This article appeared in the September 2011 edition of the INNsight newsletter

Facing two ways

Those familiar with mythology will know of the Roman god called Janus who is depicted as facing in two directions simultaneously. According to Wkipedia, “In ancient Roman religion and mythology, Janus is the god of beginnings and transitions, thence also of gates, doors, doorways, endings and time. Most often, he is depicted as having two faces on his head, facing opposite directions: one face looks eastward and the other westward. Symbolically they look simultaneously into the future and the past, back at the last year and forward to the next.”

It occurs to me that some parts of the generic industry seem to be starting to adopt a Janus-like approach, which is not to suggest that I consider them to be two-faced; rather that they have started looking in more than one direction. For many companies and for many years, the generic business bore a strong resemblance to a street market, with a collection of vendors all trying to “pile it high and sell it cheap”. Increasingly, those who are thinking about the future realise that this is no longer a viable proposition by itself – they also need to look in other directions.

An increasing number of Big Pharma companies are doing this. I have mentioned the topic of their leap into generics on several occasions and cast some doubt over the abilities of certain of them to make it work, but they are continuing to jump in to the shark-infested waters.

This month (September) for example has seen a report in the Wall street journal that Eli Lilly is talking to the Turkish company Mustafa Nevzat (MN Pharmaceuticals) about forming a partnership with them and possibly buying a stake in MN. The article compared this to Pfizer’s $240 m investment a year previously in Laboratorio Teuto Brasileiro when they acquired a 40% share.

Sanofi has also been increasing its activities and bringing them under the Zentiva label and was reported in Les Echos to have reached an agreement with Pfizer to allow Zentiva to make Atorvastatin in France.

But back to the other side of the picture.

The “pile it high and sell it cheap” generics strategy was the right answer at one time, but that was when the number of competitors was limited. Now, twenty companies launch their product on patent expiry, each wanting only a 10% market share. My mathematics suggest that just won’t work with the result that they compete with each other using the only weapon available – price cuts. This of course leads on to the now inevitable price crash within weeks of product expiry.

Companies that want to survive now need to think of additional strategies. There will naturally always be a need for low cost generics in large quantities and that business will survive even if the margins are now getting thinner and thinner.

Some generic companies with big pockets to finance the clinical work and marketing campaigns have become involved in biosimilars and others are working with inhalers that are also complicated and expensive to develop.

But there is another direction that others are pursuing and that is OTC.

One part of the industry, at least in the UK, have for a long time produced simple analgesics and some antihistamines that have been sold under their generic name. Companies that sell them would not waste any money on promotion because there would not necessarily be any direct benefit to them, particularly if there are other competitors launching the same OTC at around the same time.

In the UK a significant proportion of the OTC analgesic market goes through supermarkets who sell their "own-brand" version of paracetamol, aspirin and ibuprofen for example. There is a similar sort of approach in the US with pharmacy chains selling their own brand OTCs.

There is also a newer development in the shape of generic companies that have started to launch branded generic OTC products as, in general, generic companies are more accustomed to selling than marketing (this is also proving to be an issue with Biosimilars) . One example is Dr Reddy's that has just launched OTC Fexofenadine HCl and Pseudoephedrine HCl in the US as copies of Sanofi’s Allegra D24 Hour and I can easily see others doing the same as generic companies try to escape from commodity generics sold on price alone to added-value products such as OTCs that allow them higher margins.

Whether many others do become involved in OTCs, the simple truth is that survival in the generics business is going to need firms to think carefully about their future and not just hope that more of the same will work forever. Pile it high and sell it cheap is not enough.

Peter Wittner

peter@interpharm-consultancy.co.uk