The generic pharmaceutical industry is positioned for "an uptick in mergers and acquisitions".

So says a report from Thomson Reuters. noting that copycat drugmakers are being "buffeted by heavy competition in the small molecule generics market, government-mandated price cuts in Europe, and policies such as lowest price tendering". This means they are likely to seek M&A deals that "allow them to diversify product portfolios, secure pipelines of high-quality active pharmaceutical ingredients, expand into emerging markets and achieve economies of scale".

Kate Kuhrt, director of the Generics and API intelligence unit at Thomson Reuters, noted that companies are "cutting out the middle-man and diversifying their product portfolios by moving into niche areas, including follow-on biologics”. The report adds that a number of products losing patent protection over the next five years will be in the latter class and generic companies "unable to develop or manufacture biologic therapies in-house will have to rely on deal-making to remain competitive".

The analysis also notes that follow-on biologics are associated with significant barriers to entry, including the cost of developing and running clinical trials ($100-$200 million, compared to $1-$5 million for a typical small-molecule generic). It adds that early access to high-quality APIs that are not infringing existing patents "is critical to the success of the generics market and the cause of much M&A activity in the sector". Some 39 of the top 50 generic companies "are now backward-integrated and have at least one or more subsidiaries that manufacture API".

The Thomson Reuters report notes that total M&A activity in the generic sector was valued at $6.8 billion in 2009, down from an eight-year peak of $24 billion in 2008. The industry is currently worth an estimated $80 billion, up from $50 billion in 2004 and the largest four players (Teva, Mylan, Sandoz and Watson) account for nearly 50% of generic subscriptions in the USA and nearly 40% worldwide.