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Pharma Sector FAQ
China is not a threat yet?
China is a manufacturing powerhouse in sectors like Textiles, Metals and Commodities, where it derives significant cost advantage through economies of scale. By its very nature, pharmaceutical manufacturing is a batch-process industry, wherein economies of scale are relatively less important and do not result in significant cost advantage. Though China’s labor costs may be less than India’s, the latter enjoys a lead over China in critical determinants like chemistry skills, compliance to strict international regulatory norms, scientific skills, MNC comfort, etc. For instance, India has the largest number of US-FDA approved facilities outside USA, while China has very few such facilities. India accounts for 25-30% of global DMF filings while Chinese companies contribute a minuscule percentage. Hence, we do not expect China to be a major threat to India in the CRAMS space in the next five years despite having the advantage of lower labor costs.
We have heard Oncology APIs command higher margins than other APIs. Is that true, why?
There are broadly 3 streams – Oncology, Hormones & Steroids that command higher margins.
This is basically because it costs a lot to put up manufacturing facilities for these streams, usually 5-6x than normal, as these drugs require specialized handling. These facilities require stringent entry procedures and isolation chambers/procedures to reduce risks of product contamination, cross-contamination and also protecting people from hazards and toxicity. These are as mandated by the regulatory Authorities. Scaling up proves very costly and barriers to entry are strong.
Consequently, there is less competition and hence more margins.
What kind of regulations govern the marketing of APIs, Formulations and Intermediates?
Pharmaceuticals are a heavily regulated sector. API manufacturers need to file a document known as Drug master File (DMF) with regulatory bodies. DMFs are filed with USFDA, MHRA UK, Japan and other country specific bodies for receiving a marketing authorization grant. A DMF provides the regulatory authority with confidential, detailed information about facilities, processes, or articles used in the manufacturing, processing, packaging, and storing of one or more drugs.
Typically, a DMF is filed when two or more firms work in partnership on developing or manufacturing a drug product. The DMF filing allows a firm to protect its intellectual property from a potential partner while complying with regulatory requirements for disclosure of processing details.
A Formulations player can only use APIs from sources with approved DMFs. Formulation players have to submit samples and documentation for product registration such as ANDA (Abbreviated New Drug Application) using an API source with approved DMFs. It’s difficult to change API partners as it involves a lot of paperwork and re-submissions.
Use of Intermediates by API suppliers are not regulated.
What is the difference between terms like API, Bulk drugs, Intermediates, Finished Dosage, and Formulations that are common jargons in the Pharmaceutical Industry?
API – Active Pharmaceutical Ingredient – is the basic drug itself with the desired medicinal (pharmaceutical) properties. Also referred to as Bulk Drugs.
Intermediates – Most chemical reactions are stepwise, that is they take more than one elementary step to complete. An API is a result of a complex chain of chemical reactions in several steps. Intermediates are stable forms a few steps away from the final API e.g. API -3, or API-5.
Finished Dosage or Formulation – is the form in which the drug is consumed by us. A dosage form of a drug is usually composed of two things: The API, which is the drug itself; and an excipient, which is the substance of the tablet, or the liquid the API is suspended in, with other masking, stabilising and binding agents/material that is pharmaceutically inert.
APIs are supplied by Pharmaceutical manufacturers to Formulations players or for own consumption for in-house Formulations. Intermediates are supplied to API manufacturers for reducing time-to-market.
How are Indian Generic companies affected by GDUFA?
Introduction of GDUFA (Generic drug user fee Act passed into Law July 2012) in US. As per this act, the generic companies are required to pay user fees to USFDA, for application of drugs and manufacturing facilities. This fee will be utilized by USFDA to engage additional resources in order to reduce current and pending applications and speed up the approval process.
This will probably lead to some escalation in ANDA filing fees. Time will tell how significant an impact this will have and whether this will affect the pace of filing of Abbreviated New Drug Application (ANDA).
International Generics Pharma business is pursued successfully by many Indian companies. Kindly demystify jargons like ANDA filings, Para IV, Para IV FTF, NDA and 505 (b) 2 filings.
Para I,II, II, and IV pertain to what is called ANDA filings – Abbreviated New Drug Applications
Para III – Actually Para I, II and III filings all pertain to patent-expired drugs. Non-Litigation category
Para IV = These are allowed to be filed – post 5 years of a NCE patent grant by USFDA for a generic version of the Innovator drug
Para IV FTF = 180 day exclusivity = Para IV First to File is another category where even before the first five years are over a company can challenge. If approved that company gets an 180 days exclusive approval to market its generic version of the Innovator drug. This can prove very lucrative for the challenger if granted. On the other hand there are Litigation Risks where the Innovator tries to prove that the challenger has infringed on its patent/process while developing the generic version.
Then there are what are called NDA filings – under which 505 (b) (2) falls.
505(b)(2) = larger period exclusivity = These are meant for a bio-similar, but completely new product. It’s made from a different salt and/or a totally different process. The FDA in its discretion (depending on the benefits/costs of development) awards a higher exclusivity period. For example for our NDA Desvenlafaxine Base Extended Release (bioequivalent version of the innovator drug Pristiq by Pfizer) was approved with a 21-month exclusivity.
How would you qualify the impact on Indian pharma companies?
a) Companies having lower proportion of domestic sales vis-a-vis exports are obviously less affected
b) Companies that derive significantly higher proportion of Sales from Chronic therapies (Specialty segment) are unlikely to be affected much
There is a lot of policy overhang recently on the Sector. The Indian Drug Price Control Order (DPCO) and the US GDUFA being two instances. Kindly Comment?
The drug price control order (DPCO) continues to be a menace for the industry. There are three tiers of regulations – on bulk drugs, on formulations and on overall profitability. This has made the profitability of the sector susceptible to the whims and fancies of the pricing authority. In connotation, with pricing policy of 354 drugs, NLEM (National list of essential medicines) was released, which covered the list of the drugs which the authority intends to put under price control. The policy has been stiffly opposed by the pharmaceutical industry.
Indian Domestic market – Acute and Chronic Therapies – breakups.
India is primarily a retail-based branded generic market with 80% dispensed through pharmaceutical outlets. As in most emerging economies, acute therapies dominate and account for close to 70% of the market. Acute Therapies – target short duration diseases – cough & cold, fever, pain – such as anti-infectives, analgesics, pain-killers.
Chronic therapies – target lifestyle diseases and/or recurring in nature – such as diabetes, cardiovasculars, ophthalmology, and products used to treat central nervous system ailments, are growing faster than acute therapy.
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Overview of the Indian Pharmaceutical Industry
The Indian Pharmaceutical industry is highly fragmented with about 24,000 players (around 330 in the organised sector). The top ten companies make up for more than a third of the market. The Indian pharma industry accounts for about 1.4% of the world’s pharma industry in value terms and 10% in volume terms.
Besides the domestic market, Indian pharma companies also have a large chunk of their revenues coming from exports. While some are focusing on the generics market in the US, Europe and semi-regulated markets, others are focusing on custom manufacturing for innovator companies.