Indian quality woes point to generic drugs shake-out: Novartis

Indian quality woes point to generic drugs shake-out: Novartis
9:11am EDT
By Ben Hirschler and Caroline Copley
BASEL, Switzerland (Reuters) – Recent manufacturing problems in India suggest some makers of generic drugs will struggle to compete in the face of a rising quality bar, pointing to a likely a shake-out in the low-cost sector, according to Novartis.

Chief Executive Joe Jimenez said the Swiss group’s Sandoz unit – a world leader in making cheap off-patent medicines – was well placed to thrive in an era of tougher standards. Others, however, would not be able to upgrade and stay competitive.
“Some generic companies with lower margins are going to have a hard time building the quality into their systems,” Jimenez told Reuters in an interview.
“You’re talking about an industry where scale is going to become more important … I see this as a competitive advantage for a company like Novartis.”
In recent months, the U.S. Food and Drug Administration, citing quality control problems ranging from data manipulation to sanitation, has banned the importation of products from Indian firms such as Ranbaxy Laboratories and Wockhardt.
India supplies about 40 percent of generic and over-the-counter drugs used in the United States, and some U.S. doctors are becoming concerned about the quality of Indian generic drugs following a flurry of recalls and import bans.
Jimenez said the challenge of a rising quality bar was not unique to India, with Western firms including Johnson & Johnson and Novartis itself having run into problems in the past, but the issue would be acute for smaller players with limited resources.
“What was good enough five years ago is no longer good enough today,” he said.
“I think it is going to become very, very hard to be a small, sub-scale generics company because they are going to have to invest disproportionately in quality assurance assets that significantly change their cost structure and they may not become competitive on price.”
Some companies, as a result, may decide in future not to compete and sell their medicines into highly regulated markets like the United States and Europe, leading to a reshaping of the sector.
For Novartis, however, generic medicines would remain an important part of the company’s future and Jimenez said low-cost generics from Sandoz were increasingly central to the company’s business strategy, particularly in emerging markets.
“Having a generic division in the portfolio allows me to sit down with health ministers and talk about how Novartis can help lower total healthcare costs,” he said.
He also sees a bright future for Sandoz as a pioneer in developing copies of complex biotech drugs, particularly antibody-based products for cancer and rheumatoid arthritis that are now among the world’s top-selling prescription medicines.
Sandoz hopes to launch some so-called biosimilar versions of these antibodies in major markets over the next three to four years, Jimenez said.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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