0
INTRODUCTION
This year the generic drug industry reaches its 40th anniversary. It was in 1984 that the US Drug Price Competition and Patent Restoration Act Commonly known as the “Hatch-Waxman Act” created a regulatory pathway for the introduction of lower-cost generic drugs. This act laid the foundation for the global development of generic drug markets by simplifying the approval process for generics, while ensuring safety and efficacy, and helped establish the balance between innovation and affordability. After the United States, other countries followed suit in the development of their own generic drug markets.
In 1984, when the Hatch-Waxman Amendments were enacted, generic drugs accounted for only 19% of all prescription drug purchases in the United States. Today, generic drugs account for more than 90% of prescriptions filled and there is a continued rise in the availability of generics.
In 2022, the total market for generic drugs worldwide was estimated to be at around 412 billion USD. The market is expected to increase to more than 600 billion USD by 2030, with an expected Compound Annual Growth Rate (CAGR) of around 5%. But what is really impressive is that only in US annual savings from generics and biosimilars exceeded $408 billion in 2022, an increase of $35 billion from 2021 (1).
Despite the continued growth of the generic pharmaceutical market, the generic industry in regulated markets is facing significant challenges that could affect the sustainability of competition for low-cost medicines:
- Price Erosion: Generic prices can fall rapidly. For instance, the price in US can fall by an average of 40%, and in some cases, by as much as 95% after the introduction of generics. In Europe the generic medicine prices have been subject to long-term declines due to stringent pricing policies. This, coupled with rising operational costs driven by inflation, threatens the sustainability of competition in off-patent drug markets. The balance between low prices and production costs is becoming increasingly difficult to maintain.
- Global Competition: India, with its lower production costs, dominates the global generics market. Indian pharma companies supply around 20 per cent of the worlds’ generics (2).
- Drug Shortages: An alarming symptom of this market fragility is the increasing frequency of drug shortages. The pressures of maintaining low prices, while facing rising costs, have contributed to supply disruptions, highlighting vulnerabilities in the generic drug supply chain.
Portfolio Management For Generics: a complex puzzle-solving exercise
Portfolio management plays a crucial role in the generic pharmaceutical industry. However, the process of selecting candidates is highly complex, as the launch of a molecule and subsequent return on investment can be delayed by more than a decade. Few industries face such complexity, where decisions made today can have a profound impact on the future of a company. Furthermore, the generic industry is highly competitive, and even though generic companies start the development well in advance, there is no guarantee of commercial success as unexpected factors can affect the outcome of the project.
Given these unique challenges, portfolio managers must develop the foresight to anticipate long-term outcomes. While perfect prediction is unrealistic, they can enhance their skills by treating their role as a complex puzzle-solving exercise. Making informed decisions requires a deep understanding of the company’s strategy, manufacturing and technical capabilities, as well as gathering and analyzing data from various sources, such as therapeutic potential, intellectual property (IP) landscape, regulatory requirements, and market data. Understanding these components is crucial for visualizing the complete picture, enabling managers to make strategic decisions that align with both short- and long-term business goals.
To support this exercise it is essential that portfolio managers are backed by a cross-functional team of experts from departments like R&D, IP, regulatory, operations and business development.
All starts with a well defined and clear strategy
Portfolio management in the generic industry may focus on developing a portfolio for active pharmaceutical ingredients (APIs) or finished dosage forms (FDFs) (or both, in the case of vertically integrated companies). For both scenarios, the methodology is largely similar, with only certain differences in the specific knowledge required for each area. However, for both the starting point for implementing a successful portfolio management role within the company is always gaining a deep understanding of the company’s strategy. If the strategy is unclear or not well-defined, the portfolio manager should assist in clarifying and shaping it.
While this may seem like an obvious step, I have observed many companies developing future portfolios that are misaligned with their strategy. Examples include setting unrealistic growth expectations that are unattainable given the composition of their portfolio or cherry-picking projects without ensuring alignment with the company’s strategic goals.
In this initial phase, it is also crucial to assess and clearly understand the company’s strengths and weaknesses. This analysis provides critical insights into where the company can capitalize on its advantages and where improvements or risk mitigation are necessary. Once again, I have seen companies targeting more projects than their available R&D resources or pursuing initiatives beyond the scope of their core expertise.
Once these two pillars are well understood, portfolio managers should establish a dynamic decision-making process within the company, incorporating a structured methodology to regularly review and update the portfolio with key stakeholders. In this process, new projects should be evaluated, selected and prioritized; existing projects may be accelerated, killed or de-prioritized; and resources allocated to the most critical projects.
Right Number of Projects and portfolio balance are also two key aspects in portfolio management. Right number of projects may depend on resources and investment available and balance may be defined through internal parameters; for example, long-term projects versus short-term ones; or high-risk projects versus low-risk ones; markets, technologies or product categories. Portfolio managers should support their decision with simple and effective financial models.
Project lifecycle should be also responsibility of Portfolio Managers
Another common practice I have observed in some companies is restricting the portfolio manager’s responsibility to project selection, without involving them in the entire product lifecycle. A portfolio manager should play a strategic and comprehensive role within the organization, overseeing not only the selection of projects but also contributing to key decisions throughout the development, regulatory submission, launch, and commercial stages. This broader involvement ensures alignment with the company’s long-term objectives and market needs, ultimately driving more successful outcomes.
Emerging Portfolio Management Challenges
For more than 15 years, I have been closely monitoring drug approvals from regulatory agencies such as the FDA and EMA. In recent years, I have observed two main trends that increase the complexity of project selection:
- New drugs targeting rare diseases: Innovation in rare diseases has surged due to strong regulatory incentives, combined with advances in genomics and precision medicine, leading to an increase in orphan drug approvals. Specifically, in 2023, of the 34 small molecule drugs approved by the FDA, 47% were designated as orphan drugs, therefore targeting small or niche patient populations (3). Ten years ago, the landscape for these products was vastly different, dominated by blockbuster drugs targeting large patient populations. This shift has made portfolio management for generic pharmaceutical companies more complex, as these products cater to very small populations, leaving limited space for multiple generic competitors. As a result, companies now face greater challenges in maintaining profitability, as they can no longer rely on volume.
- Oncology remains the leading therapeutic area: Oncology continues to be the most prominent and researched therapeutic area, accounting for 41% of new FDA approvals in 2023 for small molecules or related R&D activity, highlighting the strong focus on advancing cancer treatments. According to IQVIA (4), oncology remains the focus of the pipeline comprising 44% of clinical trials. The rapid pace of development and the introduction of innovative mechanisms of action being more effective mean that generic versions of oncology drugs face a high risk of being quickly replaced by more efficacious molecules. On the other hand, with the number of cancer patients expected to grow and cancer increasingly being treated as a chronic disease, this area remains a critical focus.
In light of these challenges, companies will need to continue navigating the complexity of establishing a robust and profitable portfolio. Generic companies will need to develop internal capabilities not only to analyze data but also to understand the industry’s evolving challenges. The key to survival will be achieving differentiation through specialized portfolios or exploring innovation, such as value-added medicines or 505(b)(2) products—though this opens another chapter in the field of portfolio management.
CONCLUSIONS
To sum up, portfolio managers should take a holistic approach within the organization, being responsible not only for proposing new products but also for overseeing them throughout the entire product journey. To build confidence among stakeholders in this complex role of optimizing the company’s portfolio, their decisions must be grounded in strategic alignment, technical expertise, and reliable data, and a deep understanding of key aspects of the generic industry, such as trends, competition, intellectual property and regulatory requirements.
REFERENCES AND NOTES
- Report: 2023 US Generic and Biosimilar Medicines Savings Report | Association for Accessible Medicines (Internet). (cited 2024 Oct 15). Available from: https://accessiblemeds.org/resources/reports/2023-savings-report.
- https://blogs.deloitte.co.uk/health/2020/03/the-indian-pharmaceutical-industry-the-pharmacy-of-the-world.html
- FDA Approvals 2023. Annion Consulting SL. www.annionpharma.com
- Global Trends in R&D 2024. Activity, productivity and enablers. February 2024.
ABOUT THE AUTHOR
Ana Gavaldá, Ph.D., is the founder and Principal Portfolio Manager Consultant of Annion Consulting S.L., a specialized boutique firm offering services in Portfolio Management, Market Research, and Toxicology for the pharmaceutical industry. With over 20 years of experience in R&D and strategic positions in the pharmaceutical industry, Dr. Gavaldá possesses deep knowledge of the generic and value-added medicines market. Her strategic insights help clients define a tailored portfolio management methodology aligned with their company strategy.
Login now to read the full article
Don’t have an account yet? Subscribe now, it’s free!
Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt.
All pubblications
archive from 2022 to today
All articles
PDF Version
Receive our latest issue alerts
directly to your mailbox
