Par Pharmaceutical develops, licenses, manufactures, markets and distributes generic and branded drugs within the United States. The company makes money by providing a cost-effective alternative for consumers, while maintaining the safety and effectiveness of the brand name drug. Increased legislation favoring generic production and limiting original pharmaceutical patent lives will help companies such as Par Pharmaceutical reach greater profitability.
PRX operates primarily in the United States as two business segments: Par Pharmaceutical (Par), its generic products division, and Strativa Pharmaceuticals (Strativa), its branded products division. PRX may also expand its generic line by acquiring other Abbreviated New Drug Applications (ANDA) from third parties.
Typically, a pharmaceutical company that sells a patented drug receives special designation to hold all rights to reap the benefits of R&D for the original development of the drug for a set number of years after approval from the Food and Drug Administration (FDA). Once these patents expire, generic companies receive the authorization to develop same or similar products that often dilute the market share of the first developer. Because the Food and Drug Administration (FDA) give special privileges to the first generic manufacturer to submit an application, called Abbreviated New Drug Application (ANDA), for approval in order to encourage the generics industry, generics are highly incentivized to rush into drug as soon as the medicine is off-patent. Unfortunately, this prompts extremely high competition which erodes the profitability quickly such that generics have a tougher time to sustain the same gross profit margins experienced by the same pharmaceuticals under patent.
Par Pharmaceutical's three largest customers in terms of net sales dollars accounted for approximately 51% of total revenues, as follows: McKesson (MCK) (20%), Cardinal Health (CAH) (16%), and AmerisourceBergen Corporation (Holding Co) (ABC) (15%). As a result, these large customers control the ability to influence the price the company may charge to them, which therefore influences its profitability. Any significant reduction of businesses from these top five customers may have material effects upon the business, and this is a force that is similar across most companies producing generic drugs (small molecule).
Par Pharmaceutical competes against other generic manufacturers including: