After Mylan failed to secure the necessary shares for its proposed $26 billion takeover of Perrigo last week, what is next for the generic drug market? DCAT Value Chain Insights (VCI) examines the implications.
For now, the key deal in the generic drug market is Teva Pharmaceutical Industries' proposed $40.5 billion acquisition of the generics business of Allergan, a friendly acquisition that is expected to close in the first quarter of 2016. But what other noteworthy moves have been made in the global generic drug market, and what can be expected?
Inside the generics drug market far
Before considering the deal-making in the generics drug market, what about the market itself? Generics are the largest contributor to overall pharmaceutical industry growth globally and the largest contributor to growth in the major regions except North America. On a global basis, generics are forecast to account for 52% of the projected increase in total absolute medicines spending of $305 billion to $335 billion (based on constant exchange rates) for the period of 2014 to 2018, according to September 2014 data as reported in IMS Institute for Healthcare Informatics’ report, Global Outlook for Medicines through 2018. In North America, generics will account for 44% of the forecast absolute pharmaceutical growth of $115 billion to $145 billion through 2018 and for 46% of the $25 billion to $35 billion absolute spending growth in Europe. In the US, the impact of patent expiries reached a recent low of only $11.9 billion in 2014, one-third of the level in 2012 when patent expiry peaked and reached $29.3 billion. Despite the lower level of expiry impact in the US in 2014, the share of prescription medicines dispensed in the US as generics increased by 2% to 88% in 2014, according to the IMS analysis.
For Asia, which for purposes of the analysis includes China, India, Russia, the Commonwealth of Independent States (CIS), Southeast Asia, Oceania, and Japan, generics will account for 59% of the absolute medicines spending growth of $100 billion to $130 billion through 2018. Increases in low-cost generics will continue to be seen in Asia, including India and Pakistan, as efforts to broaden access to basic health insurance is pursued. Demand for generics has outpaced overall market growth rates in both Australia and New Zealand while the sector has also benefited from a succession of major patent expiries, according to the IMS analysis.
Generics will be the largest contributor to growth in Latin America, which they will account for 61% of the $25 billion to $35 billion of total absolute medicines spending growth through 2018. Locally manufactured generics will be the main beneficiaries of rising demand in Latin America, with local manufacturers increasing their share of the market. And in Africa and the Middle East, generics will account for 50% of the overall absolute medicines spending growth. Locally manufactured generics are a key source of affordable drugs in African markets, where domestic manufacturers often enjoy preferential treatment to encourage domestic production.
Leading generic players include Teva, Sandoz (the generics arm of Novartis), Mylan, Actavis, Sun Pharma, Aspen, Hospira (now part of Pfizer), Fresenius, Lupin, Dr. Reddy’s Laboratories, Cipla, STADA, and Abbott (which divested its non-US developed specialty and generics businesses to Mylan in 2015), based on industry estimates. The key deal thus far in the generics market in 2015 is Teva’s pending $40.5 billion acquisition of Allergan Generics, the generics business of Allergan (formerly the generics business of Actavis) for $40.5 billion ($33.75 billion in cash and $6.75 billion in shares of Teva), which would give Allergan an approximate 10% stake in Teva. The deal, a friendly acquisition approved by the boards of both companies, is expected to close in the first quarter of 2016.
In seeking to acquire Allergan Generics, Teva will strengthen its already strong generics portfolio. Allergan's generics pipeline has approximately 230 abbreviated new drug applications (ANDAs) pending at the US Food and Drug Administration (FDA), including approximately 70 first-to-file applications, as well as nearly 1,000 marketing authorization applications filed outside of the US, according to company information.
At the time of the announced deal in July 2015, Allergan CEO and President Brent Saunders said that the company had not been seeking to divest its generics business, but that an opportunity arose. "Over the years, our global team of highly capable and dedicated employees has dramatically expanded our generics portfolio, capabilities and footprint, with over 220 ANDAs pending FDA approval with 74 confirmed first-to-file opportunities, creating one of the most dynamic generics businesses in the world today," he said. "While we were not actively seeking a buyer for our generics business, Teva presented an offer at a very compelling valuation that reflects and recognizes the significant value that our global generics team has generated in creating and managing a world-class generics business. As a result of the transaction, we will also obtain a minority equity interest in Teva, to share in the upside of the generic R&D pipeline we are transferring in this combination.”
Mylan. Mylan lost its approximate $26 billion takeover bid to acquire Perrigo after failing to tender at least 50% of Perrigo ordinary shares from Perrigo shareholders. Mylan announced that it had secured 40% of Perrigo ordinary share in a tender offer, which lapsed on November 13, 2015. The rejection by Perrigo shareholders of Mylan's takeover bid put to rest a seven-month effort by Mylan to acquire Perrigo.
Mylan initially made a proposal to acquire Perrigo in April 2015, with subsequent amendments to the proposal later in April and August 2015, and made its formal bid to acquire Perrigo in a takeover bid in September 2015. Under the terms of Mylan's offer, Perrigo shareholders would have received $75 in cash and 2.3 Mylan ordinary shares for each Perrigo ordinary share. Mylan had to secure greater than 50% of Perrigo ordinary shares from its tender offer to acquire Perrigo, which Mylan failed to do. The board of directors of Perrigo had rejected all of Mylan's efforts to acquire Perrigo and had advised its shareholders to reject the tender offer. Mylan's efforts to acquire Perrigo came in the midst of Teva ‘s move to acquire Mylan, a move that Mylan opposed and that Teva later terminated after working out its $40.5 billion deal to acquire the global generics business of Allergan.
Although the Perrigo acquisition would have been the key move by Mylan in 2015, Mylan has made other moves to bolster its generics business in 2015. Mylan added to its specialty and generics portfolio with its acquisition of Abbott’s non-US developed markets specialty and branded generics businesses. With the Abbott acquisition, Mylan gained more than 100 specialty and branded generic pharmaceutical products in five major therapeutic areas, which included several patent protected, novel and/or hard-to-manufacture products, according to Mylan’s 2014 annual filing. Earlier this year, Mylan also agreed to acquire, through its Indian subsidiary Mylan Laboratories Limited, certain female health care businesses from Famy Care Limited, a specialty women's healthcare company with a focus in generic oral contraceptive products for $750 million in cash plus additional contingent payments of up to $50 million. Under the proposed transaction structure, Famy Care will spin off its female healthcare businesses under a court-approved scheme of demerger. Post demerger, Mylan will acquire the shares of the new resulting company. The deal is expected to close in the second half of 2015.
These deals follows Mylan’s 2013 acquisition of the Agila injectables businesses from Strides Arcolab Limited for up to $1.75 billion, which included $250 million in contingent consideration. Through the acquisition, Mylan expanded its injectable product portfolio, pipeline. In making the deal, Mylan said it expects to launch more than 800 injectable products through 2018, with approximately 150 of those in the US across a broad range of therapeutic categories and delivery systems.
In 2014, Mylan posted revenues of $7.72 billion with its generics business accounting for revenues of $6.46 billion and its specialty products of $1.19 billion, with the US generics market being a key market. The company estimates that one in every 13 prescriptions dispensed in the US is a Mylan product. Its sales in the US are primarily from the sale of oral solid dosage, injectable and transdermal products, and unit dose offerings. In the US, its generic portfolio (as of year-end 2014) consisted of approximately 360 products, of which approximately 270 are in capsule or tablet form, in an aggregate of approximately 815 dosage strengths. Included in these totals are approximately 45 extended-release products in a total of approximately 105 dosage strengths. As of year-end 2014, it had 125 injectable products (branded and generic) in a total of approximately 175 dosage strengths. As of December 31, 2014, the company had approximately 120 injectable products that had been filed and are pending ANDA approval for the US market.
Pfizer and Hospira. Another important deal in the generics market thus far in 2015 was Pfizer’s $17 billion acquisition of Hospira, which added to Pfizer’s Established Products business, including generic sterile injectables and biosmilars.
With Hospira, Pfizer gained a provider of generic sterile injectables with more than 200 products in different presentations (i.e., vials, prefilled syringes, bags, and lyophilized products). Pfizer’s sterile injectable business consists of 73 products, primarily gained from acquisitions, and focused on anesthetics, anti-infectives, and oncology.
In acquiring Hospira, Pfizer hopes to take advantage of strong growth prospects for generic sterile injectables, and when announcing the Hospira deal, the company offered market data to support that position. The global generic sterile injectables market is projected to grow from $37 billion in 2013 to $70 billion in 2020, representing a growth rate of 10% versus 6% projected growth for the combined branded and sterile injectables segments. Future market growth is anticipated to be largely driven by China with 13% growth, the US with 6% growth, and other emerging markets with 12% growth. Pfizer’s projections show that growth will be driven by both generic sterile injectables volume and emerging markets as well as differentiated presentations in hard-to-make products in developed markets. Of the approximate $38 billion for generic sterile injectables in 2013, the US accounted for $7 billion, the EU5 (France, Germany, Italy, Spain, and the United Kingdom) $6 billion, and the rest of the world (ROW) $25 billion.
Sun Pharma. Another key deal in 2015 was the closing of Sun Pharmaceutical Industries’ acquisition of Ranbaxy Laboratories. In April 2014, Sun Pharma agreed to acquire Ranbaxy for $3.2 billion plus the assumption of $800 million in debt from Daiichi Sankyo, which held a controlling stake in Ranbaxy, which it acquired in 2008/2009. With the closing of the deal, Ranbaxy was merged with Sun Pharma by means of a share swap, resulting in Sun Pharma as the surviving company and Ranbaxy as the company absorbed, and Daiichi Sankyo becoming the second largest shareholder in Sun Pharma, a stake in which Daiichi Sanyko later sold. According to information from Sun Pharma, the merger positions Sun Pharma as the world’s fifth largest specialty generic pharmaceutical company and the top ranking Indian pharma company. The pro forma consolidated revenues for the 12 months ending December 2014 were $4.5 billion, of which the US contributed $2.2 billion.
Endo and Par. Endo International’s $8 billion acquisition of Par Pharmaceutical was another important deal in generics, which added to Endo’s generics portfolio and which Endo says puts it among the top five as measured by US sales. The Par portfolio includes nearly 100 products in multiple dosage forms and delivery systems, including oral solids, oral suspensions, injectables, and high barrier-to-entry products. Par offers a pipeline consisting of more than 200 ANDAS, 115 of which were filed with the FDA as of December 31, 2014. Approximately 33% of the filed ANDAs are potential first-to-file or first-to-market opportunities, and 75% of the overall development portfolio consists of Paragraph IV and first-to-file programs. It is expected that the Par R&D pipeline could generate approximately 20 to 25 ANDA filings each year in 2015, 2016, and 2017, according to Endo. Endo reported 2014 revenues of $2.88 billion. Its US generics business is the company's largest segment, which posted revenues of $1.14 billion in 2014.
Lannett. Earlier this year, Lannett Company, Inc., a Philadelphia-based generic-drug company, agreed to acquire Kremers Urban Pharmaceuticals Inc. (KU), the US specialty generic pharmaceuticals subsidiary of the global biopharmaceuticals company, UCB S.A., for $1.23 billion, plus potential contingency payments. The transaction, subject to regulatory approval and other customary closing conditions, is expected to close in the fourth quarter of calendar 2015 and has been unanimously approved by the boards of directors of Lannett and UCB.
With the acquisition, Lannett will gain a commercial product portfolio of 18 products. KU currently markets generic pharmaceutical products that treat a variety of conditions, including attention deficit hyperactivity disorder (ADHD), gastroesophageal reflux disease, hypertension and respiratory disease. KU has eight controlled substance products with barriers to entry in various stages of development, which would expand and enhance Lannett's existing controlled substance portfolio. Also in 2015, Lannett acquired Silarx Pharmaceuticals, Inc. and a related real estate entity, a manufacturer and marketer of liquid generic pharmaceutical products.
Othey key activity
Sandoz, Novartis’ generics arm, is focusing on differentiated generics and is advancing its biosimilar products and pipeline. In 2014, biosimilars accounted for $514 million of Sandoz’s total 2014 sales of $9.6 billion. Sandoz has three in-market biosimilar products (Omnitrope, Binocrit and Zarxio) and five molecules in Phase III development/registration with plans to announce 10 further biosimilar filings over the next three years. In the US, where the biosimilars market is still evolving, Sandoz received approval in March of this year for a biosimilar of filgrastim, (Zarxio (filgrastim-sndz) under the new regulatory pathway in the US. In addition to biosimilars, Sandoz has a broad range of innovative development capabilities, including generic injectables, dermatology medicines, ophthalmics, inhalables, and anti-infectives. Sandoz's Glatopa (glatiramer acetate injection) is an example of a differentiated generic. It was recently approved as a generic version of Teva Pharmaceutical's Copaxone 20 mg. Sandoz has accelerated growth in the US behind a focus on differentiated generics, including the Fougera specialty dermatology business, which the company acquired in 2012.
Lupin. Lupin has made several move to expand its generics business. To
build its position in the US generics market, earlier this year, Lupin agreed to acquire GAVIS Pharmaceuticals LLC and Novel Laboratories Inc. for $880 million. GAVIS, based in Somerset, New Jersey, is a privately held company specializing in formulation development, manufacturing, packaging, sales, marketing, and distribution of pharmaceuticals products. The acquisition enhances Lupin's scale in the US generics market and also broadens Lupin's pipeline in dermatology, controlled substance products, and niche generics and will provide Lupin with its first manufacturing facility in the United States. GAVIS has 66 ANDAs pending approval with the FDA, with 72% of these filings representing niche dosage forms, and a pipeline of more than 65 products.
Also in 2015, Lupin acquired a 100% equity stake in ZAO Biocom, marking Lupin’s foray into the Russian pharmaceutical market. Established in 1991, Biocom is a generic pharmaceutical company with a major focus on therapies such as cardiovascular, central nervous system and antimicrobials for systemic use and also does contract manufacturing and secondary packaging. Lupin also acquired a 100 % equity stake in Medquimica Industria Farmaceutica S.A., Brazil, marking Lupin’s foray into the Brazilian market and also shoring up its position in the Latin American pharmaceuticals market following the acquisition of Laboratorios Grin in Mexico last fiscal year. Also in 2014, Lupin formed a long-term strategic partnership with Merck Serono, the biopharmaceutical division of Merck KGaA, to assist Merck Serono in implementing its expansion initiative of its General Medicines portfolio in emerging markets. The agreement builds on an established working relationship between the two companies and could add up to 20 new products to the current portfolio. The first launches are expected in 2016.
Cipla. Earlier this year, Cipla acquired two US-based generic-drug companies, InvaGen Pharmaceuticals Inc., and Exelan Pharmaceuticals Inc. for $550 million. The combined revenues from these companies is more than $200 million.The acquisitions provided Cipla scale in the US generics market through a product portfolio in central nervous system drugs, CVS, anti-infectives, and diabetes as well as other generics. InvaGen has a large capacity manufacturing base in Hauppauge, New York and an US-based R&D organization, Cipla’s first such presence in the US. The acquisition of Exelan Pharmaceuticals provides Cipla access to the government and institutional markets in the US.