In barely a fortnight, two major Indian drugmakers have had to address questions swirling in the marketplace involving the stake sale of their respective promoters.
Cipla doyen Dr YK Hamied told shareholders that reports of the promoter family selling their stake in the company were “speculative”. At another interaction, Glenmark’s Chairman and Managing Director, Glenn Saldanha, told investors that they were looking to off-load only about 8 per cent in subsidiary Glenmark Life Sciences, to align with the law. (Reports suggested, private equity companies (PEs) and industry players were looking to pick up a larger chunk in GLS.)
Nevertheless, the marketplace is abuzz on the appetite of drugmakers for transactions of all hues. In a sense, it’s “open season” for mergers and acquisitions (M&As) and targeted buys, as companies chalk-out their growth plans.
US terrain
Pointing to the difficult terrain in the US, a staple for many drugmakers, Kinjal Shah, Vice President and Co-Group Head at ICRA, says companies are undertaking M&As to expand their therapeutic coverage, expand in other markets or even within the same therapy.
Most major Indian companies have a high focus on the US, and in the last three years, this region has seen rising pricing pressures primarily because of the consolidation of the distribution chain. Three wholesale distributor and retailer pharmacy chains account for about 93 per cent of the total distribution, and so “they have started having a high bargaining power, which has impacted the prices of the generic products in the US,” she said. There is also the increased competition, especially in the “me-too” category, and this has resulted in reduced returns from the US.
Drugmakers making complex generics or specialty products, with “first-to-file” launches (involving limited exclusivity), have seen robust returns from the US market, she added. This being the backdrop, companies are looking at other emerging and world markets, as even Europe is seeing pricing pressures, she observed.
Domestic strategising
Companies are looking at the domestic market too, and strategising on how to boost revenues. For instance, just days ago, Lupin acquired two diabetes medicine brands from Boehringer Ingelheim to fortify its place in this segment. India is home to the second highest number of people with diabetes. Drugmaker Cipla has also been strengthening its diabetes portfolio, with brands from Novartis.
In April, Ipca Laboratories agreed to pick-up 33.38 percent in Unichem for ₹1,034.06 crore; both drugmakers had started their journey in the 1940’s. Industry-insiders put this down to Ipca’s plans for the developed markets and the absence of succession-planning in Unichem.
Late last year, Torrent Pharmaceuticals acquired Curatio Healthcare for ₹2,000 crore, strengthening its presence in the cosmetic-dermatology segment. And just days before 2022 ran out, PE firm Advent International inked a deal to acquire 50.1 percent stake in Hyderabad’s Suven Pharmaceuticals from the Jasti family, for ₹6,313 crore — again being put down due to the absence of the promoter-family members to take it forward (among other things).
So, is there more activity from domestic drugmakers?
Vishal Manchanda, Senior Vice-President (Institutional Research) with Systematix Group, observes that domestic companies are sitting on cash and are looking to deploy it meaningfully.
This year, Sun Pharmaceuticals forked out $576 million for the US-based Concert Pharmaceuticals, a late-stage clinical biopharmaceutical company developing deuruxolitinib for alopecia areata, a condition that causes hair loss.
Icra’s Mythri Macherla, Assistant Vice President and Sector Head, points out that Indian companies are looking to expand and maybe coincidentally, multinationals companies (MNCs)are willing to sell a division that may not be their focus area.
Besides, there are molecules (owned by large US companies) poised to lose patent protection, says Macherla. And then, there’s the Inflation Reduction Act, so “market dynamics are changing in the US too,” she says, making balance sheets not conducive to take on huge acquisitions like in the past.
PE concerns
Public healthworkers worry that PE firms buying into drugmakers, could make them purely profit oriented — as compared to serving patients.
Industry-voices counter, it could make drugmakers efficient, without losing their social commitment. Icra’s Deepak Jotwani, Assistant Vice President and Sector Head, says, the expectation is for status quo to continue. But it would depend on their overall plan for the sector/company they are investing in.
But pharmaceuticals have always been a challenging space, observes Manchanda. And for promoters looking to exit, he says, it will all come down to the right time to take that call.