Generic Pharmaceutical Companies Rely on M&A Deals to Gain Market share, According to Thomson Reuters

Philadelphia, PA, London UK, — The generic pharmaceutical industry is positioned for an uptick in mergers and acquisitions, according to a report released today by the Generic and API Intelligence business of Thomson Reuters.

The report, Gaining Market Share in the Generic Drug Industry Through Acquisitions and Partnerships, notes that generics firms are being buffeted by heavy competition in the small molecule generics market, government mandated price cuts in Europe, and policies such as lowest price tendering.

In response, they are likely to seek M&A deals that allow them to diversify product portfolios, secure pipelines of high-quality Active Pharmaceutical Ingredients (API), expand into emerging markets, and achieve economies of scale.

“Pricing pressures in established generics markets have forced the industry to look for economies of scale in manufacturing and opportunities in emerging markets. Companies are also cutting out the middle-man and diversifying their product portfolios by moving into niche areas, including follow-on biologics,” said Kate Kuhrt, director of Generics and API intelligence at Thomson Reuters. “Many generic companies have relied on M&A rather than organic growth to achieve these strategies.”

A number of products losing patent protection over the next five years will be biologics and generic companies unable to develop or manufacture biologic therapies in-house will have to rely on deal-making to remain competitive. Follow-on biologics are associated with significant barriers to entry, including the cost of developing and running clinical trials, manufacturing, and marketing. The development costs for follow-on biologics are estimated to be between $100 and $200 million, compared to $1 - $5 million for a typical small-molecule generic drug.

Early access to high-quality APIs that are not infringing existing patents is critical to the success of the generics market and the cause of much M&A activity in the sector. 39 of the industry’s top 50 generic companies are now backward integrated and have at least one or more subsidiaries that manufacture API.

According to the report, total M&A activity in the generic sector was valued at $6.8 billion in 2009, down from an eight year peak of $24 billion in 2008. The generic industry is currently worth an estimated $80 billion, up from $50 billion in 2004 and the largest four generic companies worldwide by sales (Teva, Mylan, Sandoz and Watson) account for nearly 50 percent of generic subscriptions in the US and nearly 40 percent worldwide. All four companies have used M&A to gain market share.



About Thomson Reuters Generic and API Intelligence
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