If It’s Difficult, Do It 
Posted by Carlos on Aug 28, 2013



Difficult Balance

Difficult Balance (Photo credit: cobalt123)

 Today we learn that Endo is acquiring Boca Pharmacal for $225 million:

Boca Pharmacal is a specialty generics company that focuses on niche areas, commercializing and developing products in categories that include: controlled substances, semisolids, and solutions.  Boca Pharmacal’s commercial footprint and R&D pipeline are a strong complement …Since its beginnings in 1998, Boca Pharmacal’s mission has been to offer niche items that were overlooked by some of the larger generic companies as affordable alternatives to brand-named products.

This follows other recent transactions in  the generics industry:

What do these transactions have in common?

Fera, Hi-Tech, and Boca all focused on developing generic products that are difficult to formulate (such as controlled release), or non-oral routes of administration (topicals, ophthalmics, etc.). These companies correctly realized that these and other markets are largely ignored by the major generics companies, who compete more on volume and price.

But what makes these kinds of products “difficult”? It’s any number of things:

> Not every company or CRO has the specialized expertise necessary to formulate an oral controlled release product, or an inhalation, or a topical, or a transdermal. Getting external help increases development costs, placing additional pressure on pricing.

> Some of these products are limited by a) API sources, b) manufacturing capacity, or both. In fact, API supply limitations can be a critical factor in driving generic cost increases. In fact, we’re aware of a number of generics that have limited or no availability in the US due to a lack of inexpensive, reliable supplies of API.

> Some of these products generate $25 million in sales or less. But with a single supplier, they can be quite profitable while maintaining a reasonable cost structure. Now imagine an entire portfolio of these types of products, and you have a very successful, cash flow-generating business that can only grow further.

Additionally, the ratio of generics/brands in the US continues to  increase, surpassing 70% in 2010. (PDF here). Interestingly, generic pricing has increased 7.8% p.a., compared to nearly 11% for brands. This is happening even as the US imports significant amounts of generic drug products from India, china, and Israel. Obamacare and other payer pressures will likely drive generic usage even further.


Smart generic companies are continuing to look for product development opportunities where there are limitations that can be overcome, such as:

> API supply constraints

> Manufacturing constraints

> Formulation constraints

For instance, we’re seeing companies develop complex relationships with CROs for product development and API suppliers simultaneously. Developing these relationships can help secure long-term API supply on an exclusive basis, thereby creating an incredibly difficult barrier to entry.

We will not be surprised to see more of these types of products being developed, and also to see more of these types of transactions in the near future. This is definitely a trend to continue monitoring.

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