Replies to post #2501 on The Rising Influence of Rising Affluence

[DewDiligence]

NVS’ Year-over-Year Sales Growth in BRIC Countries



(1) These figures exclude H1N1 sales and the contribution
from Alcon (which wasn’t fully owned in 1Q10).

Source: http://www.novartis.com/downloads/investors/event-calendar/2011/2011-q1-novartis-investor-presentation.pdf (page 5)

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ABT’s 1Q11 sales in emerging markets grew 38% year-over-year:



The 38% figure is somewhat artificial insofar as 2010 sales (but not 2009 sales) include the Solvay (#msg-41922225) and Piramal (#msg-50436738) acquisitions; however, even on an apples-to-apples basis, ABT’s 1Q11 sales in emerging markets grew more than 20% YoY.

Note the 117% growth in the Established Pharmaceuticals unit, which is where branded generics reside.

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Yet another indication of the importance of emerging markets to the pharma industry—SNY is dropping the “Aventis” from its corporate name:

http://en.sanofi-aventis.com/binaries/20110506_PostAG_en_tcm28-32372.pdf (page 2, top)

Part of the reason for the name change is that “Sanofi-Aventis” is difficult to pronounce in Chinese!

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PFE inks MoU for branded generics in China:

http://finance.yahoo.com/news/Pfizer-and-Hisun-Sign-MOU-to-bw-624151727.html?x=0&.v=1

Pfizer Inc. and Zhejiang Hisun Pharmaceuticals, a leading pharmaceutical company in China, today jointly announced the signing of a memorandum of understanding (MOU) on their intention to establish a joint venture. This potential partnership would aim to strengthen the ability of both companies to reach more patients with high-quality and low-cost medicines in the branded generics arena.

As I’ve stated on numerous occasions (e.g. #msg-61960596), the future of the pharma industry lies in selling branded generics in emerging markets. By now I must sound like a broken record, but I will keep beating the drum because many investors still don’t get it.

[DewDiligence]

AZN Expands Presence in Russia

[AZN’s own PR is at http://www.astrazeneca.com/Media/Press-releases/Article/20110616astrazeneca-extends-its-investment-in-russia .]

http://online.wsj.com/article/SB10001424052702304186404576389194143222306.html

›JUNE 16, 2011, 12:33 P.M. ET
By STEN STOVALL

LONDON—U.K.-based AstraZeneca PLC said Thursday it plans to build a state-of-the-art research and development center in Russia, a move that will bolster its position in that potentially huge market and allow it to bypass tougher regulations on imported medicines.

The planned investment will be the latest in Russia by a global drug maker, and will bring AstraZeneca's overall investment commitment in Russia to $1.2 billion over the next five years.

"This is one of the key markets for us globally that we've decided to invest in. We're not doing this everywhere," Chief Executive David Brennan said in an interview.

Russia is seeking to draw foreign investment in local pharmaceutical plants to reduce dependence on imported medicines, and has warned global pharmaceutical companies they will face restrictions if they fail to establish manufacturing facilities and transfer technology to the country.

"The Russian government has been pretty clear that they would like more direct investment from the pharma industry specifically. I was here [in Russia] a couple of years ago and had that conversation with a couple of ministers and ultimately we came back with a plan on how to do it," Mr. Brennan said.

As a result, AstraZeneca plans to build a research and development center in St. Petersburg, Russia's second largest city, to take advantage of local scientific talent and focus on developing biological information, data analysis methods, software and systems to better predict the safety and efficacy of potential new medicines.

Earlier this year, AstraZeneca began building a new $150 million manufacturing facility in the country's central Kaluga region to supply Russia with locally manufactured medicines.

Mr. Brennan said the Russian government hadn't yet had the chance to respond to AstraZeneca's latest investment decision.

"The Russia government's reaction to our investment in the manufacturing facility was extremely positive. This will be in addition to that and I think it demonstrates our continued commitment to investing here in Russia. This is yet another step, and I imagine there will be others," he said.

AstraZeneca has around 1,000 employees across 68 cities in Russia and sells about 40 of its drug products there.

Russia currently relies on imports for around 80% of its medicine needs but the government has leverage over foreign suppliers through state-subsidized drug purchases for the poor.

"We have gone through the process of prioritizing markets, looking at five years of business investment opportunities from a capital expenditure perspective," Mr. Brennan said.

"We've put a manufacturing facility on the ground, increased investment in R&D, we've increased the size of our marketing and sales organization to be as competitive as we can be, we're looking at different ways of operating here—this is an enormous market geographically so we're looking carefully at how we reach out to the more remote areas of the country. So what you see here is the unfolding of our strategy for Russia."

The move reflects the growing importance of emerging markets for the U.K. drug maker. Mr. Brennan said he wants revenue generated in such markets to grow from around 20% of AstraZeneca's total sales to between 25% and 35% by the end of 2014.

He said the R&D site will employ local people as well as scientists who are flown in to help launch it.

"That's what we did when we started the research facility that we put in Shanghai: we put some of our own people, Chinese people, in there from other R&D places from other parts of the world, and we also hired locals."

"My guess is that we'll do the same sort of thing here. We'll probably bring in a few people from the R&D organization of AstraZeneca that can help them navigate through the process and also attract people locally who we think fit the bill."‹

[DewDiligence]

Re: Branded generics in emerging markets

ABT’s 2Q11 sales of branded generics in emerging markets grew 25% YoY to an annualized rate of $3.1B. ABT’s 2Q11 overall sales of drugs and devices in emerging markets grew 26% YoY to an annualized rate of $10.4B.

NVS’ 2Q11 sales (branded + generic) grew 36% and 20% YoY, respectively, in China and India. (NVS does not disclose sales numbers or growth rates for emerging markets in the aggregate.)

[DewDiligence]

NVS expects $2B+ annual Diovan sales after it’s off-patent in all countries:

#msg-65909846

[DewDiligence]

Sales Reps Vie for Doctors’ Attention in India’s Drug Market

[The name of the game in India—and most other emerging markets—is *branded* generics. See #msg-50473238, #msg-61960541, #msg-50436738, #msg-50022514, #msg-62037218 for related stories.]

http://www.bloomberg.com/news/2011-08-25/twenty-seconds-pit-glaxo-against-pfizer-in-india-s-drug-market.html

›By Adi Narayan - Aug 25, 2011

Two dozen young men and women toting backpacks and brochures mill around cardiologist P.L. Tiwari’s office in Bombay Hospital, waiting as long as 90 minutes for an opportunity to see him. They aren’t there for checkups.

They instead want to persuade the Mumbai doctor to prescribe their brands of prescription drugs. Tiwari, who sees about 50 patients a day, said he is so inundated by sales representatives he tries to limit their visits to Friday nights.

Pharmaceutical sales in India have increased an average of 14 percent annually since 2005, stoked by rising incomes and surging rates of heart disease, diabetes and cancer. India bans prescription-drug advertising, so GlaxoSmithKline Plc (GSK), Pfizer Inc. (PFE) and other companies are trying to tap the $12 billion market through a sales force of 100,000 that is predicted to at least triple by 2020.

“They often come pleading to me, asking me to prescribe their company’s drugs,” said Tiwari, 66. “I only give them 20 seconds or a minute. You can’t stop your consultation to entertain them.”

India’s 10 biggest pharmaceutical companies -- including Ranbaxy Laboratories Ltd. (RBXY), Cipla Ltd., Dr. Reddy’s Laboratories Ltd. and local units of Pfizer and Glaxo -- bolstered their combined sales forces by more than 6,000 in the fiscal year ended March 31, executives said on conference calls this month.

Brand Abundance

India has 92,000 [!] brand names of registered pharmaceuticals, according to a compendium of medicines sold in the country. The World Health Organization, in contrast, recommends 340 essential drugs.

“The number of medicine brands sold in India is at least 30 times that in the U.S. and Europe,” said C.M. Gulhati, editor of the Indian edition of the drug encyclopedia MIMS.

About 90 percent of prescriptions are generics, which their manufacturers seek to differentiate with unique names -- making them branded generics. Merck & Co.’s cholesterol-lowering Zocor is sold by Ranbaxy as Simvatin, by Cipla as Simcard and by Lupin Ltd. (LPC) as Starstat.

Prices of the brands can differ by as much as 75 percent for 10 tablets, according to MIMS.

When prescribing medication, Indian doctors typically refer to brands rather than chemical names. Pharmacists are prohibited from substituting one generic for another, even if it’s cheaper, so drugmakers try to persuade doctors to think of their brands first.

One-Minute Meetings

There are at least 43 brands of blood-pressure pill olmesartan, which is sold by Merck as Olmighty and by Glaxo as Benitec. Pfizer sells a similar drug called Targit. All compete in a market for heart drugs that the All India Organization of Chemists and Druggists estimates is worth 66 billion rupees ($1.4 billion).

“It’s an extremely competitive industry, and I have to visit some doctors once every week,” said Avinash Singh, who markets medicines for Bafna Pharmaceuticals Ltd. (BFNA), one of India’s 5,000 drugmakers.

Singh’s job is to persuade Mumbai gynecologists to order Raricap, one of about 200 versions of a calcium-and-iron supplement.

“Each meeting will take one minute or so, but if we come regularly then they will hopefully prescribe more,” said Singh, who tries to meet at least 11 doctors a day.
‘Crowded Out’

He also visits neighboring pharmacies to gauge his success. Singh earns about 9,200 rupees a month plus quarterly bonuses for meeting sales targets.

There will be at least three medical reps for every 10 doctors by 2020, triple the ratio from 2005, McKinsey & Co. said in an October report.

“Sales representatives are getting crowded out of the doctors’ chambers,” especially in India’s largest cities, McKinsey said.

Competition and government-enforced price controls help keep prices low and make India one of the cheapest countries for pharmaceuticals. The price of 10 tablets of the antibiotic ciprofloxacin, sold by Bayer AG (BAYN) as Cipro for more than 20 years, fell 14 percent from 1996 to 2005, according to a March report from the Global Antibiotic Resistance Partnership.

Labor costs, which equal 10 percent to 14 percent of sales for at least five major drugmakers, have increased by at least 27 percent on average, according to Batlivala & Karani Securities in Mumbai.

Better Raises

Sales personnel receive better raises than other workers because of competition that prompts one in four recruits to change companies within a year. Ranbaxy, India’s largest drugmaker, agreed to boost pay for its medical reps by 20 percent to 40 percent this year, said K.B. Kadam, general secretary of the Federation of Medical Representative Associations of India, a union group.

Growth in salaries has outstripped productivity increases, with sales representatives at Ranbaxy, Cipla, Dr. Reddy’s and Lupin generating less revenue on average than they were two years ago, Edelweiss Securities Ltd. said in a report last month.

“Peer pressure has forced some companies to add more people than they are comfortable with,” said Nitin Agarwal, a pharmaceutical analyst at IDFC Securities Ltd. in Mumbai. “At some stage, you’re going to get no more gain from adding people. I think we should be close to that point now.”

‘Getting Ruthless’

Ranbaxy added almost 1,500 sales representatives last year. The company, based on the outskirts of New Delhi, expected the recruits to expand domestic sales by 15 percent to 20 percent each quarter, former Managing Director Atul Sobti said in May 2010. Instead, domestic sales growth slowed to less than 6 percent in the past two quarters.

The pharmaceutical industry’s influence in driving sales is facing resistance from the Medical Council of India in New Delhi.

The council -- the top government body responsible for setting ethical standards, granting doctors’ licenses and accrediting the nation’s 315 medical colleges -- is restricting corporate sponsorship of medical events, including paying for doctors’ flights and accommodations.

“Even the pharmaceutical industry, the big players, they also agree with us in principle,” Council Secretary Sangeeta Sharma said. “They’re also sick of this kind of practice. It is getting ruthless.”

Doctor Training

The council is seeking a system requiring India’s 800,000 doctors to continue updating their knowledge and skills. For some doctors, sales pitches from pharmaceutical companies are their only source of new medical information.

Doctors in 23 of India’s 28 states aren’t required to undertake post-graduate training to maintain their accreditation. The council recommended in May that the health ministry require doctors to attend lectures and conferences, and read medical journals to continue practicing.

“Biased information from the industry is influencing doctor’s decisions,” said Pankaj Chaturvedi, a cancer surgeon at Mumbai’s Tata Memorial Hospital. “A medical representative is a sales person just like someone selling mobile-phone plans.”

In the office of Mumbai heart doctor Tiwari, medical reps flick through flipcharts and brochures while making their pitches for medicines including Pfizer’s anti-smoking drug Champix and Ipca Laboratories Ltd. (IPCA)’s Larinate, an injectable anti-malarial treatment.

Tiwari hears all 30 within eight minutes.

“They’re waiting for hours and hours, and just to satisfy them, we listen,” Tiwari said. “What benefit is a doctor going to get from their short speech?”‹

[DewDiligence]

AZN Buys Guangdong BeiKang Pharmaceutical for Undisclosed Price

[The impetus for the deal is branded generics.]

http://www.reuters.com/article/2011/12/08/astrazeneca-china-idUSL5E7N64D820111208

›Thu Dec 8, 2011 2:00am EST
By Ben Hirschler

LONDON, Dec 8 (Reuters) - AstraZeneca is stepping up its drive into emerging markets by buying a Chinese maker of generic injectable antibiotics.

The move highlights the growing importance of markets like China for international drugmakers, even as healthcare reforms in the country lead to some slowing in recent rapid growth in demand for medicines.

Britain's second biggest drugmaker said on Thursday it was buying privately owned Guangdong BeiKang Pharmaceutical for an undisclosed sum under a deal set to close in the first quarter of 2012.

The Chinese firm's five injectable treatments will be marketed using the AstraZeneca brand, once they are manufactured to its global standards, which AstraZeneca expects to take until mid-2013.

So-called branded generics -- off-patent drugs that command a premium to those made by local suppliers, because the Western drugmaker's name is a proxy for quality -- are a hot area for many global pharmaceutical manufacturers.

Companies like GlaxoSmithKline, Sanofi and Pfizer have all made a big push into the field.

AstraZeneca, by contrast, has been somewhat more cautious.

The Chinese deal is only its second such acquisition, following the purchase of the generics portfolio of Rontag in Argentina in 2010, although it also struck licensing and supply deals last year with Indian generic drugmakers Torrent Pharmaceuticals and Aurobindo Pharma.

Overall, AstraZeneca expects emerging markets to account for 25 percent of its global sales by 2014, up from 17 percent in the third quarter, though branded generic medicines are expected make up only 10 to 15 percent of that total.

CHINA IS KEY

For AstraZeneca, China is the most important single driver, according to Mark Mallon, head of the its Asia-Pacific region.

Thanks to early entry into the market, back in 1993, AstraZeneca is already the second biggest foreign drug company in China, after Pfizer, with turnover of more than $1 billion in 2010, and the company recently announced a $200 million investment in a new manufacturing facility in Taizhou.

"The Chinese market has seen a slowdown this year ... but we will deliver double-digit growth," Mallon said in a telephone interview.

"As we look forward in China, we continue to see it as a very strong growth market. Can I tell you whether it is going to be 20 or 18 or 21 percent? That's hard to forecast. But from a strategic standpoint, this remains the biggest growth opportunity that we have."

His views echo those of Novo Nordisk Chief Executive Lars Sorensen who said on Monday that its annual Chinese sales growth was set to bounce back to around 15 percent after a one-off fall for his company in the third quarter.

Those kind of growth rates contrast with the fall in sales that AstraZeneca is facing in key Western markets as many of its top-selling medicines lose patent protection, prompting the company to retrench. It announced a reduction of 1,150 positions in its U.S. sales force on Wednesday.‹

[DewDiligence]

WPI acquires Australia’s Ascent Pharmahealth, a generic drugmaker, for $393M in cash:

http://finance.yahoo.com/news/Watson-Acquires-Ascent-prnews-1606344724.html?x=0

As a result of the acquisition, Watson becomes the fifth largest generic pharmaceutical company in Australia based on revenue, and the combined company will be the second largest in terms of total molecules. Watson also becomes the largest generics company in Singapore and gains an established commercial base in Malaysia, Hong Kong, Vietnam and Thailand.

[DewDiligence]

MRK forms JV with Brazil’s Supera Farma Laboratorios to sell branded generics:

http://finance.yahoo.com/news/Merck-Establishes-Joint-bw-1896037739.html?x=0

[DewDiligence]

Why penetration of generic generic drugs in emerging markets tends to be low:

#msg-74694216

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China threatens compulsory licenses for certain branded drugs:

http://www.reuters.com/article/2012/06/08/us-china-medicines-patents-idUSBRE8570TY20120608

China has overhauled parts of its intellectual property laws to allow its drugmakers to make cheap copies of medicines still under patent protection in a move likely to unnerve foreign pharmaceutical companies.

…The amended Chinese patent law allows Beijing to issue compulsory licenses to eligible companies to produce generic versions of patented drugs during state emergencies, or unusual circumstances, or in the interests of the public.

The deliberate language in the last quoted sentence above is used to slip through a rather wide loophole in the WHO rules that generally require enforcement of foreign company’s patents.

It remains to be seen whether China’s new polciy is merely a threat to gain leverage on the pricing of patented drugs or is the first step toward India-like compulsory licenses; in either case, the result will be lower prices for certain on-patent branded drugs in China.

So, is this policy change a disaster for drug/biotech companies? I think not. Many branded drugs sold by multinational drug companies in emerging markets already face cheap generic competition, but such branded generic drugs sell well because consumers want the quality assurance that comes with a product from a big-name company such as PFE or ABT and are willing to pay a higher price to get it.

For related info, see #msg-61960541 (and the 30+ replies to that post), #msg-66551481, #msg-50473238, #msg-39315651, and #msg-63363435.

[DewDiligence]

LLY Inks Deal for Branded Generics in China

[Notably, this collaboration is not limited to LLY’s drugs. For related info, see #msg-61960541 (and the 30+ replies to that post), #msg-76432774, #msg-66551481, #msg-50473238, #msg-39315651, and #msg-63363435.]

http://finance.yahoo.com/news/lilly-expands-strategic-partnership-chinese-110000068.html

›12-Jun-2012 7:00am ET

• Lilly Expands Strategic Partnership with Chinese Manufacturer Novast to Serve Chinese Patients with High-Quality Branded Generic Medicines

• Lilly will increase equity position in Novast by $20 million

• Novast will set up a platform to supply Lilly-branded generic medicines

INDIANAPOLIS and NANTONG, China, June 12, 2012 /PRNewswire/ -- In support of its commitment to maximize growth opportunities in China, Eli Lilly and Company (LLY) today announced an increase of its network of manufacturing capabilities in this key emerging market country through an expanded collaboration with Novast Laboratories, LTD. Novast, a generic and specialty pharmaceutical company based in Nantong, China, has established high-quality systems and manufacturing facilities for the global and domestic Chinese markets. Lilly expects its expanded collaboration with Novast to greatly enhance its efforts to build a portfolio of Lilly branded generic medicines in China. The collaboration may also ultimately result in Novast providing local and regional manufacturing capabilities for Lilly's own pipeline of potential new medicines in development.

As part of the agreement, Lilly will increase its equity position in Novast by $20 million. Lilly made an initial equity investment in Novast several years ago through the Lilly venture capital unit, Lilly Asian Ventures. Novast has committed to set up a platform to support Lilly branded generic products and increase the manufacturing capacity at its Nantong site over the next several years, with Lilly providing technical support to enhance quality standards. The additional capacity will support the collaboration, but will not be solely dedicated to Lilly products. The two companies have selected an initial list of medicines across multiple therapeutic areas that will be manufactured by Novast once the facilities are operational. Additional terms of the agreement were not disclosed.

"We are excited to expand our collaboration with Novast. As we develop a platform of high-quality Lilly branded generic medicines in China, we are supporting the Chinese governments' current 5-year plan, which calls for significant improvement in the quality of medicines in the pharmaceutical industry," said Jacques Tapiero, Lilly senior vice president and president of Emerging Markets. "In Lilly's emerging markets business, we are focused on providing patients with innovative medicines from our own pipeline, as well as select Lilly branded generic medicines that meet our quality standards. The additional manufacturing capabilities provided by Novast will allow us to better deliver on that strategy."

"In China, Lilly is building for the future by investing across our value chain," said Eric Baclet, president and general manager of Lilly China. "We have made significant investments in research and development, increased our commercial presence to better serve patients and healthcare providers, and expanded our manufacturing capabilities both at Lilly owned sites and through partner companies such as Novast. We are committed to help meet the medical needs of the Chinese people by providing innovative medicines of the highest quality."

"This long term strategic partnership will combine Lilly's expertise in innovation, commercialization and operations with Novast's strengths in product development and quality manufacturing," said Dr. Guohua Zhang, president and CEO of Novast Laboratories. "We are committed to helping Lilly bring high-quality medicines to patients in China and potentially other countries. We are looking forward to working together constructively and cooperatively in the years ahead to achieve our business objectives."

"At Novast, quality is our main focus. In every market we serve, and every regulatory body we work with, we feel that we have a moral responsibility towards the consumer. That is the overriding quality benchmark we employ in producing our products," said Prasad Pinnamaraju, senior vice president and chief operating officer of Novast Holdings, LTD.‹

[DewDiligence]

Factoid—$290B of worldwide branded-drug sales are going off-patent between now and the end of 2018, according to EvaluatePharma:

http://finance.yahoo.com/news/patent-expirations-put-more-290-100000108.html

According to the same firm, worldwide sales of patented branded drugs—a classification that excludes branded generics—will grow at a measly average annual rate of 3% per year (not adjusted for inflation) to $885B in 2018.

The ramifications are obvious: branded generics in emerging markets are the future growth engine of the pharma industry. For related info, please see #msg-61960541 (and the 30+ replies to that post), #msg-63363435, and #msg-66847069. For additional color on specific countries, see #msg-66551481, #msg-50473238, and #msg-39315651.

[DewDiligence]

Yet another reason why branded generics from multinational companies are a big business in emerging markets:

http://www.reuters.com/article/2012/06/18/us-china-drugs-idUSBRE85H0AD20120618

[DewDiligence]

PFE, MYL ink collaboration to develop branded generic drugs for Japan:

http://finance.yahoo.com/news/pfizer-mylan-team-establish-exclusive-210000740.html

No financial terms were disclosed.

Although Japan is generally considered a developed market, the low penetration of generic drugs makes Japan’s pharma industry similar to that of an emerging market country.

[DewDiligence]

PFE, Hisan ink JV to sell branded generics in China and other emerging markets:

http://finance.yahoo.com/news/pfizer-hisun-announce-launch-hisun-030000718.html

Pfizer Inc., the world’s largest research-based pharmaceutical company, and Zhejiang Hisun Pharmaceuticals, a leading Chinese pharmaceutical company, today announced the launch of Hisun-Pfizer Pharmaceuticals Co., Ltd. (hereafter referred to as Hisun-Pfizer), a joint venture formed between the two companies to develop, manufacture and commercialize off-patent pharmaceutical products in China and global markets. The creation of the joint venture marks an important milestone in strengthening the ability of both companies to reach more patients with high-quality and low-cost medicines in the branded generics arena.

…Off-patent medicines, including branded generics, represent one of the fastest-growing segments in the global pharmaceutical market. This is especially true in emerging markets, where cost and access are primary drivers of off-patent medicine growth. In China, branded generics account for 70% of the domestic pharmaceutical market.

.. Hisun-Pfizer has an aggregate investment of USD 295 million and a registered capital of USD 250 million. Hisun holds 51% of the share and Pfizer holds 49%. The registration facilities and production plants of the joint venture will be located in Fuyang, Zhejiang province, while the Management Center and R&D Center will be located in Shanghai and Hangzhou, respectively.

The parties will contribute select existing products to the joint venture, which will have a broad portfolio covering cardiovascular disease, infectious disease, oncology, mental health, and other therapeutic areas. The parties will also contribute manufacturing sites, cash and other relevant assets. The joint venture aims to build a robust sales network that covers most areas and hospitals in China and to enter the international market by leveraging on Pfizer’s global business networks.

[DewDiligence]

SNY acquires Genfar SA, the second-largest generic-drug company in Colombia:

http://en.sanofi.com/Images/31181_20121002_GENFAR-Acquisition_en.pdf

The acquisition price was not disclosed.