FOCUS: Generics a bitter pill for big drug firms

24 April 2007 11:15  [Source: ICIS news]

By Cheok Soh Hui

 

SINGAPORE (ICIS news)--Generic drugs have created a big buzz in the global pharmaceutical industry recently.

 

From Abbott Laboratories’ move to back down from a confrontation with Thailand’s government over patent protection to Japan’s renewed drive to convert its sceptical consumers from branded drugs to generics, big pharmaceutical firms may have to rethink growth strategies.

 

Generic drugs currently dominate markets in Europe and the US, fuelling moves by multinational pharmaceutical companies to look to emerging markets for growth. However, Abbott’s recent move in Thailand to lower the price of its AIDS medication on the proviso the government doesn’t violate its patent, could be a signal for other developing nations to lobby for lower prices on other branded life-saving drugs.

 

Thailand said in February it would act in the interests of public health by making generics available for Abbott’s patented drugs.

 

The Illinois-based drug company responded by saying it would lower the price of its AIDS drug, known both as Kaletra and Aluvia, in 40 developing countries including Thailand. The new price of $1,000 per patient per year was lower than that for generics and about 55% less than the current average market price of the branded drug in these countries, it added.

 

The development underscores key concerns plaguing multinational drug companies:  the influence of government control, growing power of the generics drug industry and dwindling global growth prospects for patented drugs.

 

In Japan, the world’s second largest pharmaceutical market after the US, generics account for only 16% of sales as consumers and physicians shy away from them due to safety concerns. However, that mindset is expected to change amid a recent drive by the government to push generics to cut healthcare costs as the country’s population ages.

 

“Besides an ageing population, a widening income gap in Japan would also escalate government healthcare costs,” said Shakil Ohara, president and representative director of Hospira Japan, which focuses on contract manufacturing and products such as medical delivery systems.

 

Japan’s health ministry periodically reviews and cuts drug prices to make healthcare more affordable for its citizens. Price cuts of an average of 6.7% unveiled last year were the biggest since 2000.

 

However, such reductions could discourage pharmaceutical companies from investing in research and development (R&D) in order to produce new drugs, Ohara said.

 

“Perhaps the best solution is to encourage greater use of generics,” he said.

 

While there was potential for the growth of generic drug use in Japan, issues such as the public perception that generic drugs were unsafe needed to be addressed, he added.

 

Japan’s pharmaceutical companies must provide more information on generic drugs to doctors and consumers in order to create greater acceptance of the products and ultimately a bigger market share, said Itsuro Yoshida, president of Japan’s Generic Pharmaceutical Manufacturers Association.

 

Generics accounted for 53% of the US pharmaceutical market by volume, 55% in the UK and 46% in Germany, analysts said.

 

Amid growing demand for generics, winners include the likes of Indian drug companies such as Ranbaxy Laboratories and Cipla, which have been expanding aggressively locally and overseas in recent years.

 

Losers – for now – are the big pharmaceutical companies, struggling to find new markets in developing economies as most wealthy nations increase their consumption of generic drugs.

 

 

 

 

 

 

 

 

 

 

 

By: Cheok Soh Hui
+65 6780 4359

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