It is estimated that some $116 billion of the world pharmaceuticals market belongs to the generics industry. In the US alone,sales of generic products exceeded $22 billion in 2006 and four of the top five US pharmaceutical companies are developers and manufacturers of generic medicines, on the basis of number of prescriptions dispensed. Generics penetration in developing countries and all six major markets (the US, Canada, Germany, France, Spain and the UK), has been steadily increasing over the last five years. In fact, another $116 billion of currently protected sales is forecast to come under generic exposure over the next five years [see Figure 1].
However, will the generics market, as it stands today, be sustainable? Complex issues are at play and, as the challenges mount and the competitive dynamics intensify, companies wishing to gain from the revenue potential will need a major rethink of their established business practices in order to succeed. At a time when healthcare costs can account for up to 15% of GDP and expenditure on prescription drugs worldwide continues to grow, generics manufacturers are in the attractive position of being able to fill an increasingly critical need: effective products, advantageously priced.
To date, strategies in this market have been built around two basic premises. Firstly, that the NCE market will provide a pipeline for products that offer commercial viability, even if priced well below branded levels. Secondly, that insurers and government regulatory agencies will continue to manage the high costs of new, branded therapies by demanding access to a lower-cost version following NCE patent expiry. Under this model, growth requires little more than a healthy NCE industry and a pricing strategy that appeals to payer goals.
Although this approach has so far held good, most of the pharmaceutical market remains in the territory of branded products. As the market becomes more crowded and competitive, the task of identifying opportunities for generics growth will become increasingly difficult.
Not all indications and drug classes will, however, off erthe same potential. Major indications may already be so crowded with competitively priced, branded drugs and generics that another generic equivalent would not be able to enter the market at a commercially viable price.
Equally, a branded drug may be approaching the end of its clinical lifespan, making a generic product unlikely to succeed at any price. In addition, patent expiries in the primary care sector are diminishing which will mean seeking opportunities in other areas, possibly requiring new skills or investment. In order to take advantage of opportunities for more strategic positioning, generics companies now require a new level of market insight.
They need to determine which segments of the patient population will be most worthy of resource allocation, which areas will not reward generic investment, and whether the greatest sales opportunities lie within the biggest markets or with those that already offer footholds for generic products.
IDENTIFYING MARKET SEGMENTS
Fortunately, new metrics are now emerging that enable amore granular and consistent level of market analysis. Based on a division of the total market into originally protected and never protected products, they further split the generics market into branded, company-branded and unbranded products. These metrics make it possible, for the first time, to differentiate between original brands and branded generics.
This represents a unique advance in understanding the total market and providing a comprehensive view of its structure across the major markets. With this comes the ability to define, measure and analyze drug usage patterns by geography, product lifecycle and therapeutic class, helping to guide offpatent drug development and proactive generics strategies worldwide. Generics manufacturers can use their new insights to grow market share, increase their influence with healthcare policymakers and more proactively manage relationships with the R&D community.
DETERMINING PRIORITY VALUE
By analyzing the market according to the metrics and indicators that have the greatest relevance to their needs, as opposed to those based on sales in general, well-prepared prepared generics manufacturers can take the lead by determining optimal strategies.
For example, as shown in Figure 2 and Figure 2.1 , while the majority of the overall pharmaceutical market currently lies with protected products, some 19% of all drugs purchased in 2006 were branded products now available for generic cannibalization, suggesting potential that might otherwise have been overlooked.
Similarly, analyzing the market by product status, as opposed to historical sales, shows that at this time, the best growth opportunities are primarily driven by protected brands, emerging markets, unprotected brand sand physician specialty.
The extra layer of transparency afforded by the definition of branded/ unbranded status, as well as standard analyses, allows generics companies to avoid commercialization pitfalls that otherwise would remain hidden within the context of general sales data.
The impact of a generic introduction can also influence the position of protected brands, not only because of the lower price but also from increased usage arising from this, which may change the dynamics of a particular therapeutic area (see Figure 3).
KNOWING WHERE TO LOOK
Patent expiries in the US and in European markets will continue to provide opportunities for confidenceinspiring growth in generics sales. The greatest volume of opportunities, in the short-term, will be available in primary care (non-specialty) products although specialty products could yield high rewards, depending on manufacturing and brandpartnering dynamics. However, country-specific and product statusspecific segmentation data show dramatic differences in generics penetration across these markets –information that manufacturers can use to determine the sectors that offerthe best pathways for growth–. Segmenting the market by indication also facilitates the comparison of where and when the opportunities could arise. For example, oncology is among the fastest-growing pharmaceutical sectors with total global sales potentially crossing $60 billion within the next five years.
Some 30-40% of current oncology sales will be available for generic competition within that same time period. This suggests that oncology represents an easy pathway towards rapid profitability. However, much of its growth is fuelled by biological agents which, although off-patent within a few years, will be challenging and expensive to produce. Oncology generics may therefore require a longer investment term before yielding a profit. Indications such as CNS and cardiovascular disease already feature markets twice the size of oncology, with approximately 60% of their sales available for generic competition within the next five years [see Figure 4].
Between their total market size, attractive product-status portfolio and the relatively accessible therapeutic molecules driving sales, CNS and cardiovascular disease may well be the brighter pathway to sales success. This is despite falling short of the growth level seen in oncology.
CLEAR DEFINITION, STRATEGIC FORESIGHT
It is the ability to define “most attractive” that can now guide companies towards new levels of strategic foresight. Currently, unbranded products hold the greatest share of the generics market in terms of sales units –accounting for some 96% of the market in the US and some 80% in the UK– a share that grew by around 32% in 2006. For a company with the resources to launch a product in the US, the unbranded sector could be very attractive. In countries other than the US and UK, however, unbranded products account for only a small share of the generics market and branded and company branded generics dominate.
For manufacturers who can plan their launch strategies according to regional preferences, geographical expansion offers an obvious route to increased penetration. Attention should not just be focused on the mature markets, as more attractive opportunities may lie elsewhere.
An example would be emerging markets that currently offer a high degree of generic penetration and, correspondingly, wide-ranging potential. Eastern Europe and Latin America are, currently, the fastest growing regions for generics.
With the new segmentation metrics available to them, manufacturers can now take geographical analyses a step further to determine which market offers the best potential. Companies can compare potential now versus 10 years from now; evaluate which markets are more receptive to generic infiltration and what value can be expected from a generic alternative versus its branded equivalent.
Figure 6 provides a number of practical insights around geographical expansion. As expected, the most mature generics markets feature relatively low prices compared to their branded counterparts, as well as high market shares. However, the lessmature markets of Italy and Spain feature less penetration and higher prices for generics. These countries lack the size of the US market but, when analyzed according to opportunity and return, they may offer significant potential.
MEETING MARKET NEEDS
Understanding how their product portfolio meets the needs of pricesensitive third-party payers in different markets will be critical for generics manufacturers going forward.
In Europe, policies limit growth through both pricing and demand in the various countries. All five major markets feature gatekeeper systems and, in most cases, are characterized by strict controls over reimbursement and reference pricing.
While Germany historically has offered more attractive pricing than other European markets, incentives for parallel importing as well as insurance fund contracting suggest increasing price sensitivity. In the face of such downward pressure on both brand and generics pricing, it is unlikely that manufacturers can rely solely on price in order to increase generics penetration.
Success in a world where price incentives and crowded markets continue to challenge the traditional generic business models will not be straightforward. It will depend on the ability to define the competition more clearly, identify the most lucrative alliances, and position the company in the best light for partnerships and consumer support.
DEFINING THE COMPETITION
When defining competition, the geography must be carefully considered. Take generic omeprazole in the antacid market as an example. In 2003 in the US, the $14 billion antacid market was crowded with antacids and proton pump inhibitors (PPIs), including Nexium® and the Prevacid® family.
Due to post-generic launches, in volume terms, the OTC product was the major competitive threat, followed by certain branded offerings. IMS MIDAS data for 2006 show the generic sector accounting for some 17% of the market in terms of volume, compared with 32% for the brands [Figure 7].
In sales terms, however, the market share of generic omeprazole fell from 15% to less than 5% when faced with multiple branded PPIs. Despite the availability of both a generic and OTC PPI for heartburn, branded products garnered more than $11billion in sales, with the generic product a distant second at $1.4 billion. However, the same analysis in Europe shows that the generic has had a serious impact on the sales of the original brand. A similar analysis of the statin market will show differences within individual European countries, raising questions as to the generic potential for those statins currently enjoying protection status.
Finer segmentation of the market also enables generics manufacturers to direct their “build, buy, or ally” relationships with specific brands, molecules or indications. In terms of new molecules, the costs of developing generic products will continue to rise, particularly in the case of biological products.
Knowing how competitor products are faring when faced with generic competition can help the decisionmaking process before serious investment in new molecule manufacturing. Data on the relative value and degree of penetration of branded, unbranded and generic products, within a geographical market or indication, yields insights into the projected future value of a generic product. Segmentation data, supplied by a generics manufacturer, can show an R&D organization the relative value of a generics collaboration, particularly in terms of other competition, product/payer mixes and their relative receptivity to generics.
Generics manufacturers are also now able to revisit their own position relative to branded products, consumer/payer needs for cost-containment and ability to support quality R&D and drug manufacturing. This information can provide invaluable insights for R&D investor presentations or to demonstrate a company’s knowledge of the market, prior to moving into more complex sectors. It can also help identify opportunities for direct-to-consumer or direct-to-payer advertising and education.
A MEASURED IMPROVEMENT
Traditional models of success for generic drug manufacturers will be increasingly challenged. Crowding in the market and product saturation in the major indications and geographies will call for more sophisticated strategic approaches supported by new levels of market insight. Manufacturers will be required to move beyond the identification of ‘gold standard’ molecules featuring long lifecycles and the option of attractive pricing. They will have to pursue strategies based on prescribing trends, geographical opportunity and effective management of market competition to succeed. What can be measured, can be improved and new dimensions in market segmentation may well prove to be industry’s most powerful vehicle in the move towards new levels of success.