Business models and strategy for entering the US & European Generic Pharmaceutical markets.

1. How to enter the US & European Generic
Pharmaceutical Markets
- Generic Pharmaceutical Industry
- Business Strategy
- Market Entry
- Finished Dosage Manufacturers
The US and European markets are still the largest and most profitable in the generic
pharmaceutical industry. However, there are many challenges to unlocking the revenue
potential.
Like most markets there are multiple tactical entry options:
1) Contract manufacturer
2) Strategic Partner
3) License IP
4) Distribution Deal
5) Joint Venture or invest in existing company
6) Acquire control of existing company
7) Set up NewCompany Inc to sell directly
Each of these scenarios have individual challenges outlined in the report.
Many of the comments are universal for entering any market, but this report is intended to
reflect experience and observations for the European and US markets.
Authored by:
Asa Cox
Founder & CEO
Generic Pharma 2.0
LinkedIn - Twitter - Email
+1 705 615 1500 x501
ENTRY OPTIONS

2. 1) Contract manufacturer
Pro’s Con’s
Low risk, low management commitment Low value, low profit. Very competitive.
Relatively small investment (if new facility) No control over future revenues
Revenue timetable: 1-2 years (conditional) No international presence or assets
This is the commonly perceived quickest route to revenue for new markets. However,
depending on the current manufacturing infrastructure, there could still be a lot of factory
improvements required to meet EU or FDA cGMP standards. Many companies view
international markets as an opportunity to manufacture more product in existing facilities,
achieving better economies of scale and assume that profit margins will also be greater. This
model is somewhat flawed. Whilst machinery might be new and certain senior management
have international experience, the challenge to instill the necessary quality management
understanding and improve total quality system is often underestimated in terms of time and
investment.
Although the SFDA have committed to raising local quality standards to get closer to those of
US/EU, the current gap remains significant and can cause long delays in achieving regulatory
approval to supply the markets. This causes frustration for both management and clients,
often leading to change of tactics, introducing new challenges and delays.
It must be understood that clients have many existing Indian CMO partners and most are
only willing to evaluate new Chinese partners if there is significant cost advantages. These
advantages are normally derived from vertical integration with the API. These cost savings
must be significant to realise the investments required in changing suppliers (regulatory
resources, fee's and opportunity cost). Unless your country is viewed as strategically
important to the clients' supply chain plans, delays to key milestones and communication
challenges quickly push projects down the priority list.
It is recognised however, that many companies seek international approvals solely to meet
government criteria for selling at higher prices in the local market. If this is the primary aim,
then a CMO model could be the best route.
Recommendation
Undertake a cGMP gap analysis before building a business case to be a CMO.
2) Strategic Partner
Pro’s Con’s
Long term commitment from partner Multiyear timetable for product revenue

3. High learning potential Focus on cost reduction
Cost sharing model Potential for partner to freeze or park project
Establishing an exclusive or semi exclusive relationship with an international client with
the intent to manufacture a portfolio of products.
This model is used to secure commitment and investment from both sides. It often signifies
the strategic importance of sourcing product from your country to the client and is historically
used as a way to please or secure investors.
Whilst securing greater commitment is important in building a business plan, the issues
highlighted previously still remain and the relationship is likely to place commercial restrictions
on the development of new clients. The timetable to revenue is the same.
This type of relationship does provide a greater opportunity to learn from the client; a
commitment to providing regulatory and/or cGMP 'training' is often part of the deal. Chinese
companies must be aware that to secure such relationships, they will have to assume a large
part of the costs (API, batch production, shipping etc). This is true for both larger clients (for
whom priority is reduced) and with new companies seeking products (having limited financial
capital).
The client motivation is often to reduce cost of manufacturing and drug development. A good
partner will help fill the knowledge/expertise gaps sought by the Chinese company to help it
develop internal know-how.
Most well known companies will already have Chinese partners for standard solid oral
products for off patent molecules; some level of uniqueness will be required to secure
headline clients.
Recommendation
Find a local advisor to help identify and negotiate strategic partnerships to reduce the time
and investment.
3) License IP
Pro’s Con’s
Greater share of end sales revenue Multiyear timetable for product revenue
Potential for significant revenue (PIV) No knowledge transfer
Relatively quick deal timetable Potential for partner to freeze or park project

4. Whilst this is a significant step up the value chain; it is still a very competitive environment
and has a number of inherent risks.
Selection of suitable products years in advance of patent expiry is vital; licensing partners
will often have their own internal R&D program for all but a few formulation technologies
(e.g patch) or manufacturing facilities (e.g high potency) . This means that development
timetables, IP strength, regulatory competency and security of supply chain all become points
of evaluation. Only the largest of licensors would be willing to fund the litigation costs, but
they are the same companies that have the largest R&D departments to ‘compete’ with.
Given the long term nature of such projects it is possible for the priorities and commitments
of a partner to change, leaving the product developer with little recourse but to cancel the
contract and find another partner. By then the timetable could already be impossible to
recover.
There are many opportunity to license products closer to patent expiry or even expired
products; however, the revenue potential will be substantially lower and the level of
competition from existing players higher.
The US and European markets are very different.
In the US you can only license a product to one partner. In Europe you can license the
same product to an unlimited number of marketing partners. Whilst Europe might seem like
a more attractive target in this scenario; the level of competition is higher for each product
development and often at approval. It is becoming increasingly common for licensing fee’s
to be reduced (or even removed!) in order to secure a large partner who promises large
volumes.
Recommendation
Work with an experienced local expert to undertake product selection; the most important
consideration when building a business plan based on licensing.
4) Distribution Deals
Pro’s Con’s
Vast majority of sales revenue retained Multiyear negative cash flow
No development phase conflicts Full responsibility for to-market activities
Opportunity to progress into direct sales Best partner might be conflicted
If there is sufficient capability, financial depth and risk tolerance, the greatest profit share can

5. be obtained from licensing deals made with products close to approval. An in-market entity
would need to set up to submit the product and to directly resolve regulatory and legal issues.
Licensing fee’s are always higher when a product has little/no risk of being rejected. The
number of potential partners might be reduced however; many would not have the financial
capacity and those that do would like have already made a deal or have their own product.
Owning licenses/IP in the market also opens up the possibility of signing distribution
partnerships. Appointing a company to handle solely the sale of products to the market;
significantly reducing the share of profits required; although not as low as one might assume.
Power is often placed with the party who has the connection to the end buyer.
This model is much simpler in the US than in Europe; where there are few large buyers and
one set of regulations. In Europe, each country requires specific regulatory and market know-how;
it is likely that distribution deals would have to signed with different partners in each
country too. This increases commercial and supply chain complexity, increasing the potential
for unexpected delays in revenue.
Recommendation
Find a local advisor to help identify and negotiate distribution deals to reduce the time and
risk involved in securing partnerships.
5) Joint venture or invest in existing company
Pro’s Con’s
Influence over project timetable & future Upfront cash investment likely
Immediate access to sales infrastructure Tied to partner, reduces opportunism
Direct access to know-how & resources Exposed to financial liabilities & risks
A well structured partnership or investment could provide a more attractive business case
than any other; especially if with an entity that has existing sales revenue. Whilst the upfront
capital expense might be considered a significant risk for a Chinese company; the opportunity
to generate cash flow from international assets and reap all the benefits of integration
synergies, management learning and knowledge transfer.
Investment in an existing operation will remove the time, cost and know-how to comply

6. with the abundance of legal and regulatory requirements for direct sales to the market. For
example, approval is required to sell finished product in each of 52 US states individually.
Such direct control removes any uncertainty over the future of subsequent investment in
new manufacturing capacity, product technologies, human resources or IP development.
However, it also exposes the investing company to liabilities for defective products, recalls
and lawsuits.
The most significant challenge is in the partner selection or investment target selection.
Deep understanding of the market is required to evaluate targets and ensure the necessary
client relationships are in place. Any partnership or investment should have the potential and
capability to grow quickly once a streamlined manufacturing and development operation is in
place.
Recommendation
A well experienced local advisor should be sought to guide identification and engagement of
potential partner or investments.
6) Acquire control of existing company
Pro’s Con’s
Control over project timetable & future High upfront cash investment likely
Immediate access to sales infrastructure Potential for relationships to be lost
Direct access to know-how & resources Exposed to all financial liabilities & risks
Whilst there is logic to acquiring total control of a marketing entity, securing the ongoing
services of key management is vital. With many countries having few large buyers that
accounts for the majority of revenue, maintaining those relationships is the only way to ensure
value is achieved. Careful consideration must be made to financial incentives and market/
client reaction to the international acquisition of a domestic company.
The importance of understanding of the current and future dynamics of the market in which
an acquisition is sought cannot be underestimated. Regulations or competitors could change
and remove any assumed value, advantage or growth that formed the basis of the acquisition
value or return.
Identifying undervalued assets (IP or manufacturing), know-how or relationships is the key to

7. improving an immediate and long term return from acquiring a market asset.
Recommendation
Contract a specialist investment advisor to identify, value and negotiate acquisitions.
7) Set up NewCompany Inc to sell directly
Pro’s Con’s
Timetable in complete control Reliant on capabilities of hired staff
100% of market revenues Enter market with zero history or credibility
Potential for exit at multiple of investment Large competitors dominate
Whilst the relative investment in a front end organisation might seem extremely attractive
when the additional profits are considered, the challenges should not be underestimated.
Many Indian companies have attempted to undertake a direct-to-market model in both Europe
and the US. They either underperformed or failed for one or more of the reasons belows:
- Insufficient relationships with key buyers
- Underestimation of competitor response to protect market share
- Using deep discounts to attract buyers created unsustainable cash flow (due to above)
- Product selection based on domestic demand and not market demand
- Insufficient understanding of total investment costs over time
To overcome the above failings, new international entrants need to have very attractive
products and a pipeline that ensures buyers view them as a viable long term supplier worth
investing the required time and effort.
Recommendation

8. Recruit a local market expert with strong industry connections to build a team focused on
developing client relationships and establishing credibility. Use the team to advise on product
selection.
Questions?
Are you developing a business plan to enter the US or European generic pharmaceutical
markets?
Generic Pharma 2.0 has a team of international experts who can guide you to the right
decision for your company. Our team can provide:
● Gap analysis for your business: Where you are now vs where you need to be
● Business plan development: The strategy and tactic is best for your company
● Portfolio selection: The products you should develop for each market
● Partner engagement: Identifying and negotiating deals and partnerships
Review our expert advisors
Contact us to set up an introductory call
Authored by:
Asa Cox
Founder & CEO
Generic Pharma 2.0
LinkedIn - Twitter - Email
+1 705 615 1500 x501