With many western generics markets showing sluggish growth, the lure of big emerging economies such as India is proving irresistible to pharmaceutical companies looking for promising new outlets – and not only generics firms.
If recent speculation that GlaxoSmithKline (GSK) wants a stake in India's Dr Reddy's Laboratories proves correct, it would be in line with the growing trend for multinational brand firms to gain a presence in generics in emerging markets to help offset looming patent expiries, tougher generic competition and declining revenues in the more established markets.
GSK is said to be negotiating a share of around 5% in the Indian firm. Neither company has commented on the speculation, and it is obviously too early to say whether the deal will go ahead, but it would fit in with GSK's plans to build up its position in new markets and take minority stakes in other firms. The two companies had earlier struck a deal for GSK to market more than 100 Dr Reddy's generics in Africa, the Middle East, Asia-Pacific and Latin America.
Taking a stake in Dr Reddy's would also be consistent with GSK's decision in May this year to acquire a 16% share in South Africa's Aspen Pharmacare, a generics firm with which the UK firm already had an agreement to sell 20 Aspen products in 95 emerging markets, including China and India, under the GSK name.
Indeed, GSK is fast becoming a player in the international generics scene. Over the past year or so it has bought a range of generic medicines marketed by Bristol-Myers Squibb in Pakistan, North Africa and the Middle East.
In a smaller but still significant move, in March this year GSK entered into an agreement with the US company Prasco, which specialises in ‘authorised generics’. Under this agreement, Prasco was to market and distribute GSK's nasal spray Flonase (fluticasone propionate) in the US under the GSK/Prasco label, with the possibility of other products being brought in at a later date.
At the time, Mr Stan Hull, GSK's Senior Vice-President, US Pharmaceuticals, said the arrangement with Prasco would allow GSK to "expand participation in the generic market in a new way". But GSK has not always been such a fan of generics – at least US-style. Just last year, CEO, Andrew Witty said the firm preferred to increase sales of vaccines and OTC medicines, and to boost sales in emerging markets.
“I've got no interest in the classic US-style generic marketplace,” he told the Wall Street Journal blog in July 2008. “That's not the kind of business I want to get bogged down in.”
Times Are Changing
Of course, times are changing and companies must go with the flow. Not that long ago, the big multinationals were disdainful of generics and went to great lengths to keep them off the market. Now big pharma, worried by sales slowdowns in mature markets, is pursuing the ‘hybrid model’, and sees nothing wrong with climbing aboard the generic train in populous countries where off-patent medicines sell in large volumes and at low prices.
No wonder. According to IMS Health, the ‘pharmerging’ markets are set to grow at an average of 13–16% a year between 2009 and 2013, with the seven largest such markets contributing more than half of global market growth. China, currently the sixth-largest pharmaceutical market, is expected to be the third largest by 2011.
At the same time, the mature US and European pharma markets are slowing, with US pharma sales expected to contract by 1–2% this year, and sales in Canada, France, Germany, Italy, Japan, Spain and the UK seeing a compound annual growth rate (CAGR) of just 1–4%. IMS Health sees these trends as leading to ‘a new world order’.
As multinational pharmaceutical companies quietly (if selectively) drop their aversion to the generic model, we can expect to see more deals like Pfizer's tie-ups with India's Claris and Aurobindo, and sanofi-aventis' acquisition of generics firms in Brazil and Mexico.
But action is in the offing in some of the industry's more traditional markets too. The sale process for Germany's Ratiopharm began just a few days ago, and the holding company, VEM Vermögensverwaltung, plans to issue full documentation on Ratiopharm for potential buyers at the beginning of October 2009.
A large number of pharma firms and private equity investors are said to have expressed an interest in Ratiopharm, which does look a tempting morsel for companies wishing to enter or expand in the generics segment. Reporting sales of Euros 1.7 billion in 2008, it has subsidiaries in 25 countries, including Canada, China, India, Russia and most European markets.
It also has biosimilars operations in the form of Merckle Biotec and BioGenerix, and a biosimilar filgrastim product that was approved in Europe last year. With European biosimilars legislation in place and a US pathway likely to be established next year, Ratiopharm offers an entry into the potentially lucrative off-patent biologicals segment.
Meanwhile, a bidding battle is shaping up in the UK after directors at generics firm Goldshield Group recommended a bid for the company from AIT, a new firm formed by the Fuhrer family, which owns Israel's Neopharm. Goldshield management, however, is not happy with the offer, and is said to be putting together a counterbid. There is a GSK connection here too: earlier this year, both GSK and Jordan's Hikma were reported to have expressed interest in the Croydon-based Goldshield.
On 23 September 2009, there was good news for Novartis when the European Commission cleared the Swiss firm's proposed acquisition of Austrian generics firm Ebewe Spezial-Pharma Holding. Novartis is a pioneer of the hybrid brand-generic model, operating in the generics market through its Sandoz subsidiary. The acquisition of Ebewe, which has operations in more than 100 countries and reported sales of Euros 188 million in 2008, is expected to give a boost to Sandoz, whose sales declined by 9% to US$3.5 billion (Euros 2.39 billion) in the first half of this year.
Scrip News 23 September 2009. Emerging markets continue to tempt pharma into generics.