Watson Seeks Brand-Drug Profits in Shift From Copycats
Watson Pharmaceuticals Inc. CEO Paul Bisaro is looking to acquire brand-name drug assets and make a future “”˜transformational” purchase as he reshapes the generic-drug maker. Mr. Bisaro indicated he wants to use an estimated $6 billion the company will have available for acquisitions to invest in brand-name medicines with the potential for greater growth and consistent returns. Watson will consider drugs for gender-specific conditions as it builds toward a “big brand deal” to supplement its generic lines.
“Everything we need to be a branded pharma company we have, except for the sales force. And we can create that,” said Mr. Bisaro.
While medicines with $48 billion in annual sales face generic rivals for the first time in 2012, fattening revenue for generic drug makers, the figure will fall to an annual average of $24 billion in the next 3 years, according to IMS Health Inc., a Danbury, CT-based researcher. Watson’s strategy resembles actions by Teva Pharmaceutical Industries Ltd. as generic drug makers, which profit by copying the medicines of brand-name pharmaceutical companies, start to imitate the business models of those companies too.
“It’s a real blurring of the lines. By 2015, such drug makers may end up looking a lot more like a brand than a generic,” explained Jeff Jonas, an Analyst with Gabelli & Co., in
The appeal of the branded-drug business comes from the returns it offers on exclusive products. In the
Patent and exclusivity periods vary by country, and in the
Generic drug companies are rewarded for being the first to start the process of making a copycat version. The first company to successfully challenge the patent protection gets 180 days of exclusive rights to sell the generic version, typically at a price not much lower than the brand. Once the first generic company loses its head start, others can enter the market, and the price falls further.
Watson had $2.19 billion in revenue related to generics in the first 9 months of 2011, dwarfing its $320.1 million from global brands, according to a company filing. That may change, for Watson has the pieces in place to become more like traditional pharmaceutical companies, such as Pfizer Inc. and Roche Holding AG.
Mr. Bisaro is aware of the perils, though. “Generic companies in the past, their mistake has been to run their business like they run their generics model, which is pretty opportunistic. With brands, you have to pass on those things that, even though you like the idea, if it’s not in your wheelhouse and you don’t have the sales force, you probably ought not to spend the money on it.”
Since Mr. Bisaro took over as CEO and President in September 2007, Watson has completed or announced nine acquisitions, with a total value of $2.84 billion, according to data compiled by Bloomberg. The biggest was the $1.75-billion purchase of Arrow Group, a generic drug maker, in 2009. Watson paid $405 million last month for Ascent Pharmahealth Ltd., an Australian maker of copycat pills. In July 2010, Watson bolstered its position in brands by acquiring Columbia Laboratories Inc.’s progesterone assets. Watson will limit its focus to a few clinical areas.
“We have a lot of goodwill built up in the urology space, and we’re getting there in the women’s health space,” said Mr. Bisaro. “We might also see opportunities in oncology, such as bladder cancer or malignancies specific to women. With more growth in coming years, Watson may be in a much stronger position to buy a bigger specialty brand company. That would be a very nice scenario if it worked out that way.”
The company has 20 medicines in the last of three phases of testing before regulatory approval, including products to treat pain, cancer, and auto-immune disease. Copaxone, the multiple sclerosis drug, accounted for 24% of sales in the 2011 third quarter.
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