Emerging Markets
generic drugmakers to access high-growth
raw nerve
expectations, several outbound deals
markets, not their unbranded businesses.
The Daiichi Sankyo-Ranbaxy deal also
involving Indian companies seem to have
Annual pharmaceutical sales in emerging
touches a somewhat raw nerve – that of
fallen victim to inadequate due diligence.
markets are expected to exceed $400 billion
right valuations and the right exit time – for
Mr Shah of Mehta Partners is brutally frank
by 2020, equivalent to current sales in the
small and mid-sized family-owned business
on this point. “A buyer needs to go beyond
US, plus five major European markets,
enterprises in India.
accounts, legal and production due diligence.
according to IMS. And Pfizer recently said
“When a market leader sells out, it
Understanding the business and government
that it expects to garner an additional
normally sets the other players thinking,”
outlook in the country where the buyer is
$3 billion in revenues by 2012, most of which
said Jacob Mathew, co-founder of the Indian
making an acquisition is very necessary”, he
would come from the emerging markets.
investment banking firm Mape Advisory
explains.
The hybrid model already seems to have
Group. While firms like Mape do not expect
Dr Reddy’s Laboratories, which acquired
generated some interest. Novartis continues
another sell-out on Ranbaxy’s scale right
Germany’s Betapharm in 2006, has yet to
to derive value from its generic arm Sandoz,
away, there is increasing consensus that small
derive maximum value from this deal,
while Sanofi-Aventis has bid to acquire the
family-owned pharmaceutical companies will
grappling with pricing pressure and supply
Czech generics company Zentiva.
find the going tough.
constraints in the German market. Sun
Pharma, on the other hand, finds itself
mega or niche?
“As compliance gets stricter in the
locked in litigation with the controlling
2008 saw several other Indian companies
developed world, the cost of managing
shareholders of Israel’s Taro Pharmaceutical
engage in buyouts abroad. A recent study by
compliance will make it difficult for small
Industries, after the latter decided to
the financial advisory firm Grant Thornton
companies to grow and also remain
unilaterally terminate the companies’ merger
said that Indian pharma firms were involved
competitive. In future, only a few large Indian
deal in May.
in 21 outbound deals between January and
companies would be able to compete
Mr Kaul is impressed with the “level of
August 2008.
effectively in these markets,” said Mr Saldanha
conviction and self-belief” exhibited by
These include Biocon’s acquisition of
of Glenmark.
companies like Dr Reddy’s and Sun Pharma,
Germany’s AxiCorp, Jubilant Organosys’s
In April 2008, Fresenius Kabi acquired
acquisition of Canada’s Draxis Health and
73.3% of the Indian oncology generics firm
which both showed great staying power
Dr Reddy’s acquisition of part of
Dabur Pharma for Rs8,782 million
when the going got tough. “A major lesson
Dowpharma’s small molecules business and
($177.6 million), marking the exit of the
learnt is that in addition to business due
the Italian generics firm Jet Generici.
Dabur group from the pharmaceutical
diligence, one should also do environmental,
regulatory and people due diligences.” Also
Glenmark acquired seven Actavis brands in
sector. Dabur Pharma was founded by the
important is contingency planning, should
Poland, while Zydus Cadila bought Combix
Burman family and had divested its domestic
‘Plan A’ not run its expected course, he
of Spain. Most of these niche deals were
non-oncology formulation business to the
adds.
aimed at jump-starting business in the target
local company Alembic in 2007.
Glenmark, meanwhile, stresses that it is
market and/or garnering access to marketing
Mr Shah of Mehta Partners notes that
important to understand and illustrate the
front-ends or brands.
while the pharma industry is a safe/defensive
benefits an acquisition brings to the table.
However, Mr Shah of Mehta Partners
investment, the Indian economy is growing at
Questions such as whether the buyer would
believes that given the tough business
9%. “Many businessmen may not prefer to
have the “management bandwidth” to pull
environment, it’s headline deals such as the
stay invested in a safe and slow sector.
off post-integration challenges and whether
Daiichi Sankyo-Ranbaxy transaction that will
Sectors such as media, transport, education,
it would be possible to leverage the
drive change. “Small restructuring and etc, are growing at 30-40% compound annual
strengths of the acquired company to
interventions are not the solution. Those growth rate vs pharma growth of about 12%.
subsidiaries across the world are critical to
who want to be in a different league will Smart money is flowing towards these
any deal, the company notes.
have to think and operate in a radically industries,” Mr Shah said, alluding to the fact
changed way,” Mr Shah said. that investments in the pharmaceutical sector
more in store?
Glenmark, however, argues that much may not be the most rewarding after all.
Most experts don’t expect much action on
would depend on the company’s strategy. However, the global economic slowdown is
deal street in India in the short-term future
“Big ticket deals at right valuations are as now expected to dampen sentiment across
and the recent chaos on Wall Street that saw
important as niche ones, as big acquisitions sectors and some experts believe healthcare
the fall of Lehman Brothers, Washington
give you scale, products and distribution. The may be somewhat better insulated from
Mutual and AIG is expected to dampen
challenge in a big acquisition is in executing demand vagaries.
sentiment further.
post-acquisition strategy so that the But investment bankers claim that
The public market is going to be under
envisaged benefits accrue to the unrealistic valuation expectations are
pressure, raising equity will be tough at high
organisation in the estimated timeframe,” blocking many potential deals, despite the
valuations, debt is going to be costly and
said Mr Saldanha.
timing being right. Valuations of Indian
returns are going to be more circumspect, says
But a few other active Indian participants
pharmaceutical companies are said to be
Mr Kaul. More pharmaceutical predators could
on deal street claim they have never been
more expensive than firms in Japan, the EU
turn prey in such tight conditions.
enamoured by size. “We have never chased
and the US, the bankers contend.
size, but only strategic fit,” said Lupin’s
“Valuations in the public equity space
managing director, Dr Kamal Sharma,
have seen correction, but not [so] the
justifying the string of niche deals struck by
valuation perception in the private/unlisted
his company in 2008. Lupin acquired the
space, which still orbits at a crazy level,” said
Anju Ghangurde is Scrip’s
German sales and marketing company
Mr Kaul of ChrysCapital.
India correspondent.
Hormosan Pharma, Generic Pharma of
Australia and 60% of South Africa’s Pharma due diligence
Dynamics, all within a timespan of about While some potential inbound M&A deals
two months. may have been stalled by unrealistic
96
www.scripnews.com/supplements Scrip 100
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94 |
Page 95 |
Page 96 |
Page 97 |
Page 98 |
Page 99 |
Page 100 |
Page 101 |
Page 102 |
Page 103 |
Page 104 |
Page 105 |
Page 106 |
Page 107 |
Page 108 |
Page 109 |
Page 110 |
Page 111 |
Page 112 |
Page 113 |
Page 114 |
Page 115 |
Page 116 |
Page 117 |
Page 118 |
Page 119 |
Page 120 |
Page 121 |
Page 122 |
Page 123 |
Page 124 |
Page 125 |
Page 126 |
Page 127 |
Page 128