Mumbai: A spate of global mergers are changing the face of the pharma business in India: Foreign drug makers, once small players in the market, have suddenly acquired heft.
At least seven out of 10 foreign drug makers that have revenue of less than Rs500 crore each will find this number rising to around Rs1,000 crore or even more.
Until now, only one multinational drug maker has at least Rs1,000 crore in annual sales—GlaxoSmithKline Pharmaceuticals Ltd or GSK India.
While the $68 billion (Rs3.4 trillion today) global merger deal of the world’s largest drug maker Pfizer Inc. and the US multinational drug maker Wyeth Inc. is set to catapult Pfizer’s Indian subsidiary Pfizer Ltd into the Rs1,000 crore sales league, another global transaction—the proposed merger of of the US-based drug multinational Merck and Co. Inc. and Schering Plough Corp.—will create one more big player.
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Schering Plough Corp.’s Indian subsidiary Fulford India Ltd had revenue of Rs168 crore in fiscal 2007. More recent numbers are not available but analysts said the company’s revenue in 2008 may have been Rs300 crore.
Merck and Co.’s Indian subsidiary MSD Pharmaceuticals Pvt Ltd’s revenue is also not in public domain. MSD Pharma’s managing director Naveen A. Rao had in an earlier media interaction said: “The company will be one of the leading players in India by 2015.”
If the acquisition plans of German drug maker Merck KgaA and French multinational Sanofi-Aventis in Asia go through successfully, the Indian subsidiaries of these two companies too would enter the big league.
The German drug maker’s Indian pharmaceutical subsidiary Merck Ltd’s turnover in 2008 was Rs312 crore. Aventis Pharma India Ltd, which was merged with Sanofi’s subsidiary in India in 2005, had a sales turnover of Rs864 crore in 2007.
The CEOs of both Merck and Sanofi have announced that these companies are looking for acquisitions in Asian markets including India.
An MSD executive, who didn’t want to be identified, said it’s too early to talk about consolidation in India as the global merger was announced very recently by the parent.
Incidentally, India’s top drug maker Ranbaxy Laboratories Ltd has already become a subsidiary of Japan’s Daiichi Sankyo Ltd.
A senior executive at a foreign drug firm based in Mumbai said: “The product patent regime is one key trigger for many multinational drug firms to look at India in a new light. There are instances of foreign drug firms who exited India after the withdrawal of the patent regime in the 1970s coming back to the market.”
US drug makers Merck and Co. and Bristol-Myers Squibb Co. are among the new entrants with an aggressive growth plan in the domestic market.
“The global mergers and the consequent consolidation in the Indian market will give an edge to these companies as many of them will acquire perfectly complementary product portfolios when their market segments are combined,” said R.D. Joshi, senior consultant (knowledge management) at the Mumbai-based Interlink Marketing Consultancy Pvt. Ltd, a pharmaceutical consulting firm.
Barring MSD Pharmaceuticals and Bristol-Myers, all foreign drug firms have been present in the Indian market for around five-six decades but lag far behind their local counterparts in sales revenue.
The growth of local drug firms had actually begun in the 1970s, following the abolition of the product patent regime. Coincidentally, foreign drug makers are set to gain market share after the reversal of the patent regime in 2005.
India’s Rs 55,000 crore drug market is currently dominated by local firms including Cipla Ltd, Dr Reddys Laboratories Ltd, Sun Pharmaceuticals Industries Ltd, Cadila Healthcare Ltd and Piramal Healthcare Ltd, among others.
These companies, with an annual sales revenue of between Rs2,000 crore and Rs4,000 crore each, have seen their sales grow rapidly with compared to their foreign counterparts.
This is on account of two factors—first, on account of drug re-engineering and a long list of off-patent drugs that they offer in a low-cost Indian drug market; and second, because of an aggressive focus on overseas markets.
Drug re-engineering is nothing but copying the technology available to launch generic or off-patent drugs.
The British drug maker Glaxo SmithKline Plc., which is present in the domestic market through the listed company GSK India, is already among the top 15 pharma firms here with an annual sales of Rs1,665 crore. Sanofi, too, will find itself in this group after its merger with Aventis Pharma.
Pfizer will also jump into the Rs1,000 crore sales league once it successfully merges Rs330 Wyeth Ltd, listed subsidiary of Wyeth in India, and a wholly owned subsidiary, Wyeth Pharmaceuticals India Ltd, with itself.
Since the top local drug firms by revenue are also now pushing for a higher percentage of their revenue from international markets, the share of these companies in the domestic market will not grow as fast as they used to do, said Joshi of Interlink Marketing Consultancy.
Graphics by Ahmed Raza Khan / Mint