Post-Patent Update: Generic Pipeline A Potential Windfall
1 September 2010 As glyphosate prices continue to flounder at record-low levels, many technical producers and formulators are insulating their profits by exploring new actives and proprietary post-patent products.
Few have suffered along with glyphosate’s demise like Australia’s Nufarm, which in July dropped its full-year profit forecast range by half. The company is undertaking a strategic business review that involves reallocating resources away from its key product, glyphosate.
Together with Japan’s Sumitomo Chemical, which is a one-fifth owner of the Australian generics giant, the company is developing a more effective weed management system for genetically-modified crops. One such product, most likely based on candidate compounds from Sumitomo’s pipeline, is a new herbicide that differs in mode of action from existing active ingredients (ais). Uses for Sumitomo’s flumioxazin and Nufarm’s phenoxy-type herbicides and glyphosate premixes are also in the works.
| Top 10 Off-Patent Companies | |||
| Sales in US$ Millions | |||
| Rank | Company | 2008 | 2009 |
| 1 | Makhteshim Agan | 2,335 | 2,042 |
| 2 | Nufarm | 2,287 | 1,821 |
| 3 | United Phosphorus | 937 | 1,000 |
| 4 | Cheminova | 990 | 933 |
| 5 | Sipcam | 451 | 431 |
| 6 | Atanor | 370 | N/A |
| 7 | Gowan | 281 | 325 |
| 8 | AMVAC | 238 | 209 |
| 9 | Rotam | 213 | N/A |
| 10 | Rallis | 203 | 189 |
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Source: Phillips McDougall and FCI Research |
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More of the industry’s top suppliers are reducing the impact of glyphosate. Cheminova is planning “to substantially reduce the glyphosate share of total revenues,” says the company’s Marketing Director Kurt Pedersen Kaalund.
And Gowan is investing in its pipeline to create more revenue diversity as well.
“We are working toward US registration of two new actives, and we also will launch novel formulations that allow new uses and new premixes in Europe,” says Gowan CEO Juli Jessen. “In all markets, we are bringing soft chemicals that are registered organic to complement our conventional chemistry. By offering these, our conventional line can be used in programs that are constrained by food chain requirements or more restricted labels.”
Companies likely will need to diversify their portfolios significantly to replace lost revenue from the world’s widest used active, as it is unlikely there will be another blockbuster such as glyphosate, especially amid the use of residual chemistries to thwart glyphosate resistance issues.
“Pest control will increasingly be approached from multiple angles, so the chance of a cure-all chemical is not great,” Jessen says.
Although there’s probably no “big product” that will have the global reach — or profits — of glyphosate, there are plenty of new ais coming off patent. But the transition might not be easy as companies try to transition technical expertise to smaller lines with greater sophistication.
• Active Substances With Patent Expiring
“There are many companies not in glyphosate but into other generics, and they have the relevant technologies and equipment,” says Nigel Uttley of Enigma Marketing. “It is very difficult to move from such a large tonnage product (like glyphosate) to some of the very small tonnage products such as sulfonylureas.”
Eye To Buy
Makhteshim Agan Industries (MAI) is aggressively growing its entire product portfolio through development, but more notably, acquisitions products, technology and manufacturing capacity.
Last year, MAI introduced 19 active ingredients in more than 100 formulations, says Yoav Zeif, MAI vice president for products and marketing. The company has more than 110 actives in its portfolio.
“We’ve expanded our business over the last few years through both acquisitions and an array of product introductions,” Zeif says. “We acquired access to 2,4-D which is a strategic global herbicide that has shown consistent growth in demand in recent years.”
With seed manufacturers planning to introduce 2,4-D resistant crops in the coming year, growth of that product is expected to escalate.
“In addition, we launched the new product Galil (imidacloprid and bifentherin) in Latin America, which successfully replaces old chemistries such as endosulfan,” Zeif says.
MAI also entered into a long term agreement with Cibus, a US-based company focused on developing non-GM traits for crop enhancements. The company’s North American division is in the process of finalizing its acquisition of Albaugh, which comes with a glyphosate plant in the US.
Gaining access to other chemicals, through either acquisitions or agreements, is strengthening the portfolios of many post-patent suppliers. Rallis India Ltd. recently entered an agreement to source azoxystrobin from Syngenta for marketing in India — with exclusive rights to specified combination products to work with the fungicide — while Syngenta will continue to get another fungicide, hexaconazole, from Rallis. Rallis recently posted huge gains with a first-quarter profit of approximately $3.2 million, up 58% from $2 million in the first quarter 2009. The company’s first quarter net sales grew 20% to $42 million compared with $35 million in the same period last fiscal year. Rallis also expects its new facility at Dahej, with capacity of 5,000 tonnes per year, to go into commercial production during this year’s second quarter. The Dahej plant has a $107.3 million revenue potential over a three-year period.
Cheminova’s Kaalund also noted the importance of acquisitions. “It is part of our strategic development to make acquisitions of crop protection products, companies and activities to increase sales and improve results,” he says. “We have made such acquisitions in the past, including Stähler and the dimethoate business of Isagro SpA.”
Structure And Function
In addition to adding new products, some generics suppliers are making changes to their corporate structure. Gowan, for example, has established divisions in the US and France.
“The focus that comes with a dedicated US company provides a mechanism to work with our partners from the foundation of the company,” Jessen says. “We also expect to add other platforms, though these will start very small; two are under consideration for 2011.”
MAI has created two new regions as well: the Americas, and Asia, Pacific and Africa.
“On the operations side, we increased our synthesis and formulation capacity mainly in Israel and Europe,” Zeif says. “We have diversified our manufacturing footprint and added our own manufacturing and formulation capacity in Poland and the US. In parallel, we have progressed with major environmental upgrades in our plants in Israel.”
A Positive Outlook
The refocus of many companies to a world with lower glyphosate profits has proved positive. Cheminova’s global sales have increased “through the continued introduction of new products, which we expect shall continue in the coming years,” Kaalund says. “We see continued growth in the global post-patent market.”
Enigma’s Uttley’s marketing research shows the generic sector will increase as more patents expire, “but the original patent holders will maintain a large share of the market through the creation of off-patent proprietary products — especially mixture products and new formulations,” he says. “The growth of mixture products is highly significant. It segments the market and often extends the IPR portfolio and is one of the main post-patent strategies employed by the multi-nationals. Some of the mixture patents have dubious validity.”
MAI is planning to capitalize on this overall global growth with its expansion strategies in Europe, Brazil and North America.
“There are analysts who forecast that some $9 billion of product will be coming off patent over the next 10 years,” Zeif says. “This represents a major market opportunity for us. Similarly, as resistant strains emerge, we continue to look to new formulations to meet the requirements of the market.”
But there is some caution amid opportunity. Companies are entering new markets and product niches with established competition and technical hurdles they will need to overcome. Additionally, the global regulatory environment isn’t getting any easier, especially in Europe and the US. And expanding a business requires funding that might be difficult to secure in today’s lending markets.
“Since research concentrates on biotech, and the costs per chemical is growing, it is unlikely for new products to come on at the same rate that patents expire,” Gowan’s Jessen says.
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