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Drug Patent Expirations Adding More Challenges to Pharmaceutical Supply Chains

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As patents on proprietary medicines increasingly continue to expire, the pressure on pharmaceutical supply chains continues to rise to meet business expectations and outcomes.

In late November, the very popular cholesterol-lowering drug Lipitor, which at its peak, generated over $12.9 billion in global revenues, became open for production by generic drug manufacturers. Generic drug producers Ranbaxy Laboratories, based in India and Watson Pharmaceuticals made plans to produce and distribute generic versions of Lipitor during 2012.  Drug maker Pfizer, the original patent owner came up with a novel idea to continue promoting the drug while piloting a direct distribution model to patients and their insurance carriers. To hold market share, the company made plans to sell Lipitor directly to patients at generic prices by partnering with Diplomat Specialty Pharmacy to mail the drug directly to patients via online prescription fulfillment.  A dual tier pricing model would be maintained, with generic pricing for Diplomat and higher pricing for existing Lipitor channels. The feeling at the time was that if Pfizer’s model was successful, it could become a model for other drug makers whose popular drugs came off patent. According to a recent Wall Street Journal article, after spending more than $87 million promoting Lipitor, Pfizer is quietly suspending its efforts to negotiate new contracts to sell this drug to health plans because these same health plans are signing up generic versions of Lipitor at far lower prices.

Another important area in proprietary drug development and production has been the area of cancer fighting drugs.  As we all know, these drugs have been extremely expensive, not only because of their rather large research and development investments but also the rather complex production and quality requirements involved in the drug’s supply chain. Many pharmaceutical manufacturers view the large populations and emerging economies of China and India as a new revenue growth opportunity for these drugs.  However, recent announcements from generic producers point to other challenges.

One of India’s largest generic drug makers, Cipla Ltd., recently announced that it would cut prices on its cancer medications by as much as 75 percent. According a Wall Street Journal report, the company indicated it would cut the price of its generic version of liver cancer medication Nexavar to $128 for a one month supply. Drug maker Bayer’s proprietary drug costs the equivalent of $5236 per month. Cipla also reduced the price of lung-cancer drug Iressa by as much as 60 percent, and the generic version of brain-cancer drug Temozolamide by 75 percent. Cipla’s chairmen attributed the cuts as a means to bring less costly cancer drugs to world populations, similar to what the company accomplished ten years ago for HIV medications. Cipla also indicated its plans to sell these generic versions in other developing countries where there are no intellectual property restrictions.

Supply Chain Matters recently called attention to an announcement from Samsung BioLogics, a division of South Korea based Samsung, that plans to produce generic versions of certain monoclonal anti body drugs by 2015. The company is targeting the opening of a new Korea based manufacturing plant by June, and seeks international regulatory approvals for the plant by the end of this year. A Samsung executive made note that while certain pharmaceutical companies excel in drug innovation and sales strategies, they may lack volume and process based manufacturing expertise. Governments among economically challenged populations are willing to support price disruptors in order to provide affordable healthcare for their citizens.

Many other medicines have drug patents expiring this year including Diovan, for the treatment of high blood pressure, Plavix, for the treatment of blood clots, Singular, for treating asthma, and Tricor, for treating high cholesterol.  Each has been a high revenue generator, generating large numbers of patients.  With current building global-wide pressures directed at health care cost control, each of these medicines can be lucrative for volume oriented generic producers.

To combat these trends, some pharmaceutical companies have turned toward a merger and acquisition strategy to replace or augment their proprietary drug pipelines.  Some manufacturers have called for a tiered pricing strategy, offering a drug at different pricing, depending on a country’s level of economic development.  That, however, provides an opportunity for an increase in grey market supplies, as drugs purchased in lower-priced countries are re-distributed to more lucrative higher priced countries.

Generic manufacturers are also shifting to meet increased scale value-chain efficiency challenges. Watson Pharmaceuticals recently announced a $4 billion acquisition deal with European based Actavis Group, with the potential to become the third largest global generics manufacturer.

In all cases, pharmaceutical and drug supply chains will have to rise to the challenges of an increasingly disruptive market place reflecting higher levels of global competition and innovation in supply chain production and distribution. In addition to M&A Supply Chain Matters advises the industry to also consider additional investments in global supply chain value-chain efficiencies, business intelligence and response management.

Manufacturers may gain by adding a new proprietary drug to their product portfolio, but will always need globally competitive supply chains to sustain industry competitiveness and agility.

Bob Ferrari

©2012 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters Blog.  All rights reserved.

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