The global generic pharmaceutical market has experienced robust deal activity over the last 18 months to the end of 2019 but is now contending with the COVID-19 crisis which has had an immediate and unprecedented impact on health systems. It is yet unclear what the long-term general impact on generic drug usage will be, but generic drugs and generic companies will continue to be important, providing effective treatments for patients through and beyond the pandemic. M&A and wider deal activity in this sector is expected to continue at pace, reflecting recent trends.
The M&A pot continues to stir in the generic pharma market
Recent M&A deal activity in the generic pharmaceutical market has involved a broad spectrum of industry participants ranging from big pharma multinationals, non-profit organisations and smaller companies with more limited product offerings or distribution capabilities. Companies have been undertaking a slew of spin-offs, acquisitions, and divestitures with transaction values in the billions of dollars during this period, with corporate activity being driven by the desire to capitalise on the increasingly large bonanza available in the generic pharma market, and the need to react to the market dynamics and forces impinging on the segment. The large market bonanza is being fuelled by a flurry of branded drugs losing their exclusivity and underpinned by an aging demographic that is spending more on healthcare. For developed markets, between the period 2013 – 2018, there was a loss of exclusivity for branded drugs amounting to $105bn. In the years ahead, the opportunity for generics is expected to become greater with the brand loss of exclusivity increasing further to $121bn for the period 2019 – 2023, of which the US market constitutes almost $95bn in value.
Source: IQVIA Market Prognosis, Oct 2018; IQVIA Institute, Dec 2018
Generic pharmaceutical market dynamics are multi-faceted, but an overarching theme over the years has been the downward price pressure on generic drugs. Healthcare payors and purchasing organisations have been squeezing generics prices in order to rein in healthcare budgets – for example, the Chinese collective purchasing efforts have really weakened producer pricing power and resulted in significant price concessions, while in the US, pharmacies have been working with wholesalers to achieve the same. Also, the generic pharmaceutical market structure is characterised by very many generic market participants competing to obtain market share, and in a ‘freeish’ generic market, the theoretical end result is price erosion. Needless to say, within generics, the commodity type products naturally face the most challenging environment, while the situation is more defensible for products with greater complexity or those offering some barriers to entry…