Listed pharma MNCs go for arms

More profits and R&D confidentiality could be the primary reasons.

Investors, who are bullish on MNC pharma scrips expecting growing opportunities for innovative companies under the intellectual property rights (IPR) regime in the country, may end up disappointed.

Many of these global companies present in India through listed entities are rushing to set up 100 per cent subsidiaries in the country.

Merck, the Indian subsidiary of the German pharmaceutical major Merck KgaA, which recently announced the divestment of its life science and analytics businesses to its wholly-owned India subsidiary, Merck Specialities, is the latest in the MNC business restructuring exercise.

Although the financial impact of Merck's business transfer is yet to be worked out, an industry analyst said the turnover of Merck India, which stands at Rs 390 crore, would fall below the Rs 250 crore level once the sell-off plans are effected.

The transfer, which is expected to take away a substantial part of business from Merck's listed company in India, suggests the company has bigger plans for Merck Specialities to explore the newly emerged market potential in the product patent regime.

Another pharma multinational, Wyeth, also recently announced its decision to establish a 100 per cent subsidiary in India.

Its listed company, Wyeth Ltd, has already sought a no objection certificate of the Registrar of Companies, Maharashtra, for use of the Wyeth brand as part of the corporate name of the subsidiary proposed to be floated in India.

Company sources said clarity on the new strategy will emerge only when the board discusses the proposal and reaches a final decision.

Pfizer and Novartis also have 100 per cent subsidiaries in the country.

Sarabjit Kour Nangra, a leading pharma analyst with the Mumbai-based Angel Broking, said the MNCs' strategies for their India-listed subsidiaries are yet to be seen as the proposals to float them could mainly be to route their new launch operations and R&D activities in the product patent regime.

"It could be a strategy for maximising the profitability of the parent company from the new business opportunities. Also these companies want to keep the transaction costs for imported products strictly in the private domain," says another industry analyst.

Industry sources revealed that often these wholly-owned subsidiaries operate with one or two employees in its payroll with the rest of the work force being common for both the listed entity and the wholly-owned subsidiary.

The analysts said this move would reduce the operational scope of listed companies significantly unless the parent company decides to bring in all the new pharma products to India through the listed company.

Ajit V Dangi, director general, Organisation of Pharmaceutical Producers of India, an industry body represented by MNCs in India, said: "This cannot be taken as a general trend among multinational companies."