The balance of power in the generics market may have shifted with Novartis' recent acquisition of Hexal, a German generics
manufacturer. Some news sources say that Novartis now replaces Teva as the world's largest generics supplier, but a look at
2004 revenue indicates that Teva may still have a slight edge. Novartis' generic unit, Sandoz, generated $3 billion in sales
in 2004 (from $28.24 billion in total revenue), while Hexal's sales were e1.3 billion ($1.7 billion), for a combined total
of $4.7 billion. Teva's 2004 sales edged that figure out with $4.8 billion.
Sarah Houlton, PhD
Novartis spent $8.3 billion on the acquisition, which included Hexal's US affiliate, Eon Labs, and expects to save about $200
million in operating costs over three years.
The company underscored its commitment to generics a couple of years ago when it resurrected the defunct Sandoz name to rebrand
all its individual generics operations. And in June 2004, Novartis/Sandoz expanded its generics position even further with
the purchase of Canada's Sabex Holding and AstraZeneca's Durascan.
These deals are in stark contrast to the strategies of most of Novartis' competitors. Big Pharma, on the whole, has been selling
off generics businesses to concentrate core strengths in innovative medicines. Only France's Sanofi-Aventis has indicated
that it believes it should keep both its prescription and generics units. And although Bayer may have recently expanded its
OTC product offerings with a big acquisition from Roche (see Pharm Exec, September 2004), it spun off its generics business, Ethical Generics, back in the 1990s.
Yet the generics market is growing rapidly. Frost & Sullivan says the market for generic medicines in Europe is expected to
grow from $10.9 billion in 2003 to $21.2 billion by 2010. This growth will result partly from big blockbuster medicines going
off patent and partly from health services trying to constrain their budgets by increasing the use of cheaper generic medicines.
Both the acquired companies are growing well, Novartis claims. Hexal has more than 100 products on the market, including a
generic version of the cholesterol-lowering agent simvastatin (Merck's Zocor), and has plans for a version of analgesic fentanyl
(Duragesic from Janssen) using Hexal's proprietary patch technology. Eon Labs is one of the fastest growing generics units
in the United States. It has produced 15 first-to-market launches in the past three years, has 27 applications pending with
FDA, and is the market share leader for nearly half its portfolio.
Conventional wisdom says that generics businesses are a drain on resources, swallowing up huge amounts of a marketing budget
that might be better spent promoting innovative products for which the margins are higher. So why is Novartis spending so
much money on this business—regardless of its health—when analysts might have preferred that it make an acquisition in the
innovative sector? After all, there was talk about a white knight bid for Aventis after the Sanofi-Synthelabo takeover was
announced last year. And a further consolidation of Basel-based pharmas has long been touted: Novartis already holds a 33
percent voting stake in its cross-city rival, Roche.
One big advantage of the generics business is that it's much less prone to the disastrous safety panics that the industry
has seen recently, like Merck's Vioxx (rofecoxib). Generic drugs typically have been on the market for years and are products
that millions of patients around the world have taken—so any major side effects will likely have been discovered. The margins
may be lower, but the risks are lower, too. And generics cost much less to develop—an important factor when development of
a new drug can cost $800 million.
The biggest gain though in Novartis' latest acquisition is the range of novel delivery technologies that comes with it. Sandoz
will now have access to transdermal patches, inhaler devices, multi-particulate dosage forms, and sustained release implants.
Sandoz is also poised to make a killing in the biopharmaceuticals market. Although last year's application to market generic
somatropin was knocked back because of concerns over equivalence, there is a huge market out there waiting to happen. And
Novartis, with its biopharma manufacturing capabilities, is ready to clean up.
Sarah Houlton, PhD, is Pharmaceutical Executive's global correspondent. She can be reached at email@example.com