Rumours of pharma M&As have their own reason

The hunger for breaking news of mergers and acquisitions in the Indian pharmaceutical industry is resulting in wild speculation.

If one report claims an equity deal between GlaxoSmithKline and Dr Reddy’s close on the heels of a manufacturing and marketing arrangement for the emerging markets between them, barely three days later, another goes to town screaming Sanofi-Aventis has resumed long-deadlocked talks with Piramal Healthcare with the objective of acquiring a sizeable stake.

Some may say this mad race of buyers for targets amounts to trivialisation of serious corporate strategies, but many thrive on such information even as confusion reigns in the ranks of pharma executives. Not all of these are without a basis though.

From the time Daiichi Sankyo acquired Ranbaxy, even low-key companies have trodden the acquisitions path. Abbott, for one, has struck a deal to lap up Wockhardt’s nutritional brands.

In fact, every company promoter seems to be salivating at the likelihood of getting the value the Ranbaxy promoters received from the Japanese major.  The general feeling in the industry is that smaller or medium-sized companies would be the first to capitulate, awed by the size and reach of the predators and the thought that if they do not exit now, valuations may decline to a humiliating level and they may be faced with a double whammy of low prices for their holdings and lack of business prospects.

Nobody really knows the truth and no amount of desperate denial by company managements seem to convince journalists who are not quoting investment bankers but claim the mandates are out.

Even internationally reputed publications like the Wall Street Journal reported a few months ago of an interest in Piramal Healthcare by GSK and Sanofi-Aventis and hence the local M&A scene seems set for an unprecedented eruption after a long spell of slumber and passiveness.

Adding more fuel to the fire was the recent acquisition of vaccines and biologicals company Shantha Biotech by Sanofi-Aventis for a valuation that exceeded an irresistible $750 million. Pfizer had added one more dimension by entering into a supply alliance with Claris and Aurobindo Pharma.

It’s easy to understand why Indian media has gone on a high on inbound acquisitions. Every multinational company from Pfizer to the relatively new entrant Merck has set its sight on volume-driven growth in India.

A spate of reports from consultants has also suggested a trebling of the domestic market in the next 10 years to nearly $25 billion, mainly on the back of growth in health infrastructure, rise of the middle class and the resulting attention to health, and also an unparalleled spurt in lifestyle diseases like diabetes in Indians.

From categorising India as an insignificant player until recently because of the abysmally low contribution to turnover, multinationals have suddenly come alive to actively pursue the domestic market. Every global CEO from Andrew Witty of GSK to Jeff Kindler of Pfizer and Chris Viehbacher of Sanofi-Aventis is relying heavily on the future growth potential in the Indian market.

An executive with a large company explained that Big Pharma CEOs would have placed India somewhere down the priority list even a decade ago, but from the number of high-profile visits by top executives in India in the last one year, it is becoming very clear that the domestic scene will become very volatile in the coming years.

Besides introducing future money-spinners like Tykerb, Crestor, Januvia or Sutent, multinational companies are tuning their fundamental strategies to reach out to the masses. Their field force have remained small but specialised, mainly catering to the doctors in Tier 1 cities. Their product portfolios have largely remained focused on treating lifestyle diseases rather than infections and even the portfolios of drugs have remained differentiated.

That could be the reason MNCs may want to capture more prescriptions through a renewed focus on companies with a potential in domestic formulations. It has been heard that models like separating the India business have been a key for most negotiations between Indian and multinational suitors. If the Indian promoters give up their local turfs, it may spell disaster for both the sides.

It will be plain ridiculous to give up the domestic strongholds and look for growth in exports. Even for MNCs, it works best to join hands and pitch together for
newer markets. The power of an Indian company’s deep-rooted marketing skills combined with a multinational product profile will be a winning combination to face future challenges.