Stick, Twist Or Split? Generics Industry’s Big Three Place Their Bets

Competitive pressures are par for the course in the off-patent industry. The generics and biosimilars sector is built on the premise of multi-source competition, meaning that multiple players in the market will always be vying for share, working out how to keep costs as low as possible, and surviving on margins that are often slim.

In recent years, however, the sector’s three biggest companies – Sandoz, Teva and Viatris – have adopted quite different strategies to respond to these pressures and ensure their growth over the coming years, displaying varying degrees of confidence in dipping their toes in the waters of the innovative sector as they look to secure their futures.

Two of these three companies – Teva and Viatris – have been under new leadership since 2023, while Sandoz has undergone a fundamental business shift in the wake of its October separation and spinoff from former parent company Novartis.

But despite setting off in different directions, what all three of these firms have in common is a clear plan to move past the inherent pressures of the commodity generics sector into greener pastures that offer unique opportunities and hold the promise of higher margins.

Teva Sticks To Mixed Model But ‘Pivots To Growth’ Via Innovation

Sticking with its existing model of pursuing innovative assets while at the same time maintaining a substantial generics and biosimilars business is Teva, which has been under the leadership of Richard Francis as president and CEO since the start of 2023.

Francis inherited a relatively stable business from predecessor Kåre Schultz, whose tenure involved slashing jobs, reducing debt and cutting manufacturing facilities across the globe, at the same time as resolving legal overhangs such as Teva’s exposure to opioids and price-fixing litigation, while also coping with the erosion of its Copaxone (glatiramer acetate) franchise in the face of generic competition in recent years.

The groundwork laid by Schultz has left Francis a little more free to make some big decisions about how best to invest Teva’s resources.

And midway through his first year in the job, Francis unveiled a fresh strategic approach for the company that would see an increased focus on innovative assets, without this coming entirely at the expense of the generics and biosimilars business.

Under the banner of ‘Pivot To Growth’, the strategy featured four broad pillars: returning to growth by “accelerating a strong innovative medicines portfolio”; expanding Teva’s innovative pipeline and focusing on core therapeutic areas with “first-in-class and best-in-class opportunities”; sustaining the firm’s “generics powerhouse” based on high-value and complex products; and focusing the business on “areas with the greatest potential for growth and patient impact”.

Various assets show how Teva is pushing the company in a more innovative direction. Helping to fill the gap left by the diminishing returns from Copaxone, Teva already markets successful brands such as Ajovy (fremanezumab) and Austedo (deutetrabenazine). The company has also talked up the potential of its long-acting antipsychotic Uzedy (risperidone) – a 505(b)(2) hybrid asset containing the same active ingredient as Johnson & Johnson’s well-established Risperdal Consta brand – with a long-acting olanzapine product also in the works. (Also see "Teva’s Francis: I Looked At All The Sexy Stuff And Overlooked Olanzapine" - Generics Bulletin, 12 Sep, 2023.)

Another aspect of Teva’s innovation-focused strategy that recently fell into place is a $1.5bn deal with Sanofi aimed at developing the next blockbuster treatment for inflammatory bowel disease, with Teva’s TEV’574 TL1A inhibitor currently in a Phase IIb study for ulcerative colitis and Crohn’s disease. (Also see "Teva Shows Its Big Pharma Clout With $1.5bn Sanofi Deal" - Generics Bulletin, 4 Dec, 2023.)

But off-patent drugs are not absent from Teva’s plans either. In particular, the company has emphasized the importance of its biosimilars business, which has seen it adopt a dual approach by developing certain assets in-house while partnering on others.

“People have asked me whether biosimilars are really a growth driver for the long term? Absolutely,” Francis underlined as the Pivot To Growth strategy was unveiled last year. At the same time, Teva also committed to a focus on high-value generics, particularly complex generics such as drug-device combination products that take advantage of Teva’s capabilities. (Also see "Teva: Our Biosimilars Strategy Has Been Fragmented, We Want To Be Global" - Generics Bulletin, 22 May, 2023.)

“Our core business, our generics business, I think is obviously a global leader,” Francis described. “And that business throws off significant amount of cash, which in the short term allows us to pay down on debt but in the longer term allows us to invest in some of these growth drivers and some of this innovation.”

But Francis has indicated that Teva will somewhat narrow its ambitions for generics, going from targeting 80% of products coming off-patent to around 60%, with “the majority of the value within the 60%.”

“The incremental value for that extra 20% is marginal,” he pointed out. “But what is not marginal is the amount of work that [takes out of] the organization and the amount of complexity it adds. We want to focus on less to get more.”

“From a company that had a core generics business, we are going to create a more sustainable business,” he summarized. “But we have a significant portion of our business now, over 20%, that is going to be innovative.”

“That has different margins…different levels of profitability and different multiples, as does biosimilars,” Francis highlighted to analysts. “And I think that is something to consider as you evaluate the company going forward.”

Nevertheless, Francis has in recent months underlined that he still sees the generics and innovative businesses as very much complementary, in response to questions over whether Teva would consider splitting apart these segments of the company. (Also see "Teva Commits To Dual Branded And Generic Model" - Generics Bulletin, 23 Feb, 2024.)

One part of the business that Teva has earmarked for divestiture, however, is the company’s TAPI active pharmaceutical ingredients business, which the firm earlier this year put up for sale, with aspirations to complete a deal in the first half of 2025. (Also see "For Sale, Buyer Sought: Teva Confirms API Unit Is On The Block" - Generics Bulletin, 1 Feb, 2024.)

Viatris Twists Towards Brands, Drops Biosimilars And Slims Down Generics

Twisting its business in a new direction is Viatris, which recently completed its first 12 months under the leadership of CEO Scott Smith. (Also see "Viatris To Bring In Plenty Of Brand Knowledge With New CEO Smith" - Generics Bulletin, 27 Feb, 2023.)

Formed through the combination of Mylan with Pfizer’s former Upjohn mature brands unit, Viatris has embarked on a clear strategic reorientation that most dramatically saw the company almost entirely exit the biosimilars segment, selling its worldwide biosimilars business to former development partner Biocon in a $3.3bn deal. (Also see "Biocon Pays $3.3bn For Viatris Biosimilars Business" - Generics Bulletin, 28 Feb, 2022.)

This was only the “first but critical step to unlock value and reshape Viatris,” the company said, lining up additional assets for the chopping block as part of efforts to generate up to $9bn in total. (Also see "Offloading Biosimilars To Biocon ‘First Step’ Towards Viatris’ $9bn Target" - Generics Bulletin, 1 Mar, 2022.)

These include its API, over-the-counter and women’s healthcare businesses, alongside certain other items acquired as part of the Upjohn transaction, all of which the company viewed as non-core assets suitable for divestiture. (Also see "Viatris To Shed OTC, APIs And Women’s Health As Biocon Deal Nears Completion" - Generics Bulletin, 9 Nov, 2022.)

While the company maintains that it is not abandoning the generics segment altogether, it has certainly shifted its focus toward complex products and specialty therapeutic areas to fuel its future growth, at the same time bringing in a number of brand industry veterans to occupy senior management positions. (Also see "Viatris Picks Brand-Recognized R&D Head To Fuel Novel Ambitions" - Generics Bulletin, 18 Dec, 2023.)

At the same time, some of the old guard are stepping down. Longtime executive and president of Viatris Rajiv Malik departed the position at the start of April, while executive chairman Robert Coury transitioned to the role of chairman emeritus and senior strategic advisor to the board and management at the end of 2023, where he is expected to serve until the end of 2025.

All of this is part of the company’s long-term plan, the first phase of which has focused on building a solid foundation for growth through integrating Mylan and Upjohn, generating $1bn in cost synergies and clearing debt. The second phase, scheduled to take off this year, is focused on moving into innovative and high-growth business areas and away from the volatility of the generics market.

Some of the proceeds from the Biocon biosimilars transaction had already been used to acquire ophthalmology players Oyster Point Pharma and Famy Life Sciences for an aggregate of $700m to $750m in cash. And in early 2024, the firm announced a global research and development collaboration with Idorsia.

But Malik last year underlined to investors that Viatris was “not walking away” from the generics segment entirely. Instead, he explained, the company had made strategic portfolio changes in response to increased competition for certain products. Given that many Viatris products had over 10 or 15 suppliers on the market, “we pruned that portfolio and focused on going up the value chain,” he said, concentrating on more complex and harder-to-make products.

These include Breyna (budesonide/formoterol), Viatris’ generic version of AstraZeneca’s Symbicort for asthma and chronic obstructive pulmonary disease, which was launched midway through last year. (Also see "Viatris Debuts US Symbicort Rival" - Generics Bulletin, 31 Jul, 2023.)

Sandoz Splits From Novartis But Maintains Pure Off-Patent Focus

In contrast to Teva and Viatris, however, Sandoz is maintaining a pure focus on the off-patent market – generics and biosimilars – albeit at the same time coping with the impact of a major transformation that recently saw the firm separate from longtime parent company Novartis.

The split between Sandoz and Novartis had been a long time coming, finally taking place in October 2023, after a long process of preparation for the spinoff alongside continuing business-as-usual that CEO Richard Saynor described being like “building the plane and flying the plane at the same time.”

Out of the three off-patent industry titans, Sandoz was “the only one that’s actually saying we’re a generics company, and we’re proud to be a generics company, and we want to continue to be a generics company,” Saynor claimed. “And we think there’s more than enough opportunity for us to thrive and grow in that space.” (Also see "Sandoz CEO Saynor Talks Spinoff, Leadership And Place Among Peers" - Generics Bulletin, 1 Mar, 2023.)

While Saynor has been at the helm of Sandoz for several years – taking over as chief executive from current Teva CEO Francis back in 2019 – the company has not been without recent high-level management changes of its own.

Ahead of the spinoff, in early 2023 the firm brought in Gilbert Ghostine, CEO of Swiss multinational fragrances business Firmenich, to become chairman of the firm’s board after its separation from Novartis; and subsequently unveiled a new 10-member Sandoz board. (Also see "Who’s Hired? Sandoz Names Post-Spinoff Chair" - Generics Bulletin, 20 Feb, 2023.) (Also see "Sandoz Names Board Ahead Of Novartis Spinoff" - Generics Bulletin, 19 May, 2023.)

The company is also planning to move to new headquarters midway through this year, vacating its current home at the Novartis campus to a new permanent base in Basel. (Also see "Sandoz Reveals New Headquarters Post Spin, Mid-2024 Date Outlined" - Generics Bulletin, 2 Jun, 2023.)

Sandoz has over the past year made multiple moves to bolster its business ahead of the split from Novartis, particularly when it comes to biosimilars, an area where the firm has been clear about its ambition to become a world leader. A transitional service agreement with its former parent company is set to run for five years, with an option to extend, to give Sandoz time to build up its own capabilities.

One major investment in Sandoz’s future in biosimilars took the form of an investment of at least $400m to build a new biologics production plant in Lendava, Slovenia (Also see "Sandoz Unveils $400m+ Investment In Slovenian Biosimilars Plant" - Generics Bulletin, 9 Mar, 2023.); another saw Sandoz announce a development and manufacturing deal with Just-Evotec Biologics that will use the firm’s artificial intelligence-based development and manufacturing platform to help expand the Sandoz biosimilars pipeline “from 15+ to 24 biosimilar assets,” while also offering Sandoz the option to make use of Just-Evotec’s technology to eventually build a separate production facility of its own. (Also see "Sandoz Makes Major Moves To Bolster Biosimilars Ahead Of Spinoff" - Generics Bulletin, 10 May, 2023.)

Meanwhile, Sandoz has also continued to shore up its small-molecule generics business – having abandoned its once-planned $1bn divestment to Aurobindo of its US generic oral solids and dermatology units – including through deals such as its agreement with Adalvo for rights to six US small-molecule products targeting markets collectively worth around $3bn. (Also see "Sandoz Eyes First-To-Market US Opportunities With Adalvo Deal" - Generics Bulletin, 4 May, 2023.)

Overall, Sandoz expects its pipeline to deliver an additional $3bn in potential net sales over the next five years, “with the mix shifting increasingly towards high-value biosimilars and complex generics.” Of this $3bn figure, just under half will come from biosimilars, while the remainder attributable to generics will be split between 35% from complex generics and 65% standard generics. (Also see "Biosimilars Loom Large As Sandoz Sets Stage For Spinoff" - Generics Bulletin, 19 Jun, 2023.)

With an increasing proportion of innovator portfolios revolving around biologic brands – and with smaller off-patent developers lacking the scale and resources to play in an arena with higher technical and cost barriers to entry than small-molecule generics, even complex generic products – biosimilars seem like a smart bet for Sandoz. The firm most recently reported fourth-quarter biosimilars sales that were up by 29% as reported to $623m, as full-year turnover from the biosimilars business grew by 15% to $2.22bn, making it a substantial contributor to the company’s $9.65bn total. (Also see "Sandoz Benefits From Betting Big On Biosimilars" - Generics Bulletin, 14 Mar, 2024.)

Leaders’ Strategies Provide Models – And Opportunities – For Industry

With the three leading off-patent companies taking such different routes forward, it remains to be seen where their paths will lead – and whether Viatris and Teva’s increasing moves towards a more mixed generic and innovative model will cast an influence over the wider off-patent arena.

Certainly, examples have already been seen of other leading companies in the sector leaning towards innovation, whether in the form of Indian giants like Dr Reddy’s incorporating more of a branded component into their strategies, or once pure-play biosimilars operators like Coherus BioSciences shifting decidedly towards novel biologics. (Also see "Coherus Delivers First US Rival To Neulasta OnPro, As Biosimilar Interest Peters Out" - Generics Bulletin, 26 Feb, 2024.)

Another potential consequence of firms like Teva and Viatris vacating the generics space, even if only partially, is that the market will then be opened up for other companies to take a slice of their business – and in the US, other players have already been seeking to capitalize on the opportunity for growth.

Speaking early last year, Amneal co-CEO Chirag Patel suggested that “the changes that are happening in the market are actually favorable to us, such as Sandoz going public by itself, Teva having a new leadership and Viatris focusing on other areas.” Such a period of change among the leading off-patent companies “leaves a very wide, mid-sized company like us to grow,” Patel suggested. “And that’s what we’re going to capitalize on [in the] next five years.” (Also see "Amneal CEO: Changes At Teva, Sandoz And Viatris Give Us Room To Grow" - Generics Bulletin, 19 Jan, 2023.)