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WWW.IBISWORLD.COM Generic Pharmaceutical Manufacturing in the US May 2019 1

IBISWorld Industry Report 32541bGeneric Pharmaceutical Manufacturing in the USMay 2019 Dan Spitzer

Chemical reaction: Generic operators are expected to explore new product lines, boosting industry demand

2 About this Industry2 Industry Definition

2 Main Activities

2 Similar Industries

3 Additional Resources

4 Industry at a Glance

5 Industry Performance5 Executive Summary

5 Key External Drivers

7 Current Performance

9 Industry Outlook

11 Industry Life Cycle

13 Products and Markets13 Supply Chain

13 Products and Services

15 Demand Determinants

16 Major Markets

17 International Trade

20 Business Locations

22 Competitive Landscape22 Market Share Concentration

22 Key Success Factors

23 Cost Structure Benchmarks

25 Basis of Competition

26 Barriers to Entry

27 Industry Globalization

28 Major Companies28 Sandoz Ltd.

29 Mylan Inc.

30 Teva Pharmaceutical Industries Ltd.

32 Sun Pharmaceutical Industries Ltd

32 Greenstone LLC

33 Operating Conditions33 Capital Intensity

34 Technology and Systems

35 Revenue Volatility

36 Regulation and Policy

37 Industry Assistance

39 Key Statistics39 Industry Data

39 Annual Change

39 Key Ratios

40 Industry Financial Ratios

41 Jargon & Glossary

www.ibisworld.com | 1-800-330-3772 | [email protected]

This report was provided toAutobahn Consultants (2134210691)by IBISWorld on 27 October 2019 in accordance with their license agreement with IBISWorld


Generic pharmaceutical and medicine manufacturers develop prescription and over-the-counter drug products that are used to prevent or treat illnesses in humans or animals. Generic drugs are produced and distributed without patent

protection, and industry operators are not significantly engaged in the research and development of new drugs. The industry does not include manufacturers of nutritional supplements or cosmetic beauty products.

The primary activities of this industry are

Developing and producing generic drugs

Marketing and distributing generic drugs

Gaining regulatory approval for generic drugs

32541a Brand Name Pharmaceutical Manufacturing in the USThis industry develops drugs that are protected by patent. Companies invest significantly in research and development.

32562 Cosmetic & Beauty Products Manufacturing in the USThis industry develops perfumes, shaving preparations, hair preparations, face creams, lotions (including sunscreens) and other cosmetic preparations.

42421 Drug, Cosmetic & Toiletry Wholesaling in the USThese wholesalers sell medical and pharmaceutical products to hospitals and private medical practices, supermarkets, mass merchandisers and pharmacies.

44611 Pharmacies & Drug Stores in the USPharmacies and drug stores retail medicines and drugs to consumers.

54171 Scientific Research & Development in the USCompanies in this industry conduct research and development in the physical, engineering or life sciences.

NN001 Biotechnology in the USBiotechnology applies science and technology to living organisms to alter living or nonliving materials for the purpose of knowledge and to produce biotechnology products and services.

Industry Definition

Main Activities

Similar Industries

About this Industry

The major products and services in this industry are

Antibacterials

Cardiovascular disease

Diabetes

Mental health and central nervous system

Pain

Other

Provided to: Autobahn Consultants (2134210691) | 27 October 2019


About this Industry

For additional information on this industry

www.ama-assn.org American Medical Association

www.apha.org American Public Health Association

www.accessiblemeds.org Association for Accessible Medicines

www.iqvia.com IQVIA

www.nih.gov National Institutes of Health

www.webmd.com WebMD

Additional Resources

IBISWorld writes over 1000 US industry reports, which are updated up to four times a year. To see all reports, go to www.ibisworld.com



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Revenue vs. employment growth

Products and services segmentation (2019)

36.1%Cardiovascular disease

5.6%Antibacterials

26.3%Other

14.7%Mental health and

central nervous system

10.0%Pain

7.3%Diabetes

Key Statistics Snapshot

Industry at a GlanceGeneric Pharmaceutical Manufacturing in 2019

Industry Structure Life Cycle Stage MatureRevenue Volatility Medium

Capital Intensity Medium

Industry Assistance Medium

Concentration Level Low

Regulation Level Heavy

Technology Change High

Barriers to Entry High

Industry Globalization High

Competition Level High

Revenue

$64.5bnProfit

$7.8bnExports

$13.6bnBusinesses

1,135

Annual Growth 19–24

2.3%Annual Growth 14–19

1.4%

Key External DriversFederal funding for Medicare and MedicaidNumber of people with private health insuranceResearch and development expenditureTrade-weighted indexMedian age of population

Market ShareSandoz Ltd. 5.8%

Mylan Inc. 5.0%

Teva Pharmaceutical Industries Ltd. 3.3%

p. 28

p. 5

FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 39




Key External Drivers Federal funding for Medicare and MedicaidWhen Medicare and Medicaid receive more funding from the US government, more consumers gain prescription drug coverage, making them better able to afford the industry’s products and increasing industry demand. Federal funding for Medicare and Medicaid is expected to increase in 2019,

representing a potential opportunity for the industry.

Number of people with private health insurancePrescription drug coverage through private health insurance reduces the out-of-pocket costs of pharmaceuticals and can increase demand. However, as more consumers qualify for private

Executive Summary The Generic Pharmaceutical Manufacturing industry is expanding at a steady pace, with revenue expected to increase at an annualized rate of 1.4% to $64.5 billion over the five years to 2019, including a 3.0% rise in 2019 alone. Increasing access to health insurance, rising total health expenditure and efforts to control prescription medication costs benefited generic manufacturers. The increasing use of generic and biosimilar products has already resulted in trillions of dollars in savings for employers, health plans, patients and the government,

according to the Association for Accessible Medicines. Increasing price scrutiny of branded prescriptions has enabled generic manufacturers to take advantage of pricing pressures and improve patient access to medicine.

While operators in this industry typically have slimmer profit margins compared with companies in the Brand Name Pharmaceutical Manufacturers industry (IBISWorld report 32541a), average profit margins for the industry are relatively high and have remained stable over the five years to 2019. High profitability and increased opportunities

for new product development enticed new entrants to the industry over the past five years. Some of this growth represents brand name pharmaceutical companies entering the generics industry in an attempt to maintain market share as their key blockbuster products lose patent protection.

Over the five years to 2024, generic manufacturers are expected to lobby for policies that encourage cost savings and access to affordable medicines. Furthermore, as a growing number of patents are set to expire over the coming years, generic manufacturers are expected to have robust product pipelines. As of 2013, there were more than 900 biologics targeting an estimated 100 diseases under development in the United States, according to the Biosimilar Council. IBISWorld expects these trends to continue over the next five years, with revenue slated to grow an annualized 2.3% to reach $72.3 billion over the five years to 2024. During the outlook period, generic operators are expected to explore new product lines, including biosimilars, and expand into new and emerging markets where consumers can only afford generics. Domestically, the increasingly insured population will likely further benefit the industry through expanded insurance coverage for prescription drugs, an improved generic drug approval process and an established approval pathway for biosimilars.

Industry PerformanceExecutive Summary | Key External Drivers | Current Performance Industry Outlook | Life Cycle Stage

High profitability and increased opportunities for new product development enticed new entrants to the industry over the past five years



Industry Performance

Key External Driverscontinued

health insurance, these organizations gain greater negotiating power on drug prices, which can hurt industry profit. Private health insurance coverage is expected to increase in 2019.

Research and development expenditureGovernment and private policies that encourage research and development (R&D) of new medicines ultimately benefit generic drug manufacturers because R&D is necessary for generic drug development. Moreover, R&D efforts that create new brand name drugs eventually drive downstream demand for generics as patents expire. In 2019, total R&D expenditure is expected to increase.

Trade-weighted indexThe trade-weighted index (TWI) measures the strength of the US dollar

against the currencies of its major trading partners. An increase in the TWI indicates that the dollar is appreciating relative to those currencies, making industry exports relatively more expensive in foreign markets, causing international demand for US-made products to decline. The TWI is expected to increase in 2019, posing a potential threat to the industry.

Median age of populationAccording to the Agency for Healthcare Research and Quality, more than 90.0% of seniors and 58.0% of nonelderly adults rely on regular prescription medication. As the population ages, more people demand industry products. The median age of the population is expected to increase slightly in 2019.

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Brand name and generic

According to the FDA, generic drugs are any pharmaceutical preparation that is identical to a brand name drug in dosage form, safety, strength, route of administration, quality, performance characteristics and intended use. Until recently, manufacturers of generic and branded drugs operated in two different worlds, driven by separate research and development (R&D) efforts. Generic companies tend to invest relatively little in R&D compared with branded companies because generic drug makers only needing to demonstrate that their product is bioequivalent to brand name drugs. However, since Novartis International AG (Novartis), a major player in the Brand Name Pharmaceutical Manufacturing industry (IBISWorld report 32541a), entered the generics market a decade ago, the R&D spending gap between the branded and generic industries has become increasingly narrow as many brand name companies, such as Pfizer Inc., have

channeled resources into generics development, namely biosimilar product development (drugs developed from organic origins such as antibodies). Moreover, Novartis, which owns major player Sandoz Ltd., allocated 19.0% of its total revenue in 2018 toward R&D, although this figure includes both brand name and generic pharmaceutical R&D expenses.

Brand name manufacturers are entering the Generic Pharmaceutical Manufacturing industry for two main reasons. Firstly, many branded companies lost major patents over the past five years and were forced to decide between keeping volumes of expired patent drugs and divesting them. Additionally, some of these companies manufacture generic forms of their own brand name drugs at a lower price to maintain market share. Secondly, emerging markets have increasingly become a reliable source of pharmaceutical company revenue and generics provide an affordable entry into

Current Performance

The Generic Pharmaceutical Manufacturing industry has expanded steadily over the five years to 2019. According to data from IQVIA, generic drug spending in the United States increased $7.9 billion in 2015, partly driven by the launch of generic celecoxib and valsartan in 2014. Since then, generic operators have benefited from the patent expiration of several blockbuster drugs, including Pfizer Inc.’s Viagra and Lyrica, among many others. Over the five years to 2019, industry revenue is expected to increase an annualized 1.4% to $64.5 billion, including 3.0% growth in 2019, as generic manufacturers continue to benefit from branded drugs losing their patent exclusivity, as well as help from the US Food and Drug Administration (FDA). However, the average profit margin, measured as earnings before

interest and taxes, for an industry operator is expected to reach 12.1% of revenue in 2019, down slightly from 12.7% in 2014, as increased competition continues to drive down profit margins.

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these markets. As brand name manufacturers have expanded into the industry in recent years, several industry companies have taken the opposite path. Some pharmaceutical manufacturers have divested their generic operations altogether to focus

solely on their brand name operations. For example, in 2016, Allergan PLC’s global generics business, Actavis, divested and sold its generics segment to Teva Pharmaceutical Industries Ltd. (Teva) for $33.4 billion in cash and 100.0 million shares of Teva stock.

Brand name and generic continued

New opportunities Over the past five years, growing demand for generic pharmaceuticals and affordable prescriptions encouraged new operators to enter the industry. As a result, during the current period, the number of industry enterprises is expected to increase an annualized 2.5% to 1,135 companies, many of which are increasingly focused on producing generic biologic drugs, known as biosimilars. While traditional pharmaceuticals are developed and produced through chemical processes, biosimilars are produced with substances made from living organisms or processes that generally involve recombinant DNA technologies. The degree of technical skill required to engineer and produce biosimilars has driven many industry companies to hire highly paid and educated bioengineers; consequently, employment is expected to rise at an annualized rate of 1.7% to 71,281 employees during the current period. Though the path to manufacturing biosimilars has been difficult and expensive, many players have entered this market because biosimilars can command higher prices than traditional small-molecule chemical drugs, providing an opportunity for companies to boost their profit margins. On a more traditional front, some generic

manufacturers have capitalized on negative press involving rising drug prices, particularly insulin which is heavily used in diabetic patients.

Emerging markets offer the industry another kind of new opportunity. Most industry operators are pursuing new consumer bases in markets in eastern Europe, Asia and Latin America, where consumers typically cannot afford expensive brand name drugs and tend to pay out-of-pocket for their medicines. In some emerging markets, where the fear of counterfeit or low-quality drugs runs high, consumers are willing to pay a premium for generics from well-known makers such as Teva and Mylan Inc. As a result, exports are estimated to continue being a large source of revenue at $13.6 billion in 2019 despite decreasing slightly at an annualized rate of 0.4% during the five-year period to 2019. Comparatively, imports have also increased as more pharmaceutical manufacturers set up production operations abroad; over the five years to 2019, imports are expected to grow at an annualized rate of 5.1% to $32.9 billion.

Emerging markets offer the industry another kind of new opportunity




Research and development

Consumer preference for generic drugs will likely continue to increase over the five years to 2024, particularly due to some significant patent expirations that have occurred recently. Popular drugs, including Abilify (used to treat schizophrenia and bipolar disorders), Copaxone (multiple sclerosis) and Crestor (blood pressure, cholesterol and heart disease), lost patent protection in 2015 and 2016; accordingly, industry revenue is expected to grow as these patent expirations provide additional opportunities for generic product manufacturers. More recently, the expiration of patent protection for blockbuster drugs such as Viagra and Lyrica has also presented opportunities for generic manufacturers.

Major brand name pharmaceutical manufacturers, such as Pfizer Inc., Merck and Company Inc. and AstraZeneca PLC, are expected to continue to reduce research and development (R&D) expenditures during the outlook period

in some therapeutic areas due to shareholder pressure to increase dividends and competitive pressures from generics. For example, many pharmaceutical giants have placed their antibiotic and antiviral assets under review. In addition, many brand name operators have shifted R&D expenditures to rare diseases or specialty drugs that carry Orphan Drug Exclusivity and longer patent protection than standard pharmaceuticals. While slowing drug development in blockbuster drugs may reduce the number of new generic options in the long run, in the short to medium term, generic manufacturers are expected to benefit from a wave of blockbuster patent expirations.

Industry Outlook

The Generic Pharmaceutical Manufacturing industry is forecast to continue growing over the five years to 2024, with revenue expected to increase an annualized 2.3% to reach $72.3 billion. Although the rapidly aging population, increasing prevalence of chronic illness and growing pressure from insurance companies to cut healthcare costs will likely benefit the industry, intensifying external and

internal competition is expected to pose a challenge for operators. The total number of industry enterprises is projected to rise as expected patent expirations expand generic product pipelines and entice new operators to enter the industry. Still, many major biologic products are scheduled to lose patent protection over the next five years, providing an opportunity for operators to produce biosimilars.

Revenue is projected to grow as patent expirations provide additional opportunities for generic product manufacturers

Biosimilars In addition, the increasing prevalence of biologic products in brand name R&D pipelines is expected to provide opportunities for industry operators, which then create biosimilars of biologics that have been approved by the US Food and Drug Administration. These drugs

are generally more commercially successful and are expected to account for a larger share of industry products over the next five years. According to EvaluatePharma, the global sales contribution from biologic drugs is forecast to jump from 23.0% in 2014 to




Industry landscape Emerging markets, such as India and Brazil, represent an important source of future business for the industry. According to IQVIA, emerging markets are anticipated to experience double-digit growth over the next five years. The affordability of medicines is one of the many barriers preventing people from accessing healthcare in these countries; therefore, generics generally perform better than brand name drugs. As a result, more brand name manufacturers are anticipated to acquire generic drug companies to gain better access to emerging economies over the coming years. In terms of international trade, exports are forecast to increase at an annualized rate of 2.5% to $15.4 billion over the five years to 2024. Any changes in the value of the US dollar are expected to be offset by more industry operators offering specialized drugs, such as biosimilars. During the same period, the number of industry imports is anticipated

to stagnate at an annualized rate of 2.0% to $36.4 billion.

Over the five years to 2024, IBISWorld expects the number of industry enterprises to increase an annualized 2.4% to 1,281 companies. This trend can be attributed to companies such as brand name manufacturers that produce biosimilars entering the industry due to its high profit margins. Enterprises will likely continue to grow as pharmaceutical manufacturing derives a greater proportion of total revenue from generic drugs rather than brand name drugs. Employment is anticipated to grow as well, rising at an annualized rate of 2.2% to 79,324 workers during the same period.

27.0% in 2020. As a result, the biosimilars market is expected to further expand over the next five years. This market will likely attract specialists and large pharmaceutical companies with expertise in biologic products seeking to develop slightly differentiated generic

versions. Many major biologic drugs, including Lantus, Novolog, Rituxan and Remicade, are scheduled to lose patent protection over the next few years. Consequently, biosimilars will be a long-term investment as the market continues to expand.

Biosimilars continued

Emerging markets represent an important source of future business for the industry



Industry PerformanceIndustry value added is growing at a pace comparable to GDP growth

The number of industry participants is expected to steadily increase

The development of new generics is increasing the industry’s share of the overall pharmaceuticals market

Life Cycle Stage




Industry Life Cycle Over the 10 years to 2024, industry value added, which measures the Generic Pharmaceutical Manufacturing industry’s contribution to the economy, is anticipated to increase at an annualized rate of 1.3%. During the same period, US GDP is projected to rise at an annualized rate of 2.2%. This steadily growing contribution relative to the national economy is a signifier that the industry is in the mature phase of its growth cycle.

Still, industry companies are rapidly growing in size and gaining the expertise to introduce new products at a progressively faster rate. As more patents based on brand name pharmaceuticals and medicines expire, IBISWorld expects

demand for generics to grow, driving increased industry sales and further bolstering the value that the industry adds to the overall US economy. In this way, industry expertise combined with patent expiration for brand name drugs is not only enabling the creation of new industry product offerings but is also creating a broader market for industry products. As the market expands, the development of new products and new product lines (such as biosimilars) will provide opportunities for new companies to enter this industry. As a result, IBISWorld expects the total number of industry enterprises to grow an annualized 2.5% to 1,281 companies over the 10 years to 2024.

This industry is Mature



Products and Services Cardiovascular diseaseIn 2019, cardiovascular disease (CVD) associated medication is expected to make up the largest share of total revenue for the Generic Pharmaceutical Manufacturing industry at 36.1%. According to the Centers for Disease Control and Prevention (CDC), in 2017, heart disease is the leading cause of death in the United States (latest data available). Medication associated with CVD comprise of the drugs that either lower blood pressure (antihypertensive), reduce cholesterol (lipid regulators) and

prevent clots (anticoagulants). Depending on the specific condition a patient has, a doctor may prescribe any combination of these drugs to manage risk associated with CVD. Many of these medications must be taken regularly, as enabling cholesterol to rise without taking an anticoagulant greatly increases the risk of a blockage in the heart resulting in a heart attack. Additionally, according to IQVIA, savings from generic usage of medications in this segment are estimated to total $71.0 billion in 2017 (latest data available). Over the next five

Products & MarketsSupply Chain | Products and Services | Demand Determinants Major Markets | International Trade | Business Locations

KEY BUYING INDUSTRIES

42421 Drug, Cosmetic & Toiletry Wholesaling in the US Wholesalers distribute pharmaceuticals and medicines produced by the industry to retailers and healthcare providers.

44511 Supermarkets & Grocery Stores in the US Supermarkets and grocery stores account for a small percentage of final retail sales of certain industry products.

44611 Pharmacies & Drug Stores in the US Pharmacies and drug stores are key retailers of industry products.

62211 Hospitals in the US Hospitals are significant end users of medicines and pharmaceuticals.

KEY SELLING INDUSTRIES

32561 Soap & Cleaning Compound Manufacturing in the US Surfactants produced by the Soap and Cleaning Compound Manufacturing industry are used in the manufacture of pharmaceuticals.

32599 Chemical Product Manufacturing in the US Organic and nonorganic compounds, including various solvents, are used in the manufacture of various industry products.

33451a Navigational Instrument Manufacturing in the US Laboratory analytical instruments are used in the development, testing and analysis of industry products.

33451b Medical Device Manufacturing in the US Laboratory analytical instruments are used in the development, testing and analysis of industry products.

33911a Medical Instrument & Supply Manufacturing in the US Medical devices and instruments are used in the development and testing of pharmaceuticals and medicines.

NN001 Biotechnology in the US Advances in biotechnology are transforming drug discovery and development. Bioinformatics, a branch of biotechnology using information technologies to work with biological data like DNA, is a particularly dynamic new area of work.

Supply Chain



Products & Markets

Products and Servicescontinued

years, demand for CVD drugs is expected to rise as the population of 65 and older increases, which make up the largest patient population for this medication.

Mental health and central nervous systemThis segment accounts for 14.7% of total industry revenue in 2019. Demand for mental health pharmaceuticals has been robust over the past five years, particularly due to several antidepressants losing patent exclusivity in recent years, including Pristiq. According to the National Institute of Mental Health, mental health encompasses any mental, behavioral or emotional disorder. Moreover, more than 18.0% of all US adults have a mental illness. While the prevalence of mental illness has been high in the United States, social stigma related to receiving treatment has constrained demand.

Additionally, nervous system disorders include vascular disorders (e.g. stroke), infections (e.g. meningitis), structural disorders (e.g. brain or spinal cord tumors), functional disorders (e.g. epilepsy) and degeneration (e.g. Parkinson’s disease and multiple sclerosis). These diseases make up a smaller share of this segment as they are less common in the United States.

Pain Pain medications is expected to account for 10.0% of total revenue in 2019. While the burgeoning population has supported demand for pain medications, growing wariness of the potential misuse of pain medications will likely limit patient accessibility over the next five years. According to the National Institute on Drug Abuse, of the 8.8 million people that abused a prescription medication, 5.1 million people abused painkillers. Pain medication in particular opioids, are expected to decline as a share of revenue over the next five years as recent news is causing drug manufacturers and doctors to find new ways to treat pain.

Antibacterials In 2019, antibacterials are expected to make up 5.6% of industry revenue. Antibiotics include doctor prescription pills, over the counter topical creams and hospital administered intravenous drugs. Antibiotics have become a large topic of debate globally as the misuse and consequentially rise of resistant “superbugs”, or bacteria and other microorganisms increasingly become tolerant to stronger medications. Over-prescription of antibiotics in cases where they are not needed are a large

Products and services segmentation (2019)

Total $64.5bn

36.1%Cardiovascular disease

5.6%Antibacterials

26.3%Other

14.7%Mental health and

central nervous system

10.0%Pain

7.3%Diabetes




Products & Markets

Demand Determinants

Socioeconomic and demographic factors, including levels of disease and chronic illness rates, government health policies, pharmaceutical prices, doctors’ prescribing patterns and consumer utilization rates determine demand for generic pharmaceuticals. Factors that contribute to generic drug use, opposed to brand name pharmaceuticals, include the amount that consumers have to pay out-of-pocket for healthcare, the prices of brand name drugs, population demographics and the rate of patent expirations. For example, IBISWorld expects the portion of the population that is older than 65 years old to increase over the five years, which may drive demand for the Generic Pharmaceutical Manufacturing industry’s products because older people generally require more healthcare and have particular access to generics through Medicare.

Insurance plays a significant role in determining demand for generic prescription drugs. By implementing drug cost sharing plans and other forms of coverage, insurers enable individuals within their network to access more pharmaceuticals, boosting prescription drug utilization rates. For example, revenue rises when insured individuals fill prescriptions that they would have forgone if they lacked insurance.

Similarly, the level of insurance affects purchases; for example, insured consumers choose more expensive drugs than those without insurance. In this regard, as insurance coverage increases, consumers may be less encouraged to purchase generic drugs.

Patent expiration for brand name drugs also drives demand for generics. Patent expirations have an immediate effect because brand name drugs tend to quickly lose market share once generic versions are on the market. However, generic entry is often delayed because of litigation and administrative issues, such as citizen petitions. According to the Generic Pharmaceutical Association’s (GPhA) 2017 Generic Drug Savings in the US Report, generic drugs result in significant cost savings for the healthcare system compared with brand name drug use, though savings vary by the generic drug’s therapeutic class. For example, generic mental health drugs saved the healthcare system $44.0 billion in 2016 followed by hypertension ($29.0 billion); cholesterol ($28.0 billion); antiulcerants ($22.0 billion); nervous system disorders ($16.0 billion) and pain ($13.0 billion dollars), among other generic pharmaceuticals. In total, GPhA estimates that generics have saved the US healthcare system almost

Products and Servicescontinued

source of rising resistance. However, this segment is expected to increase as these drugs still save countless lives from deadly infections.

DiabetesDrugs associated with the management of diabetes generated 7.3% of total revenue in 2019. Diabetes affects nearly 10.0% of individuals in the United States, according to data from the American Diabetes Association; therefore, demand for antidiabetics has

been robust and expected to rise over the next five years.

OtherThis other category accounts for the remaining 26.2% of industry revenue and includes drugs in therapy areas such as anti-ulcer, dermatology, ophthalmology, vaccines, respiratory, gastrointestinal diseases and others. Drugs in this segment are not used as regularly as other segments as the diseases the treat are generally transient.



Products & Markets

Major Markets

According to the latest available data from IQVIA, 30.7% of total pharmaceutical sales are derived from chain/mass merchandisers, followed by mail service pharmacies (23.4%), clinics (14.0%), independent pharmacies (11.1%), hospitals (7.6%), food stores (6.6%), long-term care providers (3.7%), HMO (1.2%) home healthcare providers (0.9%) and others (%). However, this breakdown reflects the dispensing locations of both brand name and generic pharmaceutical prescriptions.

Third-party payersIn 2019, third-party payers make up the largest share of revenue for the Generic Pharmaceutical Manufacturing industry, with 50.2% of total revenue. Many third-party payers have increasingly implemented initiatives to increase generic drug utilization rates, due to it

being a lower cost option compared with brand name pharmaceuticals. According to data from the Generic Drug Savings in the US Report by the Generic Pharmaceutical Association (GPhA), generic drugs have the potential to save the healthcare system a substantial amount, with cost savings specifically occurring within certain therapeutic classes, such as mental health, hypertension, cholesterol and pain drugs. Over the next five years, this market segment is expected to grow.

MedicareMedicare reimbursements are estimated to account for an estimated 27.5% of total revenue. According to a 2017 report from the GPhA, Medicare saved $82.7 billion in costs from beneficiaries’ using generic drugs in 2014, with this figure being $1,952 per capita on average. As the number of

Demand Determinantscontinued

$2 trillion over the last decade (latest data available).

As brand name drug patent expirations have occurred during the five-year period, this trend has bolstered demand for generics. Additionally, biologics will lose patent protection over the coming

years, boosting potential growth opportunities for biosimilars. This represents an opportunity for the biosimilar industry to generate revenue because biologics will experience a patent cliff similar to brand name pharmaceuticals over the next five years.

Major market segmentation (2019)

Total $64.5bn

50.2%Third-party payers

27.5%Medicare

14.7%Medicaid

7.6%Out-of-pocket

expenses




Products & Markets

International Trade ImportsThe Federal Food, Drug and Cosmetic Act prohibits the interstate shipment of unapproved new drugs. Therefore, the importation of new drugs that lack US Food and Drug Administration (FDA) approval, whether for personal use or otherwise, violates this act. The FDA also restricts the re-importation of drugs produced by US manufacturers and sold elsewhere. In response to increasing prescription drug costs, more US patients are importing less-expensive pharmaceutical products from other countries. Large-scale prescription drug importation is currently illegal, but the FDA permits individuals to bring in 90-day supplies of drugs for personal use. Additionally, generic medications are often not completely manufactured in

the United States, and key active ingredients are required to be produced within FDA-approved international sites. Importation from approved sites outside

Major Marketscontinued

Medicare beneficiaries grows in line with the burgeoning elderly population, cost-cutting initiatives will become increasingly imperative to providing coverage. As a result, federal and state-level initiatives to bolster generic drug utilization rates will likely occur over the next five years, spurring demand for this market segment. Overall, according to data from Express Scripts’ Drug Trend Report, Medicare beneficiaries are likely to use drugs in the following therapeutic classes, including oncology, multiple sclerosis and hepatitis C.

MedicaidMedicaid reimbursements account for 14.7% of total revenue. Medicaid generic drug use is expected to save $568 per beneficiary on average, according to data from GPhA. As healthcare reform has expanded the number of individuals that are eligible for Medicaid reimbursements, such as childless adults, this has spurred Medicaid beneficiaries’ share of industry revenue

over the past five years. However, according to data from the Henry J. Kaiser Family Foundation, prescription drugs only comprise about 5.0% of total Medicaid spending, meaning that cost-cutting initiatives (such as bolstering generic utilization rates and lowering demand for brand name drugs) was not particularly imperative to cut costs over the past five years. However, this is expected to change over the next five years, thus increasing demand for generic pharmaceuticals from this market segment.

Out-of-pocket expensesOut-of-pocket expenditures generate 7.6% of total revenue. Over the past five years, generic drug prices, on average, have risen, causing consumers to incur higher out-of-pocket costs. However, government initiatives to lower generic drug pricing over the next five years may help lower generic drug prices, thus lowering patients’ out-of-pocket costs and increasing demand.

Level & Trend Exports in the industry are High and Steady

Imports in the industry are High and Increasing

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Products & Markets

International Tradecontinued

of the United States may include importation of only the active ingredient, with the final product manufactured in the United States, or the importation of the total final product from a site outside of the United States that is from an approved or unapproved source. Unapproved sources have no FDA oversight; therefore, importation of that generic product is illegal.

An over-the-counter (OTC) drug is a product marketed for use by the consumer without a prescription. An OTC drug can be imported into the United States under an approved new drug application, an approved abbreviated new drug application or in compliance with an OTC monograph. Currently, there are still several categories of OTC drug products that are not subject to final regulations.

Imports for the Generic Pharmaceutical Manufacturing industry are expected to account for 39.3% of domestic demand in 2019. Imports are expected to increase at an annualized rate

of 5.1% to $32.9 billion over the five years to 2019, bolstered by the increase in the trade weighted index, making imports relatively more affordable. The escalation of imported drugs has contributed to a continuing debate among federal legislators regarding the full legalization of importation.

ExportsHistorically, the US government and brand name pharmaceutical companies opposed efforts by the United Nations, the World Health Organization and the World Trade Organization (WTO) to permit the export of generic drugs to poor nations for global health emergencies, such as AIDS and tuberculosis. This is a politically sensitive topic because as a consequence of restricted exports, lifesaving AIDS drugs, which can cost as much as $15,000 per year in the United States, remained out of reach for most patients in the developing world. However, in August 2003, the

Imports From ...

Total $32.9bn

5.9%India

10.9%Switzerland

11.4%Germany

28.1%Ireland

43.7%Other

Exports To ...

Total $13.6bn

69.8%Other

7.6%Netherlands

7.6%Belgium

7.6%Canada

7.4%Italy

Year: 2018SIZE OF CHARTS DOES NOT REPRESENT ACTUAL DATA SOURCE: USITC



Products & Markets

International Tradecontinued

WTO agreed to relax patent restrictions to permit low-cost producers to export generic versions of brand name medicines to impoverished nations.

Only poor countries that cannot manufacture these medicines themselves are permitted to import the generic drugs. The agreement also stipulates that special packaging or differently colored tablets are to be used for generics intended for poor countries,

making them less likely to be resold in the United States. Over the five years to 2019, industry exports are expected to decrease an annualized 0.4% to $13.6 billion, generating 21.1% of industry revenue. This decline in exports is most likely a response to the increase in the trade weighted index, resulting in a comparatively more expensive product being shipped outside the United States.



Products & Markets

Business Locations 2019

MO2.5

West

West

West

Rocky Mountains Plains

Southwest

Southeast

New England

VT0.3

MA3.8

RI0.4

NJ6.5

DE0.6

NH0.5

CT1.0

MD2.2

DC0.1

1

5

3

7

2

6

4

8 9

Additional States (as marked on map)

AZ1.7

CA17.5

NV0.8

OR1.4

WA2.0

MT0.4

NE1.0

MN2.1

IA1.3

OH2.0 VA

1.2

FL5.7

KS1.2

CO2.9

UT2.5

ID0.5

TX4.9

OK0.8

NC3.5

AK0.0

WY0.3

TN0.8

KY0.8

GA1.8

IL3.0

ME0.9

ND0.1

WI2.7 MI

2.3 PA4.0

WV0.2

SD0.1

NM0.5

AR0.6

MS0.5

AL0.7

SC1.2

LA0.5

HI0.1

IN1.5

NY6.3 5

67

8

321

4

9


Mid- Atlantic

Establishments (%)

Less than 3% 3% to less than 10% 10% to less than 20% 20% or more

Great Lakes



Products & Markets

Business Locations The West and Mid-Atlantic regions are the most prolific pharmaceutical and drug manufacturing regions in the United States, accounting for 21.9% and 19.6% of the Generic Pharmaceutical Manufacturing industry’s establishments, respectively. Mylan Inc., Greenstone and Par Pharmaceutical are located in the Mid-Atlantic, which significantly boosts industry revenue in this region. California, home to several small generic drug manufacturers, is another significant center of industry activity. Locating near other industry manufacturers enables companies to have access to a local specialized work force, experienced business services and access to highly specialized facilities.

Moreover, industry establishments are typically prevalent in highly populated areas. Although the company’s major downstream customers (wholesalers) are not always headquartered in populated areas, their sales branches are often located in the highly populated areas that are home to retail customers (such as pharmacies in hospitals and grocery stores). Manufacturers similarly prefer to be located proximate to their downstream customers to keep distribution costs low. California is home to 17.5% of industry establishments as well as 12.2% of the US population. Industry establishments are similarly concentrated in population hubs like New Jersey (6.5%), New York (6.3%), Florida (5.7%) and Texas (4.9%).

Florida is also representative of industry location trends in that is located in the Southeast, which accounts for 17.4% of establishments and represents the region that is home to the largest portion of the elderly population in the United States. According to US Census Bureau data, the Southeast region accounts for 24.7% of the total population that is aged 65 years and older. The Southeast consequently generates more industry revenue than any other region, largely because the elderly population requires more healthcare than other age populations and, subsequently, more pharmaceuticals.

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akes

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EstablishmentsPopulation

Distribution of establishments vs. population




Key Success Factors Control of distribution arrangementsPharmaceutical distribution is highly complex and fragmented. Manufacturers seek to influence distribution to monitor pricing, control quality and manage end-user data.

Undertaking generic pharmaceutical and medicine research and developmentImproving generic R&D capabilities and production capacity, with a focus on capturing high-value, first-to-market opportunities in key markets, can enhance a company’s market position.

Timely development of new productsApproval for generic drugs is granted upon the expiration of patents. Companies may also gain a period of

exclusivity for being the first generic applicant to challenge a patent. Companies must actively review patents and produce generic versions.

Control of ingredient developmentCompanies that control or own pharmaceutical production gain early access to high-quality active pharmaceutical ingredients and can improve profitability and further enhance R&D capabilities.

Degree of globalizationAs the pharmaceutical industry becomes increasingly global, it is essential for industry players to have access to foreign markets and manufacturing facilities to control costs and boost sales.

Market Share Concentration

The Generic Pharmaceutical Manufacturing industry exhibits a comparatively low level of market concentration as compared with the Brand Name Pharmaceutical Manufacturing industry (IBISWorld report 32541a). In 2019, the top three companies account for 14.1% of total industry revenue. Having a large operation as a generic manufacturer does not offer the same advantages as it does for brand name producers. Generic drug manufacturers can be smaller because the cost of research and development (R&D) is significantly lower than it is for brand name companies; however, operators can still benefit from economies of scale through savings on administrative and capital costs. Moreover, a company’s presence in both generic and brand drug markets can buffer company revenue against volatility in price or demand for any one specific drug.

In the past, industry companies were typically small players in the

pharmaceuticals sector with modest growth rates and little or no international business. As these companies grew, often by acquisition, they have developed a need to consolidate, particularly because generic biologics (biosimilars) are becoming an increasingly large component of industry revenue and these products are typically costly and difficult to produce.

Over the five years to 2019, major players have expanded their operations through acquisitions or partnerships. Mergers and acquisitions can increase a company’s geographical reach and product portfolio diversification. Mylan NV (Mylan), for example, grew a global presence by developing a presence in Germany, Spain, Italy, Australia and Japan. Although foreign acquisitions may not directly contribute to US revenue, industry players are able to access the acquired company’s R&D team and can leverage this newfound knowledge into the development of products for the US market.

Competitive LandscapeMarket Share Concentration | Key Success Factors | Cost Structure Benchmarks Basis of Competition | Barriers to Entry | Industry Globalization

Level Concentration in this industry is Low

IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are:



Competitive Landscape

Cost Structure Benchmarks

Operators in the Generic Pharmaceutical Manufacturing industry have lower research and development (R&D) costs compared with brand name pharmaceutical manufacturers. Companies that manufacture generic versions of medications do not have to incur high R&D expenditures, finance the drug through clinical trials or implement marketing strategies. Due to fewer financial barriers, industry operators are able to compete with a competitive global market by selling generic drugs at low prices.

WagesWages are estimated to comprise 9.7% of industry revenue in 2019. In general,

brand name pharmaceutical manufacturers typically have higher wages than generic pharmaceutical manufacturers as a proportion of revenue due to the high R&D wage expenses of brand name manufacturers. While this industry is not as dependent on R&D as brand name manufacturers, operators still have to employ a considerable number of skilled research personnel. Chemists, drug researchers and quality control technicians are needed to develop effective generic versions of brand name drugs. The growth of generic biological drugs (biosimilars) has also dramatically increased demand for researchers, who

Key Success Factorscontinued

Maintenance of a good reputationMarket perceptions of the safety and quality of industry products are important. If a company receives

negative publicity, or if any of a company’s products are harmful to consumers, a company’s reputation could be harmed.

Sector vs. Industry Costs

n Profi tn Wagesn Purchasesn Depreciationn Marketingn Rent & Utilitiesn Other

Average Costs of all Industries in sector (2019)

Industry Costs (2019)

0

20

40

60

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enta

ge o

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enue

80

100


6.8 12.1

43.2

1.0 1.02.3

30.7

9.7

21.6

2.3 0.52.1

55.1

11.6




Cost Structure Benchmarkscontinued

can generally demand higher wages due to their expertise.

PurchasesPurchases are estimated to account for 30.7% of revenue in 2019. High purchase costs are mainly the consequence of quality requirements, which require industry operators to purchase high-quality raw materials from reputable suppliers. Over the past five years, generic companies have reduced costs by consolidating and sourcing materials from global suppliers.

Inventory costs, restructuring and acquisition expenses, and expenditures on property, plants and equipment account for a large portion of purchase costs. Costs will be substantially higher for companies that engage in acquisitions and conduct large-scale operations. As generic manufacturers focus on producing biosimilars, purchase costs will increase. Producing biosimilars is a complex manufacturing process due to the nature of extracting or semi-synthesizing products from organic origins. Slight variations in production environments can greatly alter a drugs function, as a result, operators will have to endure larger purchasing costs associated with the required high-end technology.

ProfitProfit, measured as earnings before interest and taxes, can vary widely based on a company’s size and product line. The top companies in this industry can achieve profit margins close to 20.0%, while most operators have profit margins that range from between 5.0% and 10.0%. In 2019, profit is estimated to account for 12.1% of revenue for an average industry player. Typically, profit margins for generic drugs are slimmer than that of their brand name counterparts because the drugs are sold at a lower price than brand name drugs and many generic drugs experience

immediate competition once the drug patent expires.

The average industry profit margin dipped slightly from 12.7% in 2014, partly due to the slowdown in the number of brand name drugs going off of patent protection. Declining patent expirations will further damage industry profit by heightening competition within the generic industry as manufacturers have fewer opportunities to produce more generics. However, some industry operators have offset this trend by introducing more specialized drugs to the market, such as biologics.

DepreciationDue to heavy reliance on manufacturing equipment and technology, depreciation is anticipated to account for 2.3% of industry revenue in 2019. Associated drug development equipment varies greatly in life span for example, analytical instruments used in the determination of drug purity are routinely replaced by newer more sensitive instruments.

MarketingMarketing is expected to account for 1.0% of total revenue in 2019. This percentage generally remains low as patients do not have a say in most prescriptions they take, drug choice is mainly by price.

RentIn 2019, rent costs for the industry account for 0.4% as many companies opt for more inexpensive real estate to build manufacturing plants, and in some cases running production in other countries.

UtilitiesUtilities are expected to cost the industry 0.6% of industry revenue in 2019 and mainly include water and electricity as well as other services associated with drug manufacturing such as chemical waste disposal.




Basis of Competition Competition in the Generic Pharmaceutical Manufacturing industry is intensifying as operators vie for a share of the generic drug market. Competition in the US generic market continues to increase, as evidenced by the continued price declines due to new entrants. Additionally, the US pharmaceutical market is undergoing, and is expected to continue to undergo, rapid and significant technological changes. IBISWorld expects competition to intensify as technological advances are made.

A significant proportion of US generic sales are made to a relatively small number of retail drug chains and drug wholesalers. These customers have been consolidating, which has resulted in customers gaining more purchasing power. Consequently, there is heightened competition among generic drug producers for business. Conversely, this trend provides a competitive advantage to large suppliers that are capable of providing cost-efficient quantities of high-quality products.

External competitionGeneric pharmaceutical companies experience intense competition from brand name pharmaceutical companies

seeking to counter generic products. Many brand competitors try to prevent or delay approval of generic equivalents through several tactics, including legislative initiatives (e.g. pediatric exclusivity), extending patent protection and changing dosage forms or dosing regimens prior to the expiration of a patent. In addition, brand name companies will occasionally launch an authorized generic concurrent with the first generic launch. When this occurs, the patent challenger no longer has the full exclusivity granted by the Hatch-Waxman Act.

Methods of competitionGeneric manufacturers are increasingly competing on the basis of price. Price competition from additional generic versions of the same product results in significant reductions in sales and margins. To compete on the basis of price and remain profitable, a generic drug manufacturer must manufacture its products in a cost-efficient manner. In addition, competitors may develop products more rapidly or complete the regulatory approval process sooner, enabling them to market products earlier.

Cost Structure Benchmarkscontinued

OtherIn 2019, other costs mainly consist of research and development and associated regulations, and account for an estimated 43.2% of total revenue. While generic drug makers do not invest in R&D to the extent that brand name pharmaceutical companies invest in R&D, this is expected to change in line with more industry operators investing in biosimilar drug development. While industry operators are not required to

repeat costly clinical trials, due to brand name manufacturers already having regulatory approval from the US Food and Drug Administration (FDA), more regulatory frameworks for biosimilar drug development will likely occur over the next five years. For example, the FDA will likely establish regulations for biosimilar drug makers to demonstrate that their drug meets safety and efficacy requirements, rather than just being similar to biologic drugs.

Level & Trend Competition in this industry is High and the trend is Increasing




Barriers to Entry Brand name drugs have the benefit of barriers to entry in the form of patent protection. Although generic manufacturers lack such a barrier, there are many other barriers to entry such as regulation requirements and consolidation in downstream markets. Pharmaceutical companies, both generic and brand name, have generally maintained high profit levels, indicating that high barriers are keeping new producers from entering to take advantage of relatively easy-to-earn margins. Barriers have been reduced slightly over the five years to 2019, as strong growth for the Generic Pharmaceutical Manufacturing industry has provided small companies with more opportunities to be acquired by larger ones.

Regulation barriers to entryThe production of generics is strictly regulated and companies must adhere to stringent goods manufacturing practices and quality-control standards from the US Food and Drug Administration (FDA). Gaining government approval for generic equivalents of brand name drugs may prove time consuming for new entrants with less experience and a limited reputation. Also, the cost of setting up production facilities is often high, creating a barrier to enter the industry.

In 2009, the US Supreme Court ruled that consumers could sue brand name manufacturers for compensation due to inadequacies in safety-warning labels. However, in June 2013, the Supreme Court ruled that generic manufacturers

cannot be sued for consumer compensation due to generic drug defects. The court’s 2013 ruling will lower barriers to entry because potential industry entrants will no longer have to worry about consumer lawsuits minimizing revenue and profit.

Payers and pharmaceutical representatives drive marketMany industry operators benefit from economies of scale; as a result, new companies entering the industry are at a steep disadvantage due to the relatively high costs of production. In the United States, physicians are responsible for prescribing medicines, but it is largely health insurers that influence the end product for consumers. This is done within the framework of tenders, under which pharmacists are obligated to dispense a discounted generic product if one is available. Under this framework, payers are able to pressure prices and require high quality generics. This requires companies to be able to quickly produce high volumes at a low manufacturing cost and high quality.

Barriers to Entry checklist

Competition HighConcentration LowLife Cycle Stage MatureCapital Intensity MediumTechnology Change HighRegulation and Policy HeavyIndustry Assistance Medium


Level & Trend Barriers to Entry in this industry are High and Decreasing





Trade Globalization Going Global: Generic Pharmaceutical Manufacturing 2005–2019

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Imports/Domestic Demand Imports/Domestic Demand0 040 4080 80120 120160 160

International trade is a major determinant of an industry’s level of globalization.

Exports offer growth opportunities for fi rms. However there are legal, economic and political risks associated with dealing in foreign countries.

Import competition can bring a greater risk for companies as foreign producers satisfy domestic demand that local fi rms would otherwise supply.

Export ExportGlobal Global

ImportLocal ImportLocal

Generic Pharmaceutical Manufacturing 2005 2019

Industry Globalization

The level of globalization in the Generic Pharmaceutical Manufacturing industry is high. Several major companies in the industry are based abroad, including the major player, Mylan Inc. Often, medications are not completely manufactured in the United States, and key active ingredients are required to be produced within international sites approved by the Food and Drug Administration (FDA). Manufacturing abroad creates an additional hurdle for manufacturers to sell the drug in US markets. Importation from approved sites outside of the United States may include importation of only an active ingredient, with the final product being manufactured in the US, or importation of the total final product from foreign sites that are either approved or unapproved sources. Unapproved sources have no FDA control oversight; therefore, importation of these generic or brand name products is illegal. Overall, as the industry increases its global presence, the FDA will have a larger role

in examining both generic drugs and generic drug suppliers.

Additionally, imported generic pharmaceuticals are expected to satisfy 39.3% of domestic demand in 2019, and exports are expected to generate 21.1% of total industry revenue. Developed markets (i.e. North America, Western Europe and Japan) account for 74.0% of the total pharmaceuticals market but only 44.0% of the generics market. In contrast, emerging markets (i.e. Eastern Europe, Latin America and China) account for 26.0% of the total pharmaceuticals market but a hefty 56.0% of the generics market. This discrepancy is explained by the positive effect on the mix of innovative brands, which are first launched in developed countries. The branded nature of generics in emerging markets and their importance for any company seeking to grow in these markets, make generics that are active in emerging markets, particularly attractive targets for large pharmaceutical companies.

Level & Trend Globalization in this industry is High and the trend is Increasing



Player Performance Sandoz Ltd. (Sandoz) is a business division of the Swiss healthcare conglomerate Novartis AG (Novartis) and develops, manufactures and markets generic medicines, as well as pharmaceutical and biotechnological active ingredients. Until recently, Novartis operated through three divisions: innovative medicines, Alcon and Sandoz. In April 2019, Novartis announced that it completed the spin-off of its Alcon unit into a separately traded entity. In total, Novartis employs over 100,000 people and sells products in 155 countries. Sandoz generates revenue relevant to the Generic Pharmaceutical Manufacturing through the manufacturing of generic pharmaceuticals and biosimilars and is organized into three segments: retail generics, anti-infectives and biopharmaceuticals. Sandoz’s US headquarters is located in Princeton, NJ.

Sandoz specializes in dermatology, respiratory, oncology, ophthalmic and other products. In 2016, total revenue for Sandoz reached $10.1 billion (latest data available). The company continues to be a leader in the differentiated generic drug market, meaning that Sandoz develops and manufactures drugs that are difficult for competitors to replicate. The company’s product mix includes more than 1,000 types of medicines, with a strong portfolio of biosimilar drugs. Sandoz’s major products include the multiple sclerosis treatment Glatopa, the inhaler therapy AirFluSal Forspiro and the pain medication fentanyl. In addition, the company joined the biosimilars market in 1996 when it began developing generic biologic drugs. Today, Sandoz is a leading manufacturer of biosimilars worldwide.

Generic chemotherapy agents have been a significant portion of the company’s portfolio, as many of the

Major CompaniesSandoz Ltd. | Mylan Inc. Teva Pharmaceutical Industries Ltd. | Other Companies

85.9%Other

Sandoz Ltd. 5.8%

Mylan Inc. 5.0%

Teva Pharmaceutical Industries Ltd. 3.3% SOURCE: WWW.IBISWORLD.COM

Major Players(Market Share)

Sandoz Ltd. Market Share: 5.8%

Sandoz Ltd. (US industry-specifi c segment) - fi nancial performance*

YearRevenue

($ million) (% change)Operating Income

($ million) (% change)

2014 3,569.8 N/A 758.6 N/A

2015 $3,684.3 3.2 669.3 -11.8

2016 3,578.8 -2.9 609.9 -8.9

2017 3,469.1 -3.1 609.6 0.0

2018 3,335.7 -3.8 525.0 -13.9

2019 3,729.3 11.8 567.0 8.0

*Estimates SOURCE: ANNUAL REPORT



Major Companies

Player Performance Mylan Inc. (Mylan), headquartered in Canonsburg, PA, is one of the largest generic pharmaceutical manufacturers in the United States, offering products in more than 165 countries and employing more than 35,000 employees globally. The company operates through two business segments: generics and specialty.

Mylan’s generic business segment operates under its wholly owned subsidiary Mylan Pharmaceuticals Inc. for research, development, manufacturing, marketing and distribution. Overall, Mylan markets 320 generic products with 790 dosage strengths. The company estimates that one out of every 12 prescriptions

Player Performancecontinued

brand name pharmaceutical agents lost exclusivity by 2015. In 2016, the company launched several new industry-relevant products in the United States, including generic versions of Adderall XR, Zyvox, Nasonex, Nexium and others. In the company’s retail generic segment, major product lines include generic versions of amoxicillin, zoledronic acid and fentanyl.

Financial performanceIn July 2013, Sandoz voluntarily recalled its generic drug Estarylla due to a customer reporting a placebo tablet present with other active tablets in a pack, hurting industry-specific revenue. However, the company’s other generic versions launched that same year, including Metrogel and Atacand, largely offset the negative effects of the Estarylla recall. Luckily, the company’s

relatively large size insulates it from some of the volatility in the Generic Pharmaceutical Manufacturing industry. Additionally, Novartis enables Sandoz to avoid volatility while providing backing for investment in further acquisitions and potentially high-risk ventures such as biosimilars.

Over the five years to 2019, biopharmaceutical sales are expected to grow an annualized 0.9% to $3.7 billion as strong US launches of Glatopa, a multiple sclerosis drug, and Zarxio, which counteracts neutropenia in chemotherapy patients. However, income was offset by declining performance in other areas of Sandoz’s portfolio. As a result, operating income for Sandoz’s industry-specific operations is expected to decline at an annualized rate of 5.7% to $567.0 million over the five years to 2019.

Mylan Inc. Market Share: 5.0%

Mylan Inc. (US industry-specifi c segment) - fi nancial performance*

YearRevenue

($ million) (% change)Operating Income


2014 2,522.4 N/A 318.4 N/A

2015 2,907.2 15.3 282.2 -11.4

2016 3,208.8 10.4 35.3 -87.5

2017 2,832.7 -11.7 214.8 509.3

2018 2,334.5 -17.6 60.9 -71.6

2019 3,217.9 37.8 85.0 39.4

*Estimates SOURCE: ANNUAL REPORT AND IBISWORLD



Major Companies

Player Performance Teva Pharmaceutical Industries Ltd. (Teva) is headquartered in Petah Tikva, Israel, and is the world’s leading manufacturer of generic drugs. Additionally, Teva is the leading generic drug manufacturer in the United States, producing the largest number of generic drugs in terms of both total prescriptions and new prescriptions filled. According to the company’s data, Teva dispenses one-seventh of the 3.4 billion generic prescriptions used in the United States. The company’s operational infrastructure includes 42,535 employees, manufacturing and research and development centers worldwide and a US

headquarters in North Wales, PA. According to the company’s most recent annual report, Teva maintains a top-three leadership position in more than 30 countries worldwide.

Teva produces proprietary brand name pharmaceuticals, biopharmaceuticals and active pharmaceutical ingredients. Generic drug revenue is primarily driven by downstream markets, such as drug store chains, which comprise 41.0% of the company’s total generic drug sales. Drug wholesalers account for an additional 36.0% of company revenue, followed by managed-care organizations (12.0%), generic distributors (7.0%) and


dispensed annually in the United States is a Mylan product. The company operates 50 manufacturing facilities around the world.

Notably, Mylan is one of the world’s largest producers of active pharmaceutical ingredients (API) used for manufacturing generic antiretroviral therapies, a key ingredient in HIV/AIDS treatment. By developing a vertically integrated supply chain, Mylan is well positioned to enter the biosimilar market as several blockbuster biologics come off patent over the five years to 2024. Recent acquisitions and partnerships have also strengthened Mylan’s global market presence in generics. For example, Mylan acquired Agila Specialties Private Ltd. (Agila) from Strides Arcolab Ltd. to become a global leader in generic injectables. Mylan benefited from Agila’s product portfolio and pipeline, enabling the company to maximize its generic biologics segment. Partnerships have also enabled the company to strategically grow as a key market player. In 2013, Mylan partnered with Biocon Ltd. to collaborate on generic versions of insulin analog products. In 2016, Mylan made its largest recent acquisition, purchasing the

Swedish pharmaceutical manufacturer Meda Aktibloag (Meda). According to Mylan’s president, the addition of Meda will provide Mylan with six $1.0 billion franchises.

Financial performanceMylan’s industry-specific revenue is estimated to grow at an annualized rate of 5.0% to $3.2 billion over the five years to 2019. In 2016, Mylan acquired Meda for $7.2 billion, enhancing Mylan’s over-the-counter drug offerings and expanded its market presence in emerging markets including Southeast Asia and the Middle East. Mylan released relatively few generic products in 2014 but is well-positioned to benefit from the nearly $100.0 billion worth of branded drugs that will lose patent protection over the next few years. Moreover, Mylan’s acquisition of Abbott Laboratories’ generic pharmaceuticals business in 2015 will likely have a significant effect on the company’s revenue and operating profit over the coming years. However, in 2017, the company came under fire for price fixing and overcharging its EpiPen emergency allergy treatment. In late 2017, Mylan paid $465.0 million to settle the lawsuit.

Teva Pharmaceutical Industries Ltd. Market Share: 3.3%



Major Companies


government facilities and others (4.0%). Teva is one of the leading generic drug companies in the United States, marketing more than 500 generic prescriptions and over-the-counter (OTC) products in more than 2,000 dosage strengths and packaging sizes, according to the company’s latest available annual report.

Teva has recently conducted numerous acquisitions to develop a global market presence. In 2013, Teva acquired New Jersey-based MicroDose Therapeutx Inc., a drug-delivery company specializing in inhalation technologies. In 2015, the company purchased Auspex Pharmaceuticals Inc., which will strengthen the company’s product portfolio of central nervous system drugs. In 2016, Teva acquired Allergan PLC’s generics business, Actavis Generics, for $40.5 billion. In addition, Teva acquired Allergan PLC’s Anda Inc. business for $500.0 million the same year. These major acquisitions are expected to increase the company’s competitive positioning in the generics business for years to come. Most recently, in 2017, the company launched AirDuo and its

authorized generic at the same time, expanding the company’s RespiClick product line.

Financial performanceOver the five years to 2019, Teva’s US industry-specific revenue is estimated to decrease at an annualized rate of 2.5% to $2.1 billion. Industry-specific revenue increased 12.8% in 2017 as a result of the Actavis acquisition in 2016. However, overall growth in the company’s generic business was hindered due to price erosion/pricing pressures and an accelerated US Food and Drug Administration approval process for generic versions of certain medicines, resulting in increased competition for those products, according to the company’s annual report. Still, the company focuses its research and development (R&D) efforts on expanding its existing generic portfolio. In total, the company has more than 1,550 generic products in its preapproved global pipeline, according to Teva’s latest annual report. These products are expected to improve Teva’s standing as a leader in generic manufacturing in the years to come.

Teva Pharmaceutical Industries Ltd. (US industry-specifi c segment) - fi nancial performance*

YearRevenue

($ million) (% change)Net Income


2014 2,403.1 N/A 468.4 N/A

2015 2,267.4 -5.6 386.7 -17.4

2016 2,502.6 10.4 246.1 -36.4

2017 2,822.0 12.8 -2,204.1 -995.6

2018 2,000.0 -29.1 -173.7 -92.1

2019 2,115.6 5.8 438.8 -352.7

*Estimates SOURCE: ANNUAL REPORT AND IBISWORLD



Major Companies

Other Company Performance

Headquartered in Peapack, NJ, Greenstone LLC (Greenstone) is a subsidiary of brand name pharmaceutical manufacturer Pfizer Inc. (Pfizer). Pfizer acquired Greenstone in April 2003 through its acquisition of Pharmacia. Since 2009, the company’s generics unit’s operation started to increase sales volumes when the company formed a business unit focused on products that have lost patent protection. Greenstone manufactures and distributes generic versions of many

Pfizer medicines, including several injectables. It also distributes non-Pfizer medicines through agreements with other pharmaceutical companies, such as India’s Aurobindo Pharma Limited. The established products business unit portfolio contains more than 600 products spanning a range of therapeutic areas. Greenstone has more than 5,000 employees and its industry-specific revenue is expected to account for less than 5.0% of total industry revenue in 2019.

Other Company Performance

Sun Pharmaceutical Industries Ltd. (Sun Pharma) is one of the leading specialty generic pharmaceutical companies in the US market. Headquartered in Mumbai, India, the company employs more than 30,000 employees worldwide and operates 42 manufacturing facilities globally. Sun Pharma is India’s top pharmaceutical company, holding 30 brands of the country’s top 300 brands, according to the company’s most recent annual report. It is the largest Indian company in the United States. Currently, the company leads in the generic dermatology sector.

In 2013, Sun Pharma acquired URL’s generic business, adding 107 products to

the company’s US portfolio. In 2015, the company acquired InSite Vision Inc., strengthening its ophthalmic portfolio in the United States. Most recently, Sun Pharma acquired the global rights for Seciera and Odomzo, expanding the company’s specialty pipeline globally. Sun Pharma operates seven manufacturing facilities in the United States that are focused on producing generics, specialty and over-the-counter products, as well as antiretrovirals, active pharmaceutical ingredients and others. In 2019, the company is expected to generate less than 5.0% of Generic Pharmaceutical Manufacturing industry-specific revenue.

Sun Pharmaceutical Industries Ltd Market Share: 2.0%

Greenstone LLC Market Share: 1.5%



Capital Intensity The Generic Pharmaceutical Manufacturing industry has a medium level of capital intensity. Industry players require considerable investment in research and manufacturing equipment. In 2019, for every dollar spent on labor, $0.24 is spent on capital investments. Over the five years to 2019, capital expenditures rose slightly. In addition, many industry operators are reducing their product portfolios, increasing their reliance on global outsourcing and conducting acquisitions. Acquisitions typically lower spending on capital because companies are able to acquire existing infrastructure.

Additionally, many companies are currently rationalizing to reduce capital investments and cut costs. Industry

operators are increasingly shifting production development and commercial focus to biopharmaceuticals, specifically

Operating ConditionsCapital Intensity | Technology & Systems | Revenue VolatilityRegulation & Policy | Industry Assistance

Capital Intensity

0.5

0.0

0.1

0.2

0.3

0.4

SOURCE: WWW.IBISWORLD.COMDotted line shows a high level of capital intensity

Capital units per labor unit

Generic Pharmaceutical Manufacturing

ManufacturingEconomy

Level The level of capital intensity is Medium



Operating Conditions

Technology and Systems

Generic drug manufacturers rely on high-volume, technologically advanced distribution facilities that enable the delivery of new products to customers quickly and efficiently. Operators in the Generic Pharmaceutical Manufacturing industry incorporate new technologies, such as biomarkers, early in the development process to reduce risks to quality during advanced stages of manufacturing. In addition, generic drug manufacturers use complex information technology systems, including online systems, to support supply-chain processes as well as communications.

E-prescribing and electronic health records increase generic demandE-prescribing enables prescribers to electronically send a prescription directly to pharmacies. While this process cuts costs and increases prescription accuracy, it also increases demand for generics, according to a study conducted by Brigham and Women’s Hospital, a teaching affiliate of Harvard Medical School. E-prescribing also streamlines the healthcare process and reduces errors from incorrect drug names or doses.

Electronic health records (EHRs), or electronic versions of a patient’s medical history, cuts costs and increase efficiency because physicians and hospitals use EHRs to coordinate care for Medicare and Medicaid patients. The Affordable Care Act implemented an incentive plan for hospitals and healthcare patients to convert to EHRs, qualifying 36.0% of healthcare professionals and about 70 hospitals to receive incentive payments, according to the Centers for Medicare

and Medicaid Services. All in all, prescribers receiving incentive payments for using EHRs will increase the use of EHRs in the medical field and increase demand for generics due to healthcare providers having greater access to drug information, such as drug costs and reimbursement rates.

Manufacturing technologiesOver the past five years, generic drug manufacturers have been progressively adopting technologies to increase quality control. With more generic drugs entering the market, consumers are increasingly questioning their quality compared with brand name pharmaceuticals. Many generic pharmaceutical manufacturers have failed to invest in the technology and quality-control improvements that would reduce the risks of partial or complete facility shutdowns. However, the government’s tight price controls for generic drugs, especially when purchased by Medicare and Medicaid, can limit the industry’s profitability and can reduce the feasibility of investing in new technologies. Similarly, the industry has typically been hesitant to introduce innovative manufacturing processes due to concern of violating regulations. Recently, however, the US Food and Drug Administration implemented the Process Analytical Technology (PAT), which streamlines the production process by introducing measurement devices such as data analysis to ensure quality for generic and brand name products. In addition, PAT takes a manufacturing approach based on chemical and

Capital Intensitycontinued

biologics, increasing their presence in global markets. Biologic production requires high capital costs due to strict regulations in manufacturing pharmaceutical drugs from extracted or

semisynthetic biological compounds. It also requires specialized technicians to monitor the manufacturing process because minor protein variations can significantly alter the drugs’ safety and efficacy.

Level The level of technology change is High



Operating Conditions

Revenue Volatility The Generic Pharmaceutical Manufacturing industry exhibited a low to moderate level of revenue volatility over the five years to 2019. Generic pharmaceuticals and medicines are relatively resilient to fluctuations in the economy as consumers rely on industry products as a matter of maintaining health or quality of life. Over the five years to 2019, demand for generics has increased

steadily due to government-led efforts to control healthcare costs; however, fierce price competition reduced profit margins for several industry companies. Government healthcare reforms focusing on reducing the cost of prescription drugs also influence industry revenue volatility because reforms often target generic drug prices when attempting to lower healthcare costs.

Technology and Systemscontinued

mechanical properties of the drug’s components, aiming to ensure quality by design rather than quality from testing.

Single-use technology (SUT) will become more commonplace as manufacturers use disposable bioreactors to manufacture biopharmaceuticals. According to a report from Pharmaceutical Manufacturing Magazine, SUT

technology enables industry operators to start up a new production line in 15 to 18 months, compared with three to five years using conventional production technology. Also, using SUT in manufacturing cuts costs by requiring less instrumentation, preventing cross contamination, using fewer utilities and eliminating costs from st

ibisworld industry report 32541b generic pharmaceutical ... · 32541a brand name pharmaceutical...

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