Mylan announced last week that it will join forces with Pfizer’s Established Products division in Japan to sell generic drugs. Pfizer will be responsible for marketing, while Mylan does product development and manufacturing. The collaboration will apparently involve at least 350 existing marketed products, plus 125 drugs in development and the expectation is that they will be sold under some form of joint labelling. Costs and profits will be shared and Mylan and Pfizer will continue to operate as totally separate legal entities in Japan.
This arrangement has naturally been presented as a win-win scenario and it is, otherwise the partners would never have signed up to it. Nevertheless, we would argue that Mylan has more to gain than Pfizer, certainly relative to the size of its operation as a whole. The Japanese generic market has been the fastest growing in the developed world over the last few years, but Mylan’s own operation, despite being one of the biggest foreign-owned generic businesses in the country, has been tracking sideways at best and may even have been shrinking (since Mylan doesn’t split out Japanese sales from its ROW figures, it’s a bit difficult to tell). The main reason for this appears to be simply that Japanese doctors, patients and wholesalers are even more resistant to using foreign generics than they are to using generics in general, particularly when the name on the packet doesn’t have much resonance in the local market. At the same time, Mylan’s global competitors have been striking numerous deals aimed at obtaining or expanding their Japanese presence, with the result that Mylan has moved from being the clear number one among international generic producers to a position in which it is dwarfed by Teva* and has companies like Sandoz snapping at its heels.
From the Pfizer side, allying with Mylan should give a big boost to its nascent Established Products division, which was set up in 2009 but only launched its first generic in 2011 and is presumably relying on external sources to provide its pipeline. There may also be a gain in terms of sales force, since the existing Mylan team will presumably be doing something and we understand that Pfizer has had trouble getting reps from specialty areas to move over the Established Products (a perennial problem in innovative companies). What Mylan gets, though, is the Pfizer brand name, which is worth infinitely more than its own in the Japanese marketplace. It also gets Pfizer’s sales force, which has access to off-patent Pfizer brands such as Lipitor, This should make it a lot easier to get access to the distribution chain, something that is always challenging for generic companies.
Overall, we see the Pfizer deal as a neat solution to Mylan’s growth problems in Japan and provided that Pfizer itself doesn’t decide to give up on patent-expired products (or has given Mylan the right of first refusal if it does), we would expect to see some better numbers coming out of Mylan’s ROW division in future.
*That said, it will be interesting to see whether Teva can do any better than Mylan at achieving organic growth from the various companies that it has cobbled together.
Posted on 30th August 2012