Impax Labs weighs M&A options, figuring bigger is better in struggling generics industry

It’s a tough landscape out there for generics makers—particularly the smaller ones. And that has Impax Labs thinking it may want to get a bit bigger.

The California company has brought on Morgan Stanley to help it conduct a strategic review, which includes buying a rival or selling itself, sources told Reuters. But Impax won’t make final choices until it appoints a new CEO, expected as soon as next month.

If Impax does jump into the M&A fray, it will follow in the footsteps of several of its competitors, which have joined forces to boost their bargaining power and cut costs. Last year, Teva shelled out $40.5 billion to acquire major player Actavis—the generics arm of Allergan—and its fellow behemoths have been active on the dealmaking front, too. Also last year, Novartis was said to be eyeing copycat drugmaker Amneal, and in 2015 Mylan bulked up with a $5.7 billion deal for Abbott Laboratories' ex-U.S. generics business.

The consolidation wave has put the squeeze on smaller companies such as Impax, and they're weighing M&A, too. Germany’s Stada, a European-focused generics maker, is in sale talks with three suitors.

The deals are partly a response to price erosion across the sector. Top generics maker Teva blames that trend for some of its financial struggles, and its generics unit chief Dipankar Bhattacharjee recently forecast a decline in U.S. net prices of about 5% in the giant’s base business this year.

And Endo, which bulked up in generics with its recent Par Pharmaceuticals buy, last month recorded a $3.5 billion write-down that the drugmaker attributed mostly to a hefty generics charge. A “change in the value derived from estimated future pricing levels” prompted that decision, CFO Blaise Coleman told investors on a conference call.

Impax's own situation has been similar: The company logged a 4% sales decline in 2016. With the FDA adding new rules to speed up generic drug approvals—which will step up competition, including price competition, in the field—that trend likely won't change soon.

Impax had a history of M&A under departed chief Fred Wilkinson, who in 2014 added both branded and generics meds to Impax’s lineup with a $700 million deal for Lineage Therapeutics and Tower Holdings. More recently, Impax capitalized on the castoffs Teva had to make to win regulatory approval for its Allergan deal; it nabbed more than 15 marketed generics and other drugs for $586 million.

Of course, Wilkinson is no longer in the driver’s seat. After more than two years at the drugmaker, he left under a “mutual agreement” with Impax’s board.