Over the last few years of DSN’s coverage of the impending patent cliff and how it would affect the generic drug industry, IMS Health VP industry relations Doug Long predicted that the gradual commoditization of primary care drugs — long the lifeblood of generic drug makers — would lead to consolidation of the industry.
Now, it appears to be happening, and at the National Association of Chain Drug Stores’ 2012 Pharmacy and Technology Conference in Denver last month, Long predicted a “big increase” in mergers and acquisitions among generic companies in the future.
The past year has seen a number of large-scale buyouts among generic drug makers, most notably Watson’s $5.6 billion purchase of Actavis in April, which made Watson the world’s third-largest generic drug company after Teva Pharmaceutical Industries and Mylan. During the 12-month period that ended in June, Watson was the fastest-growing drug company in absolute terms and the world’s 15th-largest drug maker on a dollar basis, with sales of more than $6 billion. A month after the deal between Watson and Actavis, Sandoz, the generics arm of Swiss drug maker Novartis and the world’s fourth-largest generic drug maker, announced it would buy Melville, N.Y.-based Fougera for $1.5 billion in a deal that would make Sandoz the world’s biggest maker of generic dermatology drugs. In July, Woodcliff Lake, N.J.-based Par Pharmaceutical, the world’s fifth-largest drug maker, announced that private investment firm TPG would buy it for $1.9 billion. Par itself had bought Anchen Pharmaceuticals in November 2011, for $410 million. In August 2012, the board of India-based Sun Pharmaceutical Industries announced it would take Israel-based Taro Pharmaceutical Industries private in a $39.50-per-share acquisition agreement. Sun, the seventh-largest generic drug maker, has sought to buy Taro since 2007.
Other acquisitions have taken place as well. In April 2012, Takeda Pharmaceutical announced it would buy Philadelphia-based URL Pharma for $800 million. URL has shifted to branded drugs as its primary revenue source over the past few years, but still maintains a portfolio of 288 generic drugs, according to its website. And last year, Perrigo, the 13th-largest generic drug maker, bought Minneapolis-based Paddock Labs.
Needless to say, the list of the 30 largest generic drug companies listed by IMS Health is likely to see some shifts as some companies grow and others are absorbed. But in a broader sense, the predicted consolidation in the industry now under way shows how the market has been changing overall.
In a basic sense, the patent cliff means that drugs for conditions like cardiovascular disease, psychotic and mood disorders, ulcers, Alzheimer’s disease and osteoporosis are in what Long called at the NACDS show the “cone of commoditization,” meaning that they are or will soon be entirely dominated by generics, and it will soon no longer be profitable for branded drug makers to develop new therapies for them. Meanwhile drugs for respiratory diseases, diabetes, cancer and HIV and other chronic viral infections are outside the “cone.” This is prompting branded and generic drug companies alike to move up the value chain. For branded companies, it means developing new drugs for conditions outside the cone; for generic companies, it means developing generic drugs with more complex methods of delivery, such as injectables and transdermal patches, as well as biosimilars, which could have a U.S. market of up to $25 billion by 2020, according to Long’s presentation.