Last week, Japan approved the first ever generic version of biotech drug industry, thus increasing the affordability of the expensive biotech drugs. This is a great opportunity for the generic players. One fallout of the approval is greater competition – a blessing for customers. However, the market is large enough to accommodate many players. Estimates put the global biotech market (growing at 12% a year) value in the range of $80-90 billion.

Leading players in the biotech space to be affected from the move are Amgen (AMGN), Gilead Sciences (GILD), and Genzyme (GENZ) among others.

The issue of data exclusivity is yet to be decided in the US. The period of protection for branded companies is the most debatable point, where they are asking for 12-14 years’ exclusivity. The US law-makers are aware of this delay. Henry Waxman, chairman of the House of Representatives Energy and Commerce Committee, has made it clear that the current government is in favor of slashing the monopoly period considerably (maybe 7 years) ushering in healthy competition.

William Haddad, founder of the generic trade association in the U.S., and chairman and CEO of Biogenerics, said in an interview that the Obama administration is working on the approval of bio-similars, which is a must for universal healthcare reform.

Any such decision by the government is likely to benefit Teva Pharmaceuticals (TEVA) the most. Teva is the world’s largest generic drug company in terms of both total and new prescriptions. The company enjoys a lead position in the U.S., the world’s largest generic market. In 2008, it reported $2.4 net income on sales of $11 billion. But out of these, only $63 million came from the overseas sales of its four biotech drugs.

The exclusivity issue in US is the major hindrance in the path of Teva from becoming a market leader in this space. Teva estimates that biopharmaceuticals will make up nearly 30% of the pharmaceutical market by 2015, compared to 15% in 2006. The recent acquisition of Barr Pharma should help Teva strengthen its position in the U.S. and expand its presence in Europe.

We are impressed with the company’s strong performance in 2008 despite the global slowdown. We are maintaining our Buy rating on Teva Pharma based on the growth prospects of the company.

Read the full analyst report on “GILD”
Read the full analyst report on “AMGN”
Read the full analyst report on “GENZ”
Read the full analyst report on “TEVA”
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