a blurring of the lines? is "innovator" or "generic" becoming

A Blurring Of The Lines?Is “innovator” or “generic” becoming harder to discern?

MARCH 2008

Mike Chace-Ortiz, Director, Product Strategy, TS API IntelligenceSource: THOMSON REUTERS RESEARCH © THOMSON REUTERS

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The word on the street

• The distinction between innovators and generics is narrowing

• Innovators, hungry for profits and struggling against poor pipelines are fighting fire with fire and plunging into generics

• Generics, fighting a hypercompetitive, low margin business and too few patent expiries are being forced to redeploy talented scientific resources into novel R&D

Fact or myth? Following the money…

• To what extent are generics investing in innovative R&D?

• Are brand companies investing in generics?

• What brand revenue do generic companies raise?

• What generic revenues to innovators raise?

• What is the state of novel pipelines at generic companies?

• How does R&D spend compare between innovators and generics?

Where is the generic industry’s money being invested?

Just three short years ago…

Source: Thomson Reuters Research©THOMSON REUTERS

Global IsraelTeva /IVAX 5500

Global AustriaSandoz/Hexal 4600

Global GermanyMerck KGaA 2200

EMEA SloveniaKrka 600

US USMylan 1350

EU Germanyratiopharm 2000

Global IndiaRanbaxy 1150

EU+US GermanySTADA 1200

EMEA CzechZentiva 475

US USPerrigo/Agis 1400

Global CanadaApotex 1000

US USWatson/Andrx 2550

Global IcelandActavis/Pliva 1550

EMEA HungaryGedeon Richter 600

Focus HQSales $M

Global USHospira 2500

US USURL Mutual 500

US USBarr 1050

US USEndo 650

Pending

Pending

2005

Approximately $40bn later…

7500Teva 8831

8700Sandoz 5923

?ratiopharm 2245

?Covidien 1300

2300Barr 1832

?Sigma 2090

1310Actavis 1667

1156STADA 1830

?Krka 960

1900Watson 1980

580Dr Reddy’s 1375

7340Mylan 3810

675Zentiva 1994

1300Gedeon Richter 1359

CumulativeM&A SpendSales $M

2100Hospira 2690

?Apotex 1000

818Perrigo 1490

420Ranbaxy 1360

2008


M&A among generics has spread quickly to lower tiers

Acquirer Spend TargetSun (India) $450M Taro (proposed)

Ache (Brazil) $200M* Biosintetica

Wockhardt (India) $450M Morton Grove, Pinewood, Negma

Genepharm (Greece) $65M Douglas

Jubilant (India) $20M PSI

Nicholas Piramal (India) $18M Avecia Custom Synthesis Unit

Orchid (India) $4M Bexel US

Alembic (India) $37M Dabur’s non-oncology portfolio

Biocon (India) $43M AxiCorp GmbH (70% stake)

* Estimated figureSource: Thomson Reuters Research©THOMSON REUTERS

The impact of global generic consolidation: Australia

2005 Generic Market US$550M

Source: Australian Gov’t, IMS Health

Australian generics: 2008

Merged with Sigma

Acquired by Mylan

Acquired by Genepharm

Acquired by Apotex

Acquired by Novartis

Acquired by Hospira

Behind the big deals: biogenerics quietly pursued• Teva Acquires Cogenesys, Tianjin Hualida

• Hospira Acquires Bresagen, alliance with STADA

• STADA Establishes Bioceuticals

• Barr Acquires Pliva

• Apotex Continued investment in Cangene

• Where are Mylan, Watson and others?


How is the US generic branded industry faring?

Company Brand Sales

Key Branded Products

Teva $1700M COPAXONE, AZILECT

Watson $370M OXYTROL, ANDRODERM

Barr $300M SEASONIQUE, ENJUVIA

Mylan $90M Out-licensed nebivolol, divested branded business

Covidien $60M RESTORIL, TOFRANIL

Par $50M MEGESTROL, span out Strativa Pharma for R&D

Lupin $30M SUPRAX

Ranbaxy $2M RIOMET

APP - Separated from Abraxis BioscienceSource: Thomson Reuters Research©THOMSON REUTERS

Generic investment in novel R&D

0

10

20

30

40

50

60Te

vaHo

spira

Wat

son

Barr

Dr R

eddy

'sRa

nbax

yGe

deon

Apot

ex Par

Glen

mar

kNP

ILW

ockh

ardt

Torre

ntBi

ocon

Dabu

rLu

pin

Sun P

harm

aOr

chid

Review

Phase III

Phase II

Phase I

Pre-Clinical

Source: Thomson Pharma © THOMSON REUTERS

How much are generics spending on novel R&D?

Company Novel R&D Programs

R&D Spend

Average Spend/Program

Teva 51 $500M $9.8M

Hospira 6 $161M $26.8M

Watson 4 $47M $11.8M

Barr 18 $140M $7.8M

Dr Reddy’s 8 $65M $8.1M

Ranbaxy 6 $110M $18.3M

Gedeon Richter 16 $65M $4M

Apotex 7 $50M $21.4M

Par 3 $12M $4M

Glenmark 9 $10M $1.1M

NPIL 13 $32M $2.4M

Wockhardt 6 $17M $2.8M

Torrent 7 $14M $2M

Dabur 9 $10M $1.1M

Lupin 6 $35M $5.8M


DRL R&D ProfileAcquires US dermatology company, Trigenesis for $11M

Establishes Perlecan and invests $8M to develop 4 promising candidates

Signs deal to co-develop DRF2593 (balaglitazone) for Diabetes with Rheoscience

Signs deal to co-develop DRF1042 for oncology indications with ClinTec International

Signs deal with Ceragenix for novel dermatology compound

Signs deal with Sygnis for development of AX200 biologic API

Signs deal with Argenta to co-develop COPD candidates

250 R&D scientists

R&D Spend $65M

2004

2008


Glenmark R&D ProfileEstablishes Swiss subsidiary for biologics development

Out-licenses melogliptin to Merck KGaA for $31M (since terminated)

Sells rights to US development of oglemilast to Forest for $14M

Sells rights to Japanese development of oglemilast to Teijin

Licenses Napo’s crofelemer for development in India for $1M

Eli Lilly acquires TRPV12 antagonist portfolio for $45M

Dyax to identify antibodies on Glenmark targets

150 R&D scientists

R&D Spend $10M

Out-license revenues $35M

2004

2008


But are pipelines of ~10 molecules sustainable?

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Year of entry into phase

Su

cce

ss r

ate

'First pivotal dose' to 'First submission'

'First submission' to 'First launch'

'First human dose' to 'First patient dose'

'First patient dose' to 'First pivotal dose'

'First toxicity dose' to 'First human dose'

Source: CMR International © THOMSON REUTERS

Generic R&D: balanced but sustainable?

• Well-balanced portfolios

• Garnering interest (and revenues) from out-licensing

• In-licensing and applying sophisticated technologies to identify new candidates

• Many de-risking by spinning-off R&D (DRL, Sun, Wockhardt)

• Can pipeline productivity overcome success rates?

• Are pipelines large enough?

• Is R&D spend sufficient for large-scale clinical development?

BUT

Where are innovators spending their money?

Innovators: also busy with consolidationCompany M&A Spend Targets

J&J $2593M Pfizer Consumer, Cordis, Animas, TransForm

Pfizer $2480M CoVX, Coley, Biorexis, Rinat, Vicuron

GSK $4470M Domantis, Praecis, Pliva Res, CNS, ID

Novartis $13170M Chiron, Eon/Hexal, NeuTech

Sanofi-Aventis $520M Zentiva (25% stake)

Roche $4260M Ventana, BioVeris, NimbleGen, Curagen

AZ $16390M Medimmune, CAT, Arrow, Kudos, Atlantis

Merck & Co. $1950M Sirna, Novacardia, Glycofi, Abmaxis

Abbott $3740M Kos, Isis

Wyeth 0 -

Bayer 0 -Source: TS Research

R&D spend continues to mount

J&J 7125

Pfizer 7599

Sanofi 4537

Abbott 2255

Roche 6873

Bayer 3032

Wyeth 3109

Merck & Co 4783

GSK 6772

AZ 4042

R&D Spend$M

Novartis 6430

BMS 3067

Amgen 3366

Eli Lilly 3132

BI 2293

Source: TS Research, PhRMA© THOMSON REUTERS

Cost of launching an NCE continues to rise

25th percentil

e

75th percentil

eAverage

Standard deviation

Standard error

Industry(n=20)

$M782 1235 1064 311 70

Source: CMR International © THOMSON REUTERS

US NCE Approvals 2001-2007

0

5

10

15

20

25

30

35

2001 2002 2003 2004 2005 2006 2007

Source: Newport Horizon Premium™ © THOMSON REUTERS

Too many companies, too few products

0

10

20

30

40

50

2008 2009 2010 2011 2012 2013 2014 2015

Molecules Losing Exclusivity in Germany and USA2008-2015

US LoE German LoE

Source: Newport Horizon Premium™ © THOMSON REUTERS

Current pipeline activity looks to continue the trend


How are Top 10 innovators invested in generics?

Company Sales R&D Generic Sales Strategy

J&J $53,300M $7152M Patriot $20M* Authorized generics

Pfizer $48,350M $7599M Greenstone $850M* Authorized generics

GSK $42,810M $6772M Exited generics in 2005

Novartis $37,020M $6430M Sandoz $5923M Traditional generics

Sanofi-Aventis $35,650M $4537M Winthrop $150M* 25% stake in Zentiva ($625M)

Roche $33,550M $6873M Authorized generic deals in ARVs

AZ $26,500M $4042M

Merck & Co. $22,636M $4783M Authorized generic deal with Mylan

Abbott $22,476M $2255M Spun out Hospira in 2005

Wyeth $20,351M $3109M Launched generic PROTONIX

* Estimated figure


How about Top 20 innovators?Company Sales R&D Generic Sales Strategy

Bayer $18,216M $3032M Exited in 2002

BMS $17,914M $3067M

Eli Lilly $15,691M $3132M

Amgen $14,268M $3366M

BI $13,284M $2293M Roxane, etc $825M Traditional generics

Nycomed $12,700M $1476M

Schering-Plough $10,594M $2188M Warrick $50M* Authorized generics?

Takeda $10,285M $1638M

Genentech $9,248M $1773M

P&G $8964M $250M

* Estimated figureSource: Thomson Reuters Research©THOMSON REUTERS

Conclusions

• Intra-industry consolidation remains the dominant activity

• Top generics investing in biogenerics capabilities

• Little development of branded business at generics

• Top and mid-tier Indian generics investing small amounts in novel R&D with some success

• Little interest in generics from innovators

• Many generics de-merging their novel R&D businesses

What’s next?

• Pattern of intra-industry consolidation likely to continue

– BRIC countries and other mid-tier markets

• Biogenerics will open a new growth avenue for generics

– Will they drop their novel R&D?

• Is Indian novel R&D sustainable at current levels of productivity and investment?

• China as the next lowest cost, capable R&D location?

Thank You!

Mike Chace-Ortiz

Senior Director, Product Strategy

Thomson Scientific API Intelligence

Portland, ME USA

Email: [email protected]

Phone: +1 207 871 9700 extension 24

http://scientific.thomson.com/generics

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