Investors need to look beyond generics in the pharmaceutical commercial due diligence (CDD) for investment in generics pharma businesses. Generics pharmaceutical businesses generally constitute an attractive business from an investment perspective, particularly for private equity investors who are looking to invest in the pharma and broader healthcare sectors. The generics business avoids the high-beta characteristics of novel drugs-based businesses such as high capital requirement, long gestation period to market, the complexity of marketing, etc.
Typically, most generic pharmaceutical commercial due diligence exercises focus on the competitive landscape, IMS data, general economics, positioning versus other generic companies, etc. – this is indeed an appropriate approach; however, the biggest risk to investment in a pharma business comes from novel drugs. There are two classes of novel drugs that affect generics businesses:
Superior Novel Drugs Affect Pharmaceutical Commercial Due Diligence
These are the newer treatments that become preferred interventions (e.g., an oncology later-line treatment that moves up to a first-line treatment) via showing superior data and payors’ approval. Pharma companies are constantly trying to increase this via their rigorous market access initiatives and often engage in value-enhancing deals with the payors in different countries. As these new drugs are incorporated into the treatment guidelines, the use of generics diminishes, thereby adversely affecting the generic company in which you are seeking to invest.
Soon-to-be Generic Novel Drugs Affect Pharmaceutical Commercial Due Diligence
These are a subset of novel drugs, but they are about to lose exclusivity in the near future. These drugs impact the generics business significantly – if the preferred treatment for an indication is a patent-protected novel drug, then upon its patent expiry, it will join the generics market and become the standard of care or preferred treatment.
The threats and associated risks come from a totally different and class-above segment (novel drugs) rather than other generic companies. Consequently, in conducting pharmaceutical commercial due diligence for generic businesses, BiopharmaVantage routinely recommends and assesses novel drug-induced threats to key generic products. Such an approach equally applies to new product planning, search and evaluation for licensing and partnering, and competitive landscape monitoring efforts undertaken by generic pharmaceutical companies.
BiopharmaVantage is a specialist healthcare consultancy that provides pharmaceutical commercial due diligence services to companies and investors. If you would like to explore how we can assist, then please contact us.