2018: An inflection point for generics

This year has seen a number of restructures across the generics manufacturing space. In July​, for example, Pfizer announced plans to split its business into three units – Innovative Medicines, Consumer Healthcare, and its generics branch, Established Medicines. Two months later​, in another generics shake-up, Novartis agreed to divest its US generic oral solids and dermatology businesses to Aurobindo Pharma US.

According to Brandon Boyd, industry strategist for generics at Clarivate Analytics, a number of trends, other than divestment, have become apparent in the generics sector, including increased portfolio complexity and “greater scrutiny of quality and compliance” ​by regulators.

Companies in the global generics market are reacting to trends that negatively affect growth, he explained, adding that “Increasingly, the response is to differentiate from competitors.” ​

As the year comes to a close, in-PharmaTechnologist (IPT​) asked Boyd (BB​) about these current trends in the market, how 2018 will be remembered in years to come, and his predictions for 2019 in the generics space.

IPT: What trends have you observed in generics portfolio strategies?​

BB​: Overall, the trend is to pursue greater complexity in new product opportunities. This includes products with higher barriers to entry, such as drug-device combinations or high-potency active pharmaceutical ingredients (HPAPIs).

This trend is directly linked with the search for more sustainable value.  The traditional high-volume oral solid portion of the generics market is completely commoditised and offers very few opportunities for growth, at least for most established manufacturers.

IPT: How can generics companies create value and sustain growth?​

BB​: Companies in the global generics market are reacting to several disruptive trends that negatively affect growth: downward pricing pressure from increasing competition, a changing mix of new product opportunities and defensive brand tactics, and greater scrutiny of quality and compliance by regulators.

Increasingly, the response is to differentiate from competitors, which can be especially difficult in a generics market where, by definition, the products of one company are the same as those of the next. Two key differentiation strategies are used: to optimise scale and to diversify — and “optimise” is the operative word. For example, larger companies are reducing their footprint as a means of reaching a scale that maximises financial returns and/or minimises costs.

Of course, scale can mean growing larger, and consolidation continues in parts of the market like contract manufacturing. Separately, diversification means adding new capabilities to open new opportunities or markets. 

IPT: How are generics companies diversifying?​

BB​: There are three main strategies that generics companies are using to diversify. The first is to sell products to new customers in new distribution channels – for example, moving beyond retail pharmacies into hospitals and clinics or government facilities. This approach might appear simple, but can add complexity and therefore increase risk of delays or compliance. This is because serving a market like hospitals could require adding new products, such as sterile injectables. This may require adding technologies that are new to the existing organisation, necessitate new packaging configurations, and mandate compliance with new regulations like local manufacturing.

The second diversification strategy is to enhance the new product launch by challenging patents or quickly following patent challengers. Pursuing a Paragraph IV (P-IV) patent challenge in the US, for example, can bring six months of market exclusivity. However, it can also bring additional complexity in formulating a generic product, as well as additional costs associated with litigation and the risk of delays and added uncertainties. Nevertheless, the total number of P-IV challenges continues to grow rapidly, with India-based manufacturers in particular expanding their use of this strategy.

Third, a company can move up the value chain of products, meaning the addition of products with higher barriers to entry, and thus presumably less competition, and greater sustainable value. A typical progression is for a manufacturer to migrate up from immediate release oral solids to extended release products, then onto sterile liquid formulations, and then ultimately pursue drug-device combinations (e.g., auto-injectors or respiratory inhalers) and/or very complex molecular or even biological formulations (e.g., peptides or proteins).

IPT: Have you observed a change in behaviour in firms looking to differentiate themselves? ​

BB​: A few shifts are occurring as a result of optimisation and diversification activities. One shift is to act faster in order to stay competitive. Companies are under increasing pressure to develop and launch new products more rapidly in order to accelerate their growth. This has led to firms adopting a higher risk tolerance.

Specifically, this means pursuing products with more complexity in development and manufacturing — extending beyond traditional areas of focus and capabilities. These two factors, speed and risk, mean that more companies are turning to partnerships and/or acquisitions to mitigate risk and gain operational flexibility.

IPT: How will we look back on the generics drug landscape in 2018?​

BB​: 2018 will be remembered as an inflection point year for both drug prices and manufacturers.  Generic drug prices are stabilising, and while competition remains intense, the worst of price erosion appears to be over. In addition, manufacturers have made meaningful progress optimising their portfolios and streamlining operational networks.

Secondly, 2018 is the year of very high profile, very significant systemic quality issues — at Chinese companies especially, but affecting manufacturers in other regions as well. The impurities discovered in the -sartan class of drugs​ has been highly disruptive to the supply of one of the most utilised group of medicines globally, and serves as an unwelcome reminder that investments in quality systems are as important as investments in any other area of the business.

IPT: What do you predict for 2019, and beyond, in this space?​

BB​: The larger or more established manufacturers will continue to right-size, and across the spectrum of companies, more will focus on higher-complexity products, which includes attempts to enter more highly regulated markets.

While generic drug prices will continue to stabilise, growth and sustainable value will still require manufacturers to tolerate higher levels of risk in their portfolio strategies.

As industry strategist for generics within the life sciences business of Clarivate Analytics, Brandon Boyd manages strategic business initiatives and partnerships in the generics finished dose and API sectors. Boyd has previously held positions within Clarivate’s Newport product suite, and at Teva Pharmaceutical Industries.​​