INNsight articles by Peter Wittner, Interpharm Consultancy

Having written last time about Astra Zeneca being on the ropes, this month I thought it worthwhile looking at a champion that is just the opposite and is happily beating all challengers – Teva.

The company has just issued its results for 2007 and they look impressive. Net sales for 2007 reached $9.41 billion, an increase of 12 percent over 2006 sales. For the fourth quarter of 2007 sales rose 13 percent to $2,576 million, compared to $2,277 million in the fourth quarter of 2006. Apart from the fact that this puts Teva into the top 20 of all pharmaceutical firms worldwide, it represents impressive growth at a time when competitive pressures are growing daily in the generic world.

Perhaps part of the explanation lies in the fact that the world’s generic No.1 has been reducing its reliance on generics. When looking at the figures in more detail some interesting trends emerge.

Let me quote two relevant points from Teva’s comments.

“For the full year 2007, global in-market sales of Copaxone® increased by 21 percent to $1,713 million, with U.S. in-market sales increasing by 19 percent,”
and
“Azilect® continued to make inroads among the existing products for the treatment of Parkinson's disease in the U.S. and Europe, with global in-market sales in the quarter of $34 million, a 79 percent increase over the comparable year period, while annual sales more than doubled compared to 2006, reaching $120 million”

Taken together, these two branded R&D products account for total sales of US$1,833, equivalent to 19.5% of Teva’s total turnover. Can it therefore still be considered as a generic company?

This is not actually merely a pedantic quibble over the meaning of the word “generic” or an argument about what constitutes a generic company. It is instead an invitation to readers to consider the direction in which the generic industry is evolving and whether Teva, as the leader is the forerunner of a new trend.

Let’s carry on with a brief look at the number two in generics – Sandoz. In the Novartis annual report for 2007, the company is described as follows:

“Sandoz - Dynamic performance with net sales up 20% (+13% in local currency) to US$ 7.2 billion, providing an incremental increase of US$ 1 billion thanks mainly to the US and Eastern Europe”

An analysis of the geographical breakdown shows that the US business accounts for 27% of Sandoz sales compared to Teva’s 55% so that it is not in as good a position as Teva to take advantage of the huge volumes available in the US generics market.

Nevertheless, this is not the point that I want to examine, but rather other comments about Sandoz further on in the Novartis report. Amongst the issues that they feel worth highlighting are

“Sandoz is leading the way in difficult-to make generics” and then “Crowning the difficult-to-make strategy are biosimilars.”…” In a precedent-setting decision in April 2006, Sandoz became the first company to obtain European approval for a biosimilar medicine, the human growth hormone Omnitrope”

So it is clear that both the leaders are turning themselves into hybrids that are moving away from the area of commodity generics to live somewhere on the border between generic and R&D company.

In an analogy that I have used elsewhere, I pointed out that it was easier in the old days to spot the difference between generics and R&D multinational companies. Just like the Westerns where the good guys wore white hats and the bad guys wore black, there was a clear differentiation and borderline between generics and R&D brands.

Not any more!

It is not just the leaders – many of the Indian companies for example are engaging in original R&D with the aim of developing new molecules that they can take to market. And in another departure, many generic companies have filed patents on incremental changes in various existing substances in an attempt to block off certain development avenues.

A new generic hybrid is emerging as the level of competition on commodity generics hots up and, like the monstrous hybrids that appear in science-fiction movies, these hybrids could well end up taking over the world.