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Arun Ramesh
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Declining revenues due to patent cliff and increasing competition in the human health division have initiated pharma MNCs to look into alternative options like expanding their animal health and consumer care businesses. Traditionally, animal health drug manufacturers have relied on keeping most of the drug production in-house, with outsourcing accounting for only five to 10 per cent of the total animal health drug production.
However, with an increase in sales of generics and rapid growth in key therapeutic areas such as antibiotics and parasiticides, the percentage of drugs outsourced is expected to grow significantly in the future. Outsourcing in animal health industry is expected to reach 20-25 per cent by 2018 owing to growth in generics and therapeutic categories like antibiotics and vaccines.
Outsourcing in the animal health industry – Past and current scenario
The global market for animal health products was at $22 billion in 2012 and is expected to reach $43 billion by 2018 at a growth rate of five to six per cent (as illustrated in Figure 1)
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Global animal health market
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Figure 1
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By geography, the North (US) and Latin America (Argentina and Brazil) account for the largest share of the animal health drug market (47 per cent share by value), followed by Europe (France, Germany, Spain and the UK) with 31 per cent share and ROW (India, China) with 22 per cent share. The industry can broadly be categorised by the type of animal and comprises the following chief segments – livestock (cattle, poultry and sheep), companion animals (cats and dogs) and equine (horses). As of 2013, livestock animals accounted for 59 per cent of all drug sales, followed by companion animals at 41 per cent of total sales.
Animal health vs. human health – A comparison
Table 1 compares patent term, pricing and outsourcing per cent in human and animal health industry
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What would be the major factors influencing outsourcing in the animal health industry?
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Saturation in the innovation market – A driver to outsourcing
Many of the innovator drugs have been fully explored covering more than 90 per cent of the dosage forms (injectable, tablets, gel, ointment, powder) aligned to different species like cattle, swine, poultry, cats, dogs, and horses till date. This has resulted in the shift towards branded generics and generics, thereby luring pharmaceutical companies venture into generics.
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Evolution of ivermectin formulations across different species
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Figure 2
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Figure 2 and Figure 3 are two examples where a company launched drugs in different dosage forms across different species and this was followed by other major companies with the same APIs in different dosage forms catering to different species in the forthcoming years and benefited three years market exclusivity.
| Evolution of dexamethasone formulations across different species |
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Figure 3
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Future of animal health outsourcing
The animal drug market is saturated with innovator drugs encompassing all the prominent species. Despite drug availability in the past, with market reaching the saturation in innovator drugs, more generics are expected to penetrate the market. Figure 4 depicts the percentage shift in industry outsourcing due to market saturation of innovators and penetration of generics.
| Animal health outsourcing evolution and future outsourcing trend |
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Figure 4
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Drugs in therapeutic categories like antibiotics, parasiticides involve high technological requirements like BFS (Blow, Fill and Seal), Ribbon blenders, Lyophilisers etc. Drugs (innovator and generic) in this category have been outsourced to contract manufacturers in the past. Thus with more generics expected in these categories pharma companies would outsource manufacturing to contract manufacturers.
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Figure 5
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Figure 5 illustrates how vaccine and antibiotic market is said to drive animal health outsourcing
Transition from in-house to outsourcing
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Factors
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Human health
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Animal health
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Overview
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| Patent term of drugs |
20 years
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5 years
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Any company in the animal health business can launch a new drug with the same API but in a different dosage form and to a different species of animals. By this these companies get a marketing exclusivity of three years. This product is still considered an innovator |
| Outsourcing percentage |
17 to 20%
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5 to 10%
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In US, percentage of generics is 70-80 per cent by volume in human health and 14-20 per cent generics in animal health. This is a reason for a low outsourcing percentage in animal health industry |
| Price of generics |
70% less
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50% less
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Intensity of rivalry is low in animal health. In human health, price of generics is less compared to animal health because there are few companies to compete with, in the animal health space |
Till recent past, 90 per cent of the product portfolio of top pharmaceutical giants like Pfizer, Sanofi, and Merck were innovator drugs and these drugs were manufactured in-house. Some of the branded generics of these companies were outsourced to contract manufacturers. Moving forward, market saturation of innovator drugs would lead to increase in generics, thereby driving outsourcing of animal health drugs.
| Transition from in-house to outsourcing |
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Figure 6
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Figure 6 demonstrates the expected transition of top companies globally in the coming years.