Oped _ Express Pharma Pulse

Are Indian pharma cos ready for large scale consolidation?

Indian Pharmaceutical companies seem yet to seriously contemplate the question of large scale consolidation, though it is the visible trend, globally. With the product-patent regime on horizon, the coming years may prove a real acid test for the industry if it fails to forge strength to withstand the rigours of this altogether new era. In an effort to keep this important issue alive for active debate, Express Pharma Pulse has sent a questionnaire to around twenty leading pharma cos and organisations in the country seeking their comments. A few opinions:

Indian companies have an exit route available
Habil Khorakiwala Chairman and Managing Director, Wockhardt Ltd

In the last two years there have been mergers and acquisitions and there is a degree of consolidation taking place. I do not expect it to accelerate at least during the next couple of years. In future, there will be space for players with robust and aggressive research and development programmes followed by a significant portion of international business. Realities will force without such profiles, to either exit or die a slow death. There would be only a handful of companies with such profiles. Companies need to devise strategies best suitable to them. If your strategy is reactive to what others are doing and if you are trying to follow the leaders in the industry, you would never be able to come out with a winning approach because the size will not justify the intent.

Moreover, companies are not in a mood to reconsider whether we should stay or opt for the exit route as they feel they can be successful in their research and globalisation pursuits. This is true for all companies – large, medium and small. Those who can succeed in realising their strategies will survive but all of them will not. Secondly, there is also this ownership aspect and sometimes people are not fully ready to accept the reality.

Indian companies have an exit route available. Also, they can take the partnering route with other companies. But they should preserve the value. Those who fail to do that would die and this is exactly happened to the bulk drug industry three years back. Some who exited in time created a value for themselves. If you do not capture value and instead become a part of the larger process, then there is nobody interested to buy you and what you have is not of interest to anybody. This is going to happen sooner or later. Today the value is most optimum. This value will go on declining and a stage would come when nobody would want them. One year back, there were many buyers but no sellers. Today, there are hardly any buyers. Largescale consolidation possible only after 2005

D G Shah, Secretary General, Indian Pharmaceutical Alliance.
Though the process of consolidation has begun, there are still too many players. The trend of mid-sized companies acquiring smaller ones and big companies acquiring mid-sized companies will continue till we reach a stage where large companies see synergies in working together. I do not see large scale consolidation happening before 2010. Indian companies are yet to establish an identity for themselves. Companies need to decide for themselves whether they want to focus on the generic generic market or branded generic market; whether they should restrict themselves to process research of off-patent formulations or to develop novel chemical entities. The situation will be somewhat clearer by 2005. I am against marriage in haste. By 2005, most Indian companies will be forced to create their own identities. Till that time, coming together will not help.

There is a high degree of product overlaps
Kamesh Venugopal, Vice-president and Director, Boston Consulting Group

Though the consolidation of pharmaceutical industry worldwide has intensified in the last couple of years, big ticket acquisitions in the Indian market have been few and far between (Wockhardt-Merind and Nicholas-Rhone Poulenc).

Large scale consolidation in the pharmaceutical industry may not happen before 2005. Even in case of Merind and Rhone Poulenc, the divestment was a strategic decision. The Tatas wanted to move out of the pharmaceutical business, whereas Rhone Poulenc India was hived off following the global merger of Rhone Poulenc and Hoechst Marion Roussel. The same is true in case of German Remedies. Indian companies are relatively isolated to the global consolidation drives. Mergers and acquisitions among smaller and medium-sized companies will continue, but large-scale consolidation will happen only between 2005 and 2010. And the consolidation will be mainly driven due to the inability of Indian companies to create a credible product pipeline.

Today, Indian companies are busy chalking out strategies to globalise and strengthen their presence in the domestic market. Also, large Indian companies, by the virtue of being a family-run business for the last several decades are polarised. Moreover, presently, it does not make any strategic sense for two large companies to merge due to commonality in product mix. There is a high degree of product overlaps. This is the reason why there have been so few brand exchanges between large companies. On the other hand, leading Indian companies have signed co-marketing agreements. The process has already begun and once the domestic situation becomes more clearer, large scale consolidation may take place.

(To be concluded)