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[DewDiligence]

Industry Consolidation in Generics Will Focus on Emerging Markets

[“Being in generic drugs in the U.S. right now actually isn't that fun.”]

http://biz.yahoo.com/ap/080919/generic_drugs_buyout.html

›Friday September 19, 4:20 pm ET
By Matthew Perrone

WASHINGTON (AP) -- A wave of consolidation that has reshaped the generic drug industry in recent years will continue, experts say, as companies like Teva Pharmaceutical Industries and Mylan Inc. compete for new business in emerging global markets.

This year already has seen a record level of buyouts with acquisitions valued at over $25.1 billion, up nearly 80 percent from 2007 [#msg-31868085], according to the Royal Bank of Scotland.

Perhaps the most high-profile of those purchases was Teva's $9 billion buyout of Montvale, N.J.-based Barr Pharmaceuticals. Even with approval of that deal pending, Teva's Chief Executive for North America Bill Marth said more acquisitions may be coming.

"It doesn't leave us in a position where we won't do more acquisitions that are complementary, it will just change the focus of those acquisitions," Marth told reporters Friday at the Generic Pharmaceutical Association's annual conference.

Marth said he would like to see Israel-based Teva expand its business into Brazil, Russia and Japan, among other countries.

The new focus on emerging markets comes as the U.S. market for low-cost medications reaches a saturation point. Generic drugs currently make up two-thirds of all prescriptions dispensed, but annual sales from the drugs are actually down 6.8 percent so far this year [#msg-27225992], according to research firm IMS Health.

As more competitors enter the market, companies are forced to lower their prices, shrinking margins for everyone.

"Being in generic drugs in the U.S. right now actually isn't that fun," said Vijay Karwal, a managing director with the Royal Bank of Scotland. "It's very difficult to be profitable and I think many companies realize that."

Perhaps the biggest force behind the price erosion has been an explosion of competition from Indian generic manufacturers like Dr. Reddy's Pharmaceuticals and Ranbaxy Laboratories. Indian drugmakers received U.S. approval for 200 generic drugs last year, a tenfold increase from five years earlier.

…Karwal told executives Thursday that their companies will resort to acquisitions to gain the size and global scope needed to maintain profitability. Of particular value will be acquisitions in China and India, which are expected to be the second and third fastest-growing pharmaceutical markets, respectively, by 2015. The U.S. will remain in the top spot, he said. [This is an error that misquotes the source (Vijay Karwal of Royal Bank of Scotland); what Karwal presumably said was that the US, China, and India will rank 1-2-3 in the year-over-year increase in generic-drug Rx’s by 2015. Obviously, the US will be nowhere neat the top ranking in terms of the growth rate as a % of sales.]

Competition for such purchases could come from an unexpected source: traditional drugmakers. With companies like London-based GlaxoSmithKline and Paris-based Sanofi-Aventis facing expiring drug patents and dwindling pipelines, they may decide to buy up foreign generic firms to gain access to emerging markets. While countries like India and Brazil cannot afford cutting-edge pharmaceuticals yet, companies could begin laying the groundwork for future business by selling low-cost generics, Karwal said.

"That is a game-changer because within this whole dance of generic consolidation there is now a new party at the table with very different motivation," he said.‹