From a private equity perspective, the attractiveness of the sector is underpinned by the large and growing market opportunity and fragmented supplier base, which leaves room for further consolidation opportunities.
The growing demand in the sector is supported by aging demographics in the developed markets which results in increased use of critical drugs, and growing affluence in the major emerging markets which translates into greater use of generic pharmaceutical products. Often, these products are cash generating and the more complex segments have superior margins that are defensible. In addition, there is an opportunity to leverage the distribution channel as the OTC market is closely linked and offers a large adjacent market opportunity.
Private equity has been active in the generics segment during the past 18 months either through direct acquisitions or via generics companies backed by private equity capital. In terms of direct acquisitions, examples include Doc Generici, Kent Pharmaceuticals and HealthTech Bioactives. Intermediate Capital Group and Merieux Equity Partners acquired Doc Generici for €1.1bn, with the Italian generics company benefiting from the resilient and growing penetration of generics in the Italian pharmaceutical market. Duke Street also acquired Kent Pharmaceuticals, a market leader in several niche areas selling primarily to the hospital and pharmacy wholesaler channels in the UK and Ireland. The company’s broad portfolio of products with particular strengths in analgesics, anti-infectives and penicillins are relatively complex to manufacture. The opportunity is to grow the business via new product development and expansion into the EMEA region.
The following table shows some of the private equity firms that have been involved in transactions during the period either directly or via their portfolio companies.