But, acquisitions also likely to get more expensive.
The battle for more control in the Indian drug market, in which Japanese drug major Daiichi Sankyo’s acquisition of the majority stake in Ranbaxy was a milestone, is expected to turn fiercer.
Following Abbott’s decision to acquire Piramal Healthcare’s domestic formulations business, multinationals based abroad occupy three of the top five slots in the pharma industry rankings.
| DEAL BYTES |
ABBOTT IN INDIA
NEW TOP PLAYERS IN DOMESTIC DRUG MARKET |
- Abbott
- Cipla
- Ranbaxy
- GlaxoSmithKline
- Sun Pharma/Lupin
Abbott has spent around Rs 17,000 crore to edge out Cipla from the top slot in the domestic sweepstakes. In the new ordering, Ranbaxy is at number three, followed by GlaxoSmithKline and Zydus Cadila. Before the deal, Abbott was not in the top 10.
“From Abbott’s perspective, it is a clear deal to achieve market leadership in India. And, from Piramal’s side, the valuation has been fabulous,” said Sujay Shetty, pharma leader at consulting firm PricewaterhouseCoopers.
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Analysts said the Indian pharma league could be in for more reshuffle, with more multinationals eyeing it. Among the India-based companies, beleaguered Wockhardt had already aborted a deal with Abbott and may look for a new buyer for its nutrition business.
Vishal Gandhi, vice-president, life science and technology, YES Bank, agrees. “The kind of premium the company has got clearly indicates a huge opportunity for MNCs in the domestic pharmaceutical business,” he said, adding it would trigger more mergers and acquisitions.
Analysts said acquisitions would become more expensive. The Abbott-Piramal deal sets benchmarks for future valuations, they add. Abbott agreed to pay 9.2 times the revenues of Piramal. “The deal will see re-rating happening for all pharmaceutical companies that have strong domestic business. It will set new benchmarks for valuing brands,” said Sanjiv Kaul, managing director at private equity firm ChrysCapital.
“When the Ranbaxy deal happened, it was thought to be extremely expensive. The Piramal deal is also being talked about in similar terms today. What we see is that with each deal, there are milestones created in valuation of domestic businesses,” said Kaul, a former Ranbaxy executive.
“The value paid is for strategic acquisition of a business they are not familiar with,” said D G Shah, secretary general, Indian Pharmaceutical Alliance, an industry lobby group for India-based companies, that had recently approached the government to check acquisitions by multinationals based abroad. He added the deals showed how attractive India was for multinationals, though they tend to criticise the local patent laws and pricing rules.
Apart the pressure on launch of new molecules, the valuations are going to tempt Indian promoters to exit the pharma business. “At the end of the day, every business has a price tag. Once it is reached, you are up for sale,” said Kaul.
But, IPA’s Shah believes the new benchmark set by the Abbott-Piramal deal could act as a deterrent, as local companies now demand higher valuations.
The rationale for such high payment to acquire a generic business, experts feel, lies in the low penetration of India’s pharmaceutical market. Kaul said the Indian market was largely unexplored, with Indian companies having just one per cent of the global pharma market.
However, unlike most developed markets, the Indian pharma market grew at about 16 per cent for the past three years. With hopes of wider penetration of the health insurance business, the growth is expected to be much higher in future.
Besides, with Abbott and Daiichi at the top of the grid in India, the likes of GSK and Pfizer just might be revving up to try and grab the pole position in Indian pharma.