generics - is the commodity business model...
TRANSCRIPT
Guy Clark
• Searle Pharmaceuticals – Sales, Marketing, BD – 1992-2001
• Business Development Director, IVAX Europe – 2001-2005
• President, Glenmark Europe – 2005-2008
• Business Development Consultant – 2009-2010
• Chief Strategy Officer, AMCo – 2010 to date
Presenter
AMCo’s Origins
“G word”
Mar-12
Aug-12 Oct-12
Jan-13
£465m £367m
Rebranding
Refinancing
Generics - Is the Commodity Business Model Sustainable?
Guy Clark, Chief Strategy Officer, AMCo
IMS Viewpoint
Alan Sheppard
Global Thought Leader, Generics
The Role of Generics
Developed Markets:
Management of drugs bill
• Regulated price differences between generic and originator
• Regulated originator price reduction post LoE
• Market forces
• Reimbursement policies
Source: Alan Sheppard, Global Thought Leader – Generics, IMS health – June 2014
34.2%
43.3%
43.3%
48.0%
48.4%
51.6%
53.4%
53.9%
56.0%
56.2%
57.9%
58.8%
61.1%
63.6%
64.6%
69.5%
75.8%
76.0%
80.5%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Product type volume share of the Rx bound un-protected retail market, %, MAT Q2 2013 Ranked by Generic market share
GENERICS NO LONGER PROTECTED BRANDS NEVER PROTECTED BRANDS COPY PRODUCTS
Source: Alan Sheppard, Global Thought Leader – Generics, IMS health – June 2014
Europe – a diverse market
The Role of Generics
Developed Markets: Management of drugs bill • Regulated price differences between generic and originator • Regulated originator price reduction post LoE • Market forces • Reimbursement policies
Emerging markets: Improving access to medicines • Provision of affordable medicines • Patients have choice (out of pocket expenditure) • Fast-growing middle-classes demanding quality • Important industrial sector, competing on world stage
Source: Alan Sheppard, Global Thought Leader – Generics, IMS health – June 2014
Traditional Spending between 2012 and 2017
$453 $448 $450 $459 $466 $476
$199 $218
$244
$273
$302
$336
0
100
200
300
400
500
2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017
SALES U
S$M
N
Developed Markets Pharmerging Markets
Growth Outlook
Source: Alan Sheppard, Global Thought Leader – Generics, IMS health – June 2014
61%
57%
31%
72%
27%
27%
58%
16%
12%
16%
11%
12%
Brand Generic Other
Global Generics Expansion
Global spending on medicines, 2012 and 2017
2012
52%
52%
26%
67%
36%
31%
63%
21%
12%
17%
11%
12%
2017
$622Bn $650-680Bn
$224Bn $370-400Bn
$120Bn $125-155Bn
$965Bn $1,170-1,200Bn
Developed
Pharmerging
RoW
Global
Source: Alan Sheppard, Global Thought Leader – Generics, IMS health – June 2014
Portfolio Drivers
Generics
Brands
Vaccines
OTC
Generics embracing new areas
• Branded and Unbranded
• Biosimilars
• Vitamins and Minerals
• Other Consumer Health
The move is to diversification, away from purely generics
• Generic plus
• Tail end brands
• Innovation
Source: Alan Sheppard, Global Thought Leader – Generics, IMS health – June 2014
IMS - Summary
• Commoditisation is a successful medium-term strategy for:
– Companies with geographical scale
– Low cost producers
– Payors
• Generics companies need to diversify
– Pharmerging markets
– Niche product areas (barriers to entry)
– Brands
Another Perspective
Claudio Albrecht
Partner, Albrecht & Prock
Generics should be essentially similar
but…
nowadays the industry wants to be
essentially different
Source: Claudio Albrecht, Albrecht & Prock; Keynote Speaker, World Generics Medicines Congress, Barcelona, April 2014
Our specialty medicines portfolio
generated revenues of $8.2 billion,
an increase of 26% compared to 2011 *).
= *) 40% of total revenues Source: Teva’ s annual report 2012
We lead the way in the development and production of
differentiated, complex products…..
Source: www.sandoz.com
14 Source:
Investor presentation 021714
Source: Claudio Albrecht, Albrecht & Prock; Keynote Speaker, World Generics Medicines Congress, Barcelona, April 2014
Top 20 global Products 2011 The pipeline of the Generic industry – but what’s next?
ATO
RVASTATIN
CLO
PID
OG
REL
ESO
MEPRAZO
LE
SALM
ETERO
L/FLU
TIC
A
QU
ETIA
PIN
E
ETAN
ERCEPT
INFLIX
IMAB
RO
SU
VASTATIN
OLAN
ZAPIN
E
AD
ALIM
UM
AB
BEVACIZ
UM
AB
MO
NTELU
KAST
RIT
UXIM
AB
ARIP
IPRAZO
LE
EN
OXAPA
RIN
PIO
GLIT
AZO
NE
DO
NEPEZIL
INSU
LIN
GLARG
INE
VALSARTAN
TRASTU
ZU
MAB
Patent expiries 2011 - 2014
Biologics Source: Claudio Albrecht, Albrecht & Prock; Keynote Speaker, World Generics Medicines Congress, Barcelona, April 2014
Top 20 global Brands 2012 Biologics and other Hard To Make (H2M) drugs take the lead
Brands 2012 Sales (Million €) CAGR (2009-12)
SERETIDE 7,631 2%
HUMIRA 7,074 20%
CRESTOR 6,419 15%
ENBREL 6,182 9%
NEXIUM 5,784 -4%
REMICADE 5,644 10%
ABILIFY 5,611 15%
LANTUS 5,379 17%
CYMBALTA 4,728 20%
SPIRIVA 4,494 13%
MABTHERA 4,485 9%
LYRICA 4,125 16%
AVASTIN 4,079 3%
LIPITOR 4,030 -29%
PLAVIX 3,893 -19%
HERCEPTIN 3,809 9%
SINGULAIR 3,730 -2%
COPAXONE 3,633 21%
SEROQUEL 3,543 -11%
GLIVEC 3,425 7%
Expensive to replicate Expensive to replicate Biologic
Source: Claudio Albrecht, Albrecht & Prock; Keynote Speaker, World Generics Medicines Congress, Barcelona, April 2014
Who will have all future H2M Products in time?
Source: Claudio Albrecht, Albrecht & Prock; Keynote Speaker, World Generics Medicines Congress, Barcelona, April 2014
One current HYPE
=
Emerging Markets
If your pipeline is not in good shape….
What then?
18 Source: Claudio Albrecht, Albrecht & Prock; Keynote Speaker, World Generics Medicines Congress, Barcelona, April 2014
The gold rush mood is overcoming
Big Pharma and Generics
18
Emerging Markets – Challenges
Scientific
approach
Higher gross
margins
Low cost
base
Lower entry
hurdles
Brand loyalty
High growth
rates
Scientific
detailing
cost
Local
Regulatory/
Quality
standards
Political/
economic
volatility
Soft
Patents
Protection
of local
industry
Compliance
Pro’s & Con’s
19
Source: Claudio Albrecht, Albrecht & Prock; Keynote Speaker, World Generics Medicines Congress, Barcelona, April 2014
Another current trend
=
convert into a Specialty Company
If your pipeline is not in good shape….
What then?
20 Source: Claudio Albrecht, Albrecht & Prock; Keynote Speaker, World Generics Medicines Congress, Barcelona, April 2014 20
$25bn
$25bn
Acquire Forest Labs
Generic companies must change !
Price Aggressiveness
Cost Leadership
Vertical integration
Broad Range
Time to Market
Authorized Generics
21
Hybrid
portfolio
Sell
Alternative
Channels /
Focus TA’s
Emerging
Markets
S & M
alliances
R&D
Co- operations
Spend
25 bio
Source: Claudio Albrecht, Albrecht & Prock; Keynote Speaker, World Generics Medicines Congress, Barcelona, April 2014
Claudio Albrecht - Summary
• The old model is broken
– Traditional target market is declining
– Playground for old tricks is new markets • Perils of competing in emerging markets – same tricks don’t work
– Generic industry hasn’t moved with the times
• Generics companies need to diversify
– Therapeutic focus
– Spend big – biosimilars or brands
– But … be wary of emerging markets hype
23
It is better to be a determined dwarf than a “wannabe - giant”
Source: Claudio Albrecht, Albrecht & Prock; Keynote Speaker, World Generics Medicines Congress, Barcelona, April 2014
My Thoughts
Guy Clark
Chief Strategy Officer, AMCo
Typical Market Evolution
• Brand markets
– Close relationship between pharma co’s and prescribers
• Branded Generics enter the market
– Influence same prescribers. What are the differentiators?
– Price … Relationships … Compliance
• INN generics model evolves later
– Democracies facing healthcare cost pressures
– Substitution or tender model becomes a vote winner
Commodity (INN) Generics
• Mature, developed generic markets
– USA
– Canada
– UK
– Germany
– Scandinavia
– Netherlands
– France?
– Portugal?
Economic Theory
S
D
Quantity
Pri
ce
p1
q1
Market equilibrium
Supply & Demand
Economic Theory
S
D
Quantity
Pri
ce
p1
q1
COGs
Profit
Supply & Demand
Economic Theory
S1
D
Quantity
Pri
ce
p1
q1
COGs
Profit
S2
p2
q2
Supply Shift – new market entrants
Economic Theory
S1
D
Quantity
Pri
ce
p1
q1
COGs
S2
S3
p2
q2
p3
q3
Supply Shift – new market entrants
Inelastic Demand
• Demand for pharmaceuticals is relatively inelastic
– changes in price have a relatively small effect on the quantity of the good demanded
Profit
Inelastic Demand
S
D
Quantity
Pri
ce
p1
q1
COGs
Market equilibrium
Supply & Demand
Profit
Inelastic Demand
D
Quantity
Pri
ce
p1
q1
COGs
S2
S1
p2
q2
Supply Shift – new market entrants
Inelastic Demand
D
Quantity
Pri
ce
p1
q1
COGs
S2
S1
p2
q2
S3
p3
q3
Loss
Supply Shift – new market entrants
Inelastic Demand
D
Quantity
Pri
ce
p1
q1
COGs
S4
S1
q4
S3
p3
q3
p4
Rational behaviour
Commodity (INN) Generics
• Recent Trends
– USA
– Canada
– UK
– Germany
– Scandinavia
– Netherlands
– France?
– Portugal?
Consolidation
Consolidation
Consolidation
Consolidation
Consolidation
Consolidation
Exit market
Exit market
Exit market
Exit market
Exit market
Exit market
Rational pricing
Rational pricing
Rational pricing
Generics - Is the Commodity Business Model Sustainable?
• Larger companies will get larger – Economies of scale are critical to success
– Move manufacturing to low-cost countries
– Consolidation improves potential market dynamics
– Creates headroom for next generation
YES
But not in the same format
21%
30%
38%
25%
38%
21%
29% 32%
28%
40%
30%
51%
29%
35%
Actavis Aspen Endo Mylan Valeant Perrigo Average
47%
29% 31%
18%
33% 32%
21%
27%
20% 20%
30%
23%
Impax KrKa Richter Gedeon Stada Teva Average
2010 2011 2012 2013 2014
Companies are Engaging in M&A to Help Offset Declining Margins Due to Mature Markets
Less Acquisitive Players in the Generics Sector
Acquisitive Players
Source: CapIQ as of 26th March 2014
10-14: Margins fell by 8.1%
10-14: Margins grew by 6.3%
Source: Tommy Erdei, Managing Director - Healthcare, Jefferies; Keynote Speaker, World Generics Medicines Congress, Barcelona, April 2014
Total Generic Revenue 2013
9,900 9,519
6,367 5,906
2,759 2,744 2,126 2,103
0
1,750
3,500
5,250
7,000
8,750
10,500
Teva Sandoz Actavis Mylan Hospira Stada Aspen Dr. Reddy's
19 Public Companies with revenues between $2bn and $500m
An Increasingly Consolidated Market Dominated by the Top 4 Players
Source: Annual Reports and CapIQ, adjusted to include only Generics revenue where applicable.
Top 4
Cumulative Revenue: $31,692m
% of Total Revenue: c.49%
86%
14%
Over US $1 billion Under US $1 billion
Mean Market Cap: $8.4 billion
Median Market Cap: $3.6 billion
Long Tail of Sub $500m Co’s
39
(US$m)
Source: Tommy Erdei, Managing Director - Healthcare, Jefferies; Keynote Speaker, World Generics Medicines Congress, Barcelona, April 2014
Markets are Rewarding the Generics Segment
Indexed Price Performance since January 2009
(1) Generic index includes Actavis, Aspen, Akorn, Dr. Reddy’s Labs, Gedeon Richter, Glenmark, Hikma, Hospira, Impax, Krka, Mylan, Perrigo, Sagent, Stada, Sun Pharmaceutical, and Teva
(2) Large Cap Pharma index includes Abbott, AstraZeneca, Bayer, Bristol-Myers Squibb, Eli Lilly, GlaxoSmithKline, Johnson & Johnson, Merck, Novartis, Roche, Pfizer and Sanofi
(100%)
0%
100%
200%
300%
400%
Jan-09 Jan-10 Feb-11 Feb-12 Mar-13 Mar-14
Generic Index Large Cap Index S&P 500
Source: Capital IQ as of 26th March 2014
+300%
+99%
+67%
3x G
row
th
40 Source: Tommy Erdei, Managing Director - Healthcare, Jefferies; Keynote Speaker, World Generics Medicines Congress, Barcelona, April 2014
Generics - Is the Commodity Business Model Sustainable?
• Larger companies will get larger – Economies of scale are critical to success
– Move manufacturing to low-cost countries
– Consolidation improves potential market dynamics
– Creates headroom for next generation
• Smaller companies will occupy niche areas – Barriers to entry
– Too small for the big boys
– Leverage relationships with influencers other than oligopsonists
2013
60%
112
£300 million
2014 Expected Revenues
Revenues in the United Kingdom
Countries with commercial presence
Established Brands and Generics
Asset Light Business Model
(R&D, Manufacturing outsourced)
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Head Office located in the City of London
Rx
Generics - Is the Commodity Business Model Sustainable?
