time to release its medicine in the first months after the expiration of the patent, when the price drop is from 10 to 15% of the cost of the original. A year later, when several companies master the production, the price drops by 80-90%.
The average generic company has a "medicinal pipe" (in jargon – pipeline), which consists of 40-50 basic, most common names, as well as several relatively exclusive developments. "It is quite difficult to work with large retail chains without a basic set. It is easier for them to order many items from the same supplier at once," says Stephen Blank, Senior Vice president of Ascent Australia.
The leaders of the pharmaceutical industry are going to a lot of tricks to restrain generic manufacturers. "If earlier an innovative company was called an organization that invents new products, now it invents all new patents," Ron Tomer, a lawyer at the Israeli Unipharm, jokes in an interview with an Expert correspondent. In professional jargon, this is called "greening" – with the help of various subtleties, the validity of a patent for a drug is extended for a period of several months to several years. "We are like sappers in a minefield, we have to walk very carefully so as not to run into a new patent," Mr. Tomer laughs.
On average, the development of a generic drug takes two to three years (for an original drug - from ten years), and companies are trying to prepare the product for the expiration of the patent. But if in the 70s and 80s the medicine was protected by only one patent, today the bill can go to dozens. About a hundred patents have been obtained for some drugs, everything is patented, up to the method of qualitative analysis.
At the same time, a significant part of these patents are not codified, and generic manufacturers are forced to conduct their own expensive research in an attempt to find out the degree of protection of a particular drug from copying. According to a study by the European Commission, published at the end of November this year, over the past seven years, such tricks on the part of large pharmaceutical concerns have cost European consumers about $ 4 billion.
Saving crisis
Today, about 50% of the global generic drug market is in the United States, but in recent years, the share of the American market has begun to decline due to the wider use of generics in Europe and the growth of the drug market in Asia. In Sweden, sellers in pharmacies are required to offer the buyer a choice of several cheaper versions of the drug, even if the doctor prescribed the original expensive drug. In a number of insurance companies in Europe, a special position of "health control adviser" has recently appeared, responsible for choosing cheap analogues of expensive medicines, the use of which is now not covered by insurance. In Australia, the government pays pharmacists directly for the sale of generic drugs.
"Almost every developed country today is actively discussing the introduction of new measures encouraging the use of cheaper generic drugs," Budiono Santoso, WHO Adviser on drug Policy, says in an interview with the Expert.
These discussions have become especially relevant in view of the crisis, when private companies and governments are doing their best to reduce costs. According to the latest study published earlier this month in Canada, the increased use of generics can save the local health system more than $ 1 billion a year. And according to a study conducted in 2006 by the analytical agency Simons & Coster, the use of generics can lead to 41% savings in the Netherlands, 33% in Spain and 27% in Austria.
Generic drug manufacturers have high hopes for Barack Obama, who is going to make healthcare reform his top priority. "We hope that the new administration, and especially the Food and Drug Agency, will listen less to big business. In recent years, it has actually been privatized by large pharmaceutical companies," says one of the participants of the conference.
Generic drugs have been advertised on American television in recent months, convincing patients to require doctors to prescribe cheaper drugs. "Recently, we almost do not prescribe original medicines, only generics, all the largest insurance companies insist on this," James Huang, a pediatrician at the Garden's Boston Clinic, tells the Expert.
In general, generic manufacturers were better prepared for the crisis than representatives of many other industries and large pharmaceutical concerns. These are mainly medium-sized and small companies that have developed at their own expense without attracting large bank loans. Due to the specifics of their activities, such firms are accustomed to rapid expansion or reduction of production. "It is generally easier for generic drug manufacturers to get a bank loan today than for other companies," says Nicola Travierso, managing director of the Italian NTC. "We are planning several mergers and acquisitions and are negotiating with banks about this, the attitude is generally positive," Ahmad Khalil, deputy director of the Malaysian Pharmaniaga, explains to the Expert.
Breakthrough of the century
"In 2009, we will witness the biggest change in the drug manufacturing industry in the last thirty years," American lawyer Jitentra Malik, specializing in patent law, assures the correspondent of the Expert. We are talking about the law on bioengineering, which will be considered by the US Congress in the spring and summer of next year. Given the total dominance of Democrats in all branches of government, there should be no problems with its adoption.
The law will allow limited clinical tests of bioengineers on humans, which will make it possible to officially launch them on the American market. Over the next five years, dozens of biological drugs will lose protection, with total sales reaching $50 billion a year.
Thomas Runkel of Actavis predicts annual growth of the generic drugs market by 7-12% until 2012, and this may even be a conservative estimate. Data from different regions of the United States indicate a sharp increase in the consumption of generic drugs in recent months, which have not yet been processed into official statistics. In New York State alone, the number of generic prescriptions has doubled over the past year. The only negative factor may be a decrease in demand for medicines in large emerging markets, where treatment is mainly paid for by patients themselves.
However, in the long term, the consequences of the crisis may be less pleasant for generic manufacturers. If the crisis drags on for a long time and forces large pharmaceutical concerns to reduce investments in the development of fundamentally new drugs, then in ten years this will lead to a noticeable slowdown in scientific progress in this area. "We must remember that only three innovative medicines out of ten pay for themselves during the first ten years of sales," says Eugene Yeo, director of Singapore–based Siemens Pte.
The danger of slowing down research in pharmaceuticals is fully realized by generic manufacturers who are not interested in a total victory over innovative companies. "We cannot rely entirely on university research, pharmaceutical companies must have incentives for long–term investments, otherwise we will simply have nothing to copy," emphasizes Sandford Schwartz, president of Thai Smith Naturals.
"Large corporations today face the problem of reducing innovation productivity. They just don't have time to replace old products with new ones – the main principle of a traditional pharmaceutical company," warns Ron Tomer from Unipharm. In a crisis, it becomes even more difficult to find funds for long-term development.
Portal "Eternal youth" www.vechnayamolodost.ru08.12.2008