Australia | Jan 23 2007
By Chris Shaw
As reports continue to circulate regarding a possible sale of its generic drug business by German pharmaceutical company Merck KGaA, Austock Securities has also weighed in with its view of the possible implications in the Australian generic drug market.
As the broker points out, Merck controls Alphapharm here in Australia, which is the largest player in the domestic generic drugs market despite a loss of market share in recent years.
This suggests one implication of any sale is an improvement in the performance of the company, as a new owner is likely to be more focused on addressing this market share decline. This is clearly not a positive for locally based competitors such as Sigma Pharmaceutical (SIP) and Genepharm Australia (GAA), as it would signal a period of tougher competition.
The broker notes both companies are not in the running as buyers, Sigma as there would be competition issues and Genepharm as it simply cannot afford an acquisition the size of Alphapharm.
This leaves offshore or private equity players as the likely buyers, but it is here the broker sees some prospect of hope for the Australian players. As an example it notes one potential buyer is India’s Ranbaxy, which would likely move some of the manufacturing offshore for cost reasons. This would allow the Australian companies to emphasise their “Australian Made” credentials, something likely to become an issue given the strict TGA labelling requirements.
Purchases by European drug companies are unlikely to result in much change to the market structure in the broker’s view, but again it stresses the likelihood of increased competition for domestic companies, especially in the period immediately after any sale.