Vol 449|27 September 2007 BUSINESS Copycat consolidation As more blockbuster drugs come off patent, generic drugmakers face a changing landscape. Meredith Wadman looks at their strategies for survival.

ne year ago, told a conference of the Generic Laboratories was the Pharmaceuticals Association in Oworld’s ninth-largest Washington DC this month. “It’s generic drugmaker, a thor- obvious that you have to launch oughly American company it into all the key markets in the with American clientele and world.” And since some of those American operations. markets — in countries such as Today, on the heels of two Italy, Spain and France — aren’t yet major acquisitions, the Pennsyl- as well penetrated as the United vania-based company has vaulted States, the impetus to get bigger into the ranks of the top three and more global makes mergers global generics players. In Janu- an obvious strategy. ary, Mylan bought a controlling Still, some, including Wess- interest in Matrix Laboratories, man, say that the merger mania an Indian company that makes is driving companies to overpay a huge range of the active ingre- for acquisitions: he fingers both dients in generic drugs. Then in the Mylan–Merck and Barr–Pliva May it agreed to spend a cool Mylan Laboratories is about to become the third-largest generic-drug company. price tags as too high — but then, US$6.7 billion to buy the gener- he was outbid by Barr in the chase ics division of Germany’s Merck KGaA, which which a decade ago was an obscure Icelandic for Pliva. Bruce Downey, Barr’s chief execu- sells copycat pills in more than 90 countries. company, has acquired more than 25 compa- tive, says he has no regrets. “We got great value Once the deal closes on 1 October, Mylan will nies in seven years, in the process extending, because of all the assets we acquired in the become the world’s third-largest generics maker amoeba-like, into 40 countries — and becom- acquisition,” he says. “I would do it again.” by sales, after Teva Pharmaceutical Industries ing the sixth-place global player last year. in Israel, and Sandoz, the generic unit of Swiss Even before the acquisitions by Barr and A fast-moving industry brand-name drugmaker Novartis. Mylan, the wave of consolidation had had a pal- Not to be left behind, some Indian companies In the process, Mylan will have built for itself pable effect in the United States. Last Decem- are turning the tables and acquiring US mak- “one of the most global platforms there is,” says ber, the top four generics companies controlled ers of generic drugs. “Indian players are really Tommy Erdei, executive director of the global 56% of the market, compared with 35% ten building up a presence in the United States,” health-care group at UBS Investment Bank years ago, according to the industry informa- says Doug Long, vice-president of industry in London. “This is the kind of structure that tion firm IMS Health in Connecticut. And it’s relations at IMS Health. For instance, Mumbai- the generic is going a bigger pie they’re controlling: a groundswell based Wockhardt, already the largest Indian towards.” of patent expirations has pushed up the generic player in Europe, was last week reported to be Indeed, seven major mergers in the past two share of prescriptions in the United States from bidding for one of the companies bidding for years alone have marked a wave of consolida- 47% to 63% since 2000. New Jersey-based Par Pharmaceutical. Others tion in the generics industry Driving the consolidation is are going global: consider, for example, the — companies that make and “You have to launch the major players’ desire to have Indian firm Ranbaxy Laboratories, which sell cheaper copies of off-patent a new product into all a global presence in an industry acquired generics companies in Italy, Romania pills. That wave is reshaping the the key markets.” in which the competition has and Belgium all in one week early last year. industry as a highly competitive become brutal. In the United So will the natural selection of the business battleground with scores of Davids, a handful States, it’s not uncommon for 15–20 compa- world leave only a few generic giants standing of emerging Goliaths and numerous mid-sized nies to start marketing generic versions of a in 10 or 15 years time? “That’s what a lot of companies caught in between. drug once patent protection has expired. Many people believe,” says Long. of them are small players, scrabbling for tiny Erdei reckons that small players in highly Going global slices of a market dominated by Teva and other targeted niche markets such as oncology and Last year, Teva’s acquisition of Ivax in Florida giants. But because they’re small, they’re often dermatology will survive. “The middle is the created an uncontested global leader that now willing to slash prices to recoup their invest- group we’re most worried about,” he says, controls 20% of the US generics business. Last ment, driving prices down much further and because they’re too big to make a niche strategy October, Barr Pharmaceuticals in New York faster than the major players would do if left to work for them but too small to compete with shelled out $2.5 billion for the Croatian gener- their own devices. the likes of Teva and Mylan. These middle com- ics maker Pliva in Zagreb, giving it instant “To compensate for all the price erosions and panies need to think about how to transform access to sales outlets in 30 countries — and to keep growing, it’s not sufficient to launch [a themselves into Goliaths, he says: “Because if to Pliva’s low-cost manufacturing facilities new product] in two or three countries,” Rob- they don’t do it proactively, someone else will in Croatia and Poland. Meanwhile, , ert Wessman, the chief executive of Actavis, do it for them.” ■

393