Pharma cos see opportunity in IndiaThe year had just begun, when Pfizer announced its $68-billion deal to acquire Wyeth, in January. On its heels came Merck & Co's $ 41-billion deal to acquire Schering-Plough Corporation, in March.

Not too bad a start, for a year reeling from the aftermath of the economic downturn?

Well actually, the mega-consolidations are in fact part of big pharma's efforts to shore up a dwindling pipeline of products, and tap into new markets in search of growth.

In fact, the domestic landscape too was alive with the acquisition-buzz, with the Pfizers, Sanofi-Aventis' and GlaxoSmithKlines (GSK) of the world prowling around for acquisition targets in emerging markets, including India.

As the year progressed, acquisition talk receded and ghosts from the past caught up with the drug-makers – with every three months revealing the financial pressures of debt, and the brunt companies had to bear due to currency fluctuations and rising prices of input material.

The low-point came when drug-maker Wockhardt, its back against the wall, went in for a debt restructuring process to make amends. Wockhardt was reeling from a debt of about Rs 3,700 crore. And as part of debt restructuring, it sold off several non-core businesses, including animal health and nutrition.

Domestic advantage

Despite the scale of challenges and distress in the global economic scenario, local drug-makers did manage to stand their ground, say industry-watchers.

In fact, the silver lining through the dark cloud was the domestic market, growing at about 15 percent, they said. The pharmaceutical industry is estimated at Rs 90,000 crore, with about 40 per cent coming from exports.

The year saw a turn-around in the importance of the domestic market, observed Mr Muralidharan Nair, Partner with Ernst & Young. Companies that may have neglected the India market earlier discovered its virtues in volatile times. From a sustainability and profitability point of view, India took a higher place, especially as companies faced eroding profits from Europe, besides other challenges in the US, Latin-American and CIS markets.

The default observation that exports are good, got a reality check and companies are now more careful in choosing who they do business with in overseas markets, he said.

Also, the importance of India as a geography was illustrated by alliances that Pfizer formalised with Aurobindo and Claris, respectively; besides GSK's deal with Dr Reddy's. The alliances were for sourcing branded generics from India, something that the forthcoming year will see more of, as India's profile increases as a centre for less expensive, good quality medicines.

And big pharma is on the look-out for less expensive sourcing destinations, as governments across the world put pressure on them to make healthcare affordable, say observers.

Several research alliances too are taking place between global drug-makers and local companies, away from the public eye, says Mr D G Shah, of the Indian Pharmaceutical Alliance. In fact research spends, that saw a lull in the slowdown, will see an improvement in the forthcoming year, says Mr Ranjit Kapadia, HDFC Securities' Vice-President (Institutional Research).

Acquisitions revisit

Acquisitions returned in the second half of the year, with Sanofi Aventis acquiring Merieux Alliance's 80 per cent in Shantha Biotech; Pfizer Inc acquiring Vetnex (erstwhile Ranbaxy's animal healthcare business that was divested to ICICI Venture) and Orchid's sale of its injectibles business to US-based Hospira, earlier this month.

On the out-bound scene though, Sun Pharma will have to wait till the year end, at least, to get some direction on its pending acquisition of Israeli drug-maker Taro. The $ 454-million deal had been signed in May 2007, was terminated by Taro in 2008 and has since been in the thick of litigation.

Half a decade!

This year marks five years since the Patent Law was amended to respect product patents. But several provisions of the Patents (Amendment) Act, 2005 are being put to test in different courts in the country. And though local and overseas companies see room for improvement in the implementation of the Act, companies are increasingly seeking innovative methods to bite the pricing bullet.

Multinationals such as GSK and Merck, for instance, have adopted differential pricing for the launch of their products.

A local policy on pricing, though, still hangs fire, and companies are united in their call for less price-control, and more monitoring. Global challenges this year included export seizures in Europe and efforts to equate generic medicine with counterfeits.

Locally though, India took a significant step in tackling the spurious drugs trade by introducing a whistle-blower policy.

As the swine-flu pandemic gripped the world, the challenges in procuring medicines and vaccines to cover the local population showed how ill-equipped the country was in handling public health emergencies. Hospitals where over-whelmed and laboratories fell short.

In the forthcoming year, though, the domestic sheen will stay. Eyes are also on the US Healthcare Bill and the indirect impact it could have on sourcing from India.

What will remain a huge challenge in the local market though, are consolidation moves, as high valuations continue to play spoil-sport.