Consolidation in Indian Pharmaceutical Companies

Researcher Name: Shazia Shaheen

Dept. Commerce TMBU Bhagalpur

Email id shazias00@gmail.com

Mobile number-9973209999

Abstract: India is a huge market of pharmaceutical industry. As big pharma looks to increase
pipelines of innovative and orphan drugs, particularly in the biopharma sub-sector, mega
deals dominated the scene. The consolidation strategy is increasing day by day in Indian
pharmaceuticals companies "Two decades ago there were 30 or 40 big pharma companies
since then groups have assimilated , such as GlaxoSmithKline and AstraZeneca now the new
companies are coming towards consolidation of the companies It has a large socio-economic
relevance to Indian economy. Indian pharmaceutical has competitive edge over other
countries in term of price. It’s estimated that 89 percent of all prescriptions dispensed in the
U.S. last year were generics.  These alternatives to brand-name drugs play a major role in the
industry, making prescriptions more affordable for consumers, and sparking innovation in
how drugs are created. India is also following same pattern. Based in India, Dr. Reddy's is
a pharmaceutical company whose generic formulations business offers more than 200 high-
quality generic drugs.
The conclusion drawn from the context of consolidation in the pharmaceutical industries of
India is the right approach at the right time.

Keywords: Biopharma, innovation, generic, consolidation

1. Make or Buy decision:

Increase in the size of middle class households coupled with the improvement in medical
infrastructure and increase in the penetration of health insurance in the country will also
influence in the growth of pharmaceuticals sector. Health insurance is the secondary factors
in the Indian Pharma companies. People are more aware of their health because of massive
healthcare products in the market.
Today Indian pharma companies are thinking over different avenues which are open for
merger and acquisition. India is a big market of cheap labour and technology so making drugs
is a choice of investors,
Large pharma firms with great goodwill are choosing the fast route – either acquiring the
intellectual property or drug from a company or buying the company.
Last five-quarter slide in GDP demonetisation, implementation of GST, frequent US FDA
inspections and a few 483s, were some of the factors which brought down Indian pharma
industry growth to single digits from almost last 10 years of continuous double digit growth.
The pricing pressure due to increased competition and consolidation in the supply chain, and
regulatory scrutiny of the Indian manufacturing units by the US FDA could continue to
remain as hurdles for Indian pharma companies. Export prices are no longer lucrative since
exporters are well aware of the ever reducing prices of similar products in the domestic
market. Nevertheless these are short-term threats only. M&As as a strategy employed by
several corporate groups like R.P. Goenka, and Manu Chhabria for growth and expansion of
the empire in India in the eighties. The Ajay Piramal group has almost entirely been built up
by M&As. Other companies and groups whose growth has been contributed by M & A
include Ranbaxy Laboratories Limited and Sun Pharmaceuticals Industries particularly
during the latter half of the 1990s. During this decade, there has been plethora of M & A
happening in every sector of Indian industry. Consolidation is replacing make or buy decision
in long terms.
2018 was an extraordinary period for consolidation in the pharmaceutical industry, with
mergers and acquisitions (M&A) deals globally reaching $265 billion, a more than 25% surge
on 2017. Eli Lilly (NYSE: LLY) also recently completed an $8 billion acquisition of Loxo
Oncology, broadening the scope of its portfolio of precision medicines for patients with
genomically defined cancers. As big pharma looks to increase pipelines of innovative and
orphan drugs, particularly in the biopharma sub-sector, mega deals dominated the scene.

2. Glimpse of a new approach

a. Enhancement of quality medicine with generic combination.
b. Consumerism a new way of marketing with consolidation approach
c. Diversification for higher growth products or markets
d. To increase market share and positioning giving broader market access
e. Strategic realignment, technological change and mingling of ideas.
f. Introduction of innovative approach in Pharma sector.

3. Strategically Aligned: The Indian pharmaceuticals are adopting acquisition rapidly where
Pharma companies are often times buying up several brands at once making for mergers that
include multiple entities as opposed to a single –company acquisition. Sun Pharma acquired
100 % shares in Ranbaxy Laboratories Limited on 6th April 2014 (Legal proceedings were
completed on 25th March 2015) to penetrate into new markets and increase the product
portfolio of the company as both complimented each other in areas of expertise- Sun Pharma
was a major global specialty pharmaceutical company with expertise in complex and niche
therapy areas while Ranbaxy was known for its global presence in the generic segment.
Hyderabad-based vaccine maker Bharat Biotech today announced that it has signed a
definitive agreement to acquire Chiron Behring Vaccines Private Limited (CBVPL) from
GlaxoSmithKline (GSK) Asia for an undisclosed sum.

The acquisition of Chiron Behring would be utilised to meet the unmet demand for rabies
vaccine in India by shifting 40-60 per cent of its capacities to the domestic market
requirements, according to Bharat Biotech chairman. At present only 50 per cent of the rabies
vaccine requirement is being met in India, according to Ella.

Stating that his company's aim was to have a product portfolio bigger than that of GSK in the
next three years, Krishna Ella said it was very difficult for a vaccine company to survive with
a few products." Globally the number of vaccine companies is only shrinking. New players
can't enter the vaccine business owing to a tough business and manufacturing environment,"
he said. Recently China is facing epidemic of coronavirus without vaccines.

Major Indian pharma is working with other foreign companies to find a breakthrough in this
case; Consolidation is the part of drug discovery process especially where cheap labour is
available with cutting edge technology.

Bharat Biotech, a privately held company, has a portfolio of 16 products, including JE and
typhoid vaccine, and had invested as much as Rs 1,500 crore in manufacturing and R&D
facilities so far, according to Ella.

4. Findings:
A finding is showing that Indian companies received 304 Abbreviated New Drug Application
(ANDA) approvals from the US Food and Drug Administration (USFDA) in 2017. The
country accounts for around 30 per cent (by volume) and about 10 per cent (value) in the US$
70-80 billion US generics market. The resurgence of pharma sector in India started with the
help of domestic consolidation. This is the time of innovation and artificial intelligence where
Drugs companies are experimenting new policies of business growth with their counterparts.
Indian Pharmaceutical industry is actively participating consolidation strategy with the help
New strategy and successful past. To increase productivity it is the need of hour. It is very
important to understand the demand and supply concept of the Indian pharmaceuticals
companies.

5.Analysis: Pharmaceutical world is totally different in approach of marketing the drugs, Last
two years was very deciding the growth of Indian merger and acquisition market because
more and more new foreign players was coming in Indian market. Presently Indian pharma
companies are doing well in the field of consolidation although the task was very though.
In 2017, Indian pharmaceutical sector witnessed 46 merger & acquisition (M&A) deals worth
US$ 1.47 billion The exports of Indian pharmaceutical industry to the US will get a boost, as
branded drugs worth US$ 55 billion will become off-patent during 2017-2019.Government is
planning to relax FDI norms in the pharmaceutical sector
Demand for generic medicines in rural markets has seen a sharp growth. Various companies
are investing in the distribution network in rural area. Many investors think about spending in
research of drugs of communicable diseases which is prevalent in Asian continent. South East
Asia is the major market of vaccines and drugs of malaria and Tuberculosis.
For innovation, the requirement of resources is of prime importance. And consolidation is
one way of doing it. Indian pharmaceutical becomes more efficient with increased economies
of scale and reduced per-unit cost; the promoters of the acquired companies can
independently focus better on other businesses.
6. Discussion: This is the time of new venture in Indian pharmaceutical company.
Consolidation is the part of merger and acquisition and very much important in developing
market. For instance. The Indian pharmaceutical space has long been waiting for
consolidation, Torrent Pharmaceuticals Chairman Samir Mehta had told Business Line’s
Pulse last month. The latest wave of consolidation, which started in the last few years with
deals such as Torrent’s buy of Elder Pharma’s businesses in India and Nepal and Sun
Pharma’s merger of a troubled Ranbaxy, has its roots in company-specific issues rather than
larger industry issues, says Praful Vora, a pharma analyst with Equirus Securities. Faced with
a new Pharmaceutical Policy on the anvil, which promises an expanded control on the prices
of more medicines, and regulatory challenges in export markets like the United States, the
domestic drug market is indeed bracing for consolidation, say industry insiders.
Elder had working capital issues and Ranbaxy faced regulatory bans in the US on products
from four of its plants. And while consolidation is imminent, he adds, the domestic market
continues to be an attractive bet with 12-13 per cent growth. Indian pharma companies are
facing lesser compliance in comparison to USA. The cost of compliance with government
regulations and overseas authorities such as the US Food and Drug Administration is also
imposing additional burden on companies. Indian pharma has some edge over it so merging
companies are better option in India.

7. Conclusion: In February 2019, the Indian pharmaceutical market grew by 10 per cent
year-on-year. If we look ahead we can say that next two year is very positive in this case.
Investment (as % of sales) in research & development by Indian pharma companies*
increased from 5.3 per cent in FY12 to 8.5 per cent in FY18.
By 2020, India is likely to be among the top three pharmaceutical markets by incremental
growth and sixth largest market globally in absolute size. India‘s cost of production is
significantly lower than that of the US and almost half of that of Europe.
The government, on its part, took steps such as measures to improve bulk drug manufacturing
in India to reduce dependence on China and planning a separate ministry for pharmaceuticals
sector to boost the domestic industry.
The spate of acquisitions is not going to die down any further and is only slated to gain
momentum in the coming months with more deals in the pipeline. India is also gaining
momentum in its own way. The aforementioned paper gives an overview of radical changes
in trends of mergers and acquisitions post 1990 reforms, specifically in pharmaceutical
sector.
These reforms are inclusive of Liberalization, Privatization and Globalization policies,
changes in Monopolies and Restrictive Trade Practices Act (1969), Takeover Code and
Income Tax Act (1961) and myriad others which impacted the existing structure of Mergers
and Acquisitions. It further establishes to examine two renowned pharmaceutical mergers,
Sun Pharma-Ranbaxy and Lupin-Gavis.
8.Limitation: Stricter regulatory requirements, price control and increasing competition will
lead to promoters having to step up their research spends or move out of the domestic pharma
space altogether, say observers. Indian company are also facing limitations,
New policies of government, also creating unnecessary burden on consolidated companies,
After the acquisition, the managements are often left with multiple products in their portfolio,
with many of them competing against one another. Many companies faced with such a
situation try and issue a death warrant for the weaker product rather than managing both the
products, leaving a void for the competition to come and capture some market share which
has been paid for
Many companies faced with one or more of the following situations embark on a journey to
enter new business areas. Many companies are underperformer in their field of drug efficacy
And rivalry of competitors is very much affecting the new companies’ formation.
Research and development (R&D) in next-gen segments such as biosimilar (products that are
similar to biologicals made from natural sources like human, animal or microorganisms)
require many approvals and technical qualifications. “Also, it requires great amount of
investments, which are not everybody’s cup of tea, and only big pharma players can afford to
do it. The smaller companies will have to identify alternative business, which is generics,”
explains Narula, and that comes with its own regulatory requirements.
Consolidation is the big player’s game in which small companies sacrifice its hold.

Recommendation: Indian pharmaceutical is projected to grow 9-12 per cent over the next
five years, leading India to become one of the top 10 countries in terms of medicine spending.
In recent years, better growth in domestic sales would also depend on the ability of
companies to align their product portfolio towards chronic therapies for diseases such as such
as cardiovascular, anti-diabetes, anti-depressants and anti-cancers, vaccines that are on the
rise. Also consolidation is working as a chief agent of change in the recent past.
The Indian government has taken many steps to reduce costs and bring down healthcare
expenses but holistic approach is still missing. It will be better for Indian companies to work
together with big giants to enhance efficacy of drugs.
Speedy introduction of generic drugs into the market has remained in focus and is expected to
benefit the Indian pharmaceutical companies.
In addition, the thrust on rural health programmes, lifesaving drugs and preventive vaccines
also augurs well for the pharmaceutical companies. Indian pharmaceutical needs attractive
and lucrative marketing strategy to face challenges of global threat.
Lastly, it is very important for the company accomplish its goal in the globalised or domestic
market. Consolidation is very apt in the time of highly competitive environment to excel all
over the world.
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