These are tough times financially and strategically for many generics companies, particularly in the U.S., the world’s largest pharmaceutical market. Manufacturers are experiencing falling net prices driven by customer consolidation and increasing competition, coupled with a lack of operational flexibility and a landscape of new product opportunities significantly different from those of the past. Additionally, these factors are creating an environment of greater uncertainty for generic portfolio managers. Given these challenges and resulting uncertainty, many generics manufacturers are responding by pursuing higher-risk portfolio strategies to differentiate themselves and grow their businesses.
These are tough times financially and strategically for many generics companies, particularly in the U.S., the world’s largest pharmaceutical market.”
The distribution channel consolidates
One fundamental challenge generics companies are responding to is consolidation of the purchasing groups and drug distribution channels. Today, the market is defined by the strategic alignment of the major retailers with the largest wholesalers. Essentially three or four main buying groups of generic drugs in the U.S. procure some 90% of the prescription volume in the U.S. This is a tremendous amount of pooled buying power, which is putting pressure on the generics companies to cut prices or face losing significant market share.
Changing nature of new product opportunities
One key reason for this pricing leverage is that hyper-competitive generic drug markets are developing every day and often at an unpredictable cadence. Another important factor roiling generics companies is the focus and productivity of innovative pharmaceutical R&D. The future pipeline opportunities for generics manufacturers increasingly come from lower volume (higher-priced) specialty products, including large molecule biologic medicines. This is associated with a significant change in capacity requirements, affecting particularly those larger established generics companies. Now they need different capabilities internally or through partnerships to bring a new generic drug to market.
Secondly, true clinical breakthroughs are quickly changing the standards of care in many therapy areas, often displacing or entirely replacing established branded drug or whole classes of drugs. Combined, the dynamics of innovative R&D are rapidly and continuously altering the landscape of available new product opportunities for generics, as well as the capabilities needed to develop and market these new products.
Combined, the dynamics of innovative R&D are rapidly and continuously altering the landscape of available new product opportunities for generics, as well as the capabilities needed to develop and market these new products.”
Generics companies seek differentiation
Many generics manufacturers are reacting to these changing market dynamics with a strategy to differentiate themselves from competitors as a way to create new value and sustain growth. Of course, differentiation can be especially difficult in a generics market where, by definition, the products of one company are the same as those of the next company. Thus, standing apart from the competition requires speed in execution and an increasing tolerance for uncertainty and risk. In practice, this means diversifying product lines and revenue sources.
New launch strategies
For the next approach to diversification – various new product launch strategies – there are very clear tradeoffs in risks and benefits. Pursuing a Paragraph IV (PIV) patent challenge in the U.S., for example, can offer six months of market exclusivity and the opportunity to capture significant market value and volume share. But, this opportunity necessitates accepting additional complexity, particularly in the formulating of a new generic product where the chosen formulation must not only meet bioequivalence and stability standards but also be aligned to a corresponding non-infringement and/or invalidity legal strategy. Moreover, there are additional, often substantial, costs associated with patent litigation, along with a higher risk of delays for approval and launch. The first wave patent challenger therefore has to tolerate greater uncertainty in outcomes and engage legal resources beyond standard freedom-to-operate determinations in order to maximize PIV exclusivity opportunities.
…differentiation can be especially difficult in a generics market where, by definition, the products of one company are the same as those of the next company. Thus, standing apart from the competition requires speed in execution and an increasing tolerance for uncertainty and risk.”
A less risky and somewhat less costly option can be to challenge patents but wait for the litigation outcome of another (presumably first wave) challenger. In this scenario, a generics sponsor pursues a Paragraph IV challenge, either as a first wave firm eligible for exclusivity or as a subsequent 180-day entrant, and then petitions the court to stay the litigation pending the outcome of another generic sponsor’s patent litigation with the brand company. More specifically, the firm can bind its litigation outcome to that of the other firm, assuming that the facts of the cases, particularly the proposed generic formulations and thus patents under challenge, are analogous.
An alternative strategy is to forego a patent challenge altogether yet plan for the relevant constraining patent(s) to be defeated by another generics company and thus be ready to launch after the successful PIV challenger’s exclusivity period. This is distinct from the least risky, and least profitable, option of waiting for the last patent to expire naturally. Of course, the risk with anticipating the defeat of patent, whether a company is in the first or subsequent wave of entrants, is the potential sunk cost in product inventory should the constraining patents remain in effect and prevent a generic launch.
Data compiled by Clarivate Analytics clearly shows that more and more generics sponsors are pursuing Paragraph IV strategies in the U.S. Again, this underscores how manufacturers are accepting more complexity and risk as they look to capture more sustainable value and growth. Another implication of this trend is that it means product markets are becoming much more competitive more rapidly than even a few years ago, which in turn further fuels the need to quickly refresh the pipeline to sustain growth. (See Figures 1 and 2.)
Figure 1: Average time between approval and FDA notification of PIV filing. Source: Newport Premium, Clarivate Analytics.
Figure 2: The large number of PIV patent challenges from Indian companies indicates a rapid change in portfolio strategy to accept more risk in order to capture more value. Source: Newport Premium, Clarivate Analytics.
Increasingly, growth-oriented firms are taking on these risks to reach new customers via new channels, as well.
Editor’s Note: This is an excerpt from a much longer paper of the same title by Brandon Boyd, industry strategist at Clarivate Analytics. Download the full paper.
The author will be speaking on “Current Trends in Generics Portfolio Strategies” at the upcoming CPhI Worldwide in Madrid. His Pharma Insight Briefings presentation will be Wednesday, Oct. 10, from 10:30 to 11 a.m. Learn more, and add to your calendar.
You can meet Brandon and the full Clarivate Analytics team at Stand #6A50 in Hall 6 during the conference.