GENERICS TO BRANDS
Indian pharma's seismic shift in the US.
Telling signs of a midlife crisis are apparent among top Indian drug makers as fatigue sets in on a marathon run of two decades selling generics in the US. A long hold by the US FDA on Indian manufacturing fa cilities has left the industry with sobered expectations. The narrative is moving to “building brands,“ “portfolio balancing“ and “predictable revenues.“ Sun Pharma, Dr. Reddy's, Glenmark, Zydus Cadila, Aurobindo and their ilk are embracing a new life. Deploying investments to bolster indigenous research and lapping up late clinical stage drugs or new brands is heralding a seismic shift from churning copies of drugs to the daunting world of innovative or differentiated brands.
Top drug maker Sun Pharma is the first off the block in shaping those ambitious plans. Focusing sharply on ophthalmology, cancer and dermatology products, last month it paid Rs 1,190 crore ($175 million) to Swiss pharmaceutical giant Novartis for rights over Odomzo, a brand approved in 2015 by US FDA, that helps treat a form of advanced skin cancer.For the home grown drug maker the task, though uphill, is cut out. Odomzo will closely rival the $50 billion biotech behemoth Roche's Erivedge. It is an odd match, critics say, but Sun has finite choices.Its founder and CEO Dilip Shanghvi is known for strategic manoeuvres that led his company to scale the top slot among the local peers. Moving into new research drugs over the next few years seems top of mind for the man thrifty with words.
“Innovative brands as opposed to supplying generics to distributors is a significant shift. Indian companies are at a stage of maturity where building a pipeline is important,“ says Sujay Shetty who heads the Indian lifesciences business for PwC, the global consulting firm. A similar view is expressed in a note from Chirag Talati of Kotak Institutional Equities. Talati said Odomzo can generate $80 million in sales by 2020-21 with peak potential of $120150 million. The forecast appears modest against the money shelled out by Sun but the excitement is palpable in adding heft for the future.
“Sun's Levulan drugdevice combination for actinic keratosis, a form of pre-cancerous cells, gives it access to dermatologists who account for 70% of prescriptions for laBCC (locally advanced basal cell carcinoma).Combined with MK-3222 (a drug licensed from Merck and being developed for psoriasis), we believe Odomzo will help raise Sun Pharma's brand profile amongst dermatologists and help leverage the field force to drive prescription share,“ Talati explained.
Assets acquired by Sun over the last two years brings further clarity. In 2014, it bought MK-3222, a late stage experimental psoriasis drug from Merck. If approved by the US FDA, Sun will jostle with Janssen, Eli Lilly and Novartis. Opinion is divided on how well Sun can manage in reaping the rewards from its psoriasis drug against the established giants but it is largely seen as a calculated step. In Sept. 2015, Sun picked InSite Vision, which enabled the recent commercial launch of BromSite, its first branded eyecare drug. In October 2016, the company acquired Ocular Therapeutics for $40 million, digging further into the ophthalmology market. Odomzo could kick start a branded oncology play, as indicated by Kirti Ganorkar, the global head of business development at Sun Pharma at the time of announcing the deal.
“Going forward, we expect increased R&D spends in development of future product pipeline in specialty and differentiated products,“ Sun Pharma told ET.While R&D is considered the engine that helps a company deliver products, brand marketing is an art and numerous examples abound of wayside kills. Sun Pharma is fueling top dollars to rope in talent from global drug firms to embellish its marketing unit in the US. An expert who has studied marketing trends in the US said if the efforts reach fruition, Sun may see its sales surge past a billion dollars from specialty and branded or OTC business as its US revenues could double to over $4 billion by 2020.
PwC's Shetty said the moves to grow a branding business is expected and will only intensify. “Profits from generics is cut to the bone except in a few cases. Companies are moving on the maturity curve and cherry pick brands in the next three to four years,“ he noted reminiscing how Israeli giant Teva had a head start with its blockbuster multiple sclerosis drug Copaxone that clocked peak sales of over $4 billion.
A similar roadmap but one that leans on a differentiated portfolio is being put into play at Hyderabadbased Dr. Reddy's Labs. The company that reported revenues of $2.4 billion last year has for the past few years devised its differentiated strategy. It has about 85 pending filings (ANDANDA). Almost two-thirds of these are complex generics or those that have limited competition. Drilling further, injectables are likely to be a key growth driver accounting for a third of the revenues by 2020, the company told ET.
Abhijit Mukherjee, COO, Dr. Reddy's said most branded products have evolved out of in-depth research and work with physicians and patients. “We continue to work with physicians to create the Rx (prescriptions) pull and at the same time, collabo rate with payers to have enough coverage for these drugs.“ Between dermatology and neurology drugs alone, Dr. Reddy's has fanned out over 100 sales employees in the US.
Last year it launched Zembrace SymTouch, a novel drug and device combo to treat acute episodes of migraine pain. With its R&D spend spiraling to 11%-15% of sales, Dr. Reddy's is hoping to gain further traction in its US brands business. It has identified drugs that require complex characterization, novel regulatory pathway and are approved at the back of large and complex clinical studies. Although its biosimilars ambitions is moving at a slow clip in India, its US filings for cancer drugs rituximab and Peg-GCSF as early as 2014 indicates interest in selling drugs with higher regulatory benchmarks, even it the clinical trials take a substantially longer time for regulatory reviews..
RIGHT REVENUE MIX
Utkarsh Palnitkar, head of KPMG's lifesciences practice said brand-based growth may take time to build but it is far less risky for larger companies as compared to generics. Over time it may help change the revenue mix, he said.
Aurobindo Pharma is another company that is expected to dive deeper into selling complex drugs.Experts noted AB rated drugs in the US or drugs that show therapeutic equivalence to other drugs may be a potential area being explored by the company. The company did not respond to mails from ET.
One market analyst believed Aurobindo's contribution from complex generics could vault five-fold from a low base of $37 million in 2015-16 to about $200 million in 2020. Against that, its revenues from plain generics may seek a slower uptick from $753 million to $1.28 billion during the same time frame.Over its most recent earnings call, N. Govindarajan, Managing Director, Aurobindo Pharma informed analysts about plans to develop complex products like hormones, oncology, liposomal and microsphere depot injectables which can be expected to be filed from the beginning of the 2017-18. Mumbai-based Glenmark is another drug maker to have a strong ambition on discovering new drugs.With arguably the most successful track record in researching drugs and out-licensing them among its Indian peers, Glenmark envisages at least a third of its revenues to come from specialty and innovative drugs by 2025. At a recent media briefing, Glenmark showcased nine drugs that are in the works at its network of research labs based in the UK, Switzerland and India. Through its proprietary BEAT (Bispecific Engagement by Antibodies based on T-cell receptors) technology, Glenmark has built a pipeline of biological drugs to treat cancer. Company executives believe these have the potential to compete against drugs that are considered to be best in class at present.
Zydus Cadila, the low profile Ahmedabad-based drug maker has similar plans on branded drugs. The drug maker is conducting Phase II trials for its flagship drug Saroglitazar in the US for diabetic dyslipidaemia and NASH (non-alcoholic steatohepatitis) commonly known as the fatty liver disease.
While the market opportunities to sell brands appear optimistic, that road is less treaded by Indian companies and obvious challenges can lead to adversities.Developing drugs is a costly affair and in popular estimates a global drug maker typically spends close to $2.5 billion to get a drug from the lab to the market. Plus, regulatory clearances go through a tough screening process. That apart, acceptance in the market is subject to comparative effectiveness against competing brands and reimbursement by insurance companies. Drug makers are also besieged by manufacturing lapses at their Indian sites. Perpetual scrutiny by the US regulatory agency has dented confidence as barring a few exceptions, most firms are battling fundamental quality issues, some of which require serious remedial action failing which they may risk reputation.
In the opinion of an analyst who has held a negative view on the sector growth, deficiencies at Indian sites may cloud near to medium term earnings. Although a few others believe the observations are on expected lines and may be resolved over two to three years. Also, an ongoing investigation by US federal agencies and the US Department of Justice could deter companies from charging a high price for the brands to the patients.“Although known to be business friendly, healthcare is a high decibel debate in the US. The new President will keep a tight lid on pharmaceutical companies both generics and branded. It's a leap of faith,“ he cautioned.