Another day, another deal. Watson surprised the market on Wednesday by announcing that it was buying Specifar, a family-owned Greek contract manufacturer, for €400m. Specifar, which had turnover of €85m in 2010, generates 72% of its sales outside Greece, where it supplies a broad variety of customers across Europe but particularly in France and Germany. At home, it sells a mixture of generics and in-licensed products, under the Specifar and Alet brands, using a sales force of 225 reps. Specifar has 400 MAs spread across 36 countries, with eight products currently in registration and a strong pipeline behind that. It manufactures in a modern plant just outside Athens and is currently building a new facility that will take its total capacity up to 5bn units. One of the drugs in registration is a tablet form of esomeprazole, the generic of AstraZeneca’s Nexium, which could launch in some countries before the end of this year. Although AZN has attempted to switch the European market over to capsules, which are what it sells in the US, tablets remain popular and Specifar hopes to be first to market, assuming that it can overcome both regulatory and legal hurdles. Because of the uncertainties involved, Watson has structured an earn-out around esomeprazole, which gives the vendors a cut of the gross profit of the product, up to a cash limit of €40m and a time limit of five years from launch.
Specifar’s sale, which appears to have been driven by strategic differences among the brothers that own and run it, sends both positive and negative signals about the outlook for the Greek pharma industry. There are many successful pharmaceutical companies in Greece, most of which, like Specifar, combine direct sales in their domestic market and dossier development/contract manufacturing for third party customers. As is the case in Spain, which also has a number of dossier developers, the late adoption of product patents made Greece a good location in which to work on products that were patent-protected elsewhere. Greece is also an attractive market in which to sell generics. Although originator prices are very low, it is a branded market and generic companies (which are overwhelmingly Greek) do not compete on price, so margins are good, even after big price cuts last year. That said, there are fears of further mandatory price reductions and unpaid receivables are ballooning, so the business environment is clearly getting tougher. Dossier development is also not such a straightforward business as it used to be. Consolidation among the customer base has led to prices being squeezed (particularly true in Germany, where the local companies were massive buyers of dossiers but are now relying much more on in-house development) and competition from Indian competitors makes it harder for European companies to compete on ‘plain vanilla’ products, forcing them to spend more time and money on developing ‘hard to make’ drugs. Thus, although the high price paid by Watson for Specifar shows that Greek pharma assets are in much better shape than the economy as a whole, the family’s strategic indecision is also an indication that Greek companies in general are facing some tough choices about where to go next.
Posted on 29th May 2011