Market Report Source

Overview

Introduction
The generics market is undergoing significant change, with intense merger and acquisition activity, a raft of upcoming patent expiries and new legislation being enacted to promote generic prescription in the major markets. In addition, key issues, such as authorized generics, the first biosimilars approvals and increasing competition within the market are also affecting growth dynamics

Scope
Overview of the size of the generics market in the US, Japan, France, Germany, Italy, Spain and the UK
Assessment of the various policies being implemented to promote generic prescribing and drug use
Analysis of key strategic issues including M&A, authorized generics and patent challenges
Examination of the future areas for generic growth, including an update of the biosimilars situation

Highlights
There is still room for growth in the more mature generics markets, with governments examining methods of increasing generic usage even further. However, pricing pressures may result in this growth not being translated into positive returns for the generics industry.

Competition in the generics market is becoming increasingly intense, with low cost producers expanding globally and branded Pharma becoming involved through subsidiaries or via authorized generic agreements. The wave of consolidation that swept through the generics market has been spurred on by this competition and is unlikely to end any time soon.

The biosimilars market has moved on in 2006, with two products (Sandoz’s Omnitrope and Biopartners’ Valtropin) being approved in the EU. Omnitrope was finally approved in the US, after a lengthy delay, but the FDA has stated that this does not set a precedent for future approvals of other biosimilars.

Reasons to Purchase
Identify the key factors and issues that will either promote or prevent generic growth in each of the seven major markets
Understand the changing competitive dynamics within the generics industry and plan your own strategies accordingly
Assess the strategic issues that are affecting the generics industry and how the key players are addressing them

Table of Contents

CHAPTER 1 EXECUTIVE SUMMARY

Scope of the report

Key findings

CHAPTER 2 GENERICS MARKET DYNAMICS

Key findings:

The global generics market is worth an estimated $60 billion

The seven major markets account for over two thirds of the value of the total generics market

Teva and Sandoz dominate the generics market but consolidation and globalization are changing the competitive landscape

Increasing healthcare expenditure in each of the seven major markets has led to a variety of measures being implemented to increase generic use

The changing healthcare environment in the US will drive future generic use

Healthcare expenditure is a concern for many Americans

There are a variety of generic substitution policies in place

Pharmacists are incentivized to dispense generics

Cost savings could be significant if generics were used more widely

Healthcare providers are implementing a range of incentives to boost generic use

Medicare Part D is expected to lead to greater generic use

The growing role of patients in their own healthcare choices will drive generic use

Cost-containment measures in Germany have led to a healthy generics market

Healthcare services are provided for free in Germany

There is a wide range of policies in place to promote generic prescribing

The AVWG is expected to drive further generic use

Jumbo reference pricing could be a double-edged sword for generics

Pricing issues may negatively affect profitability for generics companies

The UK is one of the most developed generics markets in Europe

The National Health System (NHS) is extremely cost-constrained

The UK’s pharmaceutical pricing structure lends itself to higher generic penetration

There are several drivers and resistors to generic dispensing

Generic consumption in France is particularly low

Most of the population are covered by National Health Insurance

Significant advances have been made in the use of generics in France

Measures to increase generic prescribing by physicians have been implemented

French prices have been a major deterrent of generic use

Changes to reimbursement rules may drive generic growth

Pharmacists are being mandated to drive generic dispensing

Spanish generic use is among the lowest in the EU

Healthcare in Spain is decentralized but provided for free for the population

Pharmaceutical prices in Spain are much lower than in other European markets

Generic substitution is permitted – to a degree

Generic awareness is not especially high among physicians or the public

Pharmacists and physicians do not drive generic use

The Italian generics market looks unlikely to grow in the short-term

The decentralized approach to healthcare provision in Italy means there is a wide variety in policies

Pricing policies have been reformed to promote generic use

Pharmacists and physicians are not encouraged to prescribe generics

The Japanese generics market is currently underdeveloped

There has been a lack of incentives for the promotion of generic use

Generic substitution has only recently been allowed in Japan

Generic drugs are regarded with suspicion by prescribers

There are several issues which will affect future growth within the generics market

Patent expiries, an aging population and cost constraints should drive generic market growth

The wave of patent expiries expected over the next ten years will generate major opportunities for generic companies

The aging population will drive future uptake of generic drugs

Most countries are becoming increasingly cost-constrained

Therapeutic substitution becomes a reality

The key growth resister is increasing competition within the market

Low-cost manufacturers are creating increased competition

Increasing cooperation among generics companies is a double-edged sword

Some branded companies have generic subsidiaries

CHAPTER 3 STRATEGIES FOR SUCCESS: GROWTH THROUGH CO-OPERATION

Key findings

M&A activity has gained momentum over the last two years

There has been increasing consolidation in the generics market

2005 was a major year for M&A activity

Two key deals have been announced in 2006

M&A multiples depend on the portfolio of the target company

Authorized generics are becoming increasingly important

There can be several advantages for branded Pharma

Authorized generics can be a cost-effective method of settling patent litigation

Branded Pharma can gain financially

Other advantages include acting as a deterrent against patent challenges and utilization of manufacturing capacity

Case study – cooperative authorized generic: Shire settles Adderall XR patent litigation

Case study – competitive authorized generic: Sanofi-Aventis’s Allegra authorized generic foils Teva and Barr

The generics industry is split on the issue of authorized generics

Authorized generics can provide a boost for companies with a weaker pipeline

The pursuit of authorized generics is a key part of many generics companies’ strategy

The FTC is investigating the anti-competitiveness of authorized generics

CHAPTER 4 STRATEGIES FOR SUCCESS: PATENT CHALLENGES

Key findings:

Patent challenges offer the possibility of significant sales for generics companies

Barr obtained 180-days exclusivity after successfully challenging Lilly’s Prozac patent

Schwarz Pharma’s omeprazole generic generated significant sales for the company

Teva’s strength lies in its patent challenge strategy

There have been some important patent challenges taking place in the last two to three years

Ranbaxy’s Lipitor patent challenge causes concern for Pfizer

Key decisions go in Pfizer’s favor

Ranbaxy has suffered a setback with the loss of the Lipitor challenge

Fosamax comes under several patent challenges

Merck’s outlook takes a turn for the worse

Early Toprol generic competition is likely

The patent challenge against Plavix is settled but attracts scrutiny

BMS/Sanofi-Aventis reach a settlement with Apotex but the move is criticized

CHAPTER 5 FUTURE OUTLOOK

Key findings

Several therapy areas are expected to experience their first major patent expiries

Although there are generic statins, the US patent expiries of Zocor and Pravachol will significantly change the shape of this market

The patent expiry of Zocor is expected to have the greatest impact

The impact on Zocor – branded share is expected to be considerably eroded

The impact on Lipitor – will its brand loyalty be enough to maintain market share?

The impact on the statins market – dynamics will swing in favor of generics

Could the statins be a case study for future therapeutic substitution?

The patent expiries of Cozaar and Diovan are expected to lead to price reductions throughout the ARB class

Could the statins’ substitution paradigm established in the US be repeated for the ARBs?

Germany readies itself for the first ARB patent expiry

The genericization of the ARBs could lead to switching from other classes

The patent expiry of Norvasc could lead to new CV combinations

The first antiretroviral patent expiries could herald a return to older treatment paradigms

Key first-line therapies will be exposed to generic competition

The convenience of fixed-dose combinations is not expected to protect them from generic competition

Will there be generic asthma combinations?

Advair’s combination deemed not novel and, therefore, not patent protected

Other asthma combinations may be at risk of genericization

Biosimilars are now a reality

The first biosimilar was approved in Europe in 2006

The US has lagged behind Europe in developing a biosimilar regulatory pathway

The Japanese market will experience a significant increase in generic usage

Considerable savings could be realized through the greater use of generics

The next five years will see the Japanese generics market grow

The competitive landscape in Japan is expected to change considerably

Sawai and Towa are well-positioned to take advantage of the expected increase in generic use

Several companies have entered the Japanese generics market

APPENDIX A: ADDITIONAL INFORMATION

Limitations of data

Standard units

Japanese market data

Exhange rates

APPENDIX B: BIBLIOGRAPHY

Journal articles

Newspaper articles

Company sources

Presentations

Annual Reports

Miscellaneous sources

List of Tables

Table 1: Five generics companies are among the top 10 in terms of prescriptions filled under Medicare Part D

Table 2: The actual generic fill rate varies among the therapeutic classes

Table 3: Several branded Pharma companies have generics subsidiaries

Table 4: M&A activity was rife in the generics market in 2005

Table 5: The sales multiples for generic M&A transactions have varied

Table 6: Diovan and Cozaar dominate the ARB class

Table 7: There are considerable savings to be realized by using generic drugs

Table 8: Significant annual savings can be generated through the use of generics

Table 9: Exchange rates*, 2005

List of Figures

Figure 1: The generic market share as a percentage of total pharmaceutical sales varies across the seven major markets

Figure 2: The US dominates the global generics market, generating $24 billion in sales in 2005

Figure 3: Generic usage is highest in the US, Germany and the UK

Figure 4: Teva and Sandoz were the clear generics market leaders in terms of sales value in 2005

Figure 5: More than half of all prescriptions dispensed in the US are generics

Figure 6: Generics companies dominate the US pharmaceutical market in numbers of prescriptions

Figure 7: Generic use in the US is promoted – a resisted – through a number of channels

Figure 8: The generic fill rates in the US for 2003 varied considerably by state

Figure 9: The tiered co-payment system will lead to greater use of generics

Figure 10: Use of generics is encouraged – and resisted – in Germany through several different mechanisms

Figure 11: A fall in reference prices is likely to lead to greater use of generics

Figure 12: The UK generics market has experienced strong sales growth since 2001

Figure 13: Despite a number of resistors, the generics market in the UK is well-developed

Figure 14: The French generics market is much smaller than those in other major European markets

Figure 15: Despite measures to promote generic use in France there are several resisters still in place

Figure 16: Although generic sales and volume use have increased over the last ten years, the generics market only accounts for a small proportion of the Spanish pharmaceutical market

Figure 17: There are few drivers of generic growth in Spain

Figure 18: The Italian market has experienced limited growth since 1994

Figure 19: Measures to promote generic use in Italy have been implemented

Figure 20: The Japanese generic market is underdeveloped because of a number of factors

Figure 21: Physicians receive a percentage of the price of a prescribed drug

Figure 22: Several key products are expected to lose patent protection in 2006, exposing billions of dollars of brand sales to generic competition

Figure 23: 2008 and 2011 are expected to be the next bumper years for generics companies

Figure 24: Most big Pharma companies are expected to lose significant sales as patents expire over the next 10 years

Figure 25: The age distribution of the world’s population is expected to change considerably over the next 50 years

Figure 26: As the population ages and birth rates decline, population pyramids for more developed regions are expected to become increasingly top-heavy

Figure 27: Pharmaceutical expenditure accounts for, on average, between 12% and 22% of total healthcare spend

Figure 28: In Germany, generic statins are significantly cheaper than the branded products

Figure 29: Pfizer retained a third of gabapentin volume sales after launching a generic through Greenstone

Figure 30: Authorized generics agreements can serve several purposes

Figure 31: Branded Pharma can gain from authorized generic agreements

Figure 32: Apotex’s generic paroxetine sales were considerably reduced by the launch of Par’s authorized generic

Figure 33: In addition to obtaining a share of generic sales, Sanofi-Aventis also reduced Teva’s fexofenadine sales through its authorized generic agreement with Prasco

Figure 34: There are positive and negative aspects to authorized generics for companies involved in the generics market

Figure 35: The authorized generics settlements made in FY 2005 included both cooperative and competitive agreements

Figure 36: Barr’s Prozac patent challenge delivered high returns for the company

Figure 37: Schwarz Pharma generated significant sales after its exclusivity agreement with Andrx and Genpharm

Figure 38: Generics account for a relatively small share of the statins market in the US

Figure 39: Pravachol only accounts for 10% of US statin sales value ($m) and 7% of sales volume (SUm)

Figure 40: Generic simvastatin sales, assuming a relatively high level of switching from Zocor

Figure 41: Generic simvastatin sales, assuming a medium level of switching from Zocor

Figure 42: Generic simvastatin sales, assuming a low level of switching from Zocor

Figure 43: Depending on the level of switching, Lipitor sales could range between $418m and $3.8 billion in the first six months of generic simvastatin’s availablity

Figure 44: Generics will account for a growing percentage of statins sales volume after 2006

Figure 45: Generic zidovudine has made an inroad into the branded products sales despite being available since September 2005

Figure 46: Japanese generic sales are expected to reach ?500 billion by 2008 165