Pillhead

the personal views of a doctor in industry

Why would we sell generic drugs rather than branded ones?

with one comment

I am on the side that finds it difficult to see the synergy between what we do on the ground every day and selling generic drugs. In spite of us, big pharma continues its march down the road of licensing and buying generic drugs, and sometimes even buying entire generic firms lock-stock-and-barrel (Big Pharma Adds to Generics Medicine Chest, WSJ).

 

The top reason why this strategy cannot work: ethical standards.

 

Our field force and medico-marketing arms are tightly regulated both internally, and externally through local industry body codes of conduct and international bodies such as IFPMA. The american firms also have the US Foreign Corrupt Practices Act (FCPA) to follow.

 

Rather than argue the point of how ethical or not we are in reality, I want only to point out that the strongest generic competitors are not beholden to the same regulations. The playing field is not level.

 

The second reason why this strategy will not work: competitive edge.

 

Unlike pharma firms, generic companies have been competing head to head with identical drugs with thin margins for years. We have always had scientific differentiation between us and our competitors. Pharma could always find a niche for its products to live in. We are not trained, and certainly not ruthless enough, to compete in a non-scientific arena.

 

The third reason, and the one I am least knowledgeable on: overhead costs.

 

We did not begin embracing generic drugs until the patent cliff could be avoided no longer. It is fair therefore to assume we are doing so to fill the hole while we develop some new drugs. When these drugs arrive, we will need the medical and marketing muscle to scientifically differentiate from our competitors again and so we cannot strip these people from the organisation just yet.

 

A model involving big overheads and selling drugs with thin margins is not something I would necessarily invest in.

 

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Written by Pillhead

May 23, 2009 at 8:33 am

Posted in pharmaceutical industry

Tagged with ,

One Response

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  1. I thought the motivation for Big Pharmas buying generic makers was so they could keep portions of the “pie” that would be otherwise totally lost to generic businesses. I do not really think this strategy will be of great benefit for sustaining most companies although maybe we are at looking from positions in the industry as I do disagree to certain degrees to your reasons:

    Generics (in US at least) are subject to strict regulations (ANDAs) not too dissimilar to that for NDAs. The playing field is not level because, except in rare cases, generics do not have to conduct thorough Clinical Trials to demo Safety & Efficacy (since already done). Generics do get to template off of published technical know-how and standards but still require some expertise to manufacture acceptable quality (If by ethics differences you talk about labor, environmental and modern quality controls then would agree less equivalent). Generic in many cases do not reinvest in “innovation” whereas Pharma usually dedicates significant monies back into R&D so again an area that is hugely different.

    I do agree generics compete on thin margins typically, and does rely on groundwork established by branded products. At the same time, even though it likely in reality “few in number” I would suggest there are enough of those that are “ruthless” enough to compete in non-scientific arenas and their acts have resulted in a poor reputation of Pharma.

    In terms of overhead costs (manufacturing area I know most about) I see two dynamics that hurt Pharma. Most generic are produced in Far East (lower labor, less waste concerns and less mature quality systems) so base overheads are lower. However another point is Pharma has long operated with “big margins” so did not stress much efficiency in manufacturing, particularly in early stages. Generics often are more modeled on traditional chemical production than most Pharmas and such operations have always had to run at maximum efficiency to survive.

    Finally with all the cuts and R&D and other missteps I am not sure where/when those newly developed drugs will come so why would Pharma strip medical and marketing muscle? (sorry I always believed was more fatty tissue). In the past several decades most Pharma has moved away from long-term thinking/strategies and largely have chased the “quick buck”, which unfortunately seems most is what “stockholders” only care about (at least what we are told). Generics may offer option to pull in some fast returns however in the end will undercut viability if Pharma loses it way.

    CMCguy

    May 25, 2009 at 8:03 pm


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