Branded Generics: Something Old, Something New?
Earlier this week, an article appeared in the NY Times Business section heralding the entry of several large pharmaceutical companies into the branded generics industry. For those of you who may not know, generic drugs are lower cost versions of brand name prescription drugs that have lost patent protection. Generic prescription drugs are usually much cheaper than their brand name counterparts but generally deliver the same therapeutic effects as the branded product. In most cases, so-called “commodity generic drugs” are not branded and sold to consumers by their chemical names. A good example of a commodity generic drug is the anti-depressant sertraline HCl; which Pfizer sells under the brand name Zoloft. Pfizer still manufactures and sells Zoloft but Zoloft lost patent protection several years ago and a generic version of the active ingredient, sertraline HCl, is now available to consumers. Because sertraline HCl is much cheaper than Zoloft, pharmacists almost always substitute prescriptions for Zoloft with sertraline HCl. This is perfectly acceptable because sertraline HCl was approved by the US Food and Drug administration with an AB rating which means that sertraline HCl is biologically equivalent to Zoloft.
Unlike commoditized (no-name) generics, branded generics are off-patent prescription drugs that are sold to consumers—as the name implies—under a brand name. Typically, because these products are “branded” and actively marketed by manufacturers they are sold at higher prices than equivalent no-name generics. This is because consumers are generally willing to pay more for drugs that are manufactured by well known and trusted companies as compared with no-name generics which are usually produced by lesser known or unidentified manufacturers.
Branded generics are not a new or novel concept. They were previously championed by a number of generics manufacturers, most notably Barr Laboratories, which was recently purchased by the Israeli generics giant TEVA. In the past, when pharma embraced the blockbuster drug business model, drug manufacturers built in revenues— that eventually would be lost through patent expiry—into the price of their top selling drugs. This allows drug companies to maximize ROI early in a drug’s life cycle years before patent expiry Studies have shown that branded prescription drugs can lose as much as 90% of their original value two years after the introduction of generic equivalents. Consequently, because of drastically diminishing financial returns after patent expiry, it didn’t make economic sense to continue to promote and support a brand that was facing generic competition. Put simply, the company made its money on the drug and it is time to move on.
However, the emergence in recent years of an affluent middle class in developing markets like China, India, Brazil, Eastern Europe and elsewhere is causing branded pharmaceutical companies to reconsider their generics strategy. In these markets, many people frequently pay out of pocket for their medicines but cannot afford to pay for the expensive brand name drugs. Also, in some emerging markets, where the threat of low quality or counterfeit prescription drugs may be high, consumers who can afford to purchase medicines are willing to pay more for drugs manufactured by well known and respected companies. Finally, IMS Health estimates that close to $89 billion in US drug sales alone will be lost to generic competition over the next five years or so.
In the absence of any new blockbuster drugs on the horizon, many big pharma companies have been scrambling to acquire or enter into relationship with established regional generic manufacturers. For example, GlaxoSmithKline recently bought a stake in Aspen a South African generics manufacturer and entered into an agreement with India-based Dr. Reddy’s laboratory to sell generic products in Asia and other emerging markets. Likewise, in the last year, Pfizer created an off-patent generics division (products are sold under Greenstone label which is a wholly owned subsidiary of Pfizer) and signed agreements with three Indian companies to sell their products in the US and other markets. These deals added about 200 products to Pfizer’s new generics portfolio. Further, Pfizer recently announced that the Greenstone brand has become the world’s seventh largest generics seller. In addition, Pfizer is expected to make a formal bid to purchase the financially-troubled German generics manufacturer Ratiopharm; one of Germany’s largest purveyor of generic drugs.
Not to be outdone by the competition, the French drug maker Sanofi-Aventis recently purchased Brazil-based Medley, a dominant player in the South American branded generics industry and Laboratorios Kendrik, a Mexican generics producer. Last year, the company also purchased Zentiva, a leading Czech generic manufacturer signally the company’s intention to move into financially-lucrative Eastern European markets.
Watson, one of the largest American generics manufacturers (which primarily operates in the US) recently purchased Arrow, a generic producer that operates in 20 different countries. Finally, Novartis, recognizing a business opportunity before most of its competitors, entered the generic market in 2003 following creation of Sandoz, a division of Novartis that manufactures and sells small molecule generic drugs and branded biosimilar products. Recently, Novartis purchased the German branded generics manufacturer Hexal, making it the world’s second largest generic drug manufacturer after Teva.
The entry of pharmaceutical companies into the generics business is allowing these companies to pursue a two-tiered business strategy in certain markets which is designed to preserve the long term value of their branded franchises. For example, companies can continue to sell their expensive name-brand drugs to the wealthy (or those that can afford them) and concurrently sell the more moderately priced branded generics which includes and over the counter products to the broader market.
While some may lament the end of the blockbuster drug era, rising healthcare costs and generic competition is forcing big pharma to continue to explore novel and innovative strategies to reinvent itself.
Until next time...
Good Luck and Good Job Hunting (try the generic industry; business is booming)
.jpg)
Preparing for and executing a job search can be both intimidating and overwhelming. While most job seekers approach a job search without much thought or planning, there actually is a “method to the madness” of a job search. And, if you take the time to develop a strategic plan, your likelihood of success increases almost exponentially. 
Some of you may have been wondering why the
