Consolidation befuddles Pharma St

MUMBAI: The wave of consolidation lashing the global pharma sector has stumped industry majors and analysts alike, as they struggle to gauge its impact on a jittery domestic market.

India is the world’s fourth largest pharmaceutical market by volume and thirteenth largest by revenue.

Surprisingly, there seems to be no clarity on the magnitude or the nature of impact the consolidation process will have on the domestic industry.

What happens if the acquired firms have any joint ventures, tie-ups or out licensing deals with domestic firms?

The answers are mixed.

As reported by DNA Money last week, US-based Hospira plans to buy Mayne Pharma, the Australian joint venture partner of Zydus Cadila.  What impact will this have on Zydus Cadila’s Australian Operations?

Pankaj R. Patel, chairman and managing director of Zydus Cadila, has ruled out any negative impact. But the firm is yet to outline its plans and categorically point out a clear roadmap for its Australian operations.

Zydus Cadila had set up a 50:50 joint venture with Mayne Pharma, the Australian generics firm, in May, 2005, to manufacture generic injectable cytotoxic drugs and active pharmaceutical ingredients (API) for international markets.

Shahina Mukadam,  pharma analyst, IDBI Capital Market Services, says the consolidation process would not have any immediate impact in the domestic market.

“Manufacturing of APIs/ bulk drugs is a time consuming process. Hence, the MNCs still prefer to outsource the APIs. As a result, pharma firms which bought companies having a joint venture partner in India will not chop off the ties immediately.”

“Major players may prefer another partner at a later stage only.  They would not break the tie-ups of their partners, in India,” she said.

Mukadam also ruled out the possibility of a shrinking customer base.

“Even though the consolidation happens, demand for bulk drugs will not be curtailed. The acquired company’s need for bulk drugs will be added to the acquirer’s purchase,” she said.

Danish firm Nycomed’s plan to buy German pharma firm ALTANA’s pharmaceutical business, has again put the poser on ALTANA’s Indian JV partner, Zydus Cadila.

Cadila has a JV with ALTANA, Zydus Altana, for manufacturing KSM6 and KSM14, drug intermediates which are used to manufacture anti-ulcerant drug, Pantoprazole, exclusively for ALTANA.

Swati A. Piramal, Director-Strategic Alliances & Communications, Nicholas Piramal, is of the opinion that worldwide consolidation won’t have a major impact on the domestic pharmaceutical market.

“Once the buy-outs happen, the acquiring company has to respect the earlier agreements signed by the acquired company. Hence, the recent acquisitions will not have much impact on the joint ventures as well tie-ups by Indian counterparts,” she told DNA Money.

However, some analysts have a different take on this.

A leading pharma analyst told DNA Money on condition of anonymity that the consolidation process will have an adverse impact in the domestic market.

Competition would shrink as the numbers of players go down, he pointed out.

“It will badly affect the recent trend of out-licensing molecules by MNCs to Indian players. Product monopolies arising out of consolidation may force Indian players to out-license drugs at steep prices,” he said.

Joint ventures set up by Indian players may become vulnerable, the analyst said.

“The joint ventures might be meant for any particular products. If the acquirer has the same product portfolio, he will be forced to chop off the JV partner,” another analyst added.

“If the acquirer has a better source for APIs/bulk drugs, why should the acquiring company keep the old JV partner for outsourcing APIs,” he asked.

As the industry beams mixed signals on the impact of consolidation, US-based Schering-Plough has announced plans to acquire its domestic peer, Bristol-Myers Squibb (BMS).

In February this year, Pune-based Emcure Pharma had in-licensed Reyataz (atazanavir sulphate), the once-a-day HIV/AIDS drug from BMS.

Needless to say, the fate of this in-licensing deal is also in limbo.