Generics

The cheaper alternative

The tacit “social contract” between patients, payors and drug product innovators is that Americans will pay high prices initially for innovative medicines, but once a patent lifts on a product, generic drug companies must be allowed to find alternative ways to manufacture a competitor drug that should work indistinguishably from the brand name version. In a world of high prescription drug prices, cheaper generics have acted as a crucial counterweight. Bringing drugs to market as cheaply as possible while meeting and exceeding FDA standards makes for a difficult business model, however. The market has always been fiercely competitive, but has become exceedingly so since 2016, when the Generic Drug User Fee Amendments, or GDUFA, I and II, regulatory approvals were expedited. This caused the number of abbreviated new drug application (ANDA) approvals to increase considerably. According to BCG, 90% of the approvals have been for established products for which other ANDAs already existed. As a result, mature generics are hotly contested, and most become commodities within two to three years of launch. Moreover, consolidation among wholesalers has allowed buyers to demand lower prices.

In FY2020, the trend toward greater ANDA approvals was disrupted, as COVID forced the FDA to implement restrictions in conducting facility inspections and the agency diverted resources to respond to the pandemic. In doing so, FDA postponed hundreds of drug company inspections, creating an enormous backlog that delayed new drug approvals, leading the industry to warn of impending shortages of existing medicines. “This was a big problem for a company like ours as we currently have three CGT applications whose reviews are complete, yet we could not get them approved because the facility inspections were still pending," said Jay Shukla, president and CEO of Nivagen Phaceuticals.

More Solutions Under One Roof

Amidst the pandemic, companies such as Nivagen continued to press on with plans to develop and grow their business by taking on new investors and deploying money to grow through acquisitions. Telegraph Hill Partners (THP) did a deal with Nivagen for US$16 million in growth equity financing to support future growth. Shukla explained that the impetus for choosing THP was because of their deep experience partnering with CDMOs. “The capital provides us with more flexibility in acquiring or investing in 505(b)(2) or ANDA programs. It also allows us to invest with our partners in new molecules, and it will facilitate the growth of our sterile injectables manufacturing unit,” Shukla commented. LGM Pharma is also adding CDMO capabilities to its repertoire. In July 2020, the company acquired Nexgen Pharma, a comprehensive drug product CDMO. According to LGM CEO Prasad Raje: “Because we service clients across therapeutic areas and regulatory pathways, and they often sought guidance for formulation development and drug product manufacturing, it was a natural fit for LGM to acquire CDMO capabilities. Our thinking was, since customers trusted us with one aspect of their business, it is a value-add to bring in development and manufacturing services – keeping it under one roof.”

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“When we first entered the market, only 20% of prescriptions dispensed in the US were generic, now a large part of the prescriptions that are dispensed are generic…Our main strategy in the US is to make sure we have an efficient cost of goods supply chain. We are looking at how to backward integrate in order to de-risk our supply chain and make sure that we are able to continuously supply good quality and quantity drugs in the US.”

Dr. Sharvil Patel, Managing Director, Zydus Cadila

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In order to control costs, many generic drug manufacturers turn to strategic sourcing, often from India, China and other locations where raw materials and labor can be less costly. They also work to form long-term relationships or cost agreements with suppliers. It is important, however, to strike a delicate balance looking for low-cost sources of essential raw materials, while also maintaining a high standard of product quality and availability. High levels of impurities or unreliable quantities of the material can derail projects and cost much more money due to product delays or failures in the long term.

Biophore, based in Pharma City in Visakhapatnam India, has filed over 100 drug master files (DMF), with a strong focus on peptides, contrast agents and oncology. The company has four API manufacturing facilities producing approximately 130 products, which operate at cGMP standards and meet the requirements of US and EU Drug regulatory authorities. The company’s founder and CEO Dr. Jagadeesh Babu Rangisetty remarked: “I believe that Hyderabad is the capital of the pharma industry, especially on the API front. There is significant competition in the city which cultivates growth and quality. For the last couple of years, affordability, pricing and quality of drugs have been highly discussed topics. India plays a very significant role in terms of controlling prices and delivering affordable drugs to the US market.”

“We have multiplied our production of items such as anesthetics, blood thinners, and products that are indirectly or directly used for in-patient treatment in the COVID pandemic.”

Swapnil Shah, Managing Director, Espee Group

Nationalism and supply chains

Over the course of the past year, API production became an overtly political issue, as the pandemic swept across the world exposing vulnerabilities in many API supply chains. Policymakers are now considering how to incentivize a more secure supply chain so drug shortages are prevented. President Biden has proposed that the US government take steps in the aftermath of the COVID-19 crisis to produce American‐sourced and manufactured pharmaceutical and medical supply products in order to reduce dependence on foreign sources that are unreliable in times of crisis.

James Gale, CEO of Signet Healthcare Partners, acknowledged: “There was a real risk in Spring 2020 that, had production not restarted on a timely basis, there could have been serious shortages of supply of life-saving generic drugs. This near crisis has directed attention to the need to move the supply closer to home.”

“Maintaining high-quality standards for API and finished drug forms in an ever-evolving supply chain landscape is underpinned by the requirement for environmental preservation, resource availability and urgent need to deliver sustainable manufacturing. Because of this, I predict that sustaining the environment will become the No. 1 challenge for manufacturers and supply chain participants in the pharma industry over the next 10 to 20 years.”

Marc Kikuchi, CEO & Head of North American Generics, Dr. Reddy’s Laboratories

Although the idea of bringing API manufacturing back to the US appeals to many in theory, in practice, the execution will inevitably pose major challenges. Gale posed the question: “If the US is to create a domestic supply, will the market support it? Who is willing to pay the price associated with US production versus cheaper product from India? The current structure of the US generics market will have to be changed. Presently, there is little incentive for the distributors to support this national goal. I do not see economic players who are willing to finance repatriation of the drug supply chain to the US.”

This situation, where the U.S. public demands rock-solid supply chain security delivering high quality, and, at the same time, lower and lower prices, is exceedingly difficult to achieve. Marc Kikuchi, CEO and Head of North American generics at Dr. Reddy’s Laboratories, contended: “One of the most problematic issues is the push by governments throughout the world to onshore API production and finished goods manufacturing. This global phenomenon, fueled by the rise of nationalism, will present unique challenges that generic pharma manufacturers – due to the sheer number and volumes of product we produce – will be grappling with this for many years to come.”

“The catch-22 to reshoring manufacturing and reducing dependency is that it can lead to higher costs at a time when the number of prescriptions is still weighted to generics to keep costs low. Therefore, a reshoring effort must be subsidized in some way… If we could come up with a list of critical medicines and only subsidize those, that could be a pathway for a sustained domestic infrastructure.”

Prasad Raje, CEO, LGM Pharma

With respect to how this could impact pricing, Kikuchi added: “Generic manufacturers are vilified in the press for price increases. What is not addressed is that manufactures may have higher costs for accelerated manufacturing or seeking alternate sources for APIs. Generic manufacturers cannot absorb all of those increases, so we have to pass these costs on to customers. A 250% increase may sound large, but this translates to US$6 or US$10 for a product.”

All challenges aside, generic pharmaceutical drugs play an essential role in the US and global life science ecosystem. Right now, according to FDA reporting, 9 out of 10 prescriptions in the US are filled by generic drugs. Generics have also saved the health care system US$2.2 trillion dollars in the past decade. That is good news for the public health of Americans, and it is all the more reason why policymakers must be cautious and nuanced in implementing new policies that might reshape the generics landscape for the years to come.

Image courtesy of Vedanta Biosicences / Bearwalk Cinema