Over the past few weeks several articles have appeared in the pharmaceutical and lay press describing the latest rumors regarding the pending sale of Ratiopharm, the German based privately held generic drug company and companies such as Teva, Actavis and Pfizer, each reportedly lining up its bids and the supporting financing to make a bid for the assets of Ratiopharm.
Early in the process a number of other companies were checking out Ratiopharm and evaluating whether or not this opportunity fits well for the “buying” company. The price tag has always been in estimated at being at the high end of US$3 billion which is a significant investment for most companies.
The recent rumors state that Pfizer, Teva and Actavis are the only ones left at the alter ready to consummate the acquisition and that Pfizer is thought to have to lead position within this group.
The current bids seem to have gone north of the original estimates and are now thought to top almost US$4.1 billion.
Assuming that Pfizer is successful in this quest my only word for Pfizer has to be …..Congratulations!
This is truly a significant move on the part of Pfizer. Certainly a game changer for the whole industry both generic and brand.
Why do I think and say this?
The situation analysis is that:
- Pfizer has started a generic division/effort a few years ago and it is slowly progressing towards the achievement of its goals. It had to recruit a number of people from the generic drug side of the business.
- Ratiopharm has been a very successful generic company around the world, achieving a rank of #3 or #4 in Canada in terms of revenue (very close to Mylan).
- The patent cliff (as published by Tracy Staton- FiercePharma, January 22, 2009) has more than 100 pharma patents that expired by the end of 2009. Many of those were not so newsworthy. But 13 of them are, and they include GlaxoSmithKline’s herpes treatment Valtrex, bipolar remedy Lamictal, and migraine drug Imitrex; Johnson & Johnson’s epilepsy/mood drug Topamax; Forest Laboratories’ antidepressant Lexapro; and Roche’s transplant drug CellCept.
- Our 2010 patent expiration list also includes drugs whose patent actually expires, but managed to get a six-month extension due to pediatric exclusivity include Cozaar/Hyzaar (Merck); Lipitor 2011 Pfizer); Flomax (Boehringer Ing.); Arimidex (AstraZeneca); Climara (Bayer); Aricept (Pfizer); Invirase (Roche); Hycamtin (GSK); Protonix (Pfizer); Levaquin (janssen-Ortho).
- Overall, however, there are two companies most likely to be hard-hit by this year’s cliff, Global Insight concludes: GlaxoSmithKline and Pfizer. Novartis and Takeda are close behind. Some believe that just a few of the drugs falling off that cliff have enough market potential for generic drugmakers to pursue them in a big way. I would not bet on this idea.
- Major branded products coming off patent soon represents a value of over US$140 billion dollars by 2016 (Datamonitor forecast) in the very near few years that Pfizer will be able to participate in with generic offerings around the world.
- Pfizer management has not participated in the generic business until just recently. With the acquisition of Ratiopharm they acquire the skilled talent at the development, registration and marketing/selling of generic drug products head to head against entrenched competitors like Apotex, Teva and Sandoz.
- Pfizer can generate a lot of goodwill politically by announcing the retention of work forces around the world, associated with Ratiopharm, unlike the other 2 bidders who would use the acquisition of Ratiopharm as a way to consolidate operations in some countries and gain a presence in others.
- In Canada, the Pfizer purchase of Ratiopharm will mean that most if not all the Ratiopharm work force will have jobs. The situation would have been quite different if Teva succeeded in acquiring the business unit. Recall, Teva owns Novopharm Canada, the #2 player in Canada in terms of generic drug domestic revenue.
- It is my opinion if Teva were to buy Ratiopharm they could in fact spin off the Canadian company elsewhere as they really do not need to buy it to get share in Canada. Rather the Ratiopharm purchase would be to buy presence for Teva in places where Ratiopharm is active and Teva is not.
Why do I say game changer?
With that aforementioned cliff nearing, we can expect to see all kinds of deals and wheeling –and -dealing on generics. Drug makers may launch their own authorized copycats or work out all kinds of deals with generics makers, the general idea is the same: Cut those losses.
These deals will probably get even more creative as time goes on and generics makers have more leverage. The Pfizer purchase of Ratiopharm could be a major example of a
world wide branded company response.
Pfizer now becomes very dominant in both major segments of the Pharma industry, branded products and generic products. Pfizer will be in a position to launch a generic version of Lipitor® (world’s biggest selling drug, as a branded generic well ahead of anyone else can and get the 180 day exclusivity in the USA available by law for a first generic. Pfizer will also save itself millions of dollars of legal fees as it will not sue itself to prevent generic entry as would normally be the case for Pfizer branded products).
Pfizer will see an overall decline in its margin as a result of this acquisition but it will also see a significant rise in its top line sales and it will also see its prescription (Rx) share for each molecule also increase. Pfizer’s dominance in the overall pharmaceutical marketplace will be greatly enhanced by this move. Shareholder value should also be enhanced.
For an industry which is still relatively fragmented and rushing to consolidation, the strategy pursued by Pfizer is very correct.
Well done.
The interesting question remains, Can Pfizer actually leave the Ratiopharm operation alone and let it run as an international and multi-national stand alone business unit, as it should, without imposing the cost allocations and the policies and procedures from a brand company like Pfizer – which will choke the entrepreneurial nature of the generic drug business unit?
Let’s all hope so.
Comments – Questions – Other Points of View?
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