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Consolidation in the Generic Pharmaceutical Industry

Consolidation in the Generic Pharmaceutical Industry



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Published by urchpublishing
Consolidation in the Generic Pharmaceutical Industry: An evolving landscape closely examines the significant acquisitions in the industry and forecasts which companies are shifting from single country marketing strategies through mergers and take-overs.
Consolidation in the Generic Pharmaceutical Industry: An evolving landscape closely examines the significant acquisitions in the industry and forecasts which companies are shifting from single country marketing strategies through mergers and take-overs.

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Published by: urchpublishing on Aug 08, 2008
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Consolidation in the GenericPharmaceutical Industry
An evolving landscape
Dr Peter Norman
Published and Distributed byUrch Publishing LtdPO Box 27554London SE4 2GZUKemail: info@urchpublishing.comweb: http://www.urchpublishing.com
Consolidation in the Generic Pharmaceutical Industry
Executive Summary
The early part of the new millennium has seen a remarkable transformation in thepharmaceutical markets. The revenue growth generated by major pharmaceutical companieshas slowed dramatically while the generics business has transformed into a high-growthsegment of the pharmaceutical market. This has been accompanied by the emergence of several major players, with the leading two – Teva and Sandoz – both generating sufficientrevenues from generic pharmaceuticals (in excess of $6bn in 2006) to be described as major pharmaceutical companies.In 2006 global sales of generic pharmaceuticals were $77bn, with Europe (27%) and the US(23%) the most significant territories in producing these revenues. Other significant marketsare Canada, Mexico and Brazil, with India and China steadily emerging in importance. TheJapanese generics market is relatively small and is expected to become increasingly lesssignificant in global terms as the world generics market grows to $124bn by 2011.In the US generic drugs sales were $27.4bn in 2006, representing 11% of the total market byvalue. Sales of generic drugs grew by 23.6% in 2006 and accounted for 63% of allprescriptions dispensed. In Canada sales of generic drugs accounted for $3.0bn of revenues,18.1% of the market by value and 44.5% by volume. In 2006 total European sales of genericdrugs were $27.8bn, split almost equally between Western Europe and Central and EasternEurope, with market penetration averaging 27% by volume. But there is considerablevariation across Europe in the market penetration by generics, ranging from 3.5% in Italy to50.7% in the Czech Republic by value and as high as 70% by volume. Germany and the UKprovided the largest generics markets in 2006, but generic penetration is increasing rapidly incountries such as France and Switzerland.Despite its position as the world’s second largest pharmaceutical market, Japan currently hasa low-value generics market. In 2006 sales of generics were only $2.3bn, accounting for 5.2%of the market by value and 16.8% by volume. Latin America provides a significantpharmaceutical market with total 2006 sales of $41bn but, like Europe, generic penetration isvariable. It appears to be increasing rapidly in both Brazil and Mexico, the two largestmarkets, but the 10–11% market penetration by value compares unfavourably with the 47%penetration achieved in Chile. Generics account for a significant proportion of drug revenuesin both China and India, while versions of drugs whose patents are not valid in thosecountries account for at least as high a proportion of total sales.There are a number of emerging key issues that impact considerably upon the growthprospects of generics companies. The recent emergence of authorised generics in the US, asa means of circumventing certain of the provisions of the Hatch–Waxman Act, is adverselyimpacting upon revenues of those generics companies that were anticipating having 180days’ market exclusivity for being the first to market a new generic product. Concerns over theanti-competitive nature of this practice may result in its abolition but in the short term theincreasingly widespread adoption of authorised generics will adversely impact upon revenuegrowth of the more aggressive generics companies.The progressive decrease in the number of novel therapeutic entities reaching the market andthe increasing number of those that are recombinant biological agents will both impact uponthe growth prospects of generics companies. The reduced number of new drugs willultimately reduce the number of opportunities to launch new generic products although theimpact of this deficiency will not be felt for some 10 years. With many of the morecommercially successful new products also being biological products the financial impact willbe further accentuated.
 © 2007 Urch Publishing Ltd
Consolidation in the Generic Pharmaceutical Industry
Biological products account for an increasing proportion of the pharmaceutical market, with20% of the 160 products that generated sales revenues of at least $750m in 2006 beingrecombinant products, including 19 blockbuster products generating revenues of $40bn. Butattempts to introduce generic forms (biosimilars) of older biological products, such asAmgen/Johnson & Johnson’s epoetin alfa, have been hampered both by the complexity of patents covering the production of the product and by the lack of suitable legislation to enablethe approval of such products. While Europe has now implemented legislation to address thisproblem, and recently approved a number of such products, no such legislation has yet beenforthcoming in the US. Such legislation is currently under discussion and may become law bylate 2008.Although this is just one of a number of entry barriers that hinders the market entry of (cheaper) biosimilars, the increasing lack of opportunities to develop new generics and thecommercial potential of biosimilars will ensure that a significant number of genericscompanies, as well as new specialist companies, will emerge as providers of such products.But the consumer benefit will be less dramatic than is the case with conventional generics,because the much higher cost of producing biosimilars will provide much smaller pricedifferentials from branded products.In response to some of these problems and in a drive to achieve greater efficiency, many of the leading generics companies have pursued consolidation via mergers and acquisitions.This has enabled them to enhance their marketing muscle and to improve their geographicpenetration, many of the companies originally having been focused upon a single country.This development has been highlighted by the battle between Teva and Sandoz for marketleadership of the sector, with both making several major acquisitions in the period 2000–05,with Ivax and Hexal, respectively, being their most significant acquisitions.In response to the emergence of these two major players, several other companies havepursued the acquisition trail in order to be able to compete more effectively. This has led tosome highly contested takeover battles. A competitive auction between Actavis and Barr for Croatian-based Pliva saw Barr pay $2.5bn in October 2006. Almost immediately, in what wasseen as a defensive move, Watson and Andrx agreed a merger, with Andrx receiving $1.9bnfrom Watson. Merck’s announcement in January 2007 of its decision to sell its Genericsdivision evoked considerable interest even from some of the smaller Indian genericscompanies, with Mylan finally prevailing in May 2007 for €4.9bn.Hospira acquired Mayne Pharmaceuticals for $2bn in February 2007, thereby reinforcing itsposition in the injectables market and highlighting how Hospira is likely to pursue further targets. Other US-based generics companies appear unlikely to pursue acquisitions but mightbe targets for foreign-based companies, with Par potentially the most vulnerable. In Europe,Ratiopharm, Stada and Actavis are now the most significant European-based companies after Sandoz, and all appear likely to pursue further strategic acquisitions while appearing lesslikely to fall to predators. Within Europe there is considerable scope for further consolidation,especially in Central and Eastern Europe, with Zentiva, Krka and Gedeon Richter all potentialtargets as well as companies that are acquiring smaller companies.Indian generics companies are potentially the most aggressive and they now appear to havethe ability to secure financial backing to contemplate the acquisition of significantly larger companies such as Merck Generics. Most of the leading Indian companies have been activein making acquisitions in other markets to enhance their strategic position, while there isincreasing interest in the advantages that their acquisition by an outsider provides. Mylanacquired a controlling stake in Matrix Laboratories in 2006 to provide a lower costmanufacturing source. Significant domestic suppliers in other markets, such as Australia,Brazil, and South Africa, have also been targets as the more aggressive generics companiesseek to enhance their global presence.Brazil, Mexico, China, India and South Korea are five countries that could have a significantimpact upon the global development of the generics market. India is the home of manyefficient generics companies and a major source of active pharmaceutical ingredients (APIs)but currently offers a modest-sized domestic market despite its high population. The
 © 2007 Urch Publishing Ltd

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