The era of rampant price-cutting in generics is ending.
In the wave of consolidation among brand and generics companies that continued in 1995, many of the marginal generics companies that are often the source for the best prices were purchased by innovator drug companies.
Among the half-dozen remaining independent generics companies, generic drug prices will stabilize, said industry sources. Generics firms such as Mylan, Barr, Lemon, Watson and Schein will broaden the scope of their businesses with development of innovator drugs and niche products to protect margins and profits.
"We will see generic prices stabilize over the next five years as competition shakes out," said Bill Marth, director of pharmacy at Price Chopper Supermarkets, Schenectady, N.Y. Innovator drug companies continued buying or aligning with generics companies to develop the broad product lines in brands and generics that large drug purchasers and managed care buyers require. The result has been industry consolidation, with fewer sources of products.
The largest recent consolidation occurred with the Hoechst Roussel, Frankfurt, Germany, purchase of Marion Merrell Dow, Kansas City, Mo. The new company, Hoechst Marion Roussel, will be based in Kansas City, Mo. Under the agreement, Hoechst's Copley Pharmaceutical generics division will be merged with MMD's Rugby Labs.
Sandoz Pharmaceuticals, East Hanover, N.J.; Schering-Plough, Liberty Corner, N.J.; Ely Lilly, Indianapolis, and Merck, Whitehouse Station, N.J., were other brand companies that formed alliances with generics manufacturers this year.
"We are looking at the marketplace from the customer's perspective," said Joe Papa, vice president of market planning at CibaGeneva Pharmaceuticals. Ciba Geigy bought generic drug maker and distributor Geneva in 1979. CibaGeneva was launched this year to combine sales and marketing for brands and generics in one organization.
The leading independent generics firms, meanwhile, have continued to expand their businesses. Mylan, for example, signed a definitive agreement to buy Unit Dose Laboratories, Rockford, Ill., and Largo, Fla., a supplier of unit-dose packaging.
Another recent example of broadening horizons was Florham Park, N.J.-based Schein Pharmaceutical's investment in a British-based firm to develop sustained-release patch technology. Schein is 28% owned by Miles Inc., a division of Bayer AG after an alliance in 1994.