- By Region
The strong headwinds facing big pharmaceutical groups are due in part to pressure from the rise of generic rivals. But many of these off-patent counterparts are having an equally tough time as they feel the squeeze from a harsh economic climate.
Intensifying competition from even lower-cost rivals in India, and price pressure from western healthcare systems seeking to save money on medicines via tenders and discounts, are cutting into margins.
Claudio Albrecht, chief executive of Actavis, the Swiss-based generic group that amassed large debts as it bought up smaller European rivals over the past decade, says generic producers face two choices.
“You can become bigger and benefit from scale and then fight on price and the best cost of goods, or you can become more non-generic,” he says.
If his company’s €4.5bn purchase last week by Watson of the US signalled the former approach, Teva’s partnership unveiled last year with Procter & Gamble and its $6.8bn purchase of Cephalon pointed to the latter.
Yet innovative pharmaceutical companies are also interested in generic companies, notably to diversify into emerging markets or into higher margin products. For instance, Amgen late last month bought MN of Turkey for $700m, and Novartis this week paid $1.5bn for Fougera, a generic dermatology products group.
Frances Cloud, a consultant to the generics industry, warns that innovative pharmaceutical groups recent inroads will be shortlived, given the modest scale and lower margins of the niche.
But she predicts further consolidation among midsize generic companies, such as the takeover of Stada of Germany. “We are running out of chunky sized targets and buyers, although there will still be lots of people hoovering up small assets for access to new geographies and technologies.”