Impacts of Deal Making on the Generic Market Landscape

As generic pharmaceutical companies adapt strategies for a new, post patent cliff marketplace, they are looking beyond the traditional growth model at how to compete successfully in the changing environment. More and more companies are shifting focus to specialty medicines and biologics, as well as the increased demand for pharmaceuticals in emerging markets. Additionally, emphasis on regulations and compliance is at the forefront, driving more strategic decisions for portfolio and partner selection. Consolidation within the pharma industry, cost cutting measures and focus on efficiency are other key ingredients adding to the mix.

Many active ingredients set to lose patent exclusivity in the coming years are those of smaller and specialized medicines. With a decline in generic competition from big blockbuster drugs, generic companies are looking to specialty products and biologics as a way to create new generic launch opportunities. Seeking out specialty products and capabilities has been a major driver for recent merger and acquisition (M&A) activity, and this trend is expected to continue in 2016. Teva has been very active in this space, acquiring Labrys Biologics (June 2014), Auspex Pharmaceuticals (May 2015), and most recently Gecko Health Innovations (October 2015), all of which contribute to expanding its specialty medicines business. Similarly, Pfizer’s acquisition of Hospira (September 2015) secures increased injectable and infusion technologies, as well as biosimilars for its global established pharmaceuticals business.

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Fig. 1: Generic launch opportunities driven by past NME launches and/or Pursuit of specialty products drivers.

A growing portion of pharmaceutical sales are coming from emerging markets, with continued growth in emerging markets expected due to aging population and expanding healthcare systems. The majority of pharma spending over the coming years is expected to come from growth in emerging markets and development of biologics. To gain presence in emerging markets, many pharma companies are acquiring smaller local players. Teva’s acquisition of Mexican manufacturer Rimsa (October 2015), STADA’s agreement to acquire Argentinean generics producer Vannier (December 2015) and Eisai’s agreement to acquire Chinese generic pharma company Lianoning Tiayi (December 2015) are all recent examples of expansion into emerging markets through local M&A deals.

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Fig. 2: Increasing portion of pharma sales coming from emerging markets

Simultaneously, many governments are offering incentives to manufacture locally and as an alternative to building, local manufacturing tie-ups are a good option to secure low cost manufacturing and specific capabilities, as well as insight into the local market. Many generic companies are partnering to strengthen generics segment in emerging markets and even big pharma are partnering with local players, especially for generics.

Overall, deal making was very active in 2015, largely due to a wave of consolidation within the pharma industry. Many generic companies were investing in growth of both their generics and specialty businesses and looking at long term potential for consolidation and cost cutting. Teva’s acquisition of Allergan’s generic drug business for $40.5 billion in late July will create the largest generic drug company in the world, with Teva estimating future cost savings of about 1.4 billion annually. Additionally, Hikma’s acquisition of Roxane Laboratories for 1.18 billion in July should serve a similar purpose, creating long term growth potential and making it the sixth largest supplier of generic medicines in the US. With changing trends in the generic drug industry, companies will need to invest in specific capabilities and must consider whether to build capabilities, acquire existing capabilities or establish partnerships in order to be successful. These considerations are not new, but the conclusion may be different than in the past. As it was in 2015, deal making will continue to be an important driver for strategic expansion and long term sustainability.