A Hidden Gen: The Billion Dollar US Generic Injectables Market
Up until early 2000s the focus of generic pharma players has been on the larger oral solids (OSDs) and retail segments. However, with ~$13bn worth of injectable brands losing exclusivity in the next 5 years and shrinking OSD returns, the future opportunity is shifting to more complex injectable and hospital channels.
Shifting Focus to Injectable Generics: Large and Growing Market
In 2010 – 2019, OSDs were the largest opportunity bucket for generics (~$50bn vs ~13bn for complex Gx). However, profits were contracting given multiple pricing headwinds driven by hyper-competition from the increasing number of Indian manufacturers, consolidation in distribution and concentration of buying power. In response to the unfavourable pricing dynamics in the OSDs market, players have shifted attention to other pockets of opportunity, including injectables, ophthalmic, and more complex formulations.
The injectable market has benefited from a shift towards more complex and larger molecules (e.g., peptides and monoclonal antibodies) that are stable only in the injectable format. Approximately 42% of NMEs and 47% of all newly approved products in the last 10 years have been injectables (Source: FDA). Furthermore, relative to OSDs, the injectables products see lesser competition (5- 7 players vs 12 – 15) and can better retain pricing power; thus, lower price erosion (70% vs 95%), which makes it doubly attractive compared to OSDs. Therefore, it is not surprising that many traditional OSDs manufacturers have invested capital and announced their intention to grow in this space.
High Barrier of Entry and Complex Market Dynamic
Five players dominate the injectable market: Fresenius Kabi, Viatris, Pfizer, Teva, and Hikma, capturing 46% market share. A wide gap exists between the market leaders and the rest because of the significantly higher investments required in injectable manufacturing, the risk of not winning group purchasing organizations (GPOs) contracts due to inability to meet supply demand keeps smaller players at bay.
Manufacturing Injectables Is Complex!
Apart from the complexity in development, the manufacturing and supply of injectables is capital intensive and specialized. Products will require dedicated manufacturing lines which can cost $30-35mn. As an example, Abilify Maintena and Invega Sustenna are both depot antipsychotics, but the former is a microsphere-based lyophilized drug while the latter is a suspension injection and generics of those cannot be manufactured on the same line. As another example, despite Lupron depot and Risperdal Consta both being microsphere formulation, given that Lupron is a hormone, it must be manufactured on a line dedicated to hormones. As such, a single generic opportunity can rarely justify investment in a separate manufacturing line.
Additionally, the downstream fill and finish requirement are also very product-specific, adding to the cost. The US FDA requires all injectables to be sterile as they bypass many of the body’s defence mechanisms; hence investment is needed in aseptic manufacturing and sterile fill-finish. This includes drug and container systems sterilization, cleanroom facilities, specially trained personnel and equipment for manipulation and filling. Furthermore, the supply is further complicated due to the cold chain requirement for many injectable drugs.
GPOs and Hospital Purchasing Reward Scale
The current injectable market is primarily used in the hospital channels where the prices and contracts of purchasing injectables (e.g., anaesthetics, oncolytics, analgesic) are negotiated by group purchasing organizations (GPOs) to increase buying power and increase purchase efficiency. However, the dynamic between hospital – GPOs can create a burden on manufacturers, particularly for manufacturers with small manufacturing capacities:
• GPOs often require manufacturers to guarantee supply at a large scale, but without the necessary demand guarantee, as hospitals are not bound to purchase only from them. This often translates to upfront investment in large scale manufacturing from manufacturers.
• GPOs also tend to prioritize contracting with manufacturers with a broad portfolio of molecules. As such, manufacturers need not just scale but also breadth in their portfolio, which makes it difficult for small and new players to enter the market.
The top 4 GPOs (Vizient, Premier, Health Trust and Intalere) makeup 93% of the US market share and winning a contract means committing significant capacities for that product. The dynamics mentioned above are particularly challenging for small manufacturers and new entrants for whom building new capabilities is expensive and risky, as there could be a risk that the market might get crowded by the time they scale up. Also, hospitals are averse to switching sources for essential drugs unless a significant saving is achieved, and for many products in the market, ASPs are simply too low for a new competitor to offer a substantial discount while also generating a return.
Injectable Losing Patent Protection Between 2020 and 2024
As we look forward to the future, the opportunity for generic players is shifting towards more complex and more small volume parenterals (less than 1mn unit). From 2020-24, ~95 injectable brands are losing exclusivity, and 46% of brands are complex and challenging to develop, and 27% of the value is in small volume parenterals (high overlap between the two categories). Amongst them, the long-acting depot microsphere injectables and peptide injectables are two most prominent categories expected to lose exclusivity.
As most of these products are also Specialty products dispensed through Specialty pharmacies where scale requirement, which was a major pre-requisite in the hospital channel, is less relevant. Although injectable market remained pretty dominated by the top 5 players commanding 46% market share by value. The shift to more complex products, small volume parenteral (less than 1mn unit), likely allows for competition from more players and makes growth more secular. However, despite the removal of the “manufacturing at scale” barrier potentially inviting more competition in the future; the complexity of the development, manufacturing and significant investments in clinical studies could continue to keep smaller players at bay.