Across most regional pharmaceutical markets, generic and biogeneric drugs are emerging as strong challengers to branded medications. Globally, revenues are poised to surge from an estimated $38.9 billion in 2004 to $71.9 billion in 2010.
Such robust expansion is being attributed to the soaring demand for pharmaceutical products. At the same time, efforts by health plan providers to control spending on costly prescription drugs are providing a boost to the generic drug industry. The demand for generic alternatives is also set to increase following the imminent loss of patent protection for several blockbuster drugs.
The introduction of generic (and in some cases, biogeneric) products is likely to gain further momentum from regulatory reforms in various regions. Regulatory changes are likely to be accompanied by greater popular acceptance of generics. With consumers coming to regard generic drugs as being comparable to branded equivalents in terms of effectiveness, and as generic drug developers move to launch a slew of biogenerics, the overall market for generics and biogenerics is projected to grow by 10.6 percent over 2003-2010.
Despite having been available for nearly two decades, the market for generic products remains at a nascent stage. Now, however, it is poised for rapid take-off. During the next five years, about two dozen drugs (each of which currently records annual sales exceeding $500 million) are scheduled to lose patent protection. This is opening up lucrative opportunities to generic and biogeneric drug producers.
Market Dynamics: An Expanding Business
Patent expirations and successful patent challenges are expected to be critical for continued market growth. Today, many generics companies are attempting to challenge the validity of existing patents of blockbuster drugs in established markets and launch a generic equivalent even before the branded drug’s scheduled expiration. This strategy has been employed in the sizeable and highly regulated U.S. and European markets where generics producers are typically unlikely to achieve marketing approval before the patent expiry of a branded alternative.
Be it managed care groups in the U.S. or government healthcare providers in Europe, nearly all healthcare planners are attempting to curb spiralling healthcare expenditures. The principal focus has been on containing spending on prescription drugs, which have been rising at double-digit rates.
Here, generics have emerged a key cost-containment strategy, either as step therapy (sequential use of least expensive medications before prescribing more expensive drugs) or as a formulary alternative for which plan participants make the lowest co-payment or, in some cases, as the only medicine in a given therapeutic category that the plan is likely to cover.
In all regions, average annual cost savings from the use of generic and biogeneric products are likely to grow strongly. Estimated total worldwide savings of $84.38 billion in 2003 are forecast to grow at a compound annual growth rate (CAGR) of 6.7 percent to reach $133.14 billion in 2010.
Unlike managed care groups, public healthcare providers and the generic and biogeneric drug makers who are poised to benefit from such trends, original drug producers are likely to be negatively impacted by the growing strength of generic drug sales. Their revenues are projected to decline substantially as users shift to lower cost, generic versions of the original product. For instance, Roche’s revenue from its acne drug, Accutane, fell 37 percent from 2002 to 2003 following the launch of generic equivalents in the U.S. and Europe.
Biogenerics are already being produced and sold in Asia and the Rest-of-World (ROW—comprising Canada, Australia, the Middle East, Africa, the Caribbean and South America) as a result of the more relaxed regulatory regimes and patent laws in these regions.
In contrast, while several biotech patents have already expired and biogeneric capacity is being assiduously expanded, biogenerics have yet to be launched in the highly regulated U.S. and European markets. These regions are yet to establish a clear policy framework to regulate biogenerics. However, the anticipated realization of biogenerics-related regulation is expected to preface their introduction in the U.S. and Europe as early as 2006-2008.
Prescriptions for generics and biogenerics, as well as the number of patients using these products, are expected to soar as new generic products are developed. At the same time, rapidly aging populations in the U.S., Europe, Japan, and other regions are expected to stimulate demand for all pharmaceutical products, including generics and biogenerics.
Across all regions, a greater proportion of patients are likely to use generics than branded products, with the greatest proportional usage projected for the U.S. and Europe. Despite growing competition, prices of generic and biogeneric products are expected to rise, resulting in revenue growth. Rising prices are likely to compensate for mounting costs of litigation and regulatory compliance. Also, price increases are unlikely to depress uptake levels, since such increases are likely to be small in comparison to branded pharmaceutical products, which have seen average price increases of more than 10 percent a year in most markets.
Regulatory Reform To Boost Biogenerics
Unclear regulatory approval processes and patent issues are discouraging manufacturers from introducing biogenerics into the highly regulated markets of the U.S. and Western Europe.
Regulations pertaining to the introduction of generics apply only to small molecule drugs, while the process for protein-based biotech products remains undetermined. Unlike the regulatory process for small molecule generics, promising biogeneric products would require some clinical testing, which could potentially increase their price, since human clinical trials are considerably more expensive than non-clinical or animal testing.
To leverage the enormous clinical and commercial potential of biogenerics, regulators and generic drug makers are actively attempting to resolve a plethora of challenges.
In the U.S., biogeneric approval guidelines have yet to be established. The European Union (EU) has already established some guidelines for the regulatory approval of biogenerics. Even as biogeneric applications are being assessed on a case-by-case basis in the EU, efforts to draft standardized guidelines are underway. In a setback, however, regulators recently voted against the approval of the first biogeneric product, despite having given it a preliminary endorsement.
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Source: Frost & Sullivan Research A775 (09/04)
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Notwithstanding these is-sues, biogenerics offer significant market potential in all regions. Many larger generic manufacturers are establishing or acquiring biogeneric capabilities. Market leader Teva, for instance, acquired biotech specialist SICOR, Inc. in 2003 and has been investigating similar deals with other biotech companies.
At present, more than 100 biotech drugs covering obesity, asthma, circulatory problems, ulcers, depression, AIDS, cancer, and arthritis are available in the U.S. with an additional 300 in development. By 2010, about two dozen biologics are likely to have lost patent protection in the U.S., paving the way for generic counterparts to make an entry.
The use of branded biologicals in the U.S. has been constrained by their high prices. Moreover, as managed care groups attempt to contain double-digit rise in annual healthcare spending, they are restricting the coverage of more expensive medications—particularly those for which lower cost alternatives are available or those which are not essential.
With nearly all managed care organisations (MCOs) having established programes providing incentives for the use of generics medicines over branded products, lower cost biogenerics could experience more widespread coverage and enhanced usage.
Consistent with its leading position in the global branded pharmaceutical market, the U.S. generics and biogenerics market is the largest at an estimated $17.39 billion. The region is also forecast to exhibit the strongest growth, expanding to an impressive $34.47 billion in 2010. The introduction of new offerings, particularly higher-priced biogenerics, is poised to accelerate the rate of growth over the long term.
Worldwide Appeal
Competitive success in the U.S. market is expected to be based on the ability of generics manufacturers to challenge the legality of active patents and gain commercial approval for their products. Efforts by managed care groups to shift plan members from branded to generic products is also expected to create a wellspring of demand. By 2010, nearly 62 percent of patients in the U.S. are projected to be using generics, with total savings accrued from such prescriptions standing at $61.97 billion.
In Europe, generics manufacturers are likely to benefit from harmonization of regulations and rationalization of new product launches. The second largest market at $11.95 billion, Europe (comprising both Western and Eastern Europe) is poised to generate nearly $21.20 billion in generics and biogenerics sales by 2010.
With most European healthcare being government funded, payers are particularly responsive to cost issues. Reflective of this, the number of generic and/or biogeneric prescriptions is expected to almost double from current estimates to 684.1 million by 2010, translating to cost savings of nearly $40.39 billion.
Despite its large population, the $5.48 billion Asian generics and biogenerics market is less than half the size of its European counterpart, with the ROW regional market even smaller at an estimated $4.14 billion.
While rapid population growth and rising incomes are set to promote demand in the Asian and ROW regions, distribution and affordability issues are likely to hinder adoption of generic and biogeneric products.
In Asia, generic and biogeneric prescriptions are expected to reach 782.5 million by 2010, amounting to $9.31 billion. On a per prescription basis, the average savings in 2003 was $26; this is expected to fall marginally to $22.63 in 2010 as prices increase due to inflation and higher priced alternatives to blockbusters are launched.
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World Generics and Bio Generics Markets
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Source: Frost & Sullivan Research A775 (09/04)
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A Packed Product Pipeline
This year, more than two dozen branded drugs with more than $20 billion in sales are likely to face patent expiration and first-time generic and biogeneric competition in the U.S. Barring Intron and Humulin G, generic products have already been introduced for many of the drugs with expired patents. In July 2004, for instance, Teva, Mylan and Ivax all received approval to sell a generic version of Diflucan, which had U.S. sales of $662 million in 2003.
Generic drug makers are also filing applications to manufacture products for which patent expirations are imminent. With 25 biologics having a combined sales revenue of $20 billion expected to be off patent by 2010, significant opportunity is being created for generics. At the same time, the biogenerics market also offers considerable growth potential, although no product has gained commercial approval in the U.S.
A similar scenario is prevalent in Europe as well. More than two dozen branded drugs that generate European sales of more than $13 billion are likely to face patent expiration and first-time generic competition this year. More than 35 percent of the top-selling drugs are likely to face patent expiry, creating a major opportunity for generic versions. Recent and upcoming patent expiry of drugs includes those for allergy, anti-biotics, cancer, antidepressant, cholesterol, diabetes, epilepsy, gastrointestinal disorders, and hypertension.
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Source: Frost & Sullivan Research A775 (09/04)
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In countries such as India, the policy of awarding process patents has allowed for facile replication of products. Since drug manufacturers can patent a process but not a compound, generics makers are free to synthesize the compound through another process and thereby legally introduce another version of the drug. This loophole has perhaps been most clearly evidenced in the case of Pfizer’s Viagra, for which a large number of counterfeit versions have been launched. In China, by contrast, brands are awarded product patents for a 20-year period, although the process of obtaining a patent is typically an arduous one.
More than two dozen branded drugs that generate sales of more than $5 billion in the ROW region are expected to face patent expiration and first-time generic competition this year.Many Challenges Still Remain
However, due to lax patent laws in many countries, manufacturers have focused their efforts on production of blockbuster drugs that are still on patent. Many of these generic equivalents have been developed by domestic manufacturers or by generics producers from India and China.
One of the key challenges generic companies face is from ongoing attempts being made by pharmaceutical manufacturers to block the market entry of generic equivalents. In response, generic companies will need to actively pursue patent challenges in all markets while lobbying legislators and regulators to streamline the approval processes for generics.
With legislation to harmonize European regulations making slow progress, generic drug makers need to work in concert to lobby EU lawmakers. Initiatives to improve public education campaigns also need to be undertaken so that consumers appreciate the need for regulatory changes and intensify political pressure for reform.
Ambiguous patent laws and regula-tory regimes relating to biogenerics compel generic manufacturers to work closely with regulators in all countries to develop processes for the approval of biogeneric products. Standards need to be developed for the demonstration of bioequivalence along with efforts to broaden patent laws, so that suppliers of bulk active bio-ingredients can supply these for biogenetics without infringing on existing patents.
Finally, the widely accepted perception, particularly in industrialized countries, that branded products are much more efficacious than generic and biogeneric products is one factor that is likely to restrain overall market growth. This notion—particularly prevalent in governmental and unionized populations—often results in a “brand name shift,” wherein consumers simply switch from one brand name product to another instead of utilizing an identical, lower cost generic drug. This reticence is likely to extend to biogenerics, although this is expected to be mitigated by the drugs’ lower cost, making them more accessible than high-priced branded products.
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