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Generics companies as R&D; experts |
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In one of the first reports that I wrote on the generic industry, I made the point that the borderline between generic companies and R&D companies was becoming increasingly blurred and ill defined. No doubt, you have all long since rushed out and bought a copy, but for those who missed it I can summarise as follows. In the good old days the situation was simple because it resembled a cowboy film; the good guys (R&D companies) wore white hats and the bad guys (generic copiers) wore the black hats. Logically speaking, originators should do expensive R&D to invent new molecules and generic companies should invest nothing in R&D and just make cheap copies. Over the years, though, the picture had become a little muddier – R&D companies (Novartis and Merck) have invested in the generic area and generic companies (for example Teva) have invested in R&D and launched their own NCEs. Likewise the Croatian company Pliva has entered into a joint venture with another generic company, Mayne, to continue development of a biosimilar G-CSF (granulocyte-colony stimulating factor for those unfamiliar with the product) More surprisingly, though, companies such as GSK have reached agreements with companies such as Ranbaxy to implement an R&D joint venture in certain therapeutic areas. Thus, it seems that the borderline between the two sides of the industry is becoming increasingly blurred and ill defined as each side strays over the border into the territory of the other. It seems to be the case that the major movement comes from the generic side. Such companies often circumstantially establish research and development capability in order to develop methods of manufacturing and formulating a generic drug that does not infringe the multitude of patents that protect innovator products. Generic companies then devote an increasing part of this resource into some form of research that will help to lift themselves out of the commodity generics trap. This need not go as far as an NCE or other startling breakthrough. In many cases, the research may intend to produce some sort of “supergeneric” that is on the one hand relatively inexpensive to develop but on the other hand sufficiently different from the standard generic to allow some extra price and profit margin. Nevertheless, some generic companies have gone a step further and engaged in research that has produced a new molecule. The ironic point here is that they then have to patent their invention in order to protect it from companies like themselves! It is this ability to make possible breakthroughs that has attracted the interest of the theoretical enemies of the generic industry, namely the branded R&D side of the industry. A recent report from Frost & Sullivan suggested that the combined value of the Indian & Chinese market for outsourced R&D was around US$7 billion and could rise to US$ 19.8bn by 2011. Whether these figures are right or wrong is not for me to say, but they do reveal evidence of a trend in outsourcing that seems illogical at first glance. When originators companies have built up enormous R&D skills and experience over the years why would they want to allow another, potential competitor company, to carry out R&D on their behalf? One possible answer may be a belated recognition that, along with building up their R&D skills and experience, the originators have in many cases also built up major bureaucracies that stifle rather than encourage risk taking and innovation. In other words, the originator companies have become risk averse and have ended up strangling innovation as evidenced by the falling numbers of NCEs introduced over the last few years. By contrast, generic firms for the most part are relatively lean and mean, since their margins do not support bloated headcounts of the type seen in so many “Big Pharma” companies. This means that they are also relatively quick to respond to situations and have low cost operations. This is particularly so in India with an R&D researcher in that country being paid a quarter of a US researcher’s salary or possibly even less than that. The Indian generic companies themselves, like generic companies everywhere are looking for ways out of the earnings trap of high volume, low priced commodity generics. For them, too, R&D represents a possible way out and, given their other advantages they represent a probable source of future innovations. Not only that, but they will probably become a source of NCEs for the more experienced R&D industry who have the know-how and resources to properly develop and market these NCEs that generics players lack. The R&D industry has accepted the existence of the generics industry and to a degree come to terms with them. Now it seems as though the two sides are exploring a completely new relationship.
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