QualitecFarma Regulatory & Business Strategies

THE GENERICS IN SPAIN – PRACTICAL GUIDE 2012 THE ROYAL LAW-DECREE 9/2011 AND ITS CONSEQUENCES

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The recent Royal Law-Decree 9/2011 (RDL) will provoke a radical change in the Spanish Pharmaceutical Market. The Decree imposes the mandatory prescription by Pharmaceutical Active Ingredient (API) or INN (International Non-Proprietary Name when there are generics in a given molecule and strength. This regulation by itself changes the up to now current market rules, as the pharmacists will decide what to dispense, and any promotional action over doctors is not necessary anymore.

But the Decree goes further and makes the prices for Innovator (patent off) and the INN Generics equal. Therefore, there is no differerence between both groups, which traditionally follow different commercial strategies. Additionally, the Decree imposes for all the products under those circumstances the LOWEST PRICE (the cheapest generic price) in fact, as the pharmacist is forced to dispense at that price.

The foreseen consequences are:

• There will be a NEW GENERICS MARKET in Spain:  patent off Brands and INN Generics
• The medical promotion disappears, except for those specialties protected by patent.
• All the companies must decreases their Operational Expenses in order to survive
• The NEW GENERICS COMPANY must be reinvented and it must adopt a new portfolio building strategy, being more Biomedical and less Chemical.
• The smallest companies in generics must downsize their structures drastically, and to find their right portfolio or territorial niche.

This Guide analyses the RDL and describes the changes in the market, as well as try to foresee what the market will be until 2017. With those reasons, we try propose a new model in generics for Spain (and likely for many other EU countries, where the crisis will force the Governments to take similar initiatives. We consider the present business model is exhausted, and it is the moment to give the way to “Supergenerics”, new “OTC-generics” and Biosimilars.

But, on the other hand, we have to be very frank and to assume this future will demand much higher development costs for new generics. From moderated investments as today, about 1 million Euros, likely we need to calculate even 100 million in some cases. This is logically a new dimension and a new company size, and not all the companies can afford it.

We offer a detailed financial situation for most important generics companies in Spain, based on Mercantile Registry Accounts in order to qualify them for facing successfully this future (national companies).

Finally, the future will not be for everybody, the conditions in Spain are becoming harder and tighter.

The author:

Angel Calvo. He has a background in Chemistry and Biotechnology, as well as in Business Administration. He has developed his entire career in the Healthcare Business. In the late 80´s and first 90´s he occupied executive positions in international companies such as Hofmann-La Roche and Pharmacia, both in the Hospital and Retail Pharma Business, as well as in Diagnostics. In the late 90s he established Pharmastrategy SL, a consulting company that was the origin of his own pharmaceutical company ACYPHARMA/ACYFABRIK, afterwards acquired by Pliva DD.

Since 2000, he has been dedicated to the generics and OTC field in Southern Europe, having started up and managed several affiliates of multinational companies, such as Pliva, Dr. Reddy´s and Actavis, having contributed from the very beginning to build the generics industry in Spain. He has participated in many transactions: companies selling out and acquisitions, as well as mergers, and products in and out licensing. He publishes annually “Generics in Spain, Practical Guide, Retail and Hospitals”.

CONTENTS

0.- GLOSSARY OF ACRONYMS

1.- GENERAL COUNTRY SITUATION, ECONOMY AND HEALTH SYSTEM

1.1.- ECONOMY AND RISK
1.2.- Decentralized Health Administration: Multi-Budgetary System, Sustainability, Co-Payment and Incomes/Outcomes balance
1.3.-Health Public System Debt: Retail and Hospital Marketplaces
1.4..- The Royal Decree-Law 9/2011: A radical market transformation.

2.-The Royal Law-Decree 9/2011(RDL 9/11): A new world?

2.1.- What has been changed
2.2.- Regulation A: The prescription by API/INN
2.3- Regulation B and C: Homogeneous Groups (HGs) and Reference Price/Lowest Price
2.4.- Supply Chain Efficacy and Compliance: a big trouble
2.5.- The Patients and the continuous change of their medication
2.6.- Regulation D the 15% discount
2.7.- Regulation E: Products not affected by the RDL
2.8.- Auctions
2.9.- Hospital Products
2.10.- Major Consequences Summary.- Theory and Expected Reality

3.- THE MARKET: RETAIL CHANNEL, PRESENT AND FUTURE

3.1.- The Spanish Pharmaceutical Market in 2011 and the RDL 9/2011 effects
3.2.- The expected evolution until 2017
3.3.- The evolution beyond January 2012

4.- THE GENERICS MARKET BY MOLECULES

4.1.- The top ones
4.2.- Generics penetration on the market: Some Cases.

4.2.1.- ATORVASTATIN: generics are winning, at a high speed
4.2.2.- CLOPIDOGREL
4.2.3.- VALSARTAN, A VERY RECENT GENERIC, SOME MONTHS AGO
4.2.4.- IRBESARTAN, A GENERIC THAT DOES NOT KICK OFF
4.2.5.- ESCITALOPRAM, A CNS PRODUCT THAT SEEMS PROMISING FOR GENERICS
4.2.6.- PANTOPRAZOLE, AN OLD FRIEND

5.- THE MARKET: HOSPITAL CHANNEL, PRESENT AND FUTURE

5.1.- THE MARKET IN HOSPITALS
5.2.- THE MOLECULES IN HOSPITAL GENERICS MARKET
5.3.- Generics penetration on the market: Some Cases.

5.3.1.- Paclitaxel, a ruined molecule
5.3.2.- Piperacillin/Tazobactam: another ruined molecule
5.3.3.- Docetaxel, the blockbuster that is still entering the market
5.3.4.- Oxaliplatin, another price falling down
5.3.5.-  Imipenem, just launched on 2011

5.4.- Recalculating the Hospital Market with tender prices
5.5.- Tenders Mapping
5.6.- Conclusions on Hospital Generics Portfolio

6.- THE PLAYERS; AN ANNALYSIS ON PROFITABILITY AND STRATEGIES; WINNER AND LOSERS

6.1.- Measuring the profitability: accuracy
6.2.- The Retail Generics Companies
6.3.- The Hospital Generics Companies
6.4.- Companies operating in both channels
6.5.- The branded generics companies
6.6.- CINFA: A local leader trespassing borders
6.7.- TEVA: the “acquirer”
6.8.- NORMON; a multichannel company
6.9.- KERN; A solid position
6.10.- HOSPIRA, a leader in Hospital Generics
6.11.- COMBIX (ZYDUS CADILA), another Indian Project under questions. 6.12.-  SUN PHARMACEUTICALS; an Indian Project just starting up
6.13.- STADA; an excellent local management and uncertain future
6.14.-  MYLAN: A leader without growth
6.15.-  ACTAVIS: the risk in fast speed
6.16.- SANDOZ: the giant who deserves more market share
6.17.- INVENT: Mixing Branded Generics and INN Generics
6.18.- GES: The innovative company in Hospital Generics
6.19.- COMBINO PHARM: A portfolio that does not allow to grow
6.20.- ADAMED: A branded generics newcomer
6.21.- ALDO UNION: “SUPERGENERICS” IN RETAIL MARKET
6.22.- WANBURY, a branded generics company strongly affected by the reference price system
6.23.- PHARMAGENUS: A Generics Business Units inside a bigger Pharma Company
6.24.- APOTEX, one of the last multinationals arriving in Spain
6.25.- SOME RATIOS (BENCHMARKING)

6.25.1.-  OPEX RATIO OVER SALES
6.25.2.-  SALES PER EMPLOYEE AS MILLION EUROS and SALARY PER EMPLOYEES
6.25.3.-  GROSS MARGIN VS SALES EVOLUTION (companies with production)
6.25.4.-  RECEIVABLES TERM IN DAYS

6.26.- “STRESS” TEST FOR THE GENERICS COMPANIES IN SPAIN
6.27.-  Customers Appreciation
6.28.-  CONCLUSION FOR PLAYERS (COMPANIES)

7.- THE NEW COMPANY IN GENERICS; PRESENT MODEL IS EXHAUSTED, BOTH IN PRODUCTS DEVELOPMENT AND IN COMMERCIAL STRATEGIES

7.1.- The present model in portfolio building for generics: “Me too” for “Chemical Generics”
7.2.- The present model in Generics Companies for Commercial Promotion and Strategy
7.3.- New elements in a Generics Company Portfolio

7.3.1.- Difficult Generics and/or “Niche” Generics
7.3.2.- SUPERGENERICS
7.3.3.- OTC Generics, when a self-prescription is substituted
7.3.4.- The EXOs (not reimbursed pharmaceutical specialties)
7.3.5.- BIOSIMILARS

7.4.- THE IDEAL NEW GENERICS COMPANY
7.5.- How to carry out the change and who will be able to carry out it?
7.6.- Commercial Strategies: Sales Teams and Direct/Transfer Orders
7.7.- Conclusions

8.- PORTFOLIO BUILDING METHODOLOGY

8.1.- FILTERS FOR SELECTING THE PROJECTS
8.2.- Price Erosion Models
8.3.- Estimating our market share in units
8.4.- SALES AND COGS; GROSS MARGIN
8.5.- OPEX (Operating Expenditure) and CAPEX (Capital Expenditure)
8.6.- “PROFIT & LOSS ACCOUNT” FOR THE PROJECT
8.7.- RANKING ALL THE PROJECTS
8.8.- Conclusion

9.- GENERAL CONCLUSIONS AND SUMMARY

ANNEX 1: THE WHOLESALER OPINION

A1.1.- WHOLESALERS STRUCTURE IN SPAIN
A1.2.- MAJOR WHOLESALERS IN SPAIN
A1.3.- THE GENERICS AND THE WHOLESALERS
A1.4.- INTERVIEW TO A WHOLESALER EXECUTIVE

ANNEX 2: THE PHARMACISTS OPINION

A2.1.- THE PHARMACIES STRUCTURE IN SPAIN
A2.2.- PHARMACISTS AND GENERICS
A2.3.- RETURNED GOODS
A2.4.- INTERVIEW WITH A PHARMACIST

ANNEX 3.- CUSTOMER RELATIONSHIP MANAGEMENT SYSTEMS  (CRMS)