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A generic tale: Go east, young man!
July 2008
by Chris Anderson  |  Email the author
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With apologies to the 19th century New York Tribune editor, Horace Greeley, who is widely—if not accurately—credited with using the pharase "Go west, young man!" as advice for those seeking fame and fortune in our still-growing country, the phrase can now be turned around for life sciences and pharmaceutical companies looking for opportunity at the beginning of this millennium.

A couple stories in this issue of DDN show the increasing importance of looking east, and also include a healthy dose of generic intrigue.

Most prominent of the two is the story of Tokyo-based Daiichi Sankyo buying a controlling interest in India's largest pharmaceutical company, Ranbaxy Laboratories Ltd., for $4.6 billion. While widely recognized as a leading marketer of generics, there is ample reason to see that Daiichi is also interested in Ranbaxy's well-established R&D infrastructure that counts more than 1,200 scientists.

The obvious benefit of eventually making Ranbaxy an operating subsidiary of Daiichi Sankyo are savings that can be realized by shifting R&D activities to India.

The deal also marks, however, what could be a turning point in the strategy of larger pharmaceutical companies across the globe. In the past, big pharma has eschewed the generics market, focusing instead on discovering and marketing novel, patent-protected therapeutics.

But that tide is now turning. With pipelines drying up and more than a handful of major big-ticket medications set to go off-patent within the next few years, there may be more major pharma companies looking to get into the generics business as a way to even out revenue.

Of course, this deal couldn't get done without a smidgen of drama, as shortly after Daiichi announced its intentions, news reports leaked out with speculation that Pfizer was, perhaps, maybe, sort of, thinking about a competing offer for Ranbaxy. Granted, there was no single Pfizer executive either named, or unnamed in these news reports, but it was quite evident why a rumor of this sort would have legs, at least for a couple of days.

At the time, Pfizer and Ranbaxy were locked in a legal battle over Ranbaxy's efforts to market a generic version of Pfizer blockbuster Lipitor. And $4.6 billion to get control of a profitable company, while protecting its $12 billion in annual sales for Lipitor made the price Daiichi was paying seem like short money.

Coincidentally, or perhaps not so coincidentally, shortly after the rumors surfaced, Ranbaxy and Pfizer announced an agreement that would delay Ranbaxy's marketing of a generic competitor for Lipitor until 2011.

Also, officials of Daiichi and the Singh family whose Ranbaxy shares Daiichi will buy said their agreement was iron-clad and would proceed as planned. And with it, Daiichi will more than double the number of countries where its products are sold while gaining a well-planted foothold in the generics market, one that could also provide a great opportunity in its home country. Reportedly, generics only account for five percent of total pharmaceutical sales in Japan.

A second deal may not look as far east as Ranbaxy, but has similar dynamics: the ongoing battle to purchase Czech Republic generics company Zentiva.

Shortly after the Ranbaxy announcement, came the bid by Czech investment company PPF to buy Zentiva for roughly $2.3 billion. PPF was already a significant investor in Zentiva, holding 19 percent of its outstanding shares, and this appeared to be nothing more an investment company looking to further capitalize on a company with which it was intimately familiar. That was until Sanofi-aventis, itself a 24-percent owner of the company, stepped in with a big, "wait a minute!" and countered the PPF offer with its own bid of $2.6 billion.

This time, the look east wasn't quite as far east, instead focusing on former Soviet bloc eastern Europe and Turkey, where Zentiva operates. The bid by Sanofi echoes the Daiichi deal with Ranbaxy. It is a large pharma company that currently is not actively engaged in the generics market, and it is making a bid for a company whose operations are in markets that have not been the traditional hotbeds of interest for pharmaceutical companies, but are projected for strong growth in the coming years.

Sanofi does have a presence in the countries where Zentiva operates, and Sanofi officials predicted if they could close on the deal, it would be accretive to earnings, essentially from day one. That would indicate Sanofi sees the generics business as one that can be an important underpinning of its business in the future.

Given the hefty sums these two deals command, you can hardly blame generics company executives for wringing their hands in anticipation of whom they might find ringing their doorbell soon.

For there is business opportunity, for sure in the east, but also in generics, and it seems only a matter of time before yet another big-name pharma company throws its hat in the generics ring. DDN

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