[Ip-health] Financial Times (Lex column): Generic tastes

[Thiru Balasubramaniam]

http://www.ft.com/cms/s/0/903e1888-3d65-11dd-bbb5-0000779fd2ac,s01=3D1.html

Generic tastes

Published: June 18 2008 19:38 | Last updated: June 18 2008 19:38

Less than a week after Daiichi Sankyo of Japan announced an agreed
offer for Ranbaxy, valuing India=92s largest generic manufacturer at
=808.5bn, Sanofi-Aventis has followed suit. Its =801.7bn bid for Zentiva,
a Czech generic drug maker, shows how slowing demand for branded drugs
is forcing change on the industry. When Novartis started the trend in
2005, with its =805.7bn acquisition of generic-maker Hexal EonLabs, many
were sceptical. After all, the industry in the 1970s and 1980s had
seen large pharma companies shedding their generic operations, then
dismissed as low-margin commodity businesses.

Today, it is a different story. Generic sales should grow by 15 per
cent in 2009 to more than $70bn, compared with 5 per cent growth in
branded drugs. For generic manufacturers in emerging markets, where
middle class consumers are allocating a greater proportion of their
incomes to healthcare, growth rates can be far higher. Zentiva=92s sales
grew 31 per cent in 2007, for example, compared to -1 per cent at
Sanofi-Aventis. Although the margins of generics manufacturers are
still lower than those of their branded rivals, they have risen to
between 15-20 per cent.

With faith in big pharma=92s ability to innovate and deliver new
blockbusters ebbing at just the time that a generation of medicines is
heading off- patent, purchasing non-proprietary drug manufacturers
makes sense. In the US alone, drugs collectively worth more than $62bn
in 2006 sales are due to go off-patent by 2012, making it easier for
rivals to sell generic versions. One chief executive calculates that a
US rival will lose $12bn of operating profits in a single 30-day
period in 2012. It is not often that global corporations take that
sort of hit. The next five years will be critical to the industry=92s
future. Further consolidation is inevitable.

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Thiru Balasubramaniam
Geneva Representative
Knowledge Ecology International (KEI)
thiru@keionline.org


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