SloveniaSlovenia

Demand for generics keeps soaring

21.11.2006

Zagreb – Consolidation of the generic-drug business is focusing on eastern Europe. So far in 2006, at least eight deals have been announced, including Barr Pharmaceuticals‘ US$2.5-billion acquisition of Croatia‘s Pliva, completed at the end of October. Generic-drug makers are caught between soaring demand and falling prices. At the same time, competition from low-cost players in India and China is intensifying as they shift from supplying only raw materials to actual manufacturing. As a result, generics players are losing their sources of cheap ingredients and gaining a new competitors in the process.
So why is big pharma heading east? Demand for generic drugs in Russia, for instance, is growing between 30% and 40% a year, compared with 7% in the U.S. Another big attraction: the dominance of so-called ‘branded generics’. These copies of off-patent prescription drugs are marketed under brand names and sell for more than commodity generics. While consumers in the region can’t afford high-priced brand-name formulas, they are willing to pay more for the perceived higher quality associated with branded generics.
Pliva also excels at what is perceived as the next big frontier in the pharma business: biosimilars, or off-patent versions of genetically engineered biotech drugs. Moreover, the deal gives Barr better access to Central and Eastern Europe and Russia.
Barr isn‘t the only active player in the region. Novartis‘ Sandoz, the world‘s second-largest generics maker by sales, bought Slovenia‘s Lek four years ago. Over the past two years, Actavis has snapped up eastern European generics makers, including Hungary‘s Kéri Pharma, Bulgaria‘s Higia, the Czech Republic‘s Pharma Avalanche, and Romania‘s Sindan. In March, French Sanofi-Aventis paid US$565 million for a 25%-stake in Czech Zentiva. Even Indian players are getting in on the action: In March, Ranbaxy spent US$374 million for a majority in Terapia, Romania‘s largest generic company.
Next up: Slovenia’s Krka is one possible target, although its US$2 billion-plus market cap is likely to attract only deep-pocket players. Another possible target is Hungary‘s Gedeon Richter, the No. 1 generics player in Russia. With operating margins of 28% and a lucrative niche in women’s health, Gedeon Richter is expected to post annual sales growth in excess of 15% through to 2010. Poland‘s biggest generics company, Pol­pharma, might also be in play, and the rest of Zentiva could also be up for grabs.

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