The cheering that greeted domestic drug-companies, when they went on a shopping spree between 2004 and 2007, has fallen silent. And replacing the applause are more fundamental, even worrisome, questions on the fate of the domestic pharma industry. The signals are getting increasingly clear. Sooner or later, more multinationals will come into India through deals like Daiichi Sankyo – Ranabxy.
The others will intend to delist and more generic drug makers may go for a stronger management control in the Indian market.
If the Rs 2,600-crore Wockhardt finds itself burdened by a combination of liquidity pressures and a Rs 3,500-crore debt, could other companies be faring any better? Pharma industry experts are divided on whether there are more Wockhardts waiting to happen. But they are united in singling out acquisitions as a key villain, referring to the spate of overseas deals undertaken by domestic drug-companies in their quest for growth.
Even globally successful companies find acquisitions a tough game. So, for local companies, many of them may have bitten off more than they could chew or digest – especially since some of them (acquired companies) were large compared to the original entity itself, an industry veteran said. Wockhardt’s predicament, though, may be unique to the way the company had structured its debt, he added.
Nevertheless, Wockhardt’s problems may not be a one-off, observes Sujay Shetty, with consultant firm, PricewaterhouseCooper. “Other FCCB-laden companies too may be forced to adopt similar asset disposals,” he said.
“Richly valued acquisitions that did not become earnings accretive soon have become a problem, which has been compounded by global recession. Similar actions will be needed in other instances too,” he added.
Wockhardt had undertaken three acquisitions in a little over a year across Europe and the US in 2007. Its last acquisition in Europe, France’s Negma Laboratories in May, took the count up to five companies in the region.
In the period between 2004 and 2007, several domestic drug majors including Ranbaxy (in its pre-Daiichi days), Dr Reddy’s, Zydus Cadila, Piramal, Glenmark, Dishman, Sun Pharma, Lupin and Hikal, to name a few – were out with their shopping bags.
In a better market, companies may have gotten away with highly leveraged acquisitions. But now, it gets more uphill, as global innovator companies enter the generic-drugs space, with their research pipelines under a squeeze, and governments across the world opt to lower healthcare costs.
Challenges are in store for local drug companies, also in the form of patent-related challenges in India and abroad. And this is forcing some local promoters to loosen up on their controls, and explore an exit, when they still get a decent valuation, said a pharma consultant.
But not all domestic drug companies have their backs against the wall, said another pharma-expert. It is only those drug companies speeding on the “super-highway” and looking to grow fast, which are under tremendous pressure, he said, labouring as they are, under volatile markets, forex fluctuations and overseas deals not bringing in the anticipated cash flows.