Can Big Pharma Stocks be Saved by Emerging Markets? Ex-Pfizer Exec, Now in India, Doubts It

Over the past few years, global drug makers have regularly cited so-called emerging markets as fertile new ground for growth. The notion that such regions as Asia, Latin America and parts of Eastern Europe will soon help compensate for stagnation and pricing pressures in the U.S. and other developed nations has become an accepted mantra, even though specifics are rarely broken out for close analysis.

This has helped buoy Pharma stocks suffering from patent expirations, lack of new drugs and bloated costs. Majors with high hopes of emerging market sales include Pfizer (PFE), Merck (MRK), Eli Lilly (LLY), Bristol Myers-Squibb (BMY), GlaxoSmithKline (GSK) and Sanofi (SNY).

PFE Chart

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However, one former Pfizer exec, who now runs a drugmaker based in Thailand, contends the strategy envisioned by the multi-national drugmakers is not always working out exactly as planned. We spoke with Amal Naj, a former senior vp at Pfizer who is ceo at Berlin Pharmaceutical Industry, a branded generics maker in Bangkok, and the newly established Paradigm Pharmaceuticals, which is affiliated with Berlin, about the changes he sees in markets such as Asia…

Pharmalot: So what exactly is happening on the ground?

Naj: Multinationals are entering the market with generics priced at 40 percent to 50 percent of the price of the original products, but the local generics companies in most cases are selling similar products at 15 percent to 20 percent of the original price. This is less than half the price of multinationals’ generics. So the reality is that when you go in with sharply lower prices, their (multi-national) prices are still quite high. Go to hospitals and pharmacies and the pitch is you have to pay more for brand-name products. But no one is buying it. There’s a misperception that you can come with a high price. Some big companies, to compete locally, are shifting production to India, which now has the largest number of FDA-approved facilities outside the US. But a lot of generic companies are having their products made in the same facilities as the multi-national companies.

Pharmalot: And the implications are what?

Naj: Two things are happening. One is that the big companies can no longer say they’re different. We’ve contracted with a top-notch Indian company that runs an FDA-approved facility and – guess what? – there are multi-nationals that have their products made there, too. This allows us to say that our products are coming from the same place where the multi-nationals have their products made and that our quality is the same. So multi-nationals are challenged when they talk about quality.

And this is widespread. They’re not only having their own products manufactured in India, but also making each others’ products, off-patent products. They’re copying each others’ products. This is a big difference from the past. Five to 10 years ago, (when I was at Pfizer) we could never have imagined a competitor would copy our product and sell it in the same market, even after patents expired. The extent to which multi-nationals are copying each other now is widespread.

Pharmalot: Sounds like it’s become commoditized…

To read remainder of interview, click here.

Ed Silverman is the editor of Pharmalot and a contributor toYCharts Pro Investor Service which includes professional stock charts, stock ratings and portfolio strategies.

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