Europe’s fast-growing generic pharmaceuticals industry will consolidate
further over the next few years through more mergers and acquisitions,
claims a new report published by credit ratings agency, Standard and
Poor’s .
Analyst Olaf Toelke says “in the high-risk and competitive industry
environment,” the wave of mergers and acquisitions over the past two years is likely to continue” as “companies fight to optimise their geographic
reach and their portfolios.”
The report argues that the outlook for the generics industry is positive,
“as it will benefit from a wave of branded drug patent expiries due over
the next few years.” Another factor that will aid their progress is “the
efforts of growing numbers of European governments to cut spiralling
public healthcare costs by promoting the use of generic drugs over much
pricier originals.”
As a result, Standard & Poor’s expects the industry to grow by about 10%
over the next few years, a significantly higher rate than the average
6%-8% sales growth it predicts for the global pharmaceutical industry as a
whole.
Nevertheless, generic drug firms cannot expect to achieve the profit
margins or strong credit quality of ‘big pharma,’ the report states. “As
producers of commodity products in a short-term business, they lack the
protection of makers of patented drugs that enable high margins and
long-term stable cash generation. They are also more susceptible to
continuous pricing pressure and the threat of new competitors.”
The report notes that the generics market is still fairly fragmented, with
the top 10 global players, of which European companies make up about
one-half, represented only 38% of sector sales in 2005. Top of the league
is Israel’s Teva, followed by Novartis units Sandoz and Hexal.
The strength of the generics market differs widely between European
countries, Standard & Poor’s adds, ranging from market penetration levels
of 65% in Poland to less than 10% in Italy and France.
Therefore, Mr Toelke concludes, “owing to the different levels of
penetration of generic drugs in European countries, mainly reflecting
cultural and regulatory differences, corporates are more likely to rely on
international acquisitions rather than on organic growth to become
successful pan-European players.”