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| Focus on pharmaceutical M&As back after Lupin negotiation buzz |
| Reghu Balakrishnan / Mumbai Jul 20, 2011, 00:04 IST |
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News of Mumbai-based pharmaceutical company Lupin wanting to sell its Indian business has cerated a buss in the merger and acquisition (M&A) space in the sector. This underlines the demand from MNCs who want to grab a pie of the Indian domestic consumption story.
The last major M&A deal in this sector took place in May 2010 when US-based Abbott acquired Piramal Healthcare's domestic business for Rs 17,000 crore. Aggregate disclosed value of M&A deals in pharmaceutical sector surged from $663 million in 2005 to $8 billion in 2010. Since 2005, India witnessed 362 M&A deals worth $18.3 billion in pharmaceuticals and healthcare space, according to data from VCCedge.
The surge in M&As can be attributed to MNCs’ change in focus — from regulated markets such as the US and Europe to emerging markets such the BRIC (Brazil, Russia, India And China) nations, which are expected to grow in the coming years. “India, with its strong domestic market, increasing healthcare expenditure, evolving patience demographics, rising life expectancy and low-cost manufacturing base, presents a compelling opportunity,” said a recent Ernst & Young report on M&A transactions.
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TOP INBOUND DEALS IN PHARMA SPACE
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| Year |
Target |
Buyer |
Deal ($ mn) |
| 2008 |
Ranbaxy |
Daiichi Sankyo |
4150 |
| 2010 |
Piramal |
Abbott |
3720 |
| 2010 |
Paras Pharma |
Reckit Benckiser |
726 |
| 2009 |
Shantha Biotechnics |
Sanofi-Aventis |
625 |
| 2006 |
Matrix |
Mylan |
530 |
| 2009 |
Orchid Chemicals |
Hospira |
400 |
According to industry experts, compared to Indian pharma market, where there is 16-17 per cent growth in volume as well as value, the US market has a mediocre value growth because of price and margin erosion. However, investment bankers are of the view that the high valuations promoters are looking for as well as non-urgency to sell will play a spoilsport.
“The appetite for buying domestic market share continues unabated. However, deals in this space are not easy to complete due to high valuations, lack of desperation on part of potential sellers and sheer size which rules out all but a few potential buyers,” said Abhishek Sharma, head of life sciences, MAPE advisory group, a boutique investment bank. The figures show increasing number of inbound deals in Indian pharma space. Financial year 2010-11 witnessed 13 inbound deals worth $3.83 billion against 11 deals worth 4887 million that took place the year before.
The E&Y report added, “Pharmaceuticals sector is expected to see increased inbound deal activity as major companies realise that growth in the long run is sustainable only if they expand their horizons to rise above just in-patient products and developed markets to include generics and emerging markets such as India.”
According to investment bankers, the requirement of MNCs has changed. Instead of looking for pure domestic-focused companies, they are keen to acquire companies with a presence in the US market also. Krishnakumar, executive director and head, life sciences, Avendus Capital, said, "Operation model of big pharmaceutical firms, who relied completely on blockbuster drugs, is under trouble now as the R&D pipeline being dried up. They increased their focus on generic business as well as outsourcing or in-licensing cheaper copycat versions.”
Hence, India, from where 35 per cent of total ANDAs with USFDA is being filed, has an advantage compared to other geographies, he added. ANDAs are filed with US food and Drug Administartion (FDA) to get marketing approval for generic versions of patent expired drugs in the US. Global pharmaceutical companies look at acquisition as a means to grow through portfolio expansions as they face mounting pressure of several drugs going matured in matured markets, said E&Y report.
Tightening the screw by the US FDA as far as innovative drug approvals are concerned also compelled the MNCs to change focus into the generic space. "Apart from the lack of strong product pipeline and expiry of patents, MNCs were hit by the strong stance taken by US FDA against innovative product approvals," Krishnakumar added.
"If there are reasons other than lack of growth or financial strain for someone to sell, these sellers are in a much stronger footing to wait it out and achieve desired valuation," added Sharma.
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