Huge opportunities for Indian pharma firms as global generic drug market peaks all time high to $83 bn in 2009

Indian generic companies stand to gain considerably as the global generic drug industry continues to witnessed sales and volume growth of prescription generic drugs for almost a decade to 2009.

Global prescription sales growth of generic drugs climbed by 7.7%, up from 3.6% in 2008, in the 12 months ended September 2009, according to US-based health care information and consulting company IMS Health.

This sales growth in generics compares with the 5.7% growth seen within the overall global pharmaceutical universe last year, says Doug Long, vice-president, industry relations at IMS Health.

During that 12-month period, global generic products generated $83bn (€59.8bn) in audited sales, according to IMS. (US market data provider BCC Research estimates that the global market was worth $84bn in 2009.)

“The global industry virtually had 10 years in a row of good growth – not only in prescriptions but also in sales,” says Long.

All the dynamics of the generics industry were strong and it seems to have even prospered more during the economic slowdown, he added

Big pharmaceutical companies are looking at Indian generic firms as they try to expand their reach into emerging markets.

For example, Daiichi-Sankyo, the number 2 firm in the world’s second largest pharma market Japan, bought out the then top-most Indian drug company Ranbaxy in a $4.6 billion deal.

Sanofi-Pastuer, the vaccine division of the French drug maker sanofi-aventis picked up a majority stake paying $780 million in an emerging  vaccine firm Shantha Biotechnics.

And most recently, the generic injectables leader Hospira acquired the entire injectables business of the mid-tier generic player Orchid Pharma paying  $400 million.

While Daiichi, Sanofi or even Hospira went to the extent of buying out either companies or businesses often ending up paying huge premiums, Pfizer or GlaxoSmithKline resorted to more `cautious’ ways of sourcing generics.

In May, Pfizer forged an alliance with an upcoming injectables manufacturer Claris Lifesciences for supplying nearly a dozen injectables even as the world’s top drug maker added 40 more products from Aurobindo Pharma expanding an earlier deal.

The British drug major GSK entered in to purchasing agreement with Dr Reddy’s to source over hundred branded generics in June.

Dr Reddy’s, which is currently India’s second largest drug maker, has a long-time strategy to grab the first-to-file status in US generic market and, in the process,  got implicated in patent breaches by several innovators including GSK (Imitrex (sumatriptan) pills litigation is a recent instance.)

The rumour mill also has it that GSK has been in talks with Dr Reddy’s for a minority  stake buy.

GSK signed a similar supply arrangement with Strides Arcolab as well, in 2008.

Generics now account for 72% of the total US pharmaceutical market volume, reaching an all-time high in 2009, he adds. However, they still only account for 17% of total sales, despite generics sales having more than tripled since 2000.

In the 12 months ended November 2009, the US generics market was valued by IMS at $31bn. BCC Research estimates the US market in 2009 at $34bn.

A major growth driver for the generics sector is that several blockbuster pharmaceutical brands are coming off patent and therefore open to generic competition.

The demand for generics is increasing steadily because of pressure to control health care costs. But at the same time, fierce price competition is resulting in slashed profit margins for participating companies, analyst said.

Teva, Sandoz, Mylan and Watson are the top four global generics manufacturers. They together   accounted for 47% of the US market as of 2009, according to IMS.

India’s Lupin, which is among the top 10 list that also includes Canada’s Apotex, Pfizer’s US-based generics business Greenstone, Qualitest Products, Mallinckrodt and Actavis US, accounted for 66% of the market.

Teva Pharmaceutical Industries of Israel claimed the largest share – 18% global market. While  Switzerland-headquartered Novartis’s US generics business, Sandoz cornered 10%, and US-based Mylan and Watson have 6% each.

Teva, Sandoz, Mylan and Watson control 40% of the global generics market.

US sales from the top 10 US generic players grew at an average of 13.2% last year,  IMS estimates.

Large companies are consolidating their operations in established markets and/or expanding into emerging ones through local acquisitions or partnerships.

In May 2009, Sandoz acquired the specialty generics business of Austria-based Ebewe Pharma, while Teva closed its acquisition of US-based Barr Pharmaceuticals in December 2008.

Teva’s Japanese joint venture, Teva-Kowa Pharma, acquired a 66% stake in generics firm Taisho Pharmaceutical Industries, in December.

Teva will continue to acquire companies that will boost its market share in attractive geographies as well as enhance its branded business with niche specialty products, the company has announced in its 2010-2015 growth strategy in early January.

About 15% of our business will come from acquisitions, analysts said.

Teva estimates its 2009 global sales at $13.9bn, of which 70% are from generic products.

Generics firms expect more growth as several patents of branded blockbuster drugs are about to expire.

Drug makers are also monitoring the increasing emergence of government health care reforms worldwide.

In almost any given country in the world, you may see different kinds of initiatives or reforms on their own health care systems or even regulating their own pharmaceutical industry. This will increase the pace of generic drug penetration, especially in countries that are asking for better health care, experts said.

In the $59bn global generics market in developed countries, Japan only accounts for 6%, while the US holds 42%, and five major European national markets account for 23%.

Apart from India, China, Eastern European countries and Brazil are rising centers of generics activity in emerging markets.

France-based Sanofi Aventis’s acquisitions last year of Brazil’s Medley and Mexico’s Kendrick, and in 2008 of Czech Republic-based Zentiva and UK-based GlaxoSmithKline (GSK) acquired Aspen of South Africa in July 2008.

Pfizer is now  reportedly in a bidding war against Teva for the acquisition of Germany’s Ratiopharm. In 2009, Ratiopharm holds 3% of the global generics market.