The global pharma industry, percieved to be recession-proof, is also experiencing the pains of a global recession and is seeking remedies to get out of the trouble. Global majors such as Pfizer and Wyeth, Schering Plough and Merck & Co, and Roche and Genetec have announced mergers to protect their turnover and profits, in the wake of dwindling new drug pipeline and existing drugs going off-patent in near future.
Indian generics companies such as Ranbaxy, Dr Reddy's, Sun Pharma, Glenmark and Wockhardt are also feeling pressures of the global recession. Most of these companies are dependent on international revenues, especially the US and Europe, than business from the domestic market.
Pharmaceutical majors are also finding difficulty in raising funds for capital expenditure and working capital. The industry, which works on a 45-60 day credit period with suppliers, is forced to extend the period of credit. Overseas buyers are instructing companies to slow down shipments, due to the cash crunch and to clear their inventory.
Large drug discovery deals have dried up and Indian players could not rope in a single deal since September 2008. Companies such as Glenmark, Piramal Life, Advinus Therapeutics and Suven Life Sciences had roped in about ten such large deals in the one year ended September 2008. Besides, foreign currency fluctuations and mark-to-market losses are affecting profits of India's drug makers.
Glenmark Pharmaceuticals, one of India's leading new drug research focused pharmaceutical company,
anticipated problems a few months ago and implemented tight control over its generics business, its main revenue earner. Besides cost-control, Glenmark plans to out-license two-three molecules under development to multinational drug makers. In the past four years, Glenmark had set an enviable track record of out-licensing at least one molecule every year to earn handsome one-time gains in the form of out-licensing fees and milestone payments. But the company could not strike any such deals in 2008, and its third quarter profits plummeted 71 per cent.
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Though Glenmark is ready to out-license its drugs under development and discussions are on with multinational companies, there are no takers for its molecules as yet. Big multinational companies, which are fighting to keep their dwindling businesses and profits, and are cautious on spending at a time when the global economy is weak. Three major multinational drug majors acquired large drug companies in the recent past to cut costs on manufacturing and R&D. Pfizer, the world's largest drug company, has axed 800 jobs in its R&D department, while Europe's largest drug maker GlaxoSmithKline has also cut 10 per cent of its workforce. Even other majors such as Sanofi-Aventis, Merck and Co, and Novartis are planning to trim costs. On the out-licensing front, Glen Saldanha, managing director and chief executive of Glenmark, said, "We are waiting for the right valuation.�
A few kilometers away from Glenmark's office in Andheri, at a posh corporate office in Bandra-Kurla complex, Habil Khorakiwala is fighting the worst ever crisis in the history of his company, Wockhardt.
Wockhardt was growing at over 25-35 per cent year after year in the past few years, mainly driven by acquisitions. Wockhardt became the largest Indian pharmaceutical player in Europe with over 54 per cent of its revenue from that market. In October 2006, Wockhardt acquired Ireland�s Pinewood Laboratories. Within another five months, it bought France-based Negma Laboratories. In November 2007, the company bought Morton Grove Pharmaceuticals in the US.
But this unbridled expansion is taking a toll on the company. Wockhardt's net debt of around Rs 3,400 crore, about 2.3 times of its equity, which is being restructured. The company is trying to hive off some non-core assets such as its animal healthcare division and repay some imminent loans.
However, the bad times also offer opportunities for Indian companies.
However, the downturn in the West provides a silver lining. "This is the right time for Indian drug makers to go to the US and Europe and buy out distressed specialty pharmaceutical companies at cheap rates," said Sameer Savvkur, managing director, ORG-IMS India.
Since the global drug majors are closing down many facilities and retrenching jobs to cut down costs, cheap manufacturing location such as India is emerging as a global manufacturing destination for drugs.
Indian contract research and manufacturing companies (CRAMS) such as Divi�s Laboratories, Jubilant Organosys, Piramal Healthcare, Biocon and Dishman Pharma may post over 30 per cent growth in the coming years, predict industry analysts. Similarly, India's contract research industry is estimated to grow to $1.3 billion by 2011-12 and to $3 billion by 2015 from $400 million in 2007-08, according to a Yes Bank and Organisation of Pharmaceutical Producers of India (OPPI) analysis.
Though all is not well with the pharmaceutical sector, Indian drug makers pin their hope on the huge generics or copy-cat business potential in all parts of the globe.
Whether recession or not, people all over the world need medicine to cure diseases.