Call it creation of value for shareholders or selling matured pharmaceutical businesses, but the fact of the matter remains that India is certainly losing hold over its traditional Pharma industry, just as old players of the game with substantial size are calling quits and monetizing their decades old generics model.
In latest, Piramal Healthcare has agreed to part away its business portion related to domestic formulations business to MNC drug maker Abbott Laboratories at a steep valuation of Rs.17000 crore. With this agreement, the Indian company exits its generics business with presence in India, Nepal and Sri Lanka.
Interestingly, the dearness of valuations can be gauged from the fact that the Piramal’s generics business has attracted a whooping valuation of $3.72 billion as against $4.2 billion Daichi Sankyo’s take over of India’s Ranbaxy Laboratories in 2008.
In the Daiichi-Ranbaxy deal, the Japanese company benefited from Ranbaxy’s low-cost manufacturing infrastructure and its strong supply chain, even as Ranbaxy gained access to Daiichi Sankyo’s R&D expertise to advance its branded drugs business.
With the sale of its generics division, Piramal Healthcare is left with businesses of contract manufacturing, global critical care, OTC products, Lab diagnostic business, Pathology and radio labs and vitamin and equipment business.
This analysis of the Abbott’s takeover of Piramal generics business gains importance at this point because of variety of reasons including the growing preference of generics low-cost model, increasing dominance of emerging markets and most of all fast approaching patent expiry of global blockbuster drugs.
The Indian Pharma industry has clocked a growth of about 12% over last decade. Going at this pace, it may take more than 2 decades for the MNC Pharma companies to recover their investment costs involved in buying out the generics businesses of Indian companies of size of Ranbaxy and Piramal Healthcare.
This may gradually lead to hike in prices of key generic drugs as the lobbies of MNC grab more say in the domestic drugs market. Earlier, drug makers such as Ranbaxy, Cipla and Dr Reddys used to almost equally dominate the share in the domestic drugs markets. Now, the new developments have popped up with new equations altogether.
Ranbaxy continues to hold its market share, but only as a Daiichi subsidiary after being acquired by the Japanese company. Another big change with the agreement to acquire generics business of Piramal Healthcare is that, US drug maker Abbott Laboratories gains a numero uno position in the domestic market share to the tune of around 7%, this being out of no where until now.
This only leaves domestic major Cipla, from the traditional list of Indian drug makers, with a substantial market share in India. Moreover, five of the top ten drug makers in the country are MNCs.
Do you feel India is losing its edge as a low-cost generics drug maker?