US patents on key components for some important HIV therapies are poised to expire starting in December and Laurus Labs - the Hyderabad, India-based company which owns the facility - is gearing up to cash in.
Laurus is one of the world’s biggest suppliers of ingredients used in anti-retrovirals, thanks to novel chemistry that delivers cheaper production costs than anyone else. Now, its chief executive officer, Satyanarayana Chava, wants to use the same strategy selling his own finished drugs in the US and Europe. He predicts some generics that Laurus produces will eventually sell for 90% less than branded HIV drugs in the US, slashing expenditures for a disease that’s among the costliest for many insurers.
Shares of Laurus climbed as much as 3.4% in early trading in Mumbai on Tuesday, while the benchmark S&P BSE Sensex index dropped as much as 0.3%.
"The savings for US payers will be so huge when these generic combination drugs are available in the US," he said in an interview at the factory outside the Southern Indian city of Visakhapatnam. Payers will save "billions of dollars", he said.
The patent expiries are starting this month when Bristol-Myers Squibb’s Sustiva loses protection. Gilead Sciences’s Viread follows next month. Both companies didn’t respond to requests for comment.
For generic manufacturers like Laurus, the US market is alluring. With 1.1 million people infected with HIV in the US, and many of them living longer thanks to treatment, HIV drugs have become an $18.8bn business for the pharmaceutical industry there, according to data provider IQVIA.
Part of that spending is due to the high cost of the medicines. For instance, a combination of Viread, Sustiva and a third drug sold in pill form under the brand name of Atripla has an average wholesale price of almost $37 000 (about R500 000) per person annually, according to data from the US Department of Health and Human Services.
But in the developing world the same combination can cost as little as $100 (R13 600) per person annually, after years of brutal competition between generic manufacturers drove prices down, according to Medecins Sans Frontieres. Though Laurus doesn’t yet make the actual pills those patients take, it’s become a dominant supplier of the key ingredients that make them work.
The best way to fight HIV is with a combination of different drugs, and because Viread and Sustiva form key parts of some of the most effective combinations, the inclusion of generic versions of these chemicals could bring down the cost of the whole treatment. One analysis cited by the Department of Health and Human Services found that replacing a three-medicine, branded combination with multiple pills, including a generic version of Sustiva, could save the US $900m in its first year.
In the US, Laurus will be going up against much larger companies like Teva Pharmaceutical Industries - the world’s biggest generic drug company - which will beat it to market on generic Viread and so be the first to slash prices and lock down customers. Other generic companies, both from India and elsewhere, many of whom are customers of Laurus, are expected to enter the market too.
Meanwhile, the companies that hold the original patents, like Foster City, California-based Gilead, have also been successful at switching patients to their newer therapies to limit the impact of generic competition on the old ones, according to Bloomberg Intelligence analyst Asthika Goonewardene. He doesn’t predict a big impact from generic competition to the $2.6bn Gilead gets from HIV drugs.
Cost savings that were an advantage in the developing world, may also prove less useful in a less price sensitive market like the US. Between government programmes providing treatment for the uninsured, and drug company funded ones helping the insured with their co-pays, HIV patients in the US are often sheltered from the full cost of their medicines. So patients themselves may have little incentive to switch to cheaper alternatives, said Tim Horn, the New York-based deputy executive director of Treatment Action Group, an AIDS policy think tank.
Newer drugs offer medical advantages to the ones going off patent, including fewer side effects, and the switch from one daily brand name pill to a mix of two or three may feel like a step back for many, he said.
Still, Horn says private and public insurers, who pay the greater part of the full sticker price and then spread those costs through the system in the form of higher premiums and health-care costs, are likely to push for generics.
For his part, Chava maintains he will eventually be able to undercut bigger rivals like Teva on price, and the magnitude of savings offered to insurers from generics will prove irresistible - particularly as more components of the older combinations go off patent in the next three years.
"We believe we’ll be able to bring cost effective generic alternatives to the US market," he said. "We have the scale."
That willingness to compete on cost has made Laurus a bright spot in India’s pharmaceutical industry in a year when the US generics market has been rocked by a protracted price war. Laurus’s stock has risen about 23% since its public market debut in 2016. Analysts are forecasting that its revenue will rise to about $339m in the current fiscal year from $279m in the previous year.
Laurus controls about 66% of the global market for efavirenz, the chemical name for Bristol-Myers Squibb’s Sustiva, and 33% for tenofovir, the chemical name for Gilead’s Viread, according to a report earlier this year by investment bank Jefferies Group.
A compact man of 54 with a trim mustache and rimless glasses, CEO Chava laughs enthusiastically as he recounts the scientific discoveries that helped give Laurus its edge. A chemist by training, he left his job as a C-suite executive at another Indian pharma company to found Laurus in 2005. He quickly saw an opportunity to improve the production process for efavirenz, which Indian generic firms were already producing in bulk for the developing world.
The key ingredient of efavirenz was a compound called diethylzinc, which had to be imported from Europe, and has a propensity for bursting into flames upon contact with water, or even humid air. So Chava and his team eventually found an alternative in the combination of two chemicals easily had nearby.
Where diethylzinc cost $80 per kilo - plus all the precautions needed to keep it from exploding - the two replacement chemicals together cost $5 per kilo. A similar innovation reducing the production cost of tenofovir by 75% followed, he said.
Last one standing
For now, Chava’s new factory is only producing test batches as it seeks to win regulatory approval to enter the US. It is meant to eventually produce as many as 5 billion tablets annually. On November 30, the company said it had received tentative approval from the US Food and Drug Administration to sell tenofovir.
He expects his company could be in the market with its version of tenofovir in three months or so, in partnership with another Indian company with a US distribution network. While that timeline could mean being beaten to market by some of his competitors, he says he’s not worried.
"We don’t mind not being the first one," Chava says. "But we want to be the last one standing."* SUBSCRIBE FOR FREE UPDATE: Get Fin24's top morning business news and opinions in your inbox.