Generics continues to be big business in the pharmaceutical world, as evidenced by recent merger announcements that have made headlines. Just this week, leading generics supplier Teva dropped efforts to acquire Mylan, instead opting to buy Allergan’s generics business for $40.5 billion.
In addition, Hikma agreed to buy Roxane Laboratories, the generics operations of German drugmaker Boehringer Ingelheim, for $2.65 billion. Meanwhile, Mylan is pressing on with its own $33 billion pursuit of Perrigo. What is driving this latest wave of consolidation?
One factor leading to these deals is the opportunity afforded by the so-called “patent cliff,” in which several patents for blockbuster medications have recently expired or will expire soon.
It is estimated that in this patent cliff, drugmakers will lose some $65 billion in revenue by the year 2020. Pharmaceuticals can respond by beefing up their pipeline of drug candidates, or they can offer the generic versions of drugs whose patents have expired.
Another factor leading to the generics trend is the world’s aging population. The increasing acceptance of generics as viable alternatives to their more expensive counterparts. And the potential to create copies of complex drugs that will have fewer competitors on the market.
Although generics generate lower margins than name-brand prescriptions, they are an essential part of today’s health care environment. Health care bills continue to shoot upward, and consumers rely on cheaper variations of medications to keep costs down. Nearly 90% of all prescriptions filled in the US are for generic drugs, which typically cost 80%-85% less than name brands.
But some concerns have arisen lately over the rising costs of certain generic medications. Within the past year, half of all retail generics have become more expensive, and nearly 10% have more than doubled in cost.
Prices of doxycycline, albendazole, and digoxin in particular have skyrocketed. A number of factors can contribute to the rising costs, including shortages of raw materials and limited competition, with consolidations within the industry certainly playing an important role.
It’s a competitive market in which acquisitions help large players stay on top of the game. These firms are buying products and smaller companies in order to keep their portfolios robust. In Teva’s case, gaining Allergan Generics will add a highly complementary generics portfolio, and the combined company expects double-digit increases in 2016.
However, that deal will create some redundancies, further limiting competition and potentially leading to higher prices. The Mylan/Perrigo and Hikma/Roxane deals also reflect the ongoing need for generics producers to add new products and gain greater scale.
The more concentrated generic-drug market has already led to price increases, and some critics opposing the mergers say that these deals will lead to anticompetitive effects. But in a world of “eat or be eaten,” the current trend towards acquisitions doesn’t look to be slowing down at all.