Moving into generics was inevitable for Novartis because of the heavy patent loss of its branded drugs and increasing price pressure. Its acquisition of Hexal and Eon Labs will create a highly competitive leader with a comprehensive global presence and expertise necessary for success.

The Swiss pharmaceutical major, Novartis, acquired Hexal, Germany's second biggest generics maker and 67.7% of its US offshoot Eon Labs for 5.65 bn in February, 2005. The rationale behind the deal was to attain a leadership position in the generic market and establish its brand. The acquisition will bring together its generic subsidiary Sandoz's global geographical coverage and expertise in anti-infectives, Hexal's leadership in the German market and its know-how in product development and Eon Lab's dominating presence in the US for complicated generic drugs.

Moving into generics was inevitable for the company because of the imminent patent loss and increasing price pressure. Pharmaceutical companies were facing pricing pressures because of the competition from generics, which are cheaper than patented drugs. In the US, about $60 bn of prescription medicines are going to lose their patent protection over the next 4 years, which will cause the industry to grow only at a sluggish 7-8% annually, whereas the generics market will grow by 10%.1 In addition, product development and marketing costs are also lower in generics than in branded medicines.

The recent acquisition is the fulfillment of Novartis Chairman and CEO, Daniel Vasella, to produce generics drugs. However, Novartis is already in the generic business with its Sandoz division, but branded drugs have so far dominated its revenue. Novartis wanted to make an entry in the generics business because they complement its prescription and over-the-counter products.

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