Novartis, Abbott, Sanofi, Merck split generic drug apocalypse!

Not long ago, pharmaceutical giant Novartis announced that it would spin off its generic drug business unit Sandoz and seek an independent spin-off and listing
.
There must be a reason why
the mixed operation of generic drugs and brand drugs, which has been insisted on for more than 20 years, was finally abandoned.

Looking at the entire generic drug industry, it has been infinitely prosperous: large companies continue to buy, mergers and acquisitions and expand, are sought after by capital and leverage, and have also ushered in a surge in stock price market value; Nowadays, many products and documents are changed or discontinued through subtraction, divestiture and sale
.

Abbott was one of the first to spin off its generic drug business, which it spun off into Hospira Pharmaceuticals and later acquired
by Pfizer.
Through several mergers and acquisitions, Pfizer has always retained its generic drug business and remained under Upjon; Until 2019, it announced its merger with Mylan Pharmaceutical to establish Hui Zhi Company, which is also the largest generic drug company
in the world today.

Sanofi began selling its generic drug business
as early as 2018.
Merck also spun off its generics business last year, including its biosimilar business and women's health-related business, into a new company
listed independently.

This time, Novartis announced to divest Sandoz's generic drug business, which also means that the last pharmaceutical giant bid farewell
to the generic drug business.
Other world's top ten pharmaceutical companies no longer dance with the "wolf" and mix the innovative brand drug business with the generic drug business
.

Why? The author believes that it is nothing more than too many players, overcapacity, fierce competition leading to a decline in profits, and even large losses
in some cases.
Ruhui's recent market capitalization is only $11 billion, and Teva tried to annex Mylan
for $40 billion five years ago.
As a global essential pharmaceutical product, the capital market atmosphere of generic drugs seems to be gradually unfriendly
.

Conjecture >>>

[Conjecture 1] The market is bigger and the demand is stronger

To speed up the launch of generic drugs, the FDA enacted the Drug Price Competition and Patent Term Restoration Act (also known as the Hatch-Waxman Act) in 1984, which standardized the approval process
for generic drugs.
In 2007, the FDA launched the Value and Efficiency Generic Initiative (GIVE) in an effort to modernize and simplify the generic drug approval process and increase the number and variety of generic products available, speeding up approvals and enabling the rapid development
of the generic drug industry.
Because of the simplified approval process, the market demand has skyrocketed
.

Taking the US market as an example, from 1984, the number of prescriptions for generic drugs accounted for only 18% and continued to rise, and now it occupies 80%~90% of the share
.
The proportion of drugs used for common diseases in the elderly is higher, and they are basically generic drugs
.

With the aging of society, there will be many market opportunities
for generic drugs in the treatment areas of chronic diseases such as cardiovascular diseases, diabetes, and oncology.

In addition, the growth of biosimilars, tightening government procurement budgets, and increased health insurance coverage will all drive the increase in
generic drug consumption.
Generic drugs are 4 times that of brand patented drugs in terms of prescription volume and sales, but due to low prices, the sales amount is only one-fourth of the original drug brand drugs, and the competitiveness is strong
.

Studies show that the generic drug market will continue to grow steadily in
the next 5~10 years.
In 2012, the global sales of generic drugs were only $260 billion, the global sales of generic drugs reached $392.
4 billion in 2021, the compound growth rate between 2022 and 2028 will be 5.
2%, and the global generic drug market is expected to reach $531.
8 billion
by 2028.

[Conjecture 2] Prescriptions have increased, accounting for nearly the upper limit

The provisions of the recent anti-inflation law passed by the US Congress involving drug price limits will have a great impact on brand original drugs, but the impact on the generic drug industry is relatively small
.

Governments, enterprises, and insurance companies will prefer more cost-effective generic drugs in drug consumption and price negotiations, unless they are irreplaceable original drugs
with better clinical effects.
So the number of generic drug prescriptions is likely to increase
further.

However, the pharmaceutical market must have a place for innovative research and development, and give a sufficiently high profit margin, otherwise there will be no motivation and growth space
for innovative research and development.
In the global drug market size of $1.
2 trillion, the sales amount of generic drugs may gradually reach 50%, but the market share may eventually be fixed between
85% ~ 95%.

[Guess 3] Emerging markets still have a difference

Due to limited consumption power, the proportion of sales and consumption of new and expensive brand drugs in emerging markets and underdeveloped countries is not high, and the largest demand and prescription volume must be generic drugs
.

South African and Indian generic drug companies have very good performance and market atmosphere; Chinese pharmaceutical companies are based on the huge market in their own countries, and there are also those who
go overseas to try their knives.
The sales growth rate of generic drugs is naturally higher than that of developed countries
in Europe and the United States.
The global generic drug market will grow at a compound annual growth rate of 5.
5%, but the growth rate will be several percentage points
higher in emerging markets.

Large generic drug companies will also penetrate and strategically deploy
in emerging markets through mergers and acquisitions, cooperation and agency.
In addition to the traditional demand for small molecule chemical generics, the demand for biosimilars in emerging markets will also increase
.
The market share and proportion will also gradually increase
.

Demand for pharmaceuticals will grow
steadily in line with GDP growth in emerging markets.
Even if large international pharmaceutical companies abandon or divest their generic drug business, they will still have an important position and sales share
of expired patent products in emerging markets and the four BRICS countries.

Inspire >>>

M&A subtraction or even more than addition

Around 2010, the generic drug industry continued to set off a wave of mergers and acquisitions, and the transaction price of $1 billion was not news, and mergers and acquisitions of billions or even tens of billions of dollars occurred from time to time, although some deals were not closed
.

The biggest deal was Israel's Teva Pharmaceuticals' acquisition of Allergan's generic drug business for more than $40 billion, and it was this super acquisition in the generic drug industry and previous mergers and acquisitions that cost billions of dollars left Teva with a heavy financial and debt burden
.

Teeva's institutions are bloated, products and overcapacity, performance and profits are declining, and market capitalization and stock prices have fallen from more than $40 billion and $29 in the spotlight to more than $7 billion and more than $6
.
In order to reduce the burden, Teva had to sell assets and some products, reducing costs and liabilities
.

Teva was frustrated by greed, mainly in the one-sided pursuit of scale effects, while ignoring the particularity of the generic drug industry, that is, the threshold is not high and the competition is fierce.

Therefore, it is not that the more products and the larger the enterprise, the more stable and profitable it is, but the ship is small and easy to turn around, do generic drugs with characteristics and difficulty, but can get better returns
.

Business differentiation opportunities

The threshold of the generic drug industry is not high, especially the generic drug business of small molecule chemical drugs is the most competitive, but if the generic drug company can seize the market opportunity, especially by challenging the patent to win, it can enjoy 180 days of administrative exclusivity protection and enter the market earlier, so as to squeeze the market space of the original brand drug, until the original drug actively withdraws from the river and lake
due to price reasons.

In addition to challenging patents to be the first generic drug, the market is not so crowded in the field of injectable generic drugs, combination and controlled release preparations, and generic drugs that are difficult to develop at low doses, which is an opportunity for
generic drug companies, especially in drug delivery (DDS) and formulation development, to have technical strength and innovative R&D enterprises.

Preparations that are in short supply in the market, especially those on the FDA list of shortage varieties, are of great development value
.
The shortage of these products is usually either difficult to buy or make raw materials, or the market capacity is not large, the document number is too competitive with manufacturers, and it is not profitable after cutting the price, and it is caused
by giving up together.
In fact, many of the products in the global market between tens of millions of dollars and 100 million dollars are of great clinical value
.

Pharmaceutical companies should pay attention to the varieties and business opportunities in this regard, especially the generic drug business of hospital drugs, injection preparations, and small-variety drugs has great prospects and can be jointly developed
with foreign enterprises.
The author noted that Medivant Health in the United States recently invested in the construction of a factory to develop small varieties
of injection that other generic drug companies are unwilling to develop.
There will definitely be good returns
in the future.

Optimistic about the biosimilars business opportunity

At present, more than half of the world's hottest TOP10 drugs are biomacromolecular or antibody drugs, and according to the "Global Biosimilars Market Outlook 2022-2027 Report", the biosimilars market will be worth $13 billion
in 2021.
The market is currently being driven by factors such as the expiration of blockbuster biologics patents, falling prices, rising prevalence of chronic diseases, and cost-saving initiatives by governments
.

Driven by these factors, the market size is expected to reach $60.
8 billion by 2027, with a CAGR of 26.
1% from 2022 to 2027, which is much higher than the sales growth rate
of small molecule chemical generics.
Moreover, the R&D investment threshold of biosimilars is high, there is less competition, and the price is not low, if the development is successful, there will be a good return
.

When Novartis CEO recommended Sandoz for spin-off, he emphasized that its selling point and future growth space lie in the development and marketing of
biosimilars.
In the long run, the world's top ten biosimilar manufacturers, as well as India, South Africa and South Korea, have made large long-term investments
in recent years.
Chinese pharmaceutical companies participate in the competition in the global generic drug market, and biosimilars are a must-do homework
.

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