All across the globe, the generic drug business is booming. This healthy glow is especially apparent in the lengths that Barr Pharmaceuticals (NYSE:BRL) is willing to go through to buy out its smaller Croatian-based competitor, Pliva. For most of the year Barr has been in a bidding war over Pliva with Icelandic pharmaceutical company Actavis.
Actavis started the bidding for Pliva in March of this year. Barr followed up with a $2.2 billion offer for Pliva in June, and just today published its third offer of $2.5 billion -- just slightly higher than what Actavis offered last month.
Why all the excitement over Pliva? Pliva has been around as a pharmaceutical company since the 1920s, but in the past couple of years it has started to focus on sales of generics. In 2005, Pliva had $1.2 billion in sales, with the generic business accounting for 66% of those sales, up from 62% in 2004.
In the first half of 2006, generics accounted for 84% of sales, and that number is growing rapidly, as can be seen below:
|
Q2 05 |
Q3 05 |
Q4 05 |
Q1 06 |
Q2 06 | |
|---|---|---|---|---|---|
|
Generics Sales* |
$191 |
$178 |
$209 |
$220 |
$224 |
|
Y-O-Y growth |
10% |
17% |
13% |
11% |
15% |
|
U.S. Generics Growth |
(5%) |
31% |
41% |
40% |
41% |
|
Russia Generics Growth |
41% |
32% |
14% |
30% |
20% |
|
Western Europe Generics Growth |
41% |
34% |
20% |
6% |
14% |
If Barr can acquire Pliva, it would have instant access to the generics market in rapidly growing Russia and the other former communist states in Eastern Europe. Also, as can be seen from above, Pliva is expanding its U.S. generics business, and there should be some economies of scale and synergies that Barr could wring out of Pliva's U.S. operations.
Despite the accelerating growth of Pliva's generics business, the company is facing some drag on its top-line growth, thanks to a patent expiration in November of 2005 for one of Pliva's lead antibiotics.
The bottom line is that Barr's latest offer of $2.5 billion for Pliva is nearly half of Barr's market cap today. If it is successful -- and if the growing pains that occur when a company swallows another nearly its size can be overcome -- this acquisition would offer Barr an opportunity to enter burgeoning markets that have huge growth potential.
Looking for the next great pharma innovator? Our Motley Fool Rule Breakers newsletter can lead the way. And now you can take the swashbuckling newsletter dedicated to up-and-coming companies in emerging fields for a 30-day free spin .
Fool contributor Brian Lawler does not own shares of any company mentioned in this article. The Fool has a disclosure policy .
