Generic industry goes global

August 7, 2006

This could be the year the generic drug industry goes global. Consolidation and globalization were hardly a surprise-generic industry leaders already spoke with accents that hailed from Isr?l (Teva) and Switzerland (Novartis)-but 2006 added a growing chorus of voices from around the globe. Cross-border deals accounted for more than half of generic drug industry merger & acquisition activity in 2005, according to New York investment bankers Young & Partners. Generics already account for about half of the prescription drug market worldwide, and even more in the United States.

That leaves consolidation as the most promising path to growth. "The generic world will be better off with consolidation," said Young & Partners president Peter Young. "Consolidation gives them stronger product portfolios and better manufacturing efficiencies. They are being forced to change."

Consolidation may be a forced change, but the biggest generic firms are embracing the inevitable with global spending sprees. Icelandic firm Actavis rolled up Alpharma USPD, Amide, and Purepac, then challenged Barr Laboratories over Pliva, a generic giant based in Croatia. The battle over Pliva set off a chain reaction of consolidation scares across Central and Eastern Europe. Companies such as Krka (Slovenia), Bioton (Poland), Sanitas (Lithuania), and Zentiva (Czech Republic) emerged as takeover targets.

In Western Europe, Austrian generic firm Ebewe reached across the Atlantic to snap up Parenta Pharmaceuticals in South Carolina. French firm Sanofi-Aventis bought a quarter of Czech generic drugmaker Zentiva with an option to buy the company outright.

India's largest drugmaker, Ranbaxy, recently bought Terapia (Romania), Ethimed (Belgium), and Allen SpA (Italy), GlaxoSmithKline's Italian generic arm. Ranbaxy has been operating in the United States since 1996.

India's No. 3 drug firm, Dr. Reddy's, bought Betapharm Arzeniemittel (Germany) following its acquisition of Roche's API business in Mexico. Jubilant Organosys is trying to buy New Jersey-based Cambrex, while Nicholas Piramal India, Ltd., bought Pfizer's custom drug manufacturing facility in Morpeth, England. Natco Pharma signed a production and distribution deal with Illinois-based generic maker Akorn.

"The world is getting smaller, but health care is consuming more dollars than ever before across the globe," observed Chuck Caprariello, Ranbaxy's VP for government affairs and communications. "The best way to manage those changes is with more integrated and more global drug operations."

Global efficiencies

The growing web of international ownership in the generic industry mirrors similar developments in the brand-name sector. The pharmaceutical world has become a two-tiered market, Perry explained. On one end sits the developed world-places like Australia, Canada, Europe, Japan, New Zealand, South Africa, and the United States. First-tier countries generally follow the guidelines of the International Commission on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use (ICH), an international body that sets basic standards for research, manufacturing, safety, and similar elements.

In general, Perry said, products from one ICH country can be expected to meet similar standards in other ICH countries without making dramatic changes. That makes it relatively straightforward for a drug that has been approved in The Netherlands or Japan to obtain approval in Australia or the United States, or vice versa.