Eight years earlier, Ranbaxy, the country’s largest drug company, created a stir by challenging the patent on the world’s highest revenue earning medicine, Lipitor, in the US.
Today, domestic pharmaceutical majors are talking less of patent litigation and more of patent settlements. Companies such as Ranbaxy and Dr Reddy’s were known for big acquisitions. Now, the focus is on smaller deals, catering to niche segments and markets. The fight seems to be giving way to partnerships and experts consider this the new way forward.
A report of global consultancy PricewaterhouseCoopers (PwC) explains why companies globally seem to now prefer partnerships. “The social, demographic and economic context in which the industry operates is rapidly changing.
Product sourcing partnerships with Indian firms
||Nature of deal
|Supply of generic medicines
||Supply of 67 medicines/supply
to semi-regulated markets
|Supply of generic drugs
||JV for manufacture of
|MNC: multinational corporation Source: PwC
Globally, pharma companies are under pressure from governments and taxpayers alike to reduce prices of drugs. There is a vast decline in research and development productivity, increased drug discovery costs and increased regulatory measures that companies need to contend with,” it says.
How does this alter Indian firms’ inorganic growth plans? “Outbound acquisition (from India) is much less now. Primarily, the global financial market is not favourable (for such acquisitions). Second, synergies in larger, high-value acquisitions are proving very difficult. Instead, Indian companies are looking for smart acquisitions in foreign markets. It could be for some specific advantages such as market access or price advantage,” says Sujay Shetty, partner, PwC.
He says companies are today looking at smart deals in the range of $5-20 million to acquire assets in emerging markets such as Japan (which has recently started encouraging generic drug supplies), CIS nations, Turkey, Brazil, etc.
Ajit Mahadevan, partner in Ernst & Young (E&Y), disagrees with the view that acquisitions abroad have slowed due to few success stories.
“The acquisitions made by Indian companies were not failures. It may have slowed, but that does not mean it’s the end. All Indian drug companies worth their salt are looking at acquisitions. If it is not happening, it only means the valuation is not right. There are regulatory, market and technological reasons for companies to acquire assets in foreign markets,” he said.
A recent E&Y report states the domestic drug industry is “on the cusp of another transformation, spurred by the convergence of new trends, including health care reform, demographics, health information technology and consumerism”.
Incidentally, India is also one of the most significant emerging markets for the global pharmaceutical industry. PwC estimates the domestic pharma market to grow at a compounded annual average of 15-20 per cent annually, to be a $49-74 billion market by 2020.
The potential market growth has also seen many Indian companies turning into subsidiaries of foreign multinationals -- the best example being Ranbaxy, today a subsidiary of Japanese multinational Daiichi Sankyo -- or trading partners, or marketing partners of global players, thereby speeding the change in trend.
Industry experts say companies have adopted multiple levers to tap emerging markets such as India for product portfolios, sourcing or innovation. Abbott, the US drug maker which became the biggest player in the domestic market after acquiring the product and manufacturing assets of Piramal Healthcare, had demonstrated this trend very well when it announced the separation of its global businesses into two publicly traded companies, one in established products and the other in research-based pharmaceuticals.
Shetty feels MNCs have no other choice but to acquire or associate with Indian firms if they need to build up scale in the country.