The notion that such regions as Asia, Latin America and parts of Eastern Europe will soon help compensate for stagnation and pricing pressures in the US and other developed nations has become an accepted mantra, even though specifics are rarely broken out for close analysis. However, one former Pfizer exec, who now runs a drugmaker based in Thailand, contends the strategy envisioned by the multi-national drugmakers is not always working out exactly as planned. We spoke with Amal Naj, a former senior vp at Pfizer who is ceo at Berlin Pharmaceutical Industry, a branded generics maker in Bangkok, and the newly established Paradigm Pharmaceuticals, which is affiliated with Berlin, about the changes he sees in markets such as Asia…

Pharmalot: So what exactly is happening on the ground?

Naj: Multinationals are entering the market with generics priced at 40 percent to 50 percent of the price of the original products, but the local generics companies in most cases are selling similar products at 15 percent to 20 percent of the original price. This is less than half the price of multinationals’ generics.

So the reality is that when you go in with sharply lower prices, their (multi-national) prices are still quite high. Go to hospitals and pharmacies and the pitch is you have to pay more for brand-name products. But no one is buying it. There’s a misperception that you can come with a high price. Some big companies, to compete locally, are shifting production to India, which now has the largest number of FDA-approved facilities outside the US. But a lot of generic companies are having their products made in the same facilities as the multi-national companies.

Pharmalot: And the implications are what?

Naj: Two things are happening. One is that the big companies can no longer say they’re different. We’ve contracted with a top-notch Indian company that runs an FDA-approved facility and – guess what? – there are multi-nationals that have their products made there, too. This allows us to say that our products are coming from the same place where the multi-nationals have their products made and that our quality is the same. So multi-nationals are challenged when they talk about quality.

And this is widespread. They’re not only having their own products manufactured in India, but also making each others’ products, off-patent products. They’re copying each others’ products. This is a big difference from the past. Five to 10 years ago, (when I was at Pfizer) we could never have imagined a competitor would copy our product and sell it in the same market, even after patents expired. The extent to which multi-nationals are copying each other now is widespread.

Pharmalot: Sounds like it’s become commoditized…

Naj: Multi-nationals are looking for additional sources of revenue, because they’re saying to themselves that, ‘If I confine myself to just my own products, I can’t compete.’ And so they’re having these products made in India and are exporting them to other markets in Asia and Latin America. It’s truly a commodity business. And they will be pushed to the point where it is a commodity business. You know, it’s like looking at a selection of coffee beans and saying this bean is from this country and that bean is from that country. But in some cases, the reality is the beans are made in the same place.

And it’s only going to get worse. The time will come when there will be no or little difference between the brand and locally made products. And so the arrogance that the multi-national companies have had – that their name will get them through the door – is not going to close the sale in the future. Their brand power is dissipating.

Pharmalot: Where does this leave the multi-nationals?

Naj: This market is moving so fast now. There are pressures on governments to lower prices. In the past, you know, the reputation for generics was quality that was not as good. But now, countries such as the Philippines and Thailand want generics. So this creates cost pressure. So the multi-nationals have been shopping around to buy lower-cost companies.

Again, the previous phase was to shift production to India for lower costs. Now, they have to partner with local companies or take them over. The advantage is that you have a ready customer base, which wants of course, a low cost. But the challenge can be that the local company practices can be difficult to accept. The standards may not be up to GMP, so it creates a problem, maybe even a liability [EDITOR'S NOTE: Pfizer ran into such a problem last year with Aurobindo, which you can read about here.]

Pharmalot: Okay, so what do the big drugmakers do then?

Naj: So we’re going to see more joint ventures, co-marketing deals, acquisitions and contract manufacturing operations that will be retained on a profit-sharing basis. Meanwhile, some multi-nationals are withdrawing products from their portfolios and giving them to others to market, such as wholesalers that also do their own marketing with their own sales forces. They’re just outsourcing the marketing. This represents a change where the relationship with a doctor was once considered very important.

The bottom line is that they overestimated their ability to sell branded products in these markets. And it’s much harder to register products today compared with as recently as five years ago… We’re experiencing that. So another thing the multi-nationals will wake up to one day is re-registration. And registration requires data. Previously, everything done was overseas and was almost always automatically accepted. Now, there’s more interest in bioequivalence studies. And this will become a nightmare for many companies, including the local companies they rely on. What would make more sense is to, instead, license products to local companies.

Pharmalot: Your description contradicts the impression we’ve been getting the past few years.

Naj: In the long run, I wouldn’t be surprised if some of the big companies don’t withdraw from some of the (emerging) markets due to pricing pressures. You could tell change is under way if you attended the recent meeting of the Royal College of Physicians of Thailand meeting this spring. The multi-national booths were very small compared with years past. Some even shared booth space with local companies. And some of the local, domestic companies had bigger booths than the multi-nationals, and they were touting products that five or six years ago the multi-nationals would have touted.

Six or seven years ago, 90 percent of the space would be occupied by multinational companies, and there would be one generic company at most, tucked away somewhere. But at the latest event, multinational companies were completely dwarfed by the local generics companies. Some of the local companies had larger booths and a greater variety and number of products on their poster displays, and some of the big-name multinational companies were tucked away in the back, their booths tiny and cramped.

And equally interesting was that several of the multinational companies were touting generic products, and some of these generics were copies of originals developed and marketed by their competitors. Frankly, it all looked like a convention of generics companies to which multinationals companies had been invited to participate, a telling display of the major shifts taking place in the pharmaceutical industry which favor manufacturers that can produce high quality products with the lowest cost.

Things haven’t panned out exactly as they thought about making oodles of money. I know because they have to compete with prices that are very low. But they thought that being in these markets they will one day win. But all the multi-nationals are in the same boat. Meanwhile, the quality from more local companies is getting better and they are becoming more efficient.

By Ed Silverman