The list of drug majors scouting for a suitable buy in India is long. But this time, the attraction is: India as a market, and not merely as an inexpensive destination to source and produce products, say consultants and lawyers observing the increased merger and acquisition (M&A) activity seen in the pharmaceutical space.
The biggest names in the business globally, including GlaxoSmithKline, Pfizer, Boehringer Ingelheim and Sanofi Aventis, are scouting the Indian landscape.
And that is not surprising, since the local market is growing at over 12 per cent compared with about four per cent in the rest of the world markets, says an analyst with an international financial institution.
Building strong base
Though multinational companies (MNCs) have their subsidiaries in India, they have been selling at the high-end of the market and are now looking at extending their reach in the local market, through a generic-arm and local doctor connections, he explains.
India is seen among the top ten markets in the next few years and so there is interest in building the domestic base, agrees PricewaterhouseCoopers’ Associate Director, Mr Sujay Shetty. And to make up for lost time, MNCs are looking at local acquisitions, he adds.
The country may have been seen as a low-cost destination, but that no longer may be the sole factor, says Mr N. Raja Sujith, Partner with law-firm Majmudar & Co. Multinationals are realising the potential of the huge, untapped Indian market, he agrees.
But some of the M&A activity seen locally are repercussions of global acquisitions, says Ernst & Young’s Associate Director (Health Sciences), Mr Navroz Mahudawala.
In January, Pfizer acquired Wyeth at $68 billion, and the integration process is under way in markets, including India. In March, Merck & Co Inc’s $41-billion deal to acquire Schering-Plough Corporation will impact the latter’s local arm Fulford. And recently, Abbott’s $6.6-billion agreement to buy Belgium-based Solvay Group’s pharma business also has local implications.
Globally, M&A is driven in the pharma segment, as companies have cash on their balance sheets. Further, they see limited chances at big-bang breaks. But locally, growth is spurred by drug companies expanding into newer segments and rural areas, besides the increasing income that is making medicines more affordable, he observed.
Also, India is expected to see the largest number of cardiovascular and diabetic patients in the world — dreadful news for India, but pharma companies see this as an emerging market, adds Mr Sujith.
But local promoters, largely first-generation entrepreneurs, still have an emotional connect and are reluctant to sell, say several stake-holders. Pharma-industry expert Mr Lalit Kumar agrees that promoters are not willing to sell their business, especially if it is the only thing they know. Second or third generations may be more pragmatic, he adds.
PwC’s Mr Shetty agrees that Indian promoters are not mentally prepared to handover control. But they are also unreasonable in their valuations, basing their worth on the future India growth story numbers, he points out.