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Carla Vozone, business development manager for generics, and Manuel Lourenço marketing & sales director, of Hovione look at Simvastatin as a case study in the supply of off-patent APIs
The supply chain of off-patent APIs has been through a number of changes in the past few years. Originally, independent API suppliers developed, manufactured and sold APIs to supply local generics houses in essentially national markets. Today, there are billion dollar multinational generic houses, vertically integrated into API manufacture and carrying out synthesis and/or fermentation.
Sandoz, for example, has owned Biochemie, a world leader in fermentation, for some years. It recently acquired Lek, probably in part to access its fermentation capabilities and so strengthen its position in the generic Augmentin market. Teva recently bought Sicor, as well as some plants from Honeywell. These large groups have multinational distribution and manufacture APIs. Nevertheless, they also source active ingredients from independent producers in the product-by-product collaborations traditional in the generics industry.
The selection criteria that the vertically integrated generic firms use for their API product development is unclear. What is certain is that an integrated strategy is only likely to succeed if it is implemented with above average capabilities in its execution along the whole value chain. Teva, for instance, is highly regarded for the way its management maximizes marginal returns; it can access the available production capacity that will make extra production possible for that extra tender at that borderline price and thus improve overall profitability.
Another noteworthy trend is the growing business of registration dossiers in Europe. The key differentiators of the players in this field, like Synthon and Substipharm, are know-how in regulatory affairs, careful monitoring of patent situations and an early start. Because of the SPC legislation and the absence of Bolar exemption in Europe, registration houses do their validation lots with the help of Far Eastern API sources and/or formulators in patent-free locations (Iceland, Malta and Turkey have all been used) and sell their registration dossiers all over Europe, thereby gaining significant control over the supply chain.
Undoubtedly, this type of business brings short-term gains to the generics houses, because it accelerates market access; companies can enter the market with a generic product one day after patent expiry with minimum resources and avoid the patent constraints that Europe-based producers face. However, the long-term gains are less certain, as multiple registrations lead to price erosion and margins are squeezed. There are cases, like simvastatin, glucophage or paroxetine, where formulation prices dropped by over 60% in only a few months. These vicious downward price spirals raise the question of the API supplier’s sustainability in that product.
Traditional suppliers whose core business is the manufacture and supply of APIs, like Dipharma, Esteve, Hovione or Cambrex Profarmaco are not involved in the drug product business and focus on long-term relationships with customers, offering added value based on reliable service and technical expertise. These companies look for partnerships with pharmaceutical manufacturers rather than aiming to extend their control over the supply chain or making a quick buck.
The original patent on simvastatin, the API of Merck’s Zocor, expired in May 2003 in most European countries. As one of the top cholesterol lowering agents (HMG CoA reductase inhibitors) with worldwide sales of $5.58 billion in 2002, it naturally attracted the interest of several API producers. It is a good example of industry trends. The generic versions of Zocor were launched in Germany and the UK last May. They rapidly achieved sales of about €30 million in Germany in the first month alone, according to IMS Health. Their performance in the first quarter after launch suggest that the impact of the generic entry may not remain confined to this molecule but might affect the overall statins class market.
Indeed recent price pressures have led to growth in generic lovastatin prescriptions. Generic simvastatin may well cannibalise some of the sales of Pfizer’s Lipitor, if not Merck and SP’s Zetia. We are currently two years away from generic simvastatin’s entry in the US, where some 45 tonnes of API were sold in 2002. Traditionally, the volume of scripts more than doubles and the price more than halves after a generic market entry, so simvastatin might well grow into a product of >100 tonnes/year. Capacity is very likely to be an enduring issue, because simvastatin is technically difficult to make and lovastatin supplies are limited.