The Emergence of Biogenerics

Investors have big hopes for the generics industry. The market capitalisation of leading generics companies increased during the last decade, more so than that of major pharma companies, resulting in return-to-shareholders-to-earnings ratios close to the pharma average. This outperformance indicates the expectations for the future of the generics industry. Although many changes in industry structure are expected to trigger strong growth - such as internationalisation of European companies; consolidation; and innovation in pharmaceutical drug development - the most prominent challenge so far is the product pipeline.A look at published drug patent tables reveals a huge wave of patent expiry over the next four years, worth an estimated US$40 billion in product sales, and including as many as 18 blockbusters (1). For the first time, these tables also include pharmaceuticals that were biotechnologically developed and produced. These biopharmaceuticals are also expected to be launched by generics companies, as they account for about one-quarter of the US$40 billion total and represent one of the fastest growing segments in the pharmaceutical market (see Figure 1). In fact, 'biogenerics' will represent a US$2 billion market for the generics industry, assuming a similar penetration rate as that for traditional drugs.