HYDERABAD: In June 2008, when Japanese drugmaker Daiichi Sankyo acquired Ranbaxy Laboratories, Daiichi’s chief executive Takashi Shoda said, “Acquisitions are more attractive than alliances,” setting the stage for more Indian companies to be taken over by their powerful European and American counterparts. But, today, Big Pharma thinks otherwise.
With Indian drug makers flooding the developed markets, GSK, Merck, Pfizer and the likes who are traditional rulers now prefer tie-ups over acquisitions with Indian players. A testimony to this change in strategy is the numbers of partnerships that have emerged in the last few years.
Domestic companies see many reasons to this phenomenon. Multinational pharmaceutical companies find it difficult to sustain the growth momentum that they have been witnessing for the last couple of years. A fast exhausting pipeline of drugs, expiry of existing patents and enormous cost involved in developing new products have impelled them to consider partnerships with their Indian counterparts.
After Ranbaxy’s acquisition in 2008, at least eight Indian companies have entered into tie-ups with MNCs. Almost all known names in India’s pharma sector – Dr Reddy’s, Sun Pharma, Aurobindo Pharma, Torrent Pharma, Lupin, Natco Pharma, Emcure Laboratories and Claris Lifesciences – have some form of agreement to either manufacture, market or supply drugs to India and other countries.
Pfizer MD Kewal Handa said, “The reasons for partnerships are many. But I see two primary reasons. The Indian market is getting more regulated and thus offers more scope for multinationals. Secondly, Big Pharma are finding more value addition by tying up with Indian companies.”
Natco Pharma chief financial officer Bhaskar Narayana said, “…considering the recent amendments to the India FDI policy, partnerships are more attractive for MNCs. It relieves them from the burden of managing pharmaceutical companies in far-off shores, and, at the same time, gives them access to large markets and dependable quality sources of supply.”
Natco, which has a tie-up with US’ third-largest generic manufacturer Mylan for licence and supply generic version of Teva’s patented ‘Copaxone’, a drug prescribed for multiple sclerosis, says that for Indian companies, this means assured business and profits. “It could, therefore, be a win-win situation for both the partners,” Narayana added.
The chief executive of an Indian drug company that got acquired by a global drug MNC some years ago said Big Pharma are making two paradigm shifts in their strategy – one with R&D and the other with emerging markets.
“Within R&D, they are shifting focus away from primary care areas towards niche areas like oncology and neurology. To expand their reach in emerging markets they need to stay focused in their strategy by cutting costs. Partnerships help them do better than acquisitions as both companies share responsibilities, costs and benefits,” he said, asking not to be named as he is not authorised to speak to the media.
Sujay Shetty, PwC Partner and Pharma Leader, said, “The valuations Indian companies demand are rising. Even MNCs are looking at specific requirements that only partnerships can offer. Tie-ups also don’t involve a huge cost outlay and are not restrictive in nature.”