FiercePharma | Eric Palmer
To most of the world, the term "generic" suggests something
everyday, common or bland, but to the drug industry generic is anything but
bland. It represents a high-volume, low-margin business that is certainly not
for sissies.
It calls for scientific and manufacturing skills, a superb sales operation,
and fortitude. It comes with risks but also has plenty of rewards. In the U.S.,
the largest drug market in the world, generic drugs account for 80% of the
prescriptions written. According to data from the market intelligence miners at
EvaluatePharma, worldwide sales of generic drugs in 2014 were $74.2 billion, up 7% for
the year. Of that, the top 20 generics producers collected $61.7 billion, 83.1%
of the take.
But the fact is, most of those 20 hold only a fraction of the whole. Only
the top two generics companies, Teva Pharmaceuticals ($TEVA) and Novartis ($NVS), which sells generics through its Sandoz operation, hold double-digit shares, 12.2% and 11.5% respectively. Only
the top 5 generics companies, which in 2014 also included Mylan ($MYL), Actavis and Sun Pharmaceutical, held a market share above 5%. To dice it another way, those top 5 had
2014 generics sales of $35.2 billion, 47.4% of the worldwide generics sales and
57% of the sales generated by the top 20. You get the picture.
Still, when you look at the tail end of the spectrum, even number 20,
Japan-based Nichi-Iko Pharmaceutical, had generics sales of $1.2 billion.
The current year may be remembered for awhile, with a lot of M&A
germinating, some of it friendly, some not so friendly. Teva has a
$40-plus-billion deal to buy essentially Actavis, the generics business of
Allergan ($AGN), which has decided to trade in its generics heritage to concentrate on
the branded side of the ledger. That deal will elevate Teva's leading position
so that it should be unreachable in size for some time. Meanwhile, Mylan is
trying rather awkwardly to pull off a buyout of Perrigo ($PRGO), which Perrigo is working hard to avoid.
It is worth noting that there was some significant M&A action in
generics in 2014, like Mylan's $5.7 billion deal to buy Abbott Laboratories' ($ABT) generics business in developed countries and Sun Pharmaceutical's $4
billion takeover of troubled Indian compatriot Ranbaxy Laboratories.
Other notable events in 2014 exemplify some of the challenges of the
generics business. High drug prices have become the topic du jour recently, but
last year a number of generics players said employees had been subpoenaed by
federal prosecutors to give up information on potential collusion on pricing.
Impax Laboratories ($IPXL) and Lannett both acknowledged in 2014 that employees in their operations had received
DOJ subpoenas seeking info on generic drug pricing.
All of this adds up to a piece of the pharma industry that is steady and
profitable, and not at all bland.