Access to Generics – improving outcomes for people and investors

As long-term investors with a focus on sustainability, we’ve long been interested in how healthcare companies approach the issue of access to medicines. The Access to Medicine Foundation, based in the Netherlands, aims to stimulate and guide healthcare companies to provide greater access to their products to people in low and middle-income countries. The Access to Medicines Index seeks best practices in each of the areas it measures and once identified, these are shared to accelerate their uptake by other pharmaceutical companies, to help raise the level of standard practice and to achieve greater access to medicine. We have used their index since it was launched to help us assess how companies are addressing this critical issue.

The launch of a new Generic and Biosimilar Medicines framework

Earlier this year, we entered into a strategic partnership with the Access to Medicine Foundation to support the launch of their Generic and Biosimilar Medicines framework. This new framework has been developed to assess the performance of both generic and biosimilar medicine manufacturers with respect to key access-to-medicine priorities. Without clearly defined roles and responsibilities for these manufacturers, and without sustained effort and collaboration, there is a risk that healthcare inequalities will continue to widen, and the target of universal health coverage (UHC) by 2030 may not be achieved. The manufacturers of Generics and Biosimilar Medicines play a crucial role in expanding access to essential medicines to the poorest people in the world.

• Generics are based on drugs whose patent has expired, which allows them to be made and sold by a different company to the one who discovered them. Examples include common painkillers and drugs to treat diabetes, high blood pressure, high cholesterol and depression.
• Biosimilars are biologic medicines which are also offpatent. Although they will be made the same way as the originator medicine, the biological processes and the drugs’ complexity introduce natural variations. They cannot be classed as generics but should offer the same benefits and safety profile as the drug they are based upon.

Due to these medicines being off-patent, there are greater opportunities for them to be manufactured and sold by multiple companies, including those based in low and middle-income countries, driving greater access and affordability. When you consider that only 10% of the drugs on the World Health Organisation’s list of essential medicines are on-patent¹, the size of the opportunity becomes clear. And this is not only a human development opportunity but also an opportunity for investors to generate sustained shareholder value on their investments.

Cipla: Harnessing access to medicines for sustainable growth

The structural growth tailwind provided by improving access to affordable care led us to consider and eventually purchase shares in Cipla in 2001. Cipla is a global pharmaceutical company based in India offering affordable access to medicines for over eight decades. In response to the AIDs crisis, they designed a business model that provided access to antiretroviral in developing countries at $350 per year, compared to the price of $10,000 per year for similar medicines in developed countries.² This equates to less than a dollar a day and 1/30th of the standard price, a dramatic example of how drugs can be made affordable to those who need them. We recognised this as a huge growth opportunity for Cipla and a potential challenge to the profits of their competitors.

This demonstrates the broad appeal of generics. Using access to medicines as its cornerstone, the business model is designed around manufacturing higher volumes of drugs at lower prices, creating a path to sustainable long-term profitability. When taking a long-term view, a business model like this is lower risk than a franchise built upon protecting high prices. While high prices might lead to increased profitability in the short term, even in developed markets the price of drugs is coming under closer scrutiny from cash-strapped healthcare providers, and there is always the risk of drawing scrutiny from regulators and competitors.

Dr. Reddy's: Empowering affordable healthcare

Also based in India, Dr. Reddy’s was founded 40 years ago to support affordable access to medicines in India. Its founder, Dr Anil Reddy, realised that if medicines are going to fulfil their purpose, they have to be offered at a price that people can afford. Dr. Reddy’s’ started manufacturing generic medicines, such as painkillers and antacids, before moving into biosimilar drugs to treat cancer and autoimmune diseases. They have since grown into one of the largest providers of generic and biosimilar medicines in India while also providing affordable treatments across the rest of Asia, Africa, the Middle East and Latin America. At the same time, their revenues have grown by 14% per annum over the last 20 years.3 Throughout, the number of patients they can reach remains front of mind and have set themselves a target of 1.5 billion people by 2030.³

Sustainability outcomes; a driver of investment returns

Fast forward from 2001, and currently, one in three people living with HIV rely upon Cipla drugs for their treatment. The launch of their low-cost, life-saving drug came at a time when generics had a bad reputation,being seen as counterfeits. Now, generic and biosimilar medicines are recognised as playing a critical role in addressing health inequalities and generating rewards for investors. Over the last 25 years Cipla has returned 18% per annum in USD.⁴

This isn’t just altruism; it is good business with continued reinvestment and growth potential. We believe that further understanding the role of generics manufacturers in improving access will continue to deliver both excellent sustainability outcomes and drive investment returns.