Global pharma majors are opting for joint venture route to tap the consumption story in India, one of the world's key markets, as high valuations are acting as deterrent for M&A deals, believe experts.
So far this year, two global pharma majors have entered the Indian market through JV route.
In January, Germany's Bayer Healthcare announced a joint venture with Zydus Cadila to sell drugs in India and in April, Sun Pharmaceutical Industries and US-based Merck & Co Inc entered into a joint venture agreement to develop, produce and market generic drugs in emerging markets.
Commenting on the trend, Mergermarket Asia Pacific Deputy Editor Anjali Naik said, "especially for MNCs who don't have existing regional operations, it makes sense to take a JV route as opposed to an acquisition."
Through the JV option, the overseas firm gets easy access to the Indian market as the local partner has established distributors and vendors in place and is comfortable with regulations and politics.
"Emerging markets present a huge opportunity for these soon to be generic drugs not only because income levels and with it the consumption story are growing the fastest in these markets, but also because the cost advantage in manufacturing and R&D is hard to ignore in comparison to the established markets," VCCEdge Research Director Kunal Shrivastava said.
Merger and acquisitions in the pharma space are likely to heat up further as about $75 billion in patents are expected to get off patent by 2015. Which would make global MNCs enter emerging markets to protect their bottomline.
Explaining the reason behind the preference for JVs, experts said besides high valuations, the other major factor is the decentralised model of operation.
As the industry moves towards more decentralised models to operate in the global market, JVs seem to be most viable strategy to enter emerging markets like India, where the focus is to tap the cost advantage and leverage the local technical know-how and expertise to promote R&D and manufacturing.
"Moreover, pharma being an R&D intensive industry with evergreen growth potential, there's always a trade-off between investing in R&D to develop new drugs or make acquisitions to grab a bigger slice of the existing market," Shrivastava said.
However, according to PricewaterhouseCoopers Executive Director/Partner, Transactions Group Sanjeev Krishan, the possibility of a Daiichi-Ranbaxy or Abbott-Piramal kind of deals can not be ruled out.
"While there have been some JV instances (which could be to make the most of the existing third party relationships, specifically distributor penetration in India), including Sun in recent times, I do not believe that JV's have necessarily been the preferred route for MNC's in India, Hospira and Teva are cases in point," Krishan said.
"We definitely expect these deals to happen in the future as well, as a natural response to the first question and Indian promoters wanting to monetise their holdings at the valuations currently available in the market," Krishan added.
