A Blurring Of The Lines? Is "innovator" or "generic" becoming ...

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  • Well, this presentation had its roots in one of those hallway conversations with an industry analyst who remarked one day that perhaps the distinction between generics and innovators was getting less clear.
    The argument went something like that on the slide here. Innovators, struggling with poor R&D productivity are looking to benefit from some of the action in the bouyant generics industry. And why shouldn’t they, they certainly have all the resources and skills to do so.
    On the other hand, generics are doing well, but in a highly price-pressured environment. The lack of innovator productivity over the past decade has lessened the pool of available products, biogenerics regulatory pathway isn’t moving quickly enough and so generics are turning to more novel R&D.
    Sounds interesting, but is it true?
  • Like any good detective, let’s follow the money trail and see what we find.
    We don’t often look at innovators or generic companies in this other light, so what we will do is consider where the money is being spent in these alternative activities and how they compare across the sectors and try to answer the questions above as we go along.
    I hope you’ll find some of the resulting analysis interesting.
  • If I were standing here a few years ago, this is how the industry stood in 2005.
    Teva and Ivax were about to join forces, as were Sandoz and Hexal. Hospira had just been created and immediately found itself in the Top 5 of world generics.
    Watson was busy consolidating its position by bidding for Andrx and Actavis was busy propelling itself into the Top 8 by proposing to acquire Pliva.
    Perrigo vaulted into the Top 10 by buying Israel’s Chemagis and that was about it for the major activity.
  • Well, congratulations those who opted for answer C.
    If my calculations are correct about $38bn was spent by these players to the present day.
    Of course, Actavis eventually lost out to Barr in the hunt for Pliva but found solace in a host of other acquisitions, Mylan bought Merck Generics and Matrix and Watson and Andrx joined forces.
    It’s also interesting to note Australia’s Sigma is now a Top 10 player, as is Czech Rep’s Zentiva.
    Even STADA had to spend about $1.2bn to keep its Top 10 position.
    And you can see that not even a billion in revenues will get you access to the Top 10 generic club.
  • It’s interesting to note that this has also spread to lower tiers of the industry.
    Here you can see Sun, only a $600M company proposing to spend $450M on Taro.
    Wockhardt at $400M revenues, spending more than that on acquisitions in France, Ireland and the US.
    The activity is quite amazing.
  • A great example of how generic M&A has spread globally is Australia.
    Here we are in 2005. Australia is a reasonable sized generic market of about $500M.
    Arrow, Sigma, GenRx and Mayne are indigenous players. Douglas from over the water in New Zealand, Aspen from South Africa with small market shares.
  • Fast forward to today and we find that two of the Australian companies merged, and the rest have all been snapped up by foreign companies.
  • However, look behind these big numbers being spent on intra-industry consolidation and you find that many of these companies in the top tier have been quietly investing in biogenerics.
    Teva of course had access to these capabilities through Sicor for some time, but both it and Hospira, Stada and Barr which together, even excluding Barr-Pliva represents over $1bn in investment.
    The one question is where are the other players in this game?
    So, clearly lots of activity and money going into generic consolidation.
  • So, going back to our opening argument, one thing we should be able to say is that, if generics are investing in novel R&D hopefully one should see the fruits of that activity in the form of their branded businesses.
    As you can see from the research, with the exception of Teva, Watson and Barr, there’s really very little evidence of such activity.
  • The answer again is C.
    As you can see, outside of Teva, Barr and Gedeon Richter, the amount of activity is pretty small with most companies averaging 10 research compounds and most of that in the pre-clinical phases.
  • And how much are they spending in this part of their business?
    This is actually quite hard to determine since innovative R&D isn’t usually separated from regular generic R&D in reported figures.
    However, even if you accept that these numbers will be larger than the actual spend in novel R&D, you can see that the average spend per compound is very small.
    In many cases, I would expect that many generic drugs average this kind of spend in terms of R&D, certainly those with complex formulations or those for which expensive patent challenges have to be mounted.
  • Well, it’s not all bad news on the R&D front and there are a few examples of progress by generics in the space.
    Looking at Dr Reddy’s, who conduct innovative research via their Foundation, we can see a number of co-development deals with innovators and their most promising candidate balaglitazone is just entering phase III clinical trials at this time.
    As you can also see, low cost high quality scientific staff allows DRL to do an awful lot for very little outlay with quite a lot of people.
  • Despite only just making it into the world’s Top 50 generics at $320M revenues, Glenmark is another Indian company that has done well on the innovation front and has even managed to bring in a tidy sum from licensing deals, in fact about $35M last year.
    As well as pursuing biogenerics, Glenmark has also cut deals with Forest and Teijin and is employing some high technology in the form of Dyax’s phage platform to help validate targets.
    Again, a small amount of spend supports a fairly substantial team.
  • The question however, for most of these companies is whether pipelines of 10 or so compounds, most of which are in pre-clinical stages at their most advanced, can that be sustainable?
    You may remember this slide from the earlier presentation, which shows (for Top innovators) the success rates in proceeding from major milestone to milestone.
    With less than 10 compounds at the open end of the funnel, we’re not likely to see many launches as a result.
  • So, in summary, what can we say about the argument that generics are becoming more like innovators?
    Judging by the facts as I’ve presented them, we can certainly that there is some evidence of novel R&D and that a few companies are doing so successfully.
    However, it’s also true that even within this quorum of companies, many are perhaps echoing some of my earlier points in that they are spinning off their R&D businesses.
  • Well, as you can see from this table, the industry has also been busy consolidating over the past 3 years.
    However among the Top 10, only Novartis and Sanofi have shown any interest in generics.
  • As we saw earlier, novel R&D spend is miniscule in the generic industry.
    If you discount Teva and Barr, you can see that even if you count all of a generic company’s R&D spend and compare with Big Pharma, we’re several orders of magnitude off the mark, even if the size of pipelines is taken into account.
    And as you can see from the industry’s association, the PhRMA, this activity isn’t getting any cheaper.
  • And of course, if you do actually have something that makes it past all the hurdles you’ve seen earlier and is successful in reaching the market, you’ll have spent about a billion in the process.
    Something that is probably beyond the means of most generic companies, certainly those with revenues measured in hundreds of millions.
  • Of course, since generic companies benefit from products losing exclusivity 8 to 10 years after launch, looking at what is launched to day gives us some good insights into the future.
    As you can see from this, with the exception of 2004, innovators have been launching about 25 new chemical entities per year in the US. Now, granted this is molecules and not unique dose from strength combinations, but this is not a lot to work on in a decade’s time for the generics.
  • We can see this more immediately by looking at the near term expiries.
    Here you can see that in the US and in Germany (one of the Big 5 European markets) in the next 7 years, roughly the same number of molecules, about 35 on average, will be losing exclusivity.
    Again, too few products for a very competitive industry.
  • This notion is supported with a quick examination of current close-to-launch pipelines.
    Which, certainly in the US, look to be gearing up for the same low number of new launches.
    So, clearly, the lack of novel products coming from innovators continues to be an issue for generics.
  • If we take a closer look at innovators however, we can see that there is certainly some interest in generics, and like novel R&D in generics, it is by and large, quite modest.
    Again, most innovators are not very public about their involvement in generics and it is hard to estimate revenue earned from these activities, but here is a sampling. Novartis and Pfizer being the most successful to date with clear emphasis on these business areas going forward.
    With the exception of a few authorized generic deals, the rest of the world’s top innovators aren’t much bothered with generics either.
  • If we look a bit further down the standings in Big Pharma, it’s much the same with the exception of Boehringer Ingelheim that enjoys the benefits of long presence in generics through its Roxane, Bedford and Ben Venue subsidiaries.
  • Returning to our initial premise, what can we say in conclusion?
    It’s apparent that most activity and money has been devoted to intra-industry consolidation.
    There isn’t much evidence, beyond a few exceptions of either great interest in generics by innovators or in novel R&D at generic companies.
    It’s fair to say that Indian generic companies are having some success but the signs are already there, I think, that this might not be a viable business even with the unprecedented access to high quality, cheaper scientific resources that India enjoys.
  • Above and beyond the conclusions, what can we speculate?
    I think it’s quite clear that we’ll see another wave of consolidation, especially on the generic side. Probably not this year, but next. I think it’s also fair to expect a lot of this activity to focus on mid-size markets such as Brazil, Russia and beyond.
    My suspicion too, is that once there is a viable regulatory pathway for biogenerics, we will see a curtailing of novel R&D activity at generics, as they switch into this new field. It is very clear that many are already gearing up for this event, at all levels.
    And perhaps, this will allow China to emerge as the next destination for innovative research by generics, just as it becoming now for Big Pharma.
  • I hope that was as interesting for you as it was for me to research – two very interesting sides of two very different but intertwined industries.
    Thank you so much for your attention and please don’t hesitate to ask any questions.
  • A Blurring Of The Lines? Is "innovator" or "generic" becoming ...

    1. 1. A Blurring Of The Lines? Is “innovator” or “generic” becoming harder to discern? MARCH 2008 Mike Chace-Ortiz, Director, Product Strategy, TS API Intelligence Source: THOMSON REUTERS RESEARCH © THOMSON REUTERS Your use of these materials is subject to the terms and conditions hereof. Please read the disclaimer carefully before using these materials.
    2. 2. The word on the street • The distinction between innovators and generics is narrowing • Innovators, hungry for profits and struggling against poor pipelines are fighting fire with fire and plunging into generics • Generics, fighting a hypercompetitive, low margin business and too few patent expiries are being forced to redeploy talented scientific resources into novel R&D
    3. 3. Fact or myth? Following the money… • To what extent are generics investing in innovative R&D? • Are brand companies investing in generics? • What brand revenue do generic companies raise? • What generic revenues to innovators raise? • What is the state of novel pipelines at generic companies? • How does R&D spend compare between innovators and generics?
    4. 4. Where is the generic industry’s money being invested?
    5. 5. Just three short years ago… Source: Thomson Reuters Research ©THOMSON REUTERS Global IsraelTeva/IVAX 5500 Global AustriaSandoz/Hexal 4600 Global GermanyMerck KGaA 2200 EMEA SloveniaKrka 600 US USMylan 1350 EU Germanyratiopharm 2000 Global IndiaRanbaxy 1150 EU+US GermanySTADA 1200 EMEA CzechZentiva 475 US USPerrigo/Agis 1400 Global CanadaApotex 1000 US USWatson/Andrx 2550 Global IcelandActavis/Pliva 1550 EMEA HungaryGedeon Richter 600 Focus HQSales $M Global USHospira 2500 US USURL Mutual 500 US USBarr 1050 US USEndo 650 Pending Pending 2005
    6. 6. Approximately $40bn later… 7500Teva 8831 8700Sandoz 5923 ?ratiopharm 2245 ?Covidien 1300 2300Barr 1832 ?Sigma 2090 1310Actavis 1667 1156STADA 1830 ?Krka 960 1900Watson 1980 580Dr Reddy’s 1375 7340Mylan 3810 675Zentiva 1994 1300Gedeon Richter 1359 Cumulative M&A SpendSales $M 2100Hospira 2690 ?Apotex 1000 818Perrigo 1490 420Ranbaxy 1360 2008 Source: Thomson Reuters Research ©THOMSON REUTERS
    7. 7. M&A among generics has spread quickly to lower tiers Acquirer Spend Target Sun (India) $450M Taro (proposed) Ache (Brazil) $200M* Biosintetica Wockhardt (India) $450M Morton Grove, Pinewood, Negma Genepharm (Greece) $65M Douglas Jubilant (India) $20M PSI Nicholas Piramal (India) $18M Avecia Custom Synthesis Unit Orchid (India) $4M Bexel US Alembic (India) $37M Dabur’s non-oncology portfolio Biocon (India) $43M AxiCorp GmbH (70% stake) * Estimated figureSource: Thomson Reuters Research ©THOMSON REUTERS
    8. 8. The impact of global generic consolidation: Australia 2005 Generic Market US$550M Source: Australian Gov’t, IMS Health
    9. 9. Australian generics: 2008 Merged with Sigma Acquired by Mylan Acquired by Genepharm Acquired by Apotex Acquired by Novartis Acquired by Hospira
    10. 10. Behind the big deals: biogenerics quietly pursued • Teva Acquires Cogenesys, Tianjin Hualida • Hospira Acquires Bresagen, alliance with STADA • STADA Establishes Bioceuticals • Barr Acquires Pliva • Apotex Continued investment in Cangene • Where are Mylan, Watson and others? Source: Thomson Reuters Research ©THOMSON REUTERS
    11. 11. How is the US generic branded industry faring? Company Brand Sales Key Branded Products Teva $1700M COPAXONE, AZILECT Watson $370M OXYTROL, ANDRODERM Barr $300M SEASONIQUE, ENJUVIA Mylan $90M Out-licensed nebivolol, divested branded business Covidien $60M RESTORIL, TOFRANIL Par $50M MEGESTROL, span out Strativa Pharma for R&D Lupin $30M SUPRAX Ranbaxy $2M RIOMET APP - Separated from Abraxis BioscienceSource: Thomson Reuters Research ©THOMSON REUTERS
    12. 12. Generic investment in novel R&D 0 10 20 30 40 50 60 Teva Hospira Watson Barr DrReddy's Ranbaxy Gedeon Apotex Par Glenmark NPIL Wockhardt Torrent Biocon Dabur Lupin SunPharma Orchid Review PhaseIII PhaseII PhaseI Pre-Clinical Source: Thomson Pharma © THOMSON REUTERS
    13. 13. How much are generics spending on novel R&D? Company Novel R&D Programs R&D Spend Average Spend/Program Teva 51 $500M $9.8M Hospira 6 $161M $26.8M Watson 4 $47M $11.8M Barr 18 $140M $7.8M Dr Reddy’s 8 $65M $8.1M Ranbaxy 6 $110M $18.3M Gedeon Richter 16 $65M $4M Apotex 7 $50M $21.4M Par 3 $12M $4M Glenmark 9 $10M $1.1M NPIL 13 $32M $2.4M Wockhardt 6 $17M $2.8M Torrent 7 $14M $2M Dabur 9 $10M $1.1M Lupin 6 $35M $5.8M Source: Thomson Reuters Research ©THOMSON REUTERS
    14. 14. DRL R&D Profile Acquires US dermatology company, Trigenesis for $11M Establishes Perlecan and invests $8M to develop 4 promising candidates Signs deal to co-develop DRF2593 (balaglitazone) for Diabetes with Rheoscience Signs deal to co-develop DRF1042 for oncology indications with ClinTec International Signs deal with Ceragenix for novel dermatology compound Signs deal with Sygnis for development of AX200 biologic API Signs deal with Argenta to co-develop COPD candidates 250 R&D scientists R&D Spend $65M 2004 2008 Source: Thomson Pharma © THOMSON REUTERS
    15. 15. Glenmark R&D Profile Establishes Swiss subsidiary for biologics development Out-licenses melogliptin to Merck KGaA for $31M (since terminated) Sells rights to US development of oglemilast to Forest for $14M Sells rights to Japanese development of oglemilast to Teijin Licenses Napo’s crofelemer for development in India for $1M Eli Lilly acquires TRPV12 antagonist portfolio for $45M Dyax to identify antibodies on Glenmark targets 150 R&D scientists R&D Spend $10M Out-license revenues $35M 2004 2008 Source: Thomson Pharma © THOMSON REUTERS
    16. 16. But are pipelines of ~10 molecules sustainable? 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 1999-2001 2000-2002 2001-2003 Year of entry into phase Successrate 'First pivotal dose' to 'First submission' 'First submission' to 'First launch' 1996-19981997-19991998-20001999-20012000-20022001-2003 1996-19981997-19991998-20001999-20012000-20022001-2003 1996-19981997-19991998-20001999-20012000-20022001-2003 1996-19981997-19991998-20001999-20012000-20022001-2003 'First human dose' to 'First patient dose' 'First patient dose' to 'First pivotal dose' 'First toxicity dose' to 'First human dose' Source: CMR International © THOMSON REUTERS
    17. 17. Generic R&D: balanced but sustainable? • Well-balanced portfolios • Garnering interest (and revenues) from out-licensing • In-licensing and applying sophisticated technologies to identify new candidates • Many de-risking by spinning-off R&D (DRL, Sun, Wockhardt) • Can pipeline productivity overcome success rates? • Are pipelines large enough? • Is R&D spend sufficient for large-scale clinical development? BUT
    18. 18. Where are innovators spending their money?
    19. 19. Innovators: also busy with consolidation Company M&A Spend Targets J&J $2593M Pfizer Consumer, Cordis, Animas, TransForm Pfizer $2480M CoVX, Coley, Biorexis, Rinat, Vicuron GSK $4470M Domantis, Praecis, Pliva Res, CNS, ID Novartis $13170M Chiron, Eon/Hexal, NeuTech Sanofi-Aventis $520M Zentiva (25% stake) Roche $4260M Ventana, BioVeris, NimbleGen, Curagen AZ $16390M Medimmune, CAT, Arrow, Kudos, Atlantis Merck & Co. $1950M Sirna, Novacardia, Glycofi, Abmaxis Abbott $3740M Kos, Isis Wyeth 0 - Bayer 0 - Source: TS Research
    20. 20. R&D spend continues to mount J&J 7125 Pfizer 7599 Sanofi 4537 Abbott 2255 Roche 6873 Bayer 3032 Wyeth 3109 Merck & Co 4783 GSK 6772 AZ 4042 R&D Spend $M Novartis 6430 BMS 3067 Amgen 3366 Eli Lilly 3132 BI 2293 Source: TS Research, PhRMA © THOMSON REUTERS
    21. 21. Cost of launching an NCE continues to rise 25th percentil e 75th percentil e Average Standard deviation Standar d error Industry (n=20) $M 782 1235 1064 311 70 Source: CMR International © THOMSON REUTERS
    22. 22. US NCE Approvals 2001-2007 0 5 10 15 20 25 30 35 2001 2002 2003 2004 2005 2006 2007 Source: Newport Horizon Premium™ © THOMSON REUTERS
    23. 23. Too many companies, too few products 0 10 20 30 40 50 2008 2009 2010 2011 2012 2013 2014 2015 Molecules Losing Exclusivity in Germany and USA 2008-2015 US LoE German LoE Source: Newport Horizon Premium™ © THOMSON REUTERS
    24. 24. Current pipeline activity looks to continue the trend Source: Thomson Pharma © THOMSON REUTERS
    25. 25. How are Top 10 innovators invested in generics? Company Sales R&D Generic Sales Strategy J&J $53,300M $7152M Patriot $20M* Authorized generics Pfizer $48,350M $7599M Greenstone $850M* Authorized generics GSK $42,810M $6772M Exited generics in 2005 Novartis $37,020M $6430M Sandoz $5923M Traditional generics Sanofi-Aventis $35,650M $4537M Winthrop $150M* 25% stake in Zentiva ($625M) Roche $33,550M $6873M Authorized generic deals in ARVs AZ $26,500M $4042M Merck & Co. $22,636M $4783M Authorized generic deal with Mylan Abbott $22,476M $2255M Spun out Hospira in 2005 Wyeth $20,351M $3109M Launched generic PROTONIX * Estimated figure Source: Thomson Reuters Research ©THOMSON REUTERS
    26. 26. How about Top 20 innovators? Company Sales R&D Generic Sales Strategy Bayer $18,216M $3032M Exited in 2002 BMS $17,914M $3067M Eli Lilly $15,691M $3132M Amgen $14,268M $3366M BI $13,284M $2293M Roxane, etc $825M Traditional generics Nycomed $12,700M $1476M Schering-Plough $10,594M $2188M Warrick $50M* Authorized generics? Takeda $10,285M $1638M Genentech $9,248M $1773M P&G $8964M $250M * Estimated figure Source: Thomson Reuters Research ©THOMSON REUTERS
    27. 27. Conclusions • Intra-industry consolidation remains the dominant activity • Top generics investing in biogenerics capabilities • Little development of branded business at generics • Top and mid-tier Indian generics investing small amounts in novel R&D with some success • Little interest in generics from innovators • Many generics de-merging their novel R&D businesses
    28. 28. What’s next? • Pattern of intra-industry consolidation likely to continue – BRIC countries and other mid-tier markets • Biogenerics will open a new growth avenue for generics – Will they drop their novel R&D? • Is Indian novel R&D sustainable at current levels of productivity and investment? • China as the next lowest cost, capable R&D location?
    29. 29. Thank You! Mike Chace-Ortiz Senior Director, Product Strategy Thomson Scientific API Intelligence Portland, ME USA Email: michael.chace-ortiz@thomson.com Phone: +1 207 871 9700 extension 24 http://scientific.thomson.com/generics
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