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Pharma Sellout to MNCs – A Case of Creating Shareholder Value or Losing Hold over Traditional Pharma Business?

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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.

pharma-business

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?

  1. Viral says

    Wow… Nice analytical comments from both Altaf Rahman and Balaji Yadav, throwing light on different aspects of working or being targeted by MNCs. Thank you for your comments.

  2. balaji yadhav says

    WE have to analyse which is better MNCs or Indian companies.
    As an employee of a MNC, i would like to say that having an employer with deep pockets certainly helps.Let me list
    Benefits of MNCs
    1. High wages – the first priority for many
    2. Promotion based on performance rather than seniority
    3. Easy exit from the firm
    4. Work culture
    5. Much more valuable foreign direct investment in India
    6. Far more Risk takers
    7. World class technology and work environment
    8. Far less corrupt than Indian Co as the Govt is desperate for foreign investment and has been giving free land and other perks for them to invest otherwise they will shift to other countries.So far less potential of corruption (Based on my experience in SEZs).
    These are the few of the many benefits of working with a MNC.
    There are some disadvantages as well, MNCs are not Indian(thats important you know) ,sudden dismissals without explanation in case of recession,fluctuation in wage scales based on performance of the company,no credentials for loyalty to the company.

    What is better for India – It would be sad to see Reliance or Tata to sell one of their divisions to MNC but there is certainly no problem other smaller Indian companies to sell out.
    Altaf mentioned Goldspot but we should also see that revenues of the company have increased zillion times with the MNC work culture with no change in the product.Cause it is not the product alone which keeps the business afloat but good management and if MNCs are providing it we should encourage them.

  3. Altaf Rahman says

    First of all once a sale is made of an Indian drug company, its not the end of the world. The person who got the cash will not keep the money under his pillow and sleep. He will look for starting some other business. The chances are more for starting another drug company (neverthless from scratch). So the question of domination of MNC over Indian companies may not be so critical.
    The I am happy to note that the aquisition was expensive. The promoters did not lose on that count.
    Now what we (govt) have to ensure is that what the MNC will do to the products.
    Here I would like to show the example of cola drinks.
    When Pepsi, Coke entered India, they realized that its not a cake walk for them. Goldspot was very popular then. Then the MNC bought it out and instead of gaining from its popularity, shut it down to make way for their own products.
    In drugs or where ever MNCs are entering into India by buying out Indian companies should not be shutting down brands which are popular. If they include the popular products in their portfolio, we feel that we did not loose much.
    Note : Though Goldspot is same as present day Fanta, Miranda, it still pains to see the demise of a beautiful bottle of Goldspot. It was there only 15 years back. Now no more.
    I hope the same fate do not befall Amrutanjan, Jhandu bam and Sapat Lotion, Sapat Malham (ha ha ha) (I am not saying they will be sold but just pointing out the eventuality)
    Cheers :-)

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