Summary
A sea change has begun for Branded Pharmaceutical Companies to embrace the potential in the off-patent products, which will fuel additional mergers and acquisitions.
Analysis
For years, large pharmaceutical companies have viewed the generic manufactures as low margin operations. Recently, large pharmaceutical companies have not been able develop enough blockbuster products to maintain double digit growth. Therefore, they have begun to look beyond their own Research and Development to find new growth opportunities.
To find new growth opportunities, several pharmaceutical companies are investing in generic manufacturing or alliances. The opportunity exists due to a dramatic expansion that is occurring in the off-patent drug market. The estimated global market for off-patent drugs will skyrocket from $270 billion in 2006 to $520 billion in 2012. With this significant opportunity, it is not surprising to see an increasing interest by large pharmaceutical companies. Within the last year, these companies have made significant investment in the off-patent product opportunities:
June 17, 2009: Watson Pharmaceutical purchases Arrow
June 16, 2009: Glaxo seals marketing pack with Dr. Reddy
October 16, 2008: Pfizer created its “Established Products” unit
June 11, 2008: Daiichi Sankyo buys a controlling stake in Ranbaxy
Since the global off-patent drug market is estimated to be valued at $520 billion in 2012, I would expect to see continued mergers and alliances between the Pharmaceutical Companies and the Generic Manufactures. The longer term question is: Can large pharmaceutical companies compete and win in a generic marketplace that requires speed and flexibility?
