INNsight articles by Peter Wittner, Interpharm Consultancy, April 09

Over the last few months, several Big Pharma companies have announced or implemented an acquisition in the generics area. Amongst those appearing on the list are:-

• Sanofi-Aventis with Zentiva / Eczasibasi
• Daiichi-Sankyo and Ranbaxy
• Pfizer reaching a deal with Aurobindo for supplies of generics
• GSK and Aspen cooperating on generics for GSK’s developing markets
• Sanofi-Aventis (again) buying Medley in Brazil

In addition to this, there are still a couple of major generic houses waiting for new owners. As I pointed out in a previous article “Two of the leading generic companies have come up for sale at the same time – Actavis and Ratiopharm. …..The Big Question now is – who will buy them? Big Pharma or another generic company?” As a footnote to this question, it would appear, according to some reports, that Actavis’s asking price is too high in these economically strained times so that the sale may be delayed.

This question of ownership still remains open, but once again it is time to muse on how successful any of the companies will be in bridging the cultural divide between themselves and the generic world.  Cases can be cited for and against Big Pharma knowing how to handle this issue.

Big Pharma does not know what it is doing
Proof of this comes from companies such as Bayer who set up a generic joint venture with Schein in the US and tried to expand into European markets.  However, after a few years, the relationship was dissolved and Bayer sold off its generic subsidiaries one by one to companies such as Ranbaxy and Stada. Hoechst, who eventually became part of Aventis, at one time owned Cox Pharmaceuticals in the UK but sold it to Alpharma before retiring from generics altogether and E. Merck also bowed out of generics buy selling its generic subsidiary to Mylan.

In all of these cases, the Big Pharma company was in effect admitting that it did not really understand generics and preferred to concentrate on what it did know.

Big Pharma does know what it is doing
Novartis seems to have done well with its Sandoz subsidiary and has risen to be second largest generic operator worldwide. Another success, albeit on a local and limited scale, is that of Pfizer with Greenstone in the US although, as noted above in their new venture with Aurobindo, Pfizer seems to be ready to expand its activities. Merck Darmstadt did seem to be doing reasonably well with its Generics (UK) subsidiary until it sold the company to Mylan.

In all of the cases where the Big Pharma has had some success, it did so by keeping some distance between itself and the generic subsidiary. I have written before about hybrid companies such as Teva and Sandoz who are trying to increase their involvement in branded products and thereby enjoy the best of both worlds. Now, though, it would appear that a growing number of Big Pharma companies are heading in the opposite direction and are meeting them in the middle by also becoming generic-branded hybrids.

Beware the sharks
One problem that Big Pharma companies might not be prepared for is the sharks that patrol the generic seas, although, given that this is coming to you from Australia, it might be more appropriate to warn about the salties (salt water crocodiles) that also have a fearsome reputation.

The generic industry is full of predatory companies constantly snapping at each other’s heels and trying to seize an advantage from competitors in the same way that animal predators happily grab prey from each other. This could be a major problem for Big Pharma companies that are more used to slowly lumbering at each other in the style of combative elephants attempting to charge each other out of the way.

What they need to do is ensure that their generic acquisitions retain the ability to react quickly and turn in response to respond to threats at their heels. This is a point I have stressed before and that I make no apology for bringing up again. Appointing committees to sit and deliberate on a new challenge while competitors just get on with the business is just not the answer.

Watching carefully how their competitors deal with the integration of the new generic subsidiaries is something that will pay dividends for Big Pahrma companies provided that they are prepared to learn from others’ mistakes.

Perhaps one mistake that has already become apparent is that of Daiichi-Sankyo with its purchase of Ranbaxy. It seems that perhaps it did not do its homework carefully enough before signing the deal because the signs of Ranbaxy’s current difficulties with the FDA over its manufacturing difficulties would probably have been apparent before they blew up into a major problem. Perhaps Daiichi did not know the right questions to ask when evaluating Ranbaxy or perhaps the pressure to do the deal overcame their normal caution.

It is hazards like this, lurking just below the generic water’s surface, for which big Pharma companies have to watch out for.  Just like the salties lurk below the surface waiting for their prey with only their eyes showing above the water line or the cruising shark can be detected by looking out for the fin skimming the water’s surface, these hazards can be detected by the observant. In order to survive while swimming in the generic seas, Big Pharma companies will need to learn how to spot the danger signs before they get dragged under.