sanofi-pasteur-shantha-buy-a-shot-in-the-arm-for-indian-pharma..gifFrench drugmaker Sanofi Pasteur acquiring a subsidiary of Merieux Alliance, Shantha, which owns a majority stake in Shantha Biotechnics, is a trendsetter. Merieux Alliance had bought a 60% holding in Shantha in 2006, which it later raised to 80%. The transaction, set to close before the end of the third quarter, values the Indian company at 550 million euros or $783 million (Rs 3,770 crore).

Analysts say Shantha is a prized asset for international drugmakers since it has the capacity to deliver in the vaccines sector besides paving way for global companies to increase their footprint in the emerging markets. Ruling out certain critics report about the deal as predatory in nature, Shantha Biotechnics MD KI Varaprasad Reddy says the brand equity of the company has fetched this “high” valuation. Also a statement issued by Sanofi Pasteur said it would support Shantha’s ongoing development as a platform to provide high quality vaccines in the international markets. Reddy founded Shantha Biotechnics in 1993.

The development sends strong signals that Indian pharma companies are well respected and that the management philosophy has not been changed shows that the partnership would add more to the company’s efforts in future, says Reddy, who has said he will quit if the name of the company or philosophy is changed. Reddy, who has about 13.4% stake in the company, says reducing his stake is still a matter of time which may be to the tune of 40%-50%.
 
“The high valuation is more due to our quality conscious products at low price. The current valuation comes at a historical cost which created wealth and distributed the wealth in the form of Esops,’’ he said adding that even the lowest employee got about Rs 4-5 lakh on an average.

According to Sarabjit Kour Nangra, V-P (research), Angel Broking, “The deal, one of its first in the space, has set the valuation benchmark for the biotech companies. However, it will be difficult for all the Indian biotech companies to get such valuations unless supported by good product profile and R&D product pipelines.’’

For the current fiscal year, sales from Shantha is expected to be around $90 million (Rs 432 crore) and is expected to grow significantly given the commercial resources of Sanofi Pasteur and through the development and launch of Shantha’s pipeline of new vaccines. Shantha supplies vaccines to Asia-Pacific, Africa and Latin America. Some of its products include Shanvac-B, the first ecombinant Hepatitis B vaccine and Shantetra, a combination vaccine of Diphteria, Pertussis, Tetanus and Hepatitis B).
 
“The demand for preventive vaccines is bound to grow and as Indian companies have created a sensation in the global vaccine market,” Reddy adds. In fact, Serum Institute is the first to develop a vaccine for MMR (measles, mumps and rubella) and supplies to over 65 countries through Unicef.

Shanta is the first to launch a recombinant vaccine for Hepatitis B in 1997 and it is the turn to bring out indigenous technology, says Reddy. Launch of vaccines against Rotavirus and HPV is expected to drive growth substantially, he adds.

The deal comes at a time when big pharmaceutical companies are vying either biotech research or vaccines. According to industry sources, the technology and regulations for vaccines are tougher than for the biotech products. The option for vaccines is primarily due to promising growth globally and new diseases are making vaccine R&D stronger for developing preventive vaccines. The recent Pfizer-Wyeth deal for the pneumococcoal conjugate vaccine was kind of a trend setter globally.

The Indian vaccine market is estimated to be about Rs 1,800 crore and the global market is close to $21 billion and may touch $34 billion by 2012.

As per a Frost and Sullivan report, the global vaccines market has been traditionally strong in North America and Europe, with Europe taking a major share in manufacturing activities while North America is the largest market in terms of revenues. North America accounted for 47.5% of the global vaccines market followed by Europe and rest of the world. Backed by the efforts of aid agencies and partnership between vaccine manufacturers and NGOs, there has been a concerted effort to increase immunisation rates in developing and under-developed countries in Asia and Africa.

Emerging economies like India, China and Brazil are likely to lead growth beyond 2010, with reforms in healthcare infrastructure underway. The North American vaccines market is forecast to grow the fastest while the regional manufacturers are increasingly moving towards providing supplying vaccines on low margin-high volume model. Further, there is cost and regulatory pressures which are the restraining vaccine manufacturers from expanding capacity.