Consolidation likely to continue in generic drug industry
WASHINGTON - A wave of consolidation that has reshaped the generic drug industry in recent years will continue, specialists say, as companies like Teva Pharmaceutical Industries and Mylan Inc. compete for new business in emerging global markets.
This year already has seen a record level of buyouts with acquisitions valued at over $25.1 billion, up nearly 80 percent from 2007, according to the Royal Bank of Scotland.
Perhaps the most high-profile purchase was Teva's $9 billion buyout of Montvale, N.J.-based Barr Pharmaceuticals. Even with approval of that deal pending, Teva's chief executive for North America Bill Marth said more acquisitions may be coming.
"It doesn't leave us in a position where we won't do more acquisitions that are complementary, it will just change the focus of those acquisitions," Marth told reporters Friday.
Marth said he would like to see Israel-based Teva expand its business into Brazil, Russia, and Japan, among other countries.
The new focus on emerging markets comes as the US market for low-cost medications reaches a saturation point. Generic drugs make up two-thirds of all prescriptions dispensed, but annual sales are down 6.8 percent so far this year, according to research firm IMS Health.
As more competitors enter the market, companies are forced to lower their prices, shrinking margins for everyone.
"Being in generic drugs in the US right now actually isn't that fun," said Vijay Karwal, a managing director with the Royal Bank of Scotland. "It's very difficult to be profitable, and I think many companies realize that."
Perhaps the biggest force behind the price erosion has been an explosion of competition from Indian generic manufacturers like Dr. Reddy's Pharmaceuticals and Ranbaxy Laboratories. Indian drug makers received US approval for 200 generic drugs last year, a tenfold increase from five years earlier.
The Food and Drug Administration last week barred Ranbaxy from importing more than 30 drugs due to problems at two factories in India, raising new questions about the quality of imported drugs.
On Friday, House lawmakers said they are broadening their investigation of Ranbaxy to look at the quality of the drugs it supplied to HIV patients in Africa and other countries. The drugs were paid for under President Bush's AIDS relief plan.
US Representative John Dingell, a Michigan Democrat who chairs the House Energy and Commerce Committee, sent a letter to Secretary of State Condoleezza Rice seeking information on alleged safety problems with the medications.
Karwal told executives Thursday their companies will resort to acquisitions to gain the size and global scope needed to maintain profitability. Of particular value will be acquisitions in China and India, which are expected to be the second and third fastest-growing pharmaceutical markets, respectively, by 2015.