Wednesday, February 17, 2010
Sanofi-Aventis's chief, Christopher A. Viehbacher, bought Medley of Brazil, which has its own brand identity.
Just don’t call them no-name drugs.
Giants like Sanofi-Aventis and GlaxoSmithKline are not looking to enter the commodity generics market in the United States, where chain pharmacies often determine which generics they offer based on the lowest available price — and where consumers often view generic makers as interchangeable.
Instead, the big drug makers are pursuing a growing consumer base in emerging markets like Eastern Europe, Asia and Latin America where many people pay out of pocket for their medicines but often cannot afford expensive brand-name drugs.
And, in some emerging markets, where the fear of counterfeit drugs or low-quality medicines runs high, consumers who can afford it are willing to pay a premium for generics from well-known makers, industry analysts said. These products are known as company-branded generics, or branded generics. They carry the name of a trusted local or foreign drug maker stamped on the package, seen as a sign of authenticity and quality control.
“We are able to create different tiers of products at prices they haven’t previously seen with our stamp of approval,” said Andrew P. Witty, the chief executive of GlaxoSmithKline.
Last year, Glaxo bought a stake in Aspen, a generic maker in South Africa, and signed agreements with Dr. Reddy’s, an Indian generic firm, to sell their products in emerging markets.
Under the distribution agreement, the Dr. Reddy’s products are subject to Glaxo quality control checks and, eventually, will carry a Glaxo logo, a company spokeswoman said.
Until recently, many brand-name drug makers invested the bulk of their research and marketing dollars in the development of blockbuster drugs, only to cede their intellectual property and market share to lower-priced generic competitors once patents expired. But now, with an estimated $89 billion in brand-name drug sales in the United States at risk to generic competition over the next five years, according to IMS Health, some drug makers are selling generics to offset revenue declines — as well as wring some post-patent profits from the innovative drugs they developed.
It is a topic sure to be discussed at the Generic Pharmaceutical Association’s annual meeting, which begins Tuesday in Naples, Fla.
“It definitely represents a change in thinking,” said David Simmons, the president of Pfizer’s established products business unit.
That recently started division sells off-patent brand-name Pfizer products like the antidepressant Zoloft. It also markets generic versions of those off-patent drugs under its own Greenstone label, and distributes a number of generic drugs licensed from a few other producers.
In the last year, Pfizer signed licensing deals with three India-based generic makers to sell those companies’ pills and injectable drugs in the United States and other markets, adding more than 200 products to the company’s generic portfolio. Pfizer said its Greenstone generic subsidiary had become the world’s seventh-largest purveyor of generic medicines, as measured by number of prescriptions dispensed.
While drug sales in developed markets like North America have low single-digit annual growth, emerging markets, including India, China, Russia and Brazil, have growth in the midteens, said Doug Long, vice president for industry relations at IMS Health, a health information firm.
As a result, some drug makers are pursuing a two-tiered strategy in developing markets: selling their own lines of more expensive name-brand products to the more affluent, as well as offering midpriced branded generic lines that include prescription and over-the-counter medicines for the broader market.
Branded generics can give prominent drug makers a way to capitalize on those markets without having to compete with no-name generic producers whose selling point is rock-bottom pricing. Company-branded generics can charge more for the promise of quality.
“It’s an economic opportunity for Watson and Pfizer and Sanofi and Teva,” said Paul M. Bisaro, the chief executive of Watson Pharmaceuticals, a leading generic maker. “They have a reputation that says, ‘You can count on us.’ ”
Watson itself had primarily been focused on the United States market, but last year the company spent $1.75 billion in cash and stock to acquire Arrow, a generic maker that operates in 20 countries, Mr. Bisaro said.
And in markets that may need antibiotics and antifungal drugs more than quality-of-life drugs like sleep aids or erectile dysfunction pills, there is a logic to branded drug makers’ acquiring local generic makers or licensing generic products to tailor their product portfolios to the local market.
Last year, for example, Sanofi-Aventis spent more than 1.5 billion euros to buy Zentiva, a leading Czech generic maker; Medley, the leading producer of generics in Brazil; and Laboratorios Kendrick, a generic producer in Mexico. Sanofi is now the world’s 11th-biggest generics player in terms of sales, the company said.
“For me, the interest in Medley, Kendrick and Zentiva is to acquire a portfolio of affordable medicines, recognizing that outside of the United States and Europe people are really paying for medicines out of their own pocket,” said Christopher A. Viehbacher, the chief executive of Sanofi-Aventis. “Therefore you have to have medicines that fit the pocketbook and, to me, generics really fit the bill.”
Medley even has its own generic brand identity, Mr. Viehbacher said, which includes mint-green packaging that is a visible logo on pharmacy shelves.
The Swiss drug maker Novartis, which unified its generic business in 2003 under the name Sandoz, recognized the consumer interest and business opportunity in generic drugs early on.
“In the beginning, of course, especially other pharmaceutical companies were very skeptical about it,” said Dr. Daniel Vasella, the chairman of the board and former chief executive of Novartis. “Some competitors said that this was not right to enter a field that was competing with our own.”
Now, with organic growth and the acquisition of branded generics like the German maker Hexal, Sandoz is the world’s second-largest purveyor of generic drugs, after Teva.
Branded generics may appeal to leading drug makers because they represent a hybrid of the generic and name-brand models — allowing drug makers to use their existing commercial distribution system and marketing skills to sell premium-priced generics as if they were brand-name drugs, said Ronny Gal, an analyst at Sanford C. Bernstein & Company.
Under this approach, manufacturers or distributors advertise branded generics. Company sales representatives visit doctors and pharmacists to market them. And, in emerging markets where government health coverage and private insurance are less common, consumers who pay out of pocket for their own medicines would rather spend on names they can trust, Mr. Gal said in an interview last month.
“Patients prefer brands,” he wrote in a note to investors last year, “and as long as they are the main payers, they will continue to use branded generics.”
Still, branded generics may not be a diversification strategy for the long term.
Some companies are moving into branded generics as a short-term tactic to make up for revenue shortfalls and capture near-term growth in emerging markets, Mr. Gal said.
But as government health care programs and health insurers in emerging markets develop further, consumers could be encouraged or required to switch from midpriced branded generics to low-cost no-name generics, he said. He estimated that it would take at least a decade for that to happen.