Historically, there's been huge cultural aversion to it, but that's evaporating.

Daiichi Sankyo's bid for control of Ranbaxy Laboratories shows that pharmaceutical companies have a major appetite for generic-drug makers despite concerns about differences in their business models.

Large pharmaceutical companies have encountered a wave of product setbacks and political uncertainty that have sent many of their stocks to multiyear lows.

Acquiring companies that specialize in manufacturing low-cost, off-patent generic drugs would allow large makers to diversify, and seize on international efforts by governments to promote generics to cut health-care expenses.

Novartis, which is based in Switzerland, is the only large brand-name drug manufacturer that has fully embraced generics through its unit Sandoz, which is among the world's largest generic makers.

But the move by Daiichi for Ranbaxy, a large Indian generic manufacturer, leads some analysts to believe that other brand companies may not be far behind.

"I think it's something that Big Pharma is going to take a hard look at, and you'll see more deals like this in the future," said David Webster, president of Webster Consulting Group. "Historically, there's been huge cultural aversion to it, but that's evaporating."

Large drug makers will see revenue from some of the world's most lucrative medicines plummet from 2010 through 2012 when patents expire and generic copies eat up market share.

Brand-name companies that stand to lose out because of impending patent expirations could be the most likely to acquire a generic manufacturer, Webster said.


Generic-drug makers appear to be attractive targets
By Lewis Krauskopf
June 12, 2008