Following the collapse of Lehman Brothers and the global meltdown, pharmaceuticals is perhaps the only sector globally which withstood it all, announcing a slew of deals month after month.
The biggest merger and acquisition (M&A) announced till date is also from the pharma space — Pfizer’s $68 billion buy-out of Wyeth in January 2009 at a time when the financial world was crumbling and global deals had plummeted to a naught.
Some of the mega deals in pharma include Merck-Schering Plough, Roche-Genentech and more recently Sanofi-Shantha Biotech.
Experts say that pharma has emerged as most spectacular sector with the heaviest deal-making, and is “recession proof” as life and death continue unabated and healthcare needs cannot be ignored. “Pharma by nature has a teflon-like balance sheet with huge cash reserves and lot of financial muscle. Even when globally the financial world was at a mess and banks were not lending, Pfizer was able to raise a $22 billion debt for the acquisition. The cash flows and valuations have been good in the sector,” says Sujay Shetty, head, life sciences, PwC, India.
The primary drivers of mergers and acquisitions are augmentation of product pipeline like vaccines and biotech, and need to invest in emerging markets. With the so-called patent cliff and stagnating pipelines of big pharma, companies are trying to augment their portfolios and revenues like Pfizer gets the biotech and OTC business of Wyeth to augment revenues.
“The availability of funds has not been an issue. Big Pharma, for all its problems, does have massive cash resources and hence has done the blockbuster deals as well as attract the needed bank funding as these companies have been less affected by the downturn on account of defensive nature of the industry,” Shetty added.
Says Navroz Mahudawala associate director, health sciences, E&Y: “Inbound M&A in India may continue even in the current uncertain environment for many reasons. Firstly, sizes of deals are not large enough to stretch the balance sheets of any of the acquirers… Secondly, India is increasingly perceived as a safe haven for growth as domestic pharma continues to demonstrate resilience with double-digit growth. Thirdly, India is a crucial market as its low cost manufacturing competency is now well established”.