CHAPTER 1 EXECUTIVE SUMMARY

4

Scope of the report

4

Key findings

4

CHAPTER 2 STRATEGIC COMPANY ANALYSIS

16

Key findings:

16

Business models

17

A diverse generics portfolio is becoming the standard business model

18

Branded and super generics provide a significant competitive advantage

21

Proprietary products can be lucrative but require significant up-front investment

22

Biosimilars are being touted as the next wave of innovation for the generics industry, but the future is not clear

24

Few companies in the generic market concentrate on one particular type of product

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Most generics companies are globally focused, either through sales or manufacturing operations

26

Benchmarking the leading companies

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Teva and Sandoz dominated the market in 2005

29

M&A activity has driven growth in operating profits

31

The generics market is defined by low-margins, although companies with a diversified portfolio have demonstrated greater returns

33

Operating costs must be kept to a minimum to ensure profitability for generics companies

34

R&D investment varies between companies but has remained stable

37

Overall most companies spent similar percentages of sales on each of their key costs

40

CHAPTER 3 PROFILES OF LEADING COMPANIES

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Teva Pharmaceutical Industries

42

Portfolio

43

Geographic presence

44

Growth strategy

45

Teva's strength lies in its successful acquisition record over the past few years

46

A rapidly expanding generics portfolio has delivered good sales growth

47

Proprietary products are central to Teva's success

48

Alliance networks

50

Exclusivity sharing is key to Teva's sales

50

Teva has created several exclusivity sharing and licensed generics agreements

51

R&D alliances are producing positive results

52

Sandoz

53

Portfolio

53

Geographic presence

56

Growth strategy

56

Alliance networks

57

Merck KGaA

57

Portfolio

58

Geographic presence

60

Growth strategy

61

Alliance networks

61

Watson

62

Portfolio

62

Geographic presence

64

Growth strategy

65

Generics drive sales growth

66

Branded sales are key to ensuring future growth

66

Alliance networks

67

Mylan

68

Portfolio

69

Geographic presence

71

Growth strategy

71

Alliance networks

72

Stada

72

Portfolio

73

Geographic presence

75

Growth strategy

77

Alliance networks

79

Pliva

79

Portfolio

80

Geographic presence

82

Growth strategy

82

Geographic expansion remains key to Pliva's growth strategy

83

Alliance networks

84

Ranbaxy

84

Portfolio

85

Geographic presence

87

Growth strategy

89

Increasing its international presence is key to Ranbaxy's growth

90

Patent challenges are a key strategy for growth

91

Alliance networks

92

Barr

94

Portfolio

96

Proprietary products, particularly in women's health, have driven growth

97

Geographic presence

99

Growth strategy

100

Expansion into biotechnology seen as a key area for growth

102

Alliance networks

103

Andrx

105

Portfolio

105

Geographic presence

107

Growth strategy

108

Alliance networks

108

Perrigo

110

Portfolio

111

Geographic presence

112

Growth strategy

113

Alliance networks

113

Gedeon Richter

114

Portfolio

114

Geographic presence

116

Growth strategy

117

Alliance networks

118

Actavis

120

Portfolio

120

Geographic presence

123

Growth strategy

125

Alliance networks

127

KRKA

127

Portfolio

128

Geographic presence

130

Growth strategy

131

Alliance networks

131

Cipla

131

Portfolio

132

Geographic presence

134

Growth strategy

135

Alliance networks

136

Other company profiles

137

Zentiva

137

Par Pharmaceuticals

137

Dr Reddy's

138

ratiopharm

138

Aurobindo

139

APPENDIX A: ADDITIONAL INFORMATION

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Exchange rates

151

APPENDIX B: BIBLIOGRAPHY

152

Press releases

152

Newspaper articles

152

Miscellaneous sources

153

Presentations

153

Annual Reports

153

Websites

155

Datamonitor reports

156

List of Tables

Table 1: Many generics companies have diversified business models

18

Table 2: Most generics companies' have a diversified portfolio of products

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Table 3: Most generics companies are internationally focused

27

Table 4: Most companies that have posted strong growth in profits have participated in M&A activity over the last two years

32

Table 5: Teva will have sales in excess of $7 billion following the consolidation of IVAX's business

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Table 6: Teva's proprietary R&D pipeline is relatively strong

49

Table 7: Watson is primarily US-based, with facilities in China and Sweden

65

Table 8: Ranbaxy is actively seeking in-licensing opportunities in a variety of areas

94

Table 9: Barr's female healthcare franchise is the largest therapeutic area

97

Table 10: Barr's proprietary product portfolio is relatively extensive

98

Table 11: Barr's previous business development activities have been focused on acquisitions

101

Table 12: Andrx has a diverse portfolio of generic products

106

Table 13: Richter has been heavily involved in in-licensing and co-promoting several products

119

Table 14: Overview of Sandoz's drug portfolio, 2006

141

Table 15: The number of proprietary products each company markets varies

150

Table 16: Exchange rates

151

List of Figures

Figure 1: Generic production and supply value chain

17

Figure 2: Commodity generics tend to be lower value but high volume while branded and super generics can command a premium price

19

Figure 3: Teva has the strongest proprietary product pipeline and currently markets the most proprietary products, although Ranbaxy has several products in discovery

23

Figure 4: The leading generics companies all operate with a diversified business model

26

Figure 5: Teva and Sandoz were the clear generics market leaders in terms of sales value in 2005

29

Figure 6: If the proposed acquisitions are successfully completed, Actavis will become the fifth largest generics company, while Watson will ensure that its top five position is maintained

31

Figure 7: The generics industry is traditionally associated with low operating profit margins but companies with more diverse portfolios have generated stronger returns

33

Figure 8: COGS as a percentage of sales are relatively high for the generics market as product prices are kept low compared to the branded segment

35

Figure 9: Companies with third-party sales tend to have a larger SG&A spend

36

Figure 10: On average, around 7.4% of sales is spent on R&D by generics companies

37

Figure 11: Most generics companies have increased their R&D expenditure as a proportion of sales since 2003

39

Figure 12: Overall most companies spent similar percentages of sales on each of their key costs

40

Figure 13: Teva thumbnail: key performance metrics

42

Figure 14: Teva's generics portfolio is largely focused on CNS and CV therapeutics

44

Figure 15: Teva's sales are predominantly derived from North America but the company's presence in Europe is increasing

45

Figure 16: Teva's growth since 1996 has been driven by several large scale acquisitions

46

Figure 17: Sandoz thumbnail: key performance metrics

53

Figure 18: Sandoz manufactures a number of different types of generics

54

Figure 19: Cardiovascular and anti-infective products contribute the largest proportion of Sandoz's generic sales

55

Figure 20: Europe now accounts for 56% of Sandoz's sales, an increase of 8% from 2004

56

Figure 21: Merck KGaA thumbnail: key performance metrics

58

Figure 22: 70% of Merck's generics sales are derived from Europe and North America

60

Figure 23: Watson thumbnail: key performance metrics

62

Figure 24: Watson's generics portfolio has demonstrated the strongest growth between 2003 and 2005

63

Figure 25: Mylan thumbnail: key performance metrics

68

Figure 26: Cardiovascular sales as a proportion of total sales have declined since 2003 while GI and CNS sales have increased

69

Figure 27: Generics account for the majority of Mylan's annual sales

70

Figure 28: Stada thumbnail: key performance metrics

72

Figure 29: Generics are key to Stada's overall sales

73

Figure 30: Omeprazole is one of Stada's best selling generics, generating 9% of total generics sales

74

Figure 31: Stada's sales structure as of 2005

76

Figure 32: Stada's sales by segment vary by region

77

Figure 33: Stada has successfully launched over 350 new products per year for the past three years

78

Figure 34: Pliva thumbnail: key performance metrics

80

Figure 35: The majority of Pliva sales come from pharmaceuticals, particularly generics

80

Figure 36: Pliva's geographical presence has been expanding in areas such as Western Europe and North America

82

Figure 37: Ranbaxy thumbnail: key performance metrics

85

Figure 38: Eight of Ranbaxy's top 10 selling molecules are infectious disease products, accounting for around $380m in sales

86

Figure 39: Ranbaxy's sales are predominantly derived from the US, with the BRIC region also contributing a significant percentage

88

Figure 40: Ranbaxy has a relatively active proprietary product pipeline, focused on infectious, metabolic and respiratory disease and urological disorders

90

Figure 41: Barr thumbnail: key performance metrics

95

Figure 42: Proprietary products are now generating over a quarter of Barr's total sales

96

Figure 43: Barr's principal facilities and capabilities

100

Figure 44: Barr's investment in R&D has increased significantly over the last two years

102

Figure 45: Andrx thumbnail: key performance metrics

105

Figure 46: Andrx's core business is the distribution of generics, but licensing is becoming increasingly important

107

Figure 47: Perrigo thumbnail: key performance metrics

110

Figure 48: The geographic distribution of Perrigo's employees and facilities has been widened with the acquisition of Agis

112

Figure 49: Gedeon Richter thumbnail: key performance metrics

114

Figure 50: Generics account for 72% of Richter's total sales, compared to 60% in 1994

116

Figure 51: Exports have accounted for just over 71% of total Richter sales in 2004 and 2005

116

Figure 52: New products account for almost half of Richter's total sales

118

Figure 53: Actavis thumbnail: key performance metrics

120

Figure 54: Own brand sales account for two-thirds of Actavis's total sales

121

Figure 55: The acquisition of Amide and Alpharma's generics business has provided Actavis with significant US sales

123

Figure 56: The revenue by segment is distinctly different in each of Acatavis's geographic regions

124

Figure 57: Actavis has experienced significant sales growth in the past five years

125

Figure 58: Actavis has been highly acquisitive since 1999

126

Figure 59: KRKA thumbnail: key performance metrics

128

Figure 60: 87% of KRKA's prescription pharmaceutical sales are derived from four key therapeutic areas

129

Figure 61: Central and Eastern European markets account for the largest percentage of sales and have also demonstrated the strongest growth over the last year

130

Figure 62: Cipla thumbnail: key performance metrics

132

Figure 63: Over half of Cipla's sales are accounted for by tablet and capsule products

133

Figure 64: Cipla's export sales are generated across the globe, with the America's accounting for the highest proportion

135