Striking the US market

Striking the US market

Too many players and too much competition make the US a bad pitch to bat on. However, Indian companies are not ready to leave the field. Katya Naidu discovers why the US market retains its supremacy.

The US generics market is like a very big and tasty pie. But heavy competition is cutting the pie into many thin slices. The undisputed king of pharma markets is an extremely contended market which has left a bitter taste in the mouth of many generic companies. While it is understood that blockbusters are the apple of every company’s eyes, companies have started eyeing small molecules as well. “Earlier, generic companies used to evince interest in only blockbuster molecules. These molecules witnessed steep price declines due to intense competition, for example, Ciprofloxacin. However, now even smaller molecules are not escaping the forces of competition with over seven companies filing ANDAs,” observes Muralidharan Nair, Associate Vice-President, Risk and Business Solutions, Ernst & Young.

The crowding along with cost being the only differentiating factor in generics, price erosion is becoming very common. Among many others, $79 million Zidovudine is one molecule which came off-patent in September 2005 and companies like Apotex, Barr, Ivax, Mylan, Sandoz part from Dr Reddy’s and Ranbaxy have filed ANDAs. The overheating resulted in 85-90 percent price erosion. There are situations where seven to eight players are competing for a market smaller than $10 million.

However, it’s not all bleak for Indian companies in the US. There have been success stories as well. Dr Reddy’s has cut an authorised generics deal (AG) with Merck for Zocor which contributed greatly to the company’s revenues. “With authorised generics, the numbers of the last two quarters of DRL were impressive. There has been more than 40-50 percent growth in the topline. Zocor has contributed to Rs 300-400 crores last quarter,” informs Sujay J Shetty, Associate Director-Pharma, Pricewaterhouse-Coopers. Going in for authorised generics is one strategy that Indian companies are actively pursuing to stay afloat in the US market.

Deal or not?

Though a high risk game, patent challenge will continue to attract ambitious companies because one molecule that clicks, brings with it unforeseen profits and cash flows

– Muralidharan Nair Associate Vice-President-Risk and Business Solutions

Ernst & Young

The AG strategy might not last very long. There are proposals in the US senate to ban authorised generics. The Fair Prescription Drug Competition Act, 2007 plans to make it illegal to launch an authorised generic by the innovator during the 180-day exclusivity period granted to a generic manufacturer who successfully challenges a patent. “The Democrats in control of the Congress are planning to introduce a bill specifically when it comes to Medicare part D. They want the US Government to directly enter into negotiations with the drug manufacturers because these think it is the best way to lower prices even further,” says Shetty. Though the law champions generics, the possibility of quick profits from such deals might be disturbed if the act becomes a law. “Indian companies, who have tasted limited success in first-to-files, may stand to lose in the event of the proposed ban on authorised generics becoming a reality,” says Nair.

The absence of AG deals will also remove the possibility of guaranteed profits, making US forays rather risky. Yet another high priced approach to the US markets is in the Para IV and first-to-file category. “Though a high risk game, patent challenge will continue to attract ambitious companies with high risk appetite because one molecule that clicks with a Para IV victory brings with it unforeseen profits and cash flows,” says Nair. Ranbaxy is a frontrunner in this game with a healthy first-to-file portfolio which is close to 40. Para IV challenges claim burdensome investments and the ability to handle failure. These characteristics make patent challenging more suitable for the big companies.

API

Brand Sales
($ M)

No of Indian DMF filings

Indian players filing DMFs

Simvastatin 3,600 7 Ranbaxy, Biocon, Krebs, Cadila, Aurobindo, Lupin, Glenmark
Sertraline 2800 8 Cipla, Hetero, DRL, Matrix, Cadia, Aurobindo, Lupin, Torrent
Zolpidem Tartrate 1600 5 Sun, Cipla, Lupin, Glenmark, Matrix
Terbenafine 550 6 Hetero, Aurobindo, Glenmark, DRL, Cipla, Matrix
Clarithromycin 450 5 Ind-Swift, Ranbaxy, Matrix, Alembic, Wockhardt
Ramipril 420 7 DRL, Neuland, Cipla, SMS, Aurobindo, Lupin, Hetero

Size matters!

The US game is not for the small companies and its risky, you might not make as much money from it as well

– Sujay J Shetty Associate Director-Pharma

Pricewaterhouse-Coopers

Nevertheless, when it comes to the question of whether the US market is only for the big companies, the answer is mixed. “It is much more expensive to go to the US because you must have an FDA compliant factory in India. It costs money to apply for ANDAs. The US game is not for the small companies, and its risky; you might not make as much money from it as well,” observes Shetty. Sushil Handa, the CEO of Claris Lifesciences which specialises in sterile parenteral preparations, disagrees. “The US is an interesting market for companies which have many products with few competitors,” he says.

So one tactic that companies are using to make way in the congested market is to try and be an oak in a forest full of willows. The more unique the products are, the less is the competition that a company might encounter. “There are mid-sized companies focusing on value-added generics, speciality products, niche segments or patent challenges in the US. Companies like Alkem, JB Chemicals and Indoco Remedies are entering into tie-ups with mid-size US pharma companies which manage the regulatory and sales functions,” says Nair. Tie-ups and marketing alliances are also one path that companies are treading to ease their way through the market.

Sun Pharmaceuticals has a joint venture with Detroit-based Caraco Pharmaceutical Labor-atories. “Caraco currently markets 31 ANDAs, of which eight are Sun Pharma ANDAs. Between the two companies, 61 ANDA filings await approval. Caraco has guided for 30 percent topline growth for the year ending March 2007,” says the spokesperson of Sun Pharmaceuticals. Cipla too has supply-cum-marketing arrangements with generics manufacturer Geneva Pharmaceuticals and Zenith Goldmine, an affiliate of Teva (Ivax Corporation). The latter will market Cipla’s flutamide-based formulation for the treatment of advanced prostatic cancer in the US after the ANDA approval. Wockhardt also has a marketing arrangement with New Jersey-based Sidmak Laboratories for 15 products.

In addition to its 100 percent subsidiary called Ohm Laboratories, Ranbaxy Pharmaceuticals has gone in for a marketing arrangement with Barr Laboratories and a co-marketing arrangement with Purepac Pharmaceuticals for the antibiotic, amoxycillin. DRL also announced a 15-year exclusive product development and marketing agreement for OTC drugs with Leiner Health Products in the US in 2004. Dr Reddy’s Laboratories has gone ahead and established a subsidiary in New Jersey. Though the alliances that Indian companies are making are significant, there has been a lack of mergers and acquisitions. “Barring Matrix acquisition by Mylan, Indian pharma has not witnessed a major M&A activity in the US. Most of the acquisitions in US have been small ticket,” says Nair.

When one talks of the US markets, numbers speak volumes.

  • USA is the world’s largest and among the most profitable generic markets, accounting for almost 44 percent of global generics sales and an even bigger share of profits
  • The global pharmaceutical market stands at $550 billion with the US contributing to over 40 percent of total market size
  • 10 percent of the total US pharma market is accounted for by generic products i.e. approximately $22-25 billion. 77 percent of this generics market comes from prescription/ethical generics
  • US generics growth is estimated at over 15 percent compared to approximately 13 percent in EU and nine percent in the Japan (YOY 05-10)

    The US market is characterised by:

  • Ageing population resulting in increased healthcare demand

  • Diminishing new product launches coupled with significant patent expiry. Orange Book patent expirations for branded products over the next five years forecast ~ $120 billion

  • Growth of generic sector driven by demand for low-cost therapies arising out of federal imperatives for rationalising healthcare costs. 50 percent of the prescriptions are for generic products

Great expectations

The US is an interesting market for companies which have many products with few competitors

– Sushil Handa Chief Executive Officer

Claris Lifesciences

As the hue and cry dies down, the other side of the coin reveals certain drawbacks. “The generics business due to low entry barriers is getting increasingly commoditised. This is manifesting in severe pricing pressures and increasingly consolidation has become a non-negotiable imperative for the generic pharma industry,” predicts Nair. Global generic firms are becoming more self-reliant by vertically integrating their value chain and this has led to decreasing their dependence on Indian companies for manufacturing their generic products.

Countries like China and Eastern Europe have the same advantages as India like cost arbitrage and scientific capabilities making them potent competitors

While Indian companies are well known in the US, they still have a long way to go. “Till now, Indian presence in US may be small because there are few companies and this is just beginning. I think Indian products are not such that they will be known as a household name,” observes Handa. Moreover, the US is home to the multinational goliaths like Teva, Barr, Pliva, Sandoz and many more. And by their sheer size, they gain ground in the market by exercising their bargaining power with big pharmacies and stores; an advantage which cannot be replicated by Indian companies. “Indian pharma industry was predominantly playing the generic market in US which makes them dependent on distributors to push their products into the market. This puts them at the mercy of big distributors with large networks who extract their pound of flesh bringing margins under further strain,” comments Nair. Next come countries like China and Eastern Europe which have the same advantages as India like cost arbitrage and scientific capabilities making them potent competitors. Added to that, these governments of the respective countries also extend support to the industry.

Indian companies have gaps in manufacturing when it comes to scale and cutting edge operating efficiency, which needs to be filled. “On the manufacturing side, we need to continuously improve upon the yields to find savings. India’s advantages and skilled power should be put to use to continuously lower the costs of production because manufacturing is based on those premises,” says Shetty.

In spite of the impediments, hardships and stumbling blocks, Indian companies are far from moving away from the US. Instead, they are constantly re-inventing and shifting strategies to stay afloat in the market as there is no market that can rival the size, opportunity and the growth which the US offers.

katya.naidu@expressindia.com