Among the coconut plantations and beaches of South India, afactory the size of 35 football fields is preparing to churn outbillions of generic pills for HIV patients and flood theU.S. market with the low-cost copycat medicines.

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U.S. patents on key components for some important HIV therapiesare poised to expire starting in December and Laurus Labs Ltd. --the Hyderabad, India-based company which owns the facility -- isgearing up to cash in.

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Laurus is one of the world’s biggest suppliers of ingredientsused in anti-retrovirals, thanks to novel chemistry thatdelivers cheaper production costs than anyone else. Now, its chiefexecutive officer, Satyanarayana Chava, wants to use the samestrategy selling his own finished drugs in the U.S. and Europe. Hepredicts some generics that Laurus produces will eventually sellfor 90 percent less than branded HIV drugs in the U.S., slashingexpenditures for a disease that’s among the costliest for manyinsurers.

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"The savings for U.S. payers will be so huge when these genericcombination drugs are available in the U.S.," he said in aninterview at the factory outside the Southern Indian city ofVisakhapatnam. Payers will save "billions of dollars," he said.

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The patent expiries are starting this month when Bristol-Myers Squibb Co.’s Sustivaloses protection. Gilead Sciences Inc.’s Viread follows nextmonth. Both companies didn’t respond to requests for comment.

Big business

For generic manufacturers like Laurus, the U.S. market isalluring. With 1.1 million people infected with HIV in the U.S.,and many of them living longer thanks to treatment, HIV drugs havebecome an $18.8 billion business for the pharmaceutical industrythere, according to data provider IQVIA.

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Part of that spending is due to the high cost of the medicines.For instance, a combination of Viread, Sustiva and a third drugsold in pill form under the brand name of Atripla has an averagewholesale price of almost $37,000 per person annually, according todata from the U.S.Department of Health and Human Services.

But in the developingworld the same combination can cost as little as $100 per personannually, after years of brutal competition between genericmanufacturers drove prices down, according to Medecins SansFrontieres. Though Laurus doesn’t yet make the actual pills thosepatients take, it’s become a dominant supplier of the keyingredients that make them work.

The best way to fight HIV is with a combination of differentdrugs, and because Viread and Sustiva form key parts of some of themost effective combinations, the inclusion of generic versions ofthese chemicals could bring down the cost of the whole treatment.One analysis cited by the Department of Health found that replacinga three-medicine, branded combination with multiple pills,including a generic version of Sustiva, could save the U.S. $900million its first year.

Different game

In the U.S., Laurus will be going up against much largercompanies like Teva Pharmaceutical Industries Ltd. -- the world’sbiggest generic drug company -- which will beat it to market ongeneric Viread and so be the first to slash prices and lock downcustomers. Other generic companies, both from India and elsewhere,many of whom are customers of Laurus, are expected to enter themarket too.

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Meanwhile, thecompanies that hold the original patents, like Foster City,California-based Gilead, have also been successful at switchingpatients to their newer therapies to limit the impact of genericcompetition on the old ones, according to Bloomberg Intelligenceanalyst Asthika Goonewardene. He doesn’t predict a big impactfrom generic competition to the $2.6 billion Gilead gets from HIVdrugs.

Cost savings that were an advantage in the developing world, mayalso prove less useful in a less price sensitive market like theU.S. Between government programs providing treatment for theuninsured, and drug company funded ones helping the insured withtheir co-pays, HIV patients in the U.S. are often sheltered fromthe full cost of their medicines.

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So patients themselves may have little incentive to switch tocheaper alternatives, said Tim Horn, the New York-based deputyexecutive director of Treatment Action Group, an AIDS policy thinktank. Newer drugs offer medical advantages to the ones going offpatent, including fewer side effects, and the switch from one dailybrand name pill to a mix of two or three may feel like a step backfor many, he said.

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Still, Horn says private and public insurers, who pay thegreater part of the full sticker price and then spread those coststhrough the system in the form of higher premiums and health-carecosts, are likely to push for generics.

New technology

For his part, Chava maintains he will eventually be able toundercut bigger rivals like Teva on price, and the magnitude ofsavings offered to insurers from generics will prove irresistible-- particularly as more components of the older combinations go offpatent in the next three years.

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"We believe we’ll be able to bring cost effective genericalternatives to the U.S. market," he said. "We have the scale."

That willingness to compete on costhas made Laurus a bright spot in India’s pharmaceutical industry ina year when the U.S. generics market has been rocked by aprotracted price war. Laurus’s stock has risen about 22 percentsince its public market debut in 2016. Analysts are forecastingthat its revenue will rise to about $339 million in thecurrent fiscal year from $279 million in the previous year.

Laurus controls about 66 percent of the global market forefavirenz, the chemical name for Bristol-Myers Squibb’s Sustiva,and 33 percent for tenofovir, the chemical name for Gilead’sViread, according to a report earlier this year by investment bankJefferies Group LLC.

A compact man of 54with a trim mustache and rimless glasses, CEO Chava laughsenthusiastically as he recounts the scientific discoveries thathelped give Laurus its edge. A chemist by training, he left his jobas a C-suite executive at another Indian pharma company to foundLaurus in 2005. He quickly saw an opportunity to improve theproduction process for efavirenz, which Indian generic firms werealready producing in bulk for the developing world.

The key ingredient of efavirenz was a compound calleddiethylzinc, which had to be imported from Europe, and has apropensity for bursting into flames upon contact with water, oreven humid air. So Chava and his team eventually found analternative in the combination of two chemicals easily hadnearby.

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Where diethylzinc cost $80 per kilo -- plus all the precautionsneeded to keep it from exploding -- the two replacement chemicalstogether cost $5 per kilo. A similar innovation reducing theproduction cost of tenofovir by 75 percent followed, he said.

Last one standing

For now, Chava’s new factory is only producing test batches asit seeks to win regulatory approval to enter the U.S. It is meantto eventually produce as many as 5 billion tablets annually. OnNov. 30, the company said it had received tentative approval fromthe U.S. Food and Drug Administration to sell tenofovir.

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He expects his company could be in the market with its versionof tenofovir in three months or so, in partnership with anotherIndian company with a U.S. distribution network. While thattimeline could mean being beaten to market by some of hiscompetitors, he says he’s not worried.

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"We don’t mind not being the first one," Chava says. "But wewant to be the last one standing."

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