Changes in US put Indian pharma's R&D to test

With medicines going off patent over next 3 yrs, pharma majors have stepped up spending on research

Indian pharmaceutical companies were dogged by concerns over quality issues, poor regulatory compliance and price fixing in 2016. But even as they made news for the wrong reasons, beneath the surface, a bigger change was under way.

Over the past year, many companies have started to rework their strategy in a bid to move up the value chain and build a pipeline of specialty products to align themselves to the new reality of the US market where the number of simple molecules going off patent is set to fall in the coming years.

According to Morgan Stanley India Executive Director & Equity Analyst Sameer Baisiwala, branded drugs with sales of over $80 billion will go off patent in the US between now and 2020.

While the size of this opportunity in value terms is comparable to what has been seen in the past, in terms of complexity, these drugs will be far more challenging than the medicines that have gone off patent earlier. This implies higher barriers to entry, limited competition and better pricing for drug makers, and Indian companies are gearing up to tap this opportunity.

So far, drug manufacturers have relied on blockbuster medicines to tide over the price erosion in the US market, which accounts for 30-50 per cent of sales for top domestic companies.

Last year saw four drugs, with annual sales potential of $1 billion and above each, go off patent. Glenmark and Sun Pharma launched the generic version of cholesterol drug Zetia and leukemia medicine Gleevec — two of the four blockbuster drugs which went off patent— with six-month sales exclusivity. The two have a market of around $2.5 billion each in the US.

Glenmark and Sun Pharma also came out with generic versions of another cholesterol-lowering pill, Crestor, which has a market size of over $5 billion. In all, the year saw nine Indian companies launch generics of Crestor in the US. Another medicine that saw interest from multiple Indian companies was Benicar. In October, Sun Pharma began to sell authorised generics of the hypertension drug, whose market size is estimated to be over $ 2.5 billion, following a distribution tie up with its innovator, Daiichi Sankyo. Then, in December, Lupin received tentative approval to sell its generic version of Benicar as well.

Yet, “overall it was a tepid year for Indian pharma. There were big opportunities like the launch of generic Gleevec or Zetia but there was no surprise element in that and the launches were on expected lines,” says an analyst.

Aiming for a bigger pie

As the number of smaller, less complex molecules coming off patent is declining, Indian companies are sharpening their focus on specialty and complex products, says PwC Partner Sujay Shetty.

In addition to drugs worth $80 billion that are due to go off patent, there are opportunities for companies in other complex products valued at over $23 billion. Those companies with strong research capabilities are more likely to succeed than others, Baisiwala says.

Companies are also looking at acquisitions in the US to bolster their specialty business.

In December, Sun Pharma acquired skin cancer drug Odomzo from Novartis for $175 million, its first branded oncology product in the US. In the same month, Glenmark announced its ten-year strategic blueprint which will see the company develop new dosage forms and grow sales by in-licensing complex drugs.

Sun Pharma made two acquisitions in 2015 and 2016 (Ocular Technologies and InSite Vision ) to boost its ophthalmic portfolio in the US, while Lupin acquired drug maker Gavis for $ 880 million in 2015, gaining a portfolio of controlled substances and dermatology products.

Morgan Stanley estimates that Indian companies could get 25-30 per market share in incremental opportunities in the US till 2020-21. This will translate into incremental sales of $5-6 billion over the current $7 billion in the same period, it says. Currently, Indian companies have a share of about 25 per cent of volume and 16 per cent in value of the US generic market.

“We have always focused on creating a differentiated pipeline of niche products in key markets including the US. We are building a lucrative pipeline in inhalation, complex injectables and biosimilars and have invested over $ 1 billion in R&D over the last five years,” says Lupin spokesperson Shamsher Gorawara.

More pain, more gains

Lupin is already reaping the benefits of its stepped-up R&D budget. In February 2016, the company launched a generic version of diabetes drug Glumetza, which has a market of $450 million, with 180-day sales exclusivity. Lupin has gained as no other company has launched a product after the expiry of exclusivity period in the US. Over the next few months, the company is expected to launch oral contraceptive Minastrin which has a market of $300 million with six-month exclusivity.

Several other big launches have been planned by Indian companies in 2017. However, new product approvals and growth rate of Indian companies will depend upon how soon they are able to overcome regulatory issues. “Product approvals will not happen unless companies which have received warning letters complete remedial action and ensure regulatory compliance,” says Ranjit Kapadia, senior vice-president, Centrum Broking.

In September, Cadila Healthcare won a patent litigation suit against drug maker Shire over ulcerative colitis drug Lialda, which is worth $600 million, but the launch has been delayed because it is still awaiting the US Food and Drugs Administration’s clearance for its Moraiya plant in Hyderabad. The plant was served a warning letter by the US drug administrator in December 2015 over poor regulatory compliance.

While companies may resort to shifting production to other sites in order to launch new products in the US, analysts say regulatory issue could throw a spanner in the works. Sun Pharma shifted the production of leukaemia drug Gleevec as its Halol plant, in Gujarat, remains under FDA scanner.