Generic consolidations create global powerhouses
The name of the game in the generic drug industry is consolidation.
“It leverages your strengths: Your ability to be first to market, your legal team and your ability to manufacture,” said Jason Napodano, senior biotech analyst with Zacks Equity Research.
“Generics is a quantity business, it’s not high-end, so if you can be the first generic drug to market, or can bring out an authorized generic, you can make some money for six months.”
“[Consolidation] is driven by drug companies wanting to expand their portfolio so they can negotiate better in terms of pricing with distributors,” said Barath Shankar, research analyst with Frost & Sullivan. “More products in their portfolio means they’re more likely to get stocked and have a better [drug] supply so [they] are of more interest to distributors.”
The biggest consolidation this year has been Mylan’s $6.7 billion purchase of the generic business of Merck KGaA in May to create a vertically- and horizontally-integrated player.
Teva’s generics sales double that of next-biggest player| 2006 | |||
| Sales of unbranded generics by leading corporations | U.S. sales in millions | % share | % change |
| U.S. industry | $27,410 | 10.0% | 22.4% |
| Teva | 5,551 | 20.3 | 37 |
| Sandoz (Novartis) | 2,634 | 9.6 | –2 |
| Mylan* | 2,145 | 7.8 | 7 |
| Watson | 1,832 | 6.7 | 11 |
| Greenstone (Pfizer) | 1,585 | 5.8 | 120 |
| Apotex | 1,521 | 5.5 | 163 |
| Par | 1,209 | 4.4 | 14 |
| Barr Labs (including Pliva) | 907 | 3.3 | 8 |
| Boehringer Ingelheim | 906 | 3.3 | 33 |
| Hospira | 653 | 2.4 | 7 |
| Top 10 | 18,942 | 69.1 | 27.3 |
Had it been formed earlier, the combined company would have had revenues of approximately $4.2 billion, EBITDA of approximately $1 billion and approximately 10,000 employees in 2006, making it the world’s third-largest generic company (after Teva and Sandoz) and a significant player in the top five global generics markets.
As anticipated by analysts, the merger brings with it a diversified portfolio. “The combination with Merck generics will significantly extend our range of therapeutic categories and dosage forms, and bring us a number of new, differentiated products and successful franchises,” said Robert Coury, Mylan’s vice chairman and chief executive officer.
Along with the consolidation of drug companies, there is also more vertical consolidation, Shankar pointed out, so that pharmaceutical companies can source active pharmaceutical ingredients within their own companies, another tactic that helps reduce prices.
This is indeed the case for the new Mylan-Merck combo. Last year Mylan purchased a 71.5 percent stake in Matrix Laboratories, the world’s second-largest API manufacturer. “Together, Mylan and Merck generics will benefit from significant savings driven by Matrix’s low-cost, high-quality API capacity and the benefits of manufacturing high product volumes for multiple markets around the world,” Coury added.
Mylan also gains some geographical depth with the acquisition. Mylan’s presence to-date has been almost solely in the United States. It now is combined with Merck’s business, of which about 42 percent comes from Western Europe, 33 percent from North America, a further 23 percent from Asia, Africa and Australia combined, and 23 percent from Latin America.
“Mylan had very limited reach in Europe, but Merck has established relationships there so this helps give [Mylan] more access,” Shankar said.
Other activity in the consolidation field includes Teva’s $7.4 billion acquisition of Ivax at the beginning of 2006, forming the world’s largest generics company. Again, the benefit of this merger, according to analysts, was that they barely overlapped, geographically.
Also last year, Sandoz acquired two companies: Hexal in June and Eon Labs in August.
Sandoz is the generic arm of Novartis, and it has Omnitrope, the only product approved as a ‘follow-on’ drug (as opposed to a biogeneric) in the United States. Omnitrope was the first approved biosimilar in Europe, Australia and other countries as a human growth hormone. Last year Sandoz signed exclusive collaboration with Momenta Pharmaceuticals to focus on developing complex generics and follow-on biotechnology drugs.
Barr acquired Croatian company Pliva in 2006, and it’s expected that the company will be strong in developing insulin and human growth hormone. Pliva is developing G-CSF (granulocyte-colony stimulating factor) and has received European approval for generic erythropoietin.
Teva’s generics sales double that of next-biggest player| 2006 | |||
| Prescriptions of unbranded generics by leading corporations | U.S. sales in millions | % share | % change |
| U.S. industry | 2,006 | 54.1% | 12.8% |
| Teva (including Ivax) | 408 | 20.3 | 17 |
| Mylan* | 244 | 12.1 | 11 |
| Sandoz (Novartis) | 199 | 9.9 | 5 |
| Watson | 175 | 8.7 | 4 |
| Mallinckrodt | 107 | 5.3 | 15 |
| Barr Labs (including Pliva) | 102 | 5.1 | 13 |
| Actavis | 82 | 4.1 | 0 |
| Qualitest | 67 | 3.3 | –4 |
| Par | 67 | 3.3 | –2 |
| Greenstone (Pfizer) | 58 | 2.9 | 68 |
| Top 10 | 653 | 75.0 | 10.6 |
Barr reported net earnings growth for fiscal 2006 of 56.5 percent year-on-year, to reach $336.5 million. This compares with net