Where is the way out for Guocai to accelerate the implementation of generic chemical companies?

Under the background of the normalization of mass procurement, chemical generic drug companies are actively seeking to break the situation.
Some companies extend upstream and integrate development to control costs; some companies innovate and deploy first generic drugs and transform and upgrade; some companies actively expand overseas sales channels and develop overseas
.

01

01

Introduction to the chemical generics industry

Introduction to the chemical generics industry

(1) R&D process and characteristics of generic drugs

According to the latest registration system classification, categories 3 and 4 are generic drugs
.

The research and development path of domestic innovative preparations is mainly imitation, and confirmatory clinical trials are required before the registration classification is changed

Table 1: R&D cycle of generic drugs of 3 and 4 categories

Source: According to public information

(2) Domestic and foreign pattern

At present, the proportion of American generic drugs in prescription drugs has reached about 90%, and the proportion of the amount is only about 10%; while the proportion of Chinese generic drugs is still more than 70%, accounting for a relatively high proportion
.

With reference to the US path, the proportion of total domestic sales of generic drugs will show a downward trend in the future

Figure 1: Market share of sales of generic drugs, expired patent drugs, and patent drugs between China and the United States

Source: According to public information

02

02

The development trend and characteristics of the chemical generic drug industry

The development trend and characteristics of the chemical generic drug industry

(1) Industry concentration has increased, and the development trend of vertical integration of enterprises is significant

In 2015, the "Water Ten Measures" policy had a profound impact on the API industry.
Many small and medium-sized API companies closed down and permanently withdrew from the market
.

According to data from the National Medical Products Administration (NMPA), in 2015, China's API and preparation manufacturers reached 5,065, but in 2016, it dropped to 4,176

Figure 2: The number of Chinese API and preparation manufacturers

Source: NMPA

The price of mass-purchased preparations has dropped significantly, and the trend of vertical integration of generic drug companies is obvious
.

According to the official website of Guocai, the average price cuts of 5 batches of "4+7", expansion, and second, third and fourth rounds of nationally produced generic drugs are all above 50%

(2) The first generic drug has become an important part of enterprise development

The patent cliff is approaching, driving the upsurge of generic drug research and development
.

Since 2012, the annual sales scale of original research drugs with expired patents has been between 30 billion and 60 billion U.

Figure 3: 2012-2026 global patent expiration may affect the sales of original research drugs

Source: EvaluatePharma

The first generic drug has a significant price advantage
.

After the expiration of the patent of the original research drug, both the original research drug and the generic drug experienced a cliff-edge price reduction, especially after the patent expired one year after the overall decline was 51% (the reduction of oral drugs was 66%)

Figure 4: The number of generic drugs and the relative price ratio of original research drugs

Source: FDA, IMS

The first generic drugs of domestic high-quality generic drug companies have a good market competition pattern
.

Domestic companies such as Hengrui, Hausen, Xinlitai, Zhengda Tianqing, East China and other companies focus on high-quality generic drugs, which have been recognized and supported by a large number of institutions and clinical experts, and have established brand advantages

Table 2: The market competition pattern of some first generic drugs and original research drugs

Source: Comprehensive Drug Database

(3) Enhance the international competitiveness of China's generic drugs

In recent years, assisted by domestic consistency evaluation policies, a large number of generic drug companies have survived the fittest, and are also actively exploring export markets on the premise of improving their own quality.
The number of abbreviated new drug applications (ANDA) approvals filed by Chinese pharmaceutical companies for export to the United States has continued to rise.
In 2018 Ushered in the highest volume in history, a total of 99 ANDA approvals have been obtained, of which 80 ANDA approvals have been approved, 19 are tentative approvals; 65 batches were obtained in 2019
.

Figure 5: The number of ANDA approvals granted by Chinese companies from 2009 to 2019

Source: FDA

Huahai Pharmaceutical is a representative of the export of preparations
.

During the period 2015-2019, Huahai Pharmaceutical obtained about 80 ANDAs.

03

03

A Brief Analysis of the Development of Generic Drug Industry in Typical Regions

A Brief Analysis of the Development of Generic Drug Industry in Typical Regions

(1) United States

After the United States promulgated the "Drug Price Competition and Patent Term Compensation Act" (Hatch-Waxman Act) in 1984, the ANDA pathway for generic drugs was established, and the amount of generic drugs gradually increased
.
Generic drug manufacturers only need to prove that the dosage form, specifications, active ingredients, and route of administration of the generic drug are the same as the original drug, and have the same BE as the original drug, and no longer need to pass clinical trials
.
For the first time, the bill allows generic drug manufacturers to challenge the patents of original drug manufacturers from the regulatory approach to ensure FDA approval and market entry
.
Since then, the number of prescriptions for generic drugs in the United States has risen from less than 20% to nearly 90% in 2018
.

IMS data also shows that in the US pharmaceutical market, the proportion of generic drugs in prescription drugs increased from 66% in 2009 to 86% in 2017, although prescription amounts only accounted for 13% (compared to patent drugs, the price of generic drugs is very low) , But the prescription volume undoubtedly occupies the mainstream
.

Figure 6: The proportion of US generic drug prescriptions from 2009 to 2017

Source: IMS, National sales perspectives

Figure 7: Proportion of US generic drug prescriptions from 2009 to 2017

Source: IMS, National sales perspectives

In October 2012, in order to cope with the shortage of staff and the backlog of approvals caused by the increasing number of applications for generic drugs, the US Congress passed the Generic Drug Companies Payment Act (GDUFA Act), requiring pharmaceutical companies to pay FDA review fees and inspections for generic drug applications Facilities cost fees
.
This system has been strictly enforced by the FDA since 2015
.
While charging generic drug companies, the GDUFA Act also promises the timeliness of approval, which objectively promotes the acceleration of generic drug approval
.
The average approval cycle for generic drugs has been significantly shortened from nearly three years in the past
.
For some varieties that can pass all the approval procedures at one time, the limit approval period only needs 9 to 10 months
.

Figure 8: Number of ANDA approvals in the United States from 2013 to 2019

Source: FDA

(2) Japan

Before “promoting the use of generic drugs” was established as a national policy in 2007, the replacement rate of generic drugs in Japan was only 32.
5% in 2005, which was at a low level among developed countries.
This was at the time when Japanese medical circles did not understand generic drugs.
There is a greater connection between deep and lack of confidence
.
As the Japanese government launched a series of popularization activities from top to bottom, and carried out corresponding active guidance in the medical insurance payment policy, the replacement rate of generic drugs began to rise rapidly after 2010, reaching 39.
9% in 2011, and in 2019 It has reached 72.
6%, basically achieving the 80% target of the Ministry of Health, Labour and Welfare
.
Although there is still a gap compared with the high level of 90% substitution rate of generic drugs in the United States, Japan has caught up with European developed countries such as Italy, France, and Spain, and is close to the average level of around 75% of developed countries in Europe and the United States
.

Figure 9: Substitution rate of Japanese generic drugs

Source: Ministry of Health, Labour and Welfare, Japan, Flint Creations

According to the latest edition of the Drug Price Benchmark Catalogue in 2018, 9254 generic drugs accounted for 56.
3% of all prescription drugs, 2.
4 times the number of original drugs
.
Calculated by the amount of prescriptions, generic drugs account for only 15%, which is 20% of the total share of all original research drugs
.

Table 3: Status of prescription drugs on the market in Japan

Source: Ministry of Health, Labour and Welfare, Japan

Generic drugs show a leading agglomeration effect, with the top 6 companies occupying 30% of the market share
.
After 2006, the number of Japanese generic drug companies remained at around 30
.
Among them, in 2016, Japan's pharmaceutical companies with generic drugs as the main business reached 32, accounting for about 30% of the number of prescription drug companies and 11% of all pharmaceutical companies in Japan
.
In terms of market share, the top six leading companies, Nikkei, Sawai Pharmaceutical, Towa Pharmaceutical, Meiji Seika Pharmaceutical, Yangjintang and Nippon Chemical Pharmaceutical together account for about 36% of the market share
.

Figure 10: The number of Japanese generic drug companies and their share of pharmaceutical companies in recent years

Source: Ministry of Health, Labour and Welfare, Japan