By 2015, around 20 major brand drugs will lose patent protection and cheaper generic drugs will become available. This event is called the patent cliff and it places pressure on the current model governing the pharmaceutical market. An estimated US$250 billion in global sales is at risk as a number of brand drugs go off patent. While this might sound dire, successful innovation by pharmaceutical companies and government could result in an upside for global health. This will involve continued cutting-edge innovation of new therapies, increased production of generics and the rise of new emerging markets.
In the past, pharmaceutical companies have leveraged the worldâs research to produce new therapies that have helped to increase longevity, mainly in developing countries. Drug innovation in the post-genomic world will continue to provide cutting-edge treatments and will help pharmaceutical companies to survive the changing market conditions. Pharmaceutical companies are being more creative, innovative, and are diversifying and reorganising their business models to recoup market share. They are involved in acquisition and mergers (M&A), reformulation of their products to extend patent life and entry into the production of generic drugs.
It is estimated that the cost of developing a new drug is approximately US$1.3 billion. To avoid these costs, the acquisition of other companies and their drug development pipelines become attractive to pharmaceutical companies. Between 2003 and 2010 there were 14 major M&A deals for a total of US$405 billion. Investing in M&As can result in enhanced research and development. This strategy can provide a company with access to new technology platforms, which in turn can translate to the discovery of new drugs and therapies.
Reformulation to extend the life cycle of a branded product is another strategy to compensate for drugs going off patent. For example, to shore up revenue, Eisai/Pfizer reformulated their acetylcholinesterase inhibitor drug that is used for Alzheimerâs-type dementia into a sustained release oral formulation and a once-weekly transdermal patch.
A third approach for pharmaceutical companies is entry into the generics market.
Growth in generics: low-cost drugs and extra competition
Generics are drugs that contain the same active ingredients as the original branded drug but are sold at a lower price. They are marketed when the patent of the branded drug expires. Generics have been perceived as being of poor quality (i.e. quality control issues, poor compliance with Good Manufacturing Guidelines and inadequate site inspections), especially those being imported from non-EU countries. The World Health Organisation has also raised concerns that counterfeit medicines are present in all countries, representing 10% of the global drug trade.
In Australia, approximately 30% of Pharmaceutical Benefits Scheme (PBS) prescriptions dispensed in 2009 were generics. Generic prices were deemed to be high in this country, although recent policy shifts have resulted in the price of generics on the PBS being reduced by as much as 70%. As generics are increasingly used in the community cost benefits will flow to the government. The increased awareness and confidence among doctors and patients through education will also potentially lead to greater uptake by consumers.
Recently, the Senate passed legislation so that consumers and health professionals will have more access to generic drugs. The Australian government seeks to restore the balance between safe and timely access to drugs and encourage research and development through protection of intellectual property.
Governments in Spain and Italy made significant policy changes in 2010 to reduce the price of generic and off patent branded drugs. This change was made to encourage greater use of these drugs and to lower costs to their health systems. By 2015, global spending on generic drugs is estimated at between US$400-430 billion, with 70% of sales occurring outside developed markets.
While high-quality generics can benefit developed countries, successful innovation in the business model for production of generic drugs can also have a significant impact on health across the globe.
Emerging markets: the end of exclusive access to high quality drugs?
In 2010, an IMS Health report suggested three levels of new emerging markets (also known as âpharmerging marketsâ). These consist of 17 countries separated into three tiers: tier 1 (China), tier 2 (Brazil, Russia and India) and tier 3 (Venezuela, Poland, Argentina, Turkey and nine others).
As middle class wealth grows in emerging countries, so does the prevalence of chronic diseases normally associated with developed countries. In some countries, local companies produce generics for these diseases but in the past, there have been issues with the quality of the drugs. However, quality standards have been rising and there is increased competition as big pharmaceutical companies look at pharmerging markets to maintain their revenues. Recently, Pfizer announced a 10% increase in net revenue in the first three months of this year due to the lower cost of carrying out business in China, Brazil and India.
Pharmaceutical companies are also investigating strategic positions in emerging markets and exploring possibilities for acquisition of local manufacturing plants. In 2010, GlaxoSmith Kline (GSK) announced that it would partner with JSC Binnopharm (a domestic company) for the secondary manufacture of GSK vaccines in Russia. Novartis has invested in construction of a new manufacturing plant in St Petersburg, Russia that is scheduled for completion in 2014. They will manufacture innovative pharmaceuticals and high-quality generics to Russian patients. Also, Merck entered a joint venture agreement with Sun Pharmaceuticals (an international company based in India) to target over 100 emerging markets (Asia Pacific, Africa, Latin America and Eastern Europe) to develop, manufacture and commercialise new combinations of innovative branded generics. In 2009, Sanofi-Aventis staged a takeover of the Czech generics manufacturer Zentiva for US$2 billion.
Although there have been past concerns about the quality of generic drugs, successful innovation will produce access to cheaper and high-quality drugs will provide better health outcomes across the globe. Generics will play a role in efficient allocation of financial resources and savings in global markets.
Director, Scribblers Inc