IP ... and beyond

Andrew Jack's has an article in today's Financial Times on the convergence between pharmaceuticals and generics - A bigger dose: Why generic drug producers are bulking up:

Traditionally, pharmaceutical groups developing patented medicines spurned and criticised their upstart rivals producing cheaper generic alternatives once these patents expired. But over the past few weeks, a flurry of planned takeovers and legal settlements has brought them closer together than ever.

The plan is good for both sides:

For now, by selling a broader range of patented and off-patent medicines, pharmaceutical companies such as Novartis have the flexibility to offset the unpredictability of innovative medicines. They can also gain economies of scale and have greater scope to offer a broader bundle of drugs, on more attractive terms, to pharmacy chains such as Wal-Mart and CVS in the US.

The generics face their own problems:

While the innovators stand to lose tens of billions of dollars in revenues over the next few years as patents expire, the generic “cliff” then becomes less steep, offering fewer future products to refill the generics companies’ pipelines. The new generation of biological medicines coming to market are also more complex to produce and will be harder to convert into generics.

It is this, combined with renewed pricing pressure, that is driving the generics industry itself to consolidate through deals such as Teva’s with Barr. In the US, cut-throat competition is already squeezing margins and making generic drugs ever more a low-cost commodity. Meanwhile, cash-strapped healthcare systems across Europe are beginning to take a more aggressive attitude. Germany and the Netherlands have both recently introduced tenders, for example, which are eroding generics prices.

As a result, a new business model is emerging that is built on both IP and non-IP models. Exactly how this model will operate remains unclear. As Jacks points out:

there is the question of culture. Robert Wessman of Actavis, an Iceland-based generics company, argues that there are limits to the ability of innovative pharmaceutical companies to enter the generics market, because they lack experience of low-cost manufacturing. “It’s a different mindset and set of skills,” he says.

Melding those mindsets and skills will be tricky.

In any event, the most recent flurry of activity between big phrama and the generics reminds us that the development and utilization of intangible assets in the I-Cubed Economy can take many paths. It is not simple as IP or no IP. There are many other intangibles in play – and the relationship between IP and successful business models is not always straightforward.