Actavis has tried to heave itself another rung up the generic drug industry ladder with an audacious $1.6 billion bid for Croatia’s Pliva.

Iceland-headquartered Actavis has been quietly snapping up smaller generic companies around the world, culminating in an $810 million purchase of US company Alpharma last year that made it the fourth-largest player in the sector. Acquiring Pliva would take it to third place, behind the undisputed leaders – Sandoz and Teva – but ahead of Merck KGaA, which has itself made an unsolicited bid for fellow German drugmaker Schering AG.

But Actavis received a chilly reception from Pliva for its offer, which said it undervalued the company. Pliva recently took a hit from the patent expiry on its most important product, the antibiotic azithromycin, in the USA, but has just emerged from a major restructuring exercise that has seen it exit from the proprietary medicines business and focus on generics.

Pliva said Actavis’ offer of 570 kuna a share – some 35% above the Croatian company’s share price over the last three months but only 12% higher than the previous day’s closing – was unattractive.

Exiting proprietary medicines, as well as the sale of a manufacturing plant in Germany, has transformed Pliva’s prospects, said a spokesman for the company. Pliva posted a $75 million loss last year.

Through these actions, Pliva has materially improved its profitability prospects, which it expects to become visible in 2006 and beyond.

Robert Wessman, Actavis' Chief Executive Officer, said the combination improved both companies’ “geographic reach, product pipeline depth and cost-effective manufacturing,” which he said are the keys to success in the global marketplace.

Pliva would extend Actavis’ reach in Central and Eastern Europe – something that has reportedly made the Croatian drugmaker attractive to other players in the generics sector. With the restructuring behind it, there has been speculation that some of the other generics houses might court Pliva, and observers suggested that Actavis’ approach could flush out other interested parties.

Rivals Teva, Sandoz and Merck have all embarked on their own acquisitive sprees over the last couple of years. Scale is important in generics, because healthcare payers are increasingly trying to deal with single providers of pharmaceuticals to cut costs, and companies which can offer a broad range of products have a competitive advantage.