Generics: “Either we’re cheap or we’re out” – economy

Peter Stenico, 50, has been Chairman of the Board of the Pro Generika Association since last week. He represents the German manufacturers of generics, i.e. chemically synthesized imitation products of drugs that are no longer patent protected, and of biosimilars, imitation products manufactured using biotechnology. He has been working for Sandoz, the generics and biosimilars division of the Swiss Novartis group, for more than two decades.

What role did generics play in the pandemic?

Peter Stenico: A vital one. Most of the drugs that are used in intensive care units are generics, for example pain relievers, drugs that are used for artificial respiration, antibiotics and many more. Of the 70 or more drugs that can be used on a ventilated patient, all but a handful are generic.

Have the delivery bottlenecks worsened in the pandemic?

Everyone made an effort to ensure the supply. Suppliers have been exchanged, new sources and new paths have opened up. When things got really tight, we switched delivery from ocean freight to air freight, which made it more expensive. The pandemic is not the problem for the generics industry, the system is the problem. There were delivery bottlenecks before the pandemic and will continue to exist afterwards if nothing changes.

Possibly one of the reasons why Novartis wants to part with Sandoz. How does it feel to have been put in the shop window and wait for the buyers?

It doesn’t feel like that to me at all. There are also far more options than a direct sale. The Novartis strategic review is about finding out how Sandoz can better pursue its mission and develop more successfully as a company. The result is completely open. Everything from a separate listing of Sandoz on the stock exchange to a sale or a stay with Novartis is conceivable.

In 2005, when Sandoz acquired Hexal, generics were still a lucrative business. When did it lose its appeal?

For me, generics have never lost their appeal. Generics and biosimilars form the basic framework of medical care worldwide. In terms of sales, Sandoz is number three worldwide. In Germany we are number one with the brands Hexal and 1A Pharma for generics and Sandoz for biosimilars. We supply Germany, but the pressure in the system is high.

When did it start?

2007. Since then, exclusive discount agreements have grown in importance. That means: health insurances can commission a single provider to supply all insured persons with a certain drug. In this way, you save a lot of money, because you choose the contractor who offers the highest discounts. For the supply, however, these exclusive contracts are very dangerous, because if this one provider fails, no other can step in so quickly. Over the years price has become the only decisive criterion.

If four out of five daily doses that patients need in Germany are generics, why don’t the manufacturers have more power?

A single company has no power. Germany is a very fragmented market, there are many providers. In France, the two largest providers together have 60 percent. In no other country is the competition as tough as in Germany. Each manufacturer negotiates individually with a health insurance company, he is not familiar with the requirements of the competition. If, just as an example, I were to say, dear health insurance company, I am no longer bidding because the price is too low for me, the insurance company would reply that there are plenty of others who are still bidding. In this system everyone has to try to undercut the other. This leads to extremely high discounts. With a price of – after deduction of the discount – an average of six cents per daily therapy dose for an active ingredient, the bottom has been reached. This cannot be used to ensure supply in the long term.

Is the price pressure for biosimilars as high as for generics?

Today in Germany biosimilars make up ten to 15 percent of the prescriptions of non-patented drugs. But they are becoming more and more important. We fear that due to a legal regulation that will come into force next year, there will also be exclusive discount agreements between health insurers and manufacturers of biosimilars. That would lead to the same drop in prices as for generics, and possibly lead to fewer biosimilars coming onto the market in Germany. That would be fatal.

If you are awarded a generic product as part of a tender from a statutory health insurance company, how long does it take from order to delivery?

Most deliveries take four to eight months. That depends on the product and where it is produced and how complex the supply chain is. Two thirds of the active ingredients are manufactured in China and India. And that’s just one of the first steps on the way to the finished, packaged drug.

Which active ingredients are still produced in Europe?

Sandoz manufactures antibiotics from active ingredients to auxiliary materials to packaging in Austria and also has many production facilities in Europe. But we are more the exception than that.

Are active ingredients still manufactured in Germany?

Yes. Arevipharma from Radebeul still produces active ingredients in Germany, for example remifentanil, a narcotic that is used in operations.

Open detailed view

If the price for a daily dose of therapy after the discount is six cents, can you still make money with it?

If the active ingredient molecules are easy to manufacture, that works. The pressure on the supply chain is then already very high, so we look at each level to see whether and how one could still save money. We then concentrate on a supplier who can offer the active ingredient very cheaply because he produces large quantities of it. This is how the others do it too, and often there is only one supplier of the active ingredient. The dependencies are huge. There is a maximum of one or two suppliers for many active ingredients. If the power or a plant fails completely, nothing works for weeks, sometimes months or years. Unfortunately, that also happens.

Didn’t the generic manufacturers themselves contribute to this deficiency by relocating production to Asia in order to earn more?

The companies have no other choice. Either we’re cheap or we’re out.

What has to change?

Several providers must be included in the tenders and other criteria must be included. Of course, generics and biosimilars relieve the health system because they are cheaper than the original products, but basically it is about security of supply. We always see the patient in two roles – as a health insurance contributor and as a patient. The contributor wants low prices so that the contributions do not increase, the patient the best possible care. We have to find the right balance. A social debate is needed about this.

In the pandemic, there were increasing demands, also from politics, to bring production back to Europe. Is that a realistic option?

There is no single viable solution. It would be a step forward if we tried to keep production there, which is still taking place in Europe today, and if we focus on those products that are essential for survival. The critical molecules must be produced in Europe, for example chemotherapy, antibiotics, vaccines or even the biotechnologically manufactured drugs such as biosimilars.

Have there been tenders in which Sandoz is no longer involved because the price no longer paid off for you?

We try to cross-subsidize drug molecules, where our market share is high or where we are the only supplier, because they are vital for patients.

An example, please?

Paclitaxel, a type of chemotherapy. If we don’t deliver that, the market would probably be undersupplied. We can do that because we have a large portfolio. In some tenders we no longer bid because we are not competitive. There are many molecules where only one manufacturer is bidding in the tenders.

Isn’t that whining at a high level. Sandoz generated $ 9.6 billion in generics and biosimilars in fiscal 2020 and made $ 2.3 billion operationally. Other entrepreneurs would cheer for such margins!

In Germany, the generics business generates significantly less. Nowhere else are the margins lower. It works for us as a company because our portfolio is broad and we have a global presence. And what’s more, we offer more than just generics, we also sell over-the-counter products.