Market force may put quality at forefront of all generics makers

The market may do what regulators around the world have been unable to achieve so far: It may make quality and consistent supply the focus for generics buyers over price. And that is a shift that is likely to favor big generic players like Teva Pharmaceutical Industries ($TEVA), Actavis ($ACT) and Mylan ($MYL) in the short term as they make up for Indian drugmakers whose products have been banned from the U.S. or Europe.

"When you talk to companies they will tell you that this was an industry that used to be about nothing but price," Gabelli & Co analyst Kevin Kendra tells Reuters. "Now the ability to supply the market and have a reliable supply, to be in good favor with the FDA, that's starting to mean something to customers."

Some doctors also have publicly expressed reservations about drugs made outside the U.S. as publicity has surfaced around FDA bans of Indian plants owned by Ranbaxy Laboratories and Wockhardt, among others. Pharmacy behemoths Walgreen ($WAG) and CVS Caremark ($CVS) declined to comment about whether they have adjusted buying strategies of late. A spokesman for ExpressScripts ($ESRX) sidestepped the India question but told Reuters the company is paying attention to individual situations concerning quality. "We have increased our surveillance throughout the supply chain," Express Scripts spokesman Brian Henry said.

Maxim Group analyst Jason Kolbert thinks Teva, with its vast geographic reach and huge product portfolio, can expect to benefit from the problems faced by Ranbaxy and some other Indian drugmakers like Sun Pharmaceuticals, which also had a plant banned by the FDA. When a company has a plant unable to supply the U.S. for 6 months or more, Teva and some of its peers are sure to pick up market share.

But Morningstar analyst Michael Waterhouse tells Reuters that buyers are savvy enough to separate companies like Ranbaxy, which has had regulatory problems for more than 5 years, from Indian drugmakers who have their acts together. And eventually, he said, even those drugmakers who have cut corners to get to the lowest price, have got to figure out that quality can't be an afterthought. "Ultimately you would think standards would be raised in India and they would still remain a formidable opponent," he said.

- read the Reuters story