Home / Companies / News /  M&A deals in pharma sector decline in 2017 amid tough business conditions

Mumbai: Pharmaceutical companies have become cautious with regard to mergers and acquisitions (M&As) as the business environment remains challenging due to pricing pressure and regulatory interventions in key markets—the US and India. This has led to a decline in volume as well as value of M&A deals in the pharma sector in the current year.

According to data from Grant Thornton Advisory Pvt. Ltd, there have been 27 M&A deals in pharma and healthcare sector so far in 2017, valued at $719 million, which is much lower than 54 deals, valued at $4.7 billion in calendar year 2016. This data does not include Lupin’s acquisition of Symbiomix Therapeutics for $150 million announced last week.

The volume and value of M&As in the pharma space so far this year is the lowest in the last five years, as per Grant Thornton data.

“Companies have become cautious and far more selective about acquisitions. Earlier they were looking at 10 opportunities and closing 1 deal, now they are looking at 20 opportunities and closing 1. This is because business is under rapid change both in the US and in India," Sanjay Singh, partner and chief operating officer deal advisory, KPMG India, said.

Indian generic drug makers have been facing headwinds over the last two years because of price erosion and quality-compliance issues in the US, the biggest market for many large pharma companies. In India, government price controls, and one-off policy measures such as a ban on fixed-dose combination drugs and demonetisation of high-value currency notes last year and implementation of the goods and services tax (GST) this year have affected growth.

Majority of deals this year continue to be outbound, meaning Indian companies are buying assets abroad. Apart from Lupin’s Symbiomix acquisition, the big deals in the current year were Piramal Enterprises Ltd’s buyout of Mallinckrodt LLC’s portfolio of anti-spasticity and pain management drugs for $171 million, and Aurobindo Pharma Ltd’s acquisition of Portuguese firm Generis Farmaceutica SA for $142.5 million.

“There is interest from Indian companies to acquire assets overseas, across generic and specialty segment. Most players can be seen to bid for available assets though they are looking for the right fit in terms of product portfolio and geography," Vrinda Mathur, partner at Grant Thornton, said.

Sun Pharmaceutical Industries Ltd, Lupin and Cadila Healthcare Ltd have said they will continue to scout opportunities in the specialty segment with focus on the US market. Aurobindo Pharma is looking at acquisition in eastern Europe along with evaluating opportunities in the US.

“We have the capacity to leverage our balance sheet to $1 billion, but it will be spread over several tranches. Our sweet spot still remains the $150-200 million range and we plan to do several deals of this size over the next several quarters," Ramesh Swaminathan, chief financial officer and executive director of Lupin, had said last week.

Although companies intend to make acquisitions to expand business, they are reluctant to do a big-ticket deal, given the current market sentiment and uncertainties over long-term profitability of an acquired asset. Particularly in the US, the government is taking a number of steps to bring the overall healthcare costs down by increasing competition, said a Mumbai-based analyst, who did not wish to be named.

“Profitability of an asset can change significantly in one year if it goes generic. Hence, companies are doing a lot of due diligence before acquiring. Currently, specialty assets with IP (intellectual property) protection are in high demand," KPMG’s Singh said.

Despite the pressure on margins of pharma companies, funding an acquisition is not a concern. When it comes to M&As, the focus is on valuation, right fit, return on investment and payback period, the analyst mentioned above, said.

Catch all the Corporate news and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.
More Less

Recommended For You

Trending Stocks

Get alerts on WhatsApp
Set Preferences My ReadsWatchlistFeedbackRedeem a Gift CardLogout