Will pharma sector finally take consolidation pill?
Buyout attempts of Orchid & Dabur Pharma may activate domestic market which had long been immune to consolidation attempts due to reluctance of family-owned promoters & high valuation expectations.
By Khomba Singh, TNN |
NEW DELHI: Has the long due consolidation in the diversified Rs 32,000-crore pharma industry arrived? According to pharma experts, the recent acquisition attempts of Orchid Pharmaceuticals and Dabur Pharma could well trigger a consolidation in the domestic market.
The industry has long maintained that the market is fertile for consolidation. While there are less than a thousand companies in US���the world���s largest market���there are around 20,000 drug companies in India, although only few thousand companies may be actually competing to sell their drugs in the market. However, the fact that Cipla (the largest company by sales in domestic market) has less than 6% market share and leading companies in the country have just around 2% market share clearly shows how widely the market is distributed.
However, reluctance on the part of promoters (mostly family owned) and high valuation expectations has primarily prevented acquisitions to happen in the domestic industry. According to E&Y healthsciences industry leader Utkarsh Palnitkar, acquisition of an Indian company like Orchid Chemicals could set off the consolidation process.
The industry has long maintained that the market is fertile for consolidation. While there are less than a thousand companies in US���the world���s largest market���there are around 20,000 drug companies in India, although only few thousand companies may be actually competing to sell their drugs in the market. However, the fact that Cipla (the largest company by sales in domestic market) has less than 6% market share and leading companies in the country have just around 2% market share clearly shows how widely the market is distributed.
However, reluctance on the part of promoters (mostly family owned) and high valuation expectations has primarily prevented acquisitions to happen in the domestic industry. According to E&Y healthsciences industry leader Utkarsh Palnitkar, acquisition of an Indian company like Orchid Chemicals could set off the consolidation process.
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���This could possibly signal the beginning of consolidation in the domestic pharma industry and also set a precedent. Consolidation in the sector will significantly improve efficiency, increase scale and capacities of production and prevent duplication of facilities,��� he says.
In the last two years, Ranbaxy had acquired minority stakes in niche pharma firms. It had minority stakes in Krebs Biochemicals, Jupiter Biosciences and Zenotech Laboratories. Last year, it increased its stake in Zenotech and after an open offer to its shareholders currently holds 46.95% stake.
German company Freesias Kabi is also in advanced talks with Dabur Pharma for a strategic alliance. Few other global majors have also evinced interest in the country���s largest anti-cancer drug manufacturer. In 2006 Mylan had acquired Matrix Laboratories for $736 million.
With around 100 FDA-approved manufacturing facilities���the highest outside the US���and low-production cost, India has attracted global companies to scout for assets in India as an low-cost alternative. To expedite their growth in the country, global and Indian companies are also looking at acquiring brands in the absence of target companies.
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Ranbaxy Laboratories is looking at foraying into new segments where it has no or little presence. ���The company is exploring entering into new product segments such as women healthcare and dental care. We are looking at inorganic opportunities for the same but there are few brands available in the market, ��� sources told ET. Similarly, Japan���s second-largest company, Daiichi Sankyo, which recently forayed in the Indian market, is also looking at acquiring popular brands in India.
���We are also looking at acquiring popular brands of domestic players in the cardiovascular, central nervous system and chronic drug segments like diabetes as part of our India strategy, ��� a company source said. According to analysts, global majors such as GSK, Pfizer and Eli Lilly also have a similar strategy to buy popular domestic brands.
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