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Drug Innovation and Pharma M&As: A Recent Perspective

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The 21st CEO Survey 2018 of PwC highlights a curious contradiction. This is based on what the Global Pharma Chief Executive Officers (CEOs) had articulated regarding their business outlook for 2018 and beyond. The report says: Despite highly publicized hand wringing over geopolitical uncertainty, corporate misbehavior, and the job-killing potential of artificial intelligence, the CEOs expressed surprising faith and optimism in the economic and business environment worldwide, at least over the next 12 months.

As the survey highlights, beyond 2018, CEO sentiment turns more cautious. They expressed more confidence in revenue growth prospects over the longer term than the immediate future. In the largest pharma market in the world – the United States (US), acquisitions appeared to be the core part of the 2018 growth playbook for the CEOs. More of them plan to drive growth with new Mergers and Acquisitions (M&A) for this year. The US CEOs intent in this area came out to be more than their peers globally.

Thus, in this year we may expect to witness several M&A deals, at least by the pharma majors based in the US. As the saying goes, the proof of the pudding is in the eating, the success of any strategic M&A process should get clearly reflected in its revenue, profit and cost synergies over a period of time, consistently.

In this article, I shall try to look back, and attempt to fathom the net outcome of M&As in the pharma sector. Its key drivers for the global and Indian pharma players are somewhat different, though. In this piece, I shall focus on the M&A activities of the global companies, and my next article will focus on the Indian players in this area.

2018 – best start to a year of healthcare deal making:

The finding of the 21st CEO Survey 2018 that more global pharma CEOs plan to drive growth with new M&A for this year, has been reiterated in the January 22, 2018 issue of the Financial Times (FT). The article titled “Big Pharma makes strongest start to M&A for a decade” writes: “Healthcare companies have announced almost $30bn of acquisitions since the beginning of the year in the sector’s strongest start for deal making in more than a decade, as Big Pharma scrambles to replace ageing blockbusters by paying top dollar for new medicines.”

Big names involved and the reasons:

On February 18, 2018, an article published by the BSIC wrote, the M&A value in the healthcare sector recorded its strongest start to a year in more than a decade, excluding 2000, with almost USD32bn of global deals announced since the start of January 2018. Of these USD32bn, Sanofi SA and Celgene Corporation performed almost a combined USD26bn value of acquisitions for the American Bioverativ Inc. the cell therapy provider Juno Therapeutics, respectively.

As many would know, the FT also wrote in the above piece that Sanofi is trying to offset declining sales of its top-selling insulin – Lantus, which has lost market share following the introduction of cheaper biosimilar versions. Celgene is preparing for the loss of patent protection on its top cancer medicine, Revlimid, which will face generic competition from 2022 at the latest.

Is new drug innovation a key driver of M&A?

The core intent of M&A is undoubtedly creating greater value for all the stakeholders of the merged entity. Nevertheless, such value creation predominantly involving the following two goals, revolve around new drug innovation activities, as follows:

  • New value creation and risk minimization in R&D initiatives
  • Acquisition of blockbuster or potential blockbuster drugs to improve market share and market access, besides expanding the consumer base.

There could be a few other factors, as well, that may drive a pharma player to go for a similar buying spree, which we shall discuss later in this article.

However, in the international scenario, with gradually drying up of R&D pipeline, and the cost of drug innovation arguably exceeding well over USD 2 billion, many companies try to find easier access to a pipeline of new drug compounds, generally at the later stage of development, through M&A.

Thus, I reckon, one sees relatively higher number of big ticket M&As in the pharmaceutical industry than most other industrial sectors and that too, very often at a hefty price.

At a hefty price?

To give an example, the year 2018 has just begun and the pharma acquirers have agreed to pay an average premium of 81 percent – a number that is well above the 42 percent paid on average in 2017, according to Dealogic. The examples are the 63.78 percent bid premium paid by Sanofi SA on Bioverativ Inc. and the 78.46 percent premium paid by Celgene Corporation to acquire Juno Therapeutics.

A key reason of paying this kind of high premium, obviously indicate an intent of the acquirer to have a significant synergy in drug innovation activities of the merged company.

Do drug innovation activities rise, or decline post M&A?

A paper titled “Research: Innovation Suffers When Drug Companies Merge”, published by the Harvard Business Review (HBR) on August 03, 2016 answers this question. This research involves, pre and post M&A detailed analysis of 65 pharma companies. After detailed scrutiny of the data, the authors wrote: “Our results very clearly show that R&D and patenting within the merged entity decline substantially after a merger, compared to the same activity in both companies beforehand.”

Having also analyzed companies that were developing drugs in similar therapeutic areas, but hadn’t merged, the paper recorded: “We applied a market analysis, the same one used by the European Union in its models, to analyze how the rivals of the merging firms change their innovation activities afterward. On average, patenting and R&D expenditures of non-merging competitors also fell – by more than 20% – within four years after a merger. Therefore, pharmaceutical mergers seem to substantially reduce innovation activities in the relevant market as a whole.”

‘Other critical objectives’ may also drive pharma M&A:

As I had indicated before, besides attaining synergy in innovation activities at an optimum cost through M&A, there may also be other important drivers for a company to initiate this process. One such example is available from Sanofi-Aventis merger in 2004.

Just to recapitulate, Sanofi was formed in 2004 when Sanofi-Synthélabo (created from the 1999 merger of Sanofi and Synthélabo) acquired Aventis (the result of the 1999 merger of Hoechst and Rhône-Poulenc).

A June 2016 case study of the Sanofi-Aventis merger titled ‘Does M&A create value in the pharmaceutical sector?’, and published by HEC Paris – considered a leading academic institution in Europe and worldwide, brings out the ‘other factors’ driving pharma M&A.

The research paper says that Sanofi-Aventis deal ‘is the perfect example of the paramount importance that external factors have on M&A activity, which sometimes are more critical than the amount of value created from a particular deal.’ It further says, ‘facing a changing pharmaceutical industry (heightened competition and consolidation trend), Sanofi-Synthélabo decided to merge with Aventis as a defense strategy.’

This strategy ensured, even if the merger had not ended being a successful one, it would achieve the following two ‘other critical factors’:

  • Manage to save Sanofi-Synthélabo from being acquired and disappearing.
  • Comply with the French government pressure to create a national champion in the pharma industry, to ultimately benefit the French population.

Conclusion:

In the pharma business, M&A has now become a desirable strategic model for shareholder value creation. In the global perspective, one of the most important drivers for this initiative is, greater and less expensive access to new drug innovation or innovative new drugs, beside a few others, as discussed above.

In-depth expert analysis has also shown that “R&D and patenting within the merged entity decline substantially after a merger, compared to the same activity in both companies beforehand.”  Moreover, as other independent researchers have established that inside the merged companies, there’s a great deal of disruption in many areas, including people, besides the global drug market getting less competitive with declining number of players.

Pharma M&As may well be any stock market’s dream and could a boost the merged company’s performance in short to medium term. But the important points to ponder are:  Does it help improve drug innovation or its cost related issues over a reasonably long time-frame? Does it not ultimately invite even more problems of different nature, creating a vicious cycle, as it were, putting the sustainable performance of the company in a jeopardy?

By: Tapan J. Ray  

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

R&D: Is Indian Pharma Moving Up the Value Chain?

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It almost went unnoticed by many, when in the post product patent regime, Ranbaxy launched its first homegrown ‘New Drug’ of India, Synriam, on April 25, 2012, coinciding with the ‘World Malaria Day’. The drug is used in the treatment of plasmodium falciparum malaria affecting adult patients.  However, the company has also announced its plans to extend the benefits of Synriam to children in the malaria endemic zones of Asia and Africa.

The new drug is highly efficacious with a cure rate of over 95 percent offering advantages of “compliance and convenience” too. The full course of treatment is one tablet a day for three days costing less than US$ 2.0 to a patient.

Synriam was developed by Ranbaxy in collaboration with the Department of Science  and Technology of the Government of India. The project received support from the Indian Council of Medical Research (ICMR) and conforms to the recommendations of the World Health Organization (WHO). The R&D cost for this drug was reported to be around US$ 30 million. After its regulatory approval in India, Synriam is now being registered in many other countries of the world.

Close on the heels of the above launch, in June 2013 another pharmaceutical major of India, Zydus Cadilla announced that the company is ready for launch in India its first New Chemical Entity (NCE) for the treatment of diabetic dyslipidemia. The NCE called Lipaglyn has been discovered and developed in India and is getting ready for launch in the global markets too.

The key highlights of Lipaglyn are reportedly as follows:

  • The first Glitazar to be approved in the world.
  • The Drug Controller General of India (DCGI) has already approved the drug for launch in India.
  • Over 80% of all diabetic patients are estimated to be suffering from diabetic dyslipidemia. There are more than 350 million diabetics globally – so the people suffering from diabetic dyslipidemia could be around 300 million.

With 20 discovery research programs under various stages of clinical development, Zydus Cadilla reportedly invests over 7 percent of its turnover in R&D.  At the company’s state-of-the-art research facility, the Zydus Research Centre, over 400 research scientists are currently engaged in NCE research alone.

Prior to this in May 14, 2013, the Government of India’s Department of Biotechnology (DBT) and Indian vaccine company Bharat Biotech jointly announced positive results, having excellent safety and efficacy profile in Phase III clinical trials, of an indigenously developed rotavirus vaccine.

The vaccine name Rotavac is considered to be an important scientific breakthrough against rotavirus infections, the most severe and lethal cause of childhood diarrhea, responsible for approximately 100,000 deaths of small children in India each year.

Bharat Biotech has announced a price of US$ 1.00/dose for Rotavac. When approved by the Drug Controller General of India, Rotavac will be a more affordable alternative to the rotavirus vaccines currently available in the Indian market. 

It is indeed interesting to note, a number of local Indian companies have started investing in pharmaceutical R&D to move up the industry value chain and are making rapid strides in this direction.

Indian Pharma poised to move-up the value-chain:

Over the past decade or so, India has acquired capabilities and honed skills in several important areas of pharma R&D, like for example:

  • Cost effective process development
  • Custom synthesis
  • Physical and chemical characterization of molecules
  • Genomics
  • Bio-pharmaceutics
  • Toxicology studies
  • Execution of phase 2 and phase 3 studies

According to a paper titled, “The R&D Scenario in Indian Pharmaceutical Industry” published by Research and Information System for Developing Countries, over 50 NCEs/NMEs of the Indian Companies are currently at different stages of development, as follows:

Company Compounds Therapy Areas Status
Biocon 7 Oncology, Inflammation, Diabetes Pre-clinical, phase II, III
Wockhardt 2 Anti-infective Phase I, II
Piramal Healthcare 21 Oncology, Inflammation, Diabetes Lead selection, Pre-clinical, Phase I, II
Lupin 6 Migraine, TB, Psoriasis, Diabetes, Rheumatoid Arthritis Pre-clinical, Phase I, II, III
Torrent 1 Diabetic heart failure Phase I
Dr. Reddy’s Lab 6 Metabolic/Cardiovascular disorders, Psoriasis, migraine On going, Phase I, II
Glenmark 8 Metabolic/Cardiovascular /Respiratory/Inflammatory /Skin disorders, Anti-platelet, Adjunct to PCI/Acute Coronary Syndrome, Anti-diarrheal, Neuropathic Pain, Skin Disorders, Multiple Sclerosis, Ongoing, Pre-clinical, Phase I, II, III

R&D collaboration and partnership:

Some of these domestic companies are also entering into licensing agreements with the global players in the R&D space. Some examples are reportedly as follows:

  • Glenmark has inked licensing deals with Sanofi of France and Forest Laboratories of the United States to develop three of its own patented molecules.
  • Domestic drug major Biocon has signed an agreement with Bristol Myers Squibb (BMS) for new drug candidates.
  • Piramal Life Sciences too entered into two risk-reward sharing deals in 2007 with Merck and Eli Lilly, to enrich its research pipeline of drugs.
  • Jubilant Group partnered with Janssen Pharma of Belgium and AstraZeneca of the United Kingdom for pharma R&D in India, last year.

All these are just indicative collaborative R&D initiatives in the Indian pharmaceutical industry towards harnessing immense growth potential of this area for a win-win business outcome.

The critical mass:

An international study estimated that out of 10,000 molecules synthesized, only 20 reach the preclinical stage, 10 the clinical trials stage and ultimately only one gets regulatory approval for marketing. If one takes this estimate into consideration, the research pipeline of the Indian companies would require to have at least 20 molecules at the pre-clinical stage to be able to launch one innovative product in the market.

Though pharmaceutical R&D investments in India are increasing, still these are not good enough. The Annual Report for 2011-12 of the Department of Pharmaceuticals indicates that investments made by the domestic pharmaceutical companies in R&D registered an increase from 1.34 per cent of sales in 1995 to 4.5 percent in 2010. Similarly, the R&D expenditure for the MNCs in India has increased from 0.77 percent of their net sales in 1995 to 4.01 percent in 2010.

Thus, it is quite clear, both the domestic companies and the MNCs are not spending enough on R&D in India. As a result, at the individual company level, India is yet to garner the critical mass in this important area.

No major R&D investments in India by large MNCs:

According to a report, major foreign players with noteworthy commercial operations in India have spent either nothing or very small amount towards pharmaceutical R&D in the country. The report also mentions that Swiss multinational Novartis, which spent $ 9 billion on R&D in 2012 globally, does not do any R&D in India.

Analogue R&D strategy could throw greater challenges:

For adopting the analogue research strategy, by and large, the Indian pharma players appear to run the additional challenge of proving enhanced clinical efficacy over the known substance to pass the acid test of the Section 3(d) of the Patents Act of India.

Public sector R&D:

In addition to the private sector, research laboratories in the public sector under the Council for Scientific and Industrial Research (CSIR) like, Central Drug Research Institute (CDRI), Indian Institute of Chemical Technology (IICT) and National Chemical Laboratory (NCL) have also started contributing to the growth of the Indian pharmaceutical industry.

As McKinsey & company estimated, given adequate thrust, the R&D costs in India could be much lower, only 40 to 60 per cent of the costs incurred in the US. However, in reality R&D investments of the largest global pharma R&D spenders in India are still insignificant, although they have been expressing keenness for Foreign Direct Investments (FDI) mostly in the brownfield pharma sector.

Cost-arbitrage:

Based on available information, global pharma R&D spending is estimated to be over US$ 60 billion. Taking the cost arbitrage of India into account, the global R&D spend at Indian prices comes to around US$ 24 billion. To achieve even 5 percent of this total expenditure, India should have invested by now around US$ 1.2 billion on the pharmaceutical R&D alone. Unfortunately that has not been achieved just yet, as discussed above.

Areas of cost-arbitrage:

A survey done by the Boston Consulting Group (BCG) in 2011 with the senior executives from the American and European pharmaceutical companies, highlights the following areas of perceived R&D cost arbitrage in India:

Areas % Respondents
Low overall cost 73
Access to patient pool 70
Data management/Informatics 55
Infrastructure set up 52
Talent 48
Capabilities in new TA 15

That said, India should realize that the current cost arbitrage of the country is not sustainable on a longer-term basis. Thus, to ‘make hay while the sun shines’ and harness its competitive edge in this part of the world, the country should take proactive steps to attract both domestic as well as Foreign Direct Investments (FDI) in R&D with appropriate policy measures and fiscal incentives.

Simultaneously, aggressive capacity building initiatives in the R&D space, regulatory reforms based on the longer term need of the country and intensive scientific education and training would play critical role to establish India as an attractive global hub in this part of the world to discover and develop newer medicines for all.

Funding:

Accessing the world markets is the greatest opportunity in the entire process of globalization and the funds available abroad could play an important role to boost R&D in India. Inadequacy of funds in the Indian pharmaceutical R&D space is now one of the greatest concerns for the country.

The various ways of funding R&D could be considered as follows:

  • Self-financing Research: This is based on:
  1. “CSIR Model”: Recover research costs through commercialization/ collaboration with industries to fund research projects.
  2. “Dr Reddy’s Lab / Glenmark Model”: Recover research costs by selling lead compounds without taking through to development.
  • Overseas Funding:  By way of joint R&D ventures with overseas collaborators, seeking grants from overseas health foundations, earnings from contract research as also from clinical development and transfer of aborted leads and collaborative projects on ‘Orphan Drugs’.
  • Venture Capital & Equity Market:  This could be both via ‘Private Venture Capital Funds’ and ‘Special Government Institutions’.  If regulations permit, foreign venture funds may also wish to participate in such initiatives. Venture Capital and Equity Financing could emerge as important sources of finance once track record is demonstrated and ‘early wins’ are recorded.
  • Fiscal & Non-Fiscal Support: Should also be valuable in early stages of R&D, for which a variety of schemes are possible as follows:
  1. Customs Duty Concessions: For Imports of specialized equipment, e.g. high throughput screening equipment, equipment for combinatorial chemistry, special analytical tools, specialized pilot plants, etc.
  2. Income tax concessions (weighted tax deductibility): For both in-house and sponsored research programs.
  3. Soft loans: For financing approved R&D projects from the Government financial institutions / banks.
  4. Tax holidays: Deferrals, loans on earnings from R&D.
  5. Government funding: Government grants though available, tend to be small and typically targeted to government institutions or research bodies. There is very little government support for private sector R&D as on date.

All these schemes need to be simple and hassle free and the eligibility criteria must be stringent to prevent any possible misuse.

Patent infrastructure:

Overall Indian patent infrastructure needs to be strengthened, among others, in the following areas:

  • Enhancement of patent literacy both in legal and scientific communities, who must be taught how to read, write and file a probe.
  • Making available appropriate ‘Search Engines’ to Indian scientists to facilitate worldwide patent searches.
  • Creating world class Indian Patent Offices (IPOs) where the examination skills and resources will need considerable enhancement.
  • ‘Advisory Services’ on patents to Indian scientists to help filing patents in other countries could play an important role.

Creating R&D ecosystem:

  • Knowledge and learning need to be upgraded through the universities and specialist centers of learning within India.
  • Science and Technological achievements should be recognized and rewarded through financial grants and future funding should be linked to scientific achievements.
  • Indian scientists working abroad are now inclined to return to India or network with laboratories in India. This trend should be effectively leveraged.

Universities to play a critical role:

Most of Indian raw scientific talents go abroad to pursue higher studies.  International Schools of Science like Stanford or Rutgers should be encouraged to set up schools in India, just like Kellogg’s and Wharton who have set up Business Schools. It has, however, been reported that the Government of India is actively looking into this matter.

‘Open Innovation’ Model:

As the name suggest, ‘Open Innovation’ or the ‘Open Source Drug Discovery (OSDD)’ is an open source code model of discovering a New Chemical Entity (NCE) or a New Molecular Entity (NME). In this model all data generated related to the discovery research will be available in the open for collaborative inputs. In ‘Open Innovation’, the key component is the supportive pathway of its information network, which is driven by three key parameters of open development, open access and open source.

Council of Scientific and Industrial Research (CSIR) of India has adopted OSDD to discover more effective anti-tubercular medicines.

Insignificant R&D investment in Asia-Pacific Region:

Available data indicate that 85 percent of the medicines produced by the global pharmaceutical industry originate from North America, Europe, Japan and some from Latin America and the developed nations hold 97 percent of the total pharmaceutical patents worldwide.

MedTRACK reveals that just 15 percent of all new drug development is taking place in Asia-Pacific region, including China, despite the largest global growth potential of the region.

This situation is not expected to change significantly in the near future for obvious reasons. The head start that the western world and Japan enjoy in this space of the global pharmaceutical industry would continue to benefit those countries for some more time.

Some points to ponder:

  • It is essential to have balanced laws and policies, offering equitable advantage for innovation to all stakeholders, including patients.
  • Trade policy is another important ingredient, any imbalance of which can either reinforce or retard R&D efforts.
  • Empirical evidence across the globe has demonstrated that a well-balanced patent regime would encourage the inflow of technology, stimulate R&D, benefit both the national and the global pharmaceutical sectors and most importantly improve the healthcare system, in the long run.
  • The Government, academia, scientific fraternity and the pharmaceutical Industry need to get engaged in various relevant Public Private Partnership (PPP) arrangements for R&D to ensure wider access to newer and better medicines in the country, providing much needed stimulus to the public health interest of the nation.

Conclusion:

R&D initiatives, though very important for most of the industries, are the lifeblood for the pharmaceutical sector, across the globe, to meet the unmet needs of the patients. Thus, quite rightly, the pharmaceutical Industry is considered to be the ‘lifeline’ for any nation in the battle against diseases of all types.

While the common man expects newer and better medicines at affordable prices, the pharmaceutical industry has to battle with burgeoning R&D costs, high risks and increasingly long period of time to take a drug from the ‘mind to market’, mainly due to stringent regulatory requirements. There is an urgent need to strike a right balance between the two.

In this context, it is indeed a proud moment for India, when with the launch of its home grown new products, Synriam of Ranbaxy and Lipaglyn of Zydus Cadilla or Rotavac Vaccine of Bharat Biotech translate a common man’s dream of affordable new medicines into reality and set examples for others to emulate.

Thus, just within seven years from the beginning of the new product patent regime in India, stories like Synriam, Lipaglyn, Rotavac or the R&D pipeline of over 50 NCEs/NMEs prompt resurfacing the key unavoidable query yet again:

Has Indian pharma started catching-up with the process of new drug discovery, after decades of hibernation, to move up the industry ‘Value Chain’?

By: Tapan J. Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

Pfizer and Biocon deal – heralds dawn of a new era for the Biopharmaceuticals Industry of India

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On October 19, 2010, home grown Biotech Company Biocon, based in the IT heartland – Bangalore created a stir in Industry by inking an interesting international corporate business deal with the largest global pharmaceutical company – Pfizer. The deal will bring to Biocon a total sum of US $350 million and enable Pfizer to globally commercialize Biocon’s biosimilar (generic versions of biotechnology medicines) human recombinant insulin and three insulin analogues.

Before this deal, Sanofi-Pasteur, the vaccine business unit of the global major Sanofi-aventis had acquired Shantha Biotech, located at Hyderabad for a sum of Rs 3,750 Crore, in July 2009.

Just a year before the above acquisition in india, on December 11, 2008, Reuters reported, just two days after Merck announced a major push into biosimilar medicines; Eli Lilly signaled similar aspirations. This report, at that time, raised many eyebrows in the global pharmaceutical industry, as it was in the midst of a raging scientific debate on the appropriate regulatory pathways for biosimilar drugs. Be that as it may, many felt that this announcement ushered in the beginning of a new era. An era of intense future competition with biosimilar drugs in the global market, with immense commercial interest. On October 19, 2010 the biosimilar deal between Biocon and Pfizer vindicated this point.

Increasing global interest on biosimilar drugs:

Globally, the scenario for biosimilars started heating up when Merck announced that the company expects to have at least 5 biosimilars in the late stage development by 2012. The announcement of both Merck and Eli Lilly surprised many, as the largest pharmaceutical market of the world – the U.S.A, at that time, was yet to approve the regulatory pathway for biosimilar medicines. However, along with the recent healthcare reform by the Obama administration, the regulatory pathway for biosimilar drugs has now been clearly charted by the US FDA. In the developed world, European Union (EU) had taken a lead towards this direction by putting a robust system in place, way back in 2003.

What then prompts the research based global pharmaceutical companies like Pfizer, Sanofi-aventis, Merck and Eli Lilly to step into the arena of Biosimilar medicines? Is it gradual drying up research pipeline together with skyrocketing cost of global R&D initiatives?

The future global business potential of Biosimilar medicines:

Currently, over 150 different biologic medicines are available in the global pharmaceutical market. However, the low cost biosimilar drugs are available in just around 11 countries of the world, India being one of them. Supporters of biosimilar medicines are indeed swelling as time passes by. At present, the key global players are Sandoz (Novartis), Teva, BioPartners, BioGenerix (Ratiopharm) and Bioceuticals (Stada). With the entry of pharmaceutical majors like, Pfizer, Sanofi-aventis, Merck and Eli Lilly, the global biosimilar market is expected to develop at a much faster pace than ever before. Removal of regulatory hurdles for the marketing approval of such drugs in the US – the largest pharmaceutical market of the world, will be the key growth driver.

Recently, the EU has approved Sandoz’s (Novartis) Filgrastim (Neupogen brand of Amgen), which is prescribed for the treatment of Neutropenia. With Filgrastim, Sandoz will now have 3 Biosimilar products in its portfolio.

Global Market Potential of Biosimilar Drugs:

The biosimilar drug market in the world is estimated to be around U.S. $ 16 billion by 2011. Currently, off-patent biologic blockbusters including Erythropoietin offer an excellent commercial opportunity in this category. By 2013, about 10 branded biologics with a total turnover of around U.S. $ 15 billion will go off-patent, throwing open greater opportunity for the growth of biosimilar drugs internationally.

Biosimilar Drugs in India:

Sales of biosimilar drugs in India are estimated to be around U.S. $ 4 billion by 2011 with scorching pace of growth driven by both local and global demands.

Recombinant vaccines, erythropoietin, recombinant insulin, monoclonal antibody, interferon alpha, granulocyte cell stimulating factor like products are now manufactured by a number of domestic biotech companies like Biocon, Panacea Biotech, Wockhardt, Emcure, Shantha Biotech, Bharat Biotech, Serum Institute of India, Dr. Reddy’s, Ranbaxy, etc. The ultimate objective of all these Indian companies will be to get regulatory approval of these products in the US and the EU either on their own or through collaborative initiatives.

It is worth mentioning here that to give a fillip to the Biotech Industry in India; the National Biotechnology Board was set up by the Government of India under the Ministry of Science and Technology way back in 1982. The Department of Biotechnology (DBT) came into existence in 1986. The DBT now spends around US$ 200 million annually to develop biotech resources in the country and have been making reasonably good progress. The DBT is reported to have undertaken an initiative for quite some time to prepare regulatory guidelines for Biosimilar Drugs, which is expected to conform to international quality and patients’ safety standards.

Steps taken by the Indian pharmaceutical companies:

Biosimilar version of Rituxan (Rituximab) of Roche used in the treatment of Non-Hodgkin’s lymphoma has already been developed by DRL in India. Last year Rituxan clocked a turnover of over US$ 2 billion. DRL also has developed filgastrim of Amgen, which enhances production of white blood-cell by the body, and markets the product as Grafeel in India. Similarly Ranbaxy has collaborated with Zenotech Laboratories to manufacture G-CSF.

On the other hand Glenmark is planning to come out with its first biotech product by 2011 from its biological research establishment located in Switzerland.

The focus is on Oncology:

Many domestic Indian pharmaceutical companies are targeting Oncology disease area for developing biosimilar drugs, which is estimated to be the largest segment with a value turnover of over US$ 55 billion by the end of 2010 growing over 17%. As per recent reports about 8 million deaths take place all over the world per year due to cancer. May be for this reason the research pipeline of NMEs is dominated by oncology with global pharmaceutical majors’ sharp R&D focus and research spend on this particular therapy area. About 50 NMEs for the treatment of cancer are expected to be launched globally by 2015.

Current size of the Indian oncology market is around US$ 18.6 million, which is expected to be over US$ 50 million by the end of 2010; the main reason being all these are and will be quite expensive products.

A trigger point for more collaborative initiatives:

It is expected that the recent Pfizer – Biocon deal will trigger many other collaborative initiatives between the global and the local pharmaceutical companies.

Among India biotech companies, Reliance Life Sciences has already marketed Recombinant Erythropoietin, Recombinant Granulocyte Colony Stimulating Factor, Recombinant Interferon Alpha and Recombinant tissue plasminogen activator. This company has been reported to have the richest pipeline of biosimilar drugs in India. Companies like Wockhardt, Lupin, DRL and Intas Biopharmaceuticals are also in the process of developing an interesting portfolio of biosimilar drugs in India to fully encash the fast growing global opportunities.

Biosimilar global business model will fast gain ground:

Many large research-based global pharmaceutical companies, after having encountered the ‘patent cliff’, are now looking at the generic and biosimilar businesses, in a mega scale, in the emerging markets of the world, like India. Our country has witnessed major acquisitions like, Ranabaxy, Shantha Biotech and Piramal Healthcare by Daiichi Sankyo of Japan, Sanofi-aventis of France and Abbott of USA, respectively. We have also seen collaborative initiatives of large global companies like, GSK, AstraZeneca, and Pfizer with Indian companies like DRL, Aurobindo, Claris, Torrent, Zydus Cadilla, Strides Arcolab and now Biocon to reach out to the fast growing global generic and biosimilar drugs markets.

This trend further gained momentum when immediately after Biocon deal early this week, on October 21, 2010, Pfizer strengthened its footprints in the global generics market with yet another acquisition of 40% stake in Laboratorio Teuto Brasilieiro of Brazil with US $240 million to develop and globally commercialize their generic portfolio.

Conclusion:

All said and done, the recent international deal of Pfizer and Biocon to globally commercialize four biosimilar insulin and analogues, developed by the later in India, does signal a new global status for the Indian biosimilar drugs to the pharma MNCs, who were vocal critics of such drugs developed in India, until recently.

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

Abbott – Piramal deal: the way future is expected to shape up

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In my view, these are still very early days for such acquisitions of large domestic Indian pharmaceutical companies by the Global Pharma majors to gain momentum in the country. However, there is no doubt that in the near future, we shall rather witness more strategic collaborations between Indian and Global pharmaceutical companies, especially in the generic space.

Squeezing margin due to cut-throat domestic and international competition may affect future valuation of the domestic companies:

I reckon, the number of such high profile mergers and acquisitions will significantly increase, as and when the valuation of domestic Indian companies appears quite attractive to the global pharma majors. This could happen, as the domestic players face more cut-throat competition both in Indian and international markets, squeezing their profit margin.
Abbott possibly has a well-structured game plan for seemingly high valuation of the deal:
Having said that let me point out, during Ranbaxy-Daiichi Sankyo deal, analysts felt that the valuation of the deal was quite high. US $ 3.7 billion Abbott – Piramal deal has far exceeded even that valuation. Does this deal not make any business sense? I do not think so. Abbott is a financially savvy seasoned player in the M&A space. It is very unlikely that they will enter into any deal, which will not have any strategic and financial business sense.

Big ticket Indian Pharma deals:

So far India has seen four such major deals starting from Ranbaxy – Daiichi Sankyo, Dabur Pharma – Fresenius, Matrix – Myalan and Orchid – Hospira, besides some global collaborative arrangements, such as, Pfizer with Aurobindo/Claris/Strides GSK with DRL, AsraZeneca with Torrent and again Abbott with Zydus Cadila.

Key drivers for these deals:

Such acquisitions and collaborations will be driven by following eight key factors:

1. R&D pipelines of the global innovative companies are drying up
2. Many blockbuster drugs will go off-patent in the near future
3. Cost containment pressure in the western world exerting pressure on the bottom lines
of the global pharma majors
4. Increasing demand of generics in high growth emerging and developing markets
5. The new Healthcare Reform in the US will promote increased usage of generic drugs.
6. The fact that India already produces 20% of the global requirement for generic drugs
increases the attractiveness.
7. The fact of domestic Indian companies account for 35% of ANDAs highlights the future
potential of the respective companies.
8. Highest number of US-FDA approved plants, next to the US, is located in India.

A strategic move by Abbott:

As announced by Abbott from its headquarter in Chicago that Abbott in India will increase its sales four times to around Rs. 11,000 Crores by 2020 with the acquisition of 350 brands of ‘Piramal Healthcare’ business.

Facing the stark reality of a ‘patent Cliff’, cost containment pressures especially in the US and EU, low single digit growth rate of the developed markets and high growth of branded generic dominated emerging markets, Abbott has taken a new global initiative aimed at the emerging markets with the creation of its global ‘Established Products’ Business’. This initiative started with worth US $ 6.2 billion acquisition of branded generic business of Solvay Pharma, which has a sizeable presence in the EU markets.
Recently announced licensing agreement of Abbott with Zydus Cadila to market 24 products initially in 15 emerging markets of the world is another step towards this direction.

Advantage Abbott India:

The asset based acquisition of ‘Piramal Healthcare’ by Abbott will help its Indian arm to increase its domestic market penetration, significantly, both for branded generic and patented products in urban, semi-urban and rural markets spearheaded by around 7000 strong sales force. This strategy perhaps will also help Abbott in India distancing itself from the number 2, in the Indian Pharma league table, probably with a handsome margin.

Global players want a risk-cover with the generic business and minimize tough competition:

Like Abbott, it is quite likely that other major global players are also planning to reduce their business risks by expanding the business from mainly high risk and expensive R&D intensive patented products to a more predictable and rapidly expanding branded generic business.

Will such move have any significant effect on competition?

Such M&A initiatives may seemingly minimize the cut throat competition from large generic players from India. However, I do not envisage any significant impact on over all competition between the generic players for such moves, as their will be mounting competition from more number of new entrants and emerging players, entry barrier in Indian generic pharmaceutical market being quite low.

Conclusion:

In the globalized economy where the ‘world is flat’ such types of business consolidation initiatives are inevitable. The domestic Indian companies across the industry are also in the prowl for suitable global targets, which are at times of world class ‘Crown Jewels’ like Arcelor, Chorus or Jaguar/Land Rover. Pharmaceutical industry is, therefore, no exception.

By Tapan Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.