Pharma Industry Basics

 Pharma Industry Basics

Global Pharma Market is around 1 trillion dollars.

Prescription Drugs	Over the counter Drugs
Doctor’s prescription is required	Do not require prescription, such as aspirin
Requires medical diagnosis	Relies on self-diagnosis
Stronger than OTC drugs	Milder drugs with wide margin of safety
Used to treat diseases like diabetes	Used to treat minor diseases like cold and cough
Expensive	Less expensive

 

Branded or Patented Drugs– These are made by innovator companies. They take a time period of around 10-12 years to make them, that includes R&D + clinical trials+ Regulatory Approvals+ Patent time delay.

After passing through these many stages the company gets an exclusivity of 20 years to sell that product. (that’s including the time to get it to  market , so the exclusive period for sale will be around 8 years). In this time period the company prices the drug at a premium, thus earning reasonable IRRs and covering up their huge expenses spent on the drug.

Generics Drugs – Once the patent on the branded drug is expiring/ expired generic drug companies come forward and apply for making a copy of the drug. They reverse engineer the drug and make a drug which is a bio equivalent of the original drug. They typically take a time period of 4 years to get the drug to the market. (2 years to make + 2 years for approvals).

These drugs are sold at a significant discount to the original branded drug.

Let us take the example of the drug Abilify (medical name Aripiprazole). It is a medicine used to treat schizophrenia and bipolar disorder. Aripiprazole was discovered by scientists at Otsuka in 1988. It took them 14 years to develop the medicine and finally got the approval to sell it in 2002. Otsuka, being the innovator got a patent to be the only seller of the medicine under the brand name Abilify, until 2015. Hence it was able to earn billions of dollars during this period, making up for the time and money invested earlier. This is how business of an innovator pharma company works

Once the patent was about to expire generic companies started applying for approvals to make the copies of the drug. Alembic Pharma from India, was one of the companies who reverse engineered the drug and showed they had the capability to make a bioequivalent of the drug. Thus, their ANDA filling for making the drug was approved and they received the right to sell the generic version of the drug.

Even with a price reduction of 50- 60% on the drug, generic companies are able to generate good return on capital and healthy profit margins because the money and time spent in just reverse engineering is very less than actually innovating a pharmaceutical drug.

 

How generics differ from patented drugs??

1. Generics differ in shape, size, color, taste, packaging, preservatives, etc.
2. Cost less than branded drugs, discounted by 80-85%.
3. Generics can be manufactured by multiple companies.

These are the various types of Generic Drugs. Unbranded generics will typically cost less than a branded one.

It is more important for us to understand the generic business as majority of Indian Pharma companies are primarily generic drug manufacturers. They focus on developing their own brands for the generic drugs. This is done through sending their medical representatives on the ground to doctors, physicians, etc. and providing them incentives to promote the brands. This helps to price the product at a premium with respect to the unbranded generics.

New Therapeutic Entity

If we look at the income statements of the Indian companies, we typically see R& D expenses at 8-10 % of sales. This includes not only the cost to reverse engineer drugs but also the cost spending on developing a New Therapeutic Entity (NTE). A NTE is basically an innovation around existing molecule. It can be in the form of changing the way the drug is delivered into the system, combining the drug with some other molecule to improve efficiency, etc.  For eg. A medicine which is normally injected in oral form can be replaced with an injectable for better performance.

The innovation for NTEs can be in the following forms

 

What are APIs or Active Pharmaceutical Ingredients, excipients and formulations?

APIs are the part of the drug that produces its effects. It is the part of the drug that is biologically active.

Excipients are the substances of the tablet, or the liquid the API is suspended in, or other material that is pharmaceutically inert.

APIs + Excipients = Formulation

What are complex generics?

Complex generics are generics of drugs which are hard to reverse engineer and replicate. They maybe complex due to the various reasons listed below.

Complex generics is a hugely untapped market space. The market for injectables, inhalants , ophthalmics offers great opportunity .

A biosimilar (also known as follow-on biologic or subsequent entry biologic) is a biologic medical product which is almost an identical copy of an original product that is manufactured by a different company. Biosimilar have no synthetic chemicals involved in their production. They use living organisms like bacteria instead. Due to this biosimilars are much more scalable as it easy to multiply bacteria.

However, the process of making biosimilars is much more difficult as compared to generics.  It requires additional evidence beyond the requirements for generic drug approval, including additional analytical characterization, as well as non‐clinical and clinical data. Because of the complexities, developing and manufacturing high‐quality biosimilars will require manufacturers to have deep scientific and manufacturing expertise. A

Lots of companies are currently spending millions of dollars in this field of biosimilars.

 

 ANDA fillings for generic drug

An abbreviated new drug application (ANDA) contains data which is submitted to US FDA for the review and potential approval of a generic drug product. Once approved, an applicant may manufacture and market the generic drug product to provide a safe, effective, lower cost alternative to the brand-name drug it references.

These are the type ANDA fillings

Para I-  Required patent information related to such patent has not been filed.

Para II – The patent has expired.

Para III- The patent will expire on a particular date

Para IV -The patent is invalid, or will not be infringed by the generic drug.