Down to Earth - - COVER STORY -

branded drugs. This re­sults in an im­me­di­ate boost to th­ese com­pa­nies’ rev­enue—and their share prices. Generic com­pa­nies have been quick to snap up the mar­ket cre­ated by patent ex­piry. Ac­cord­ing to Bloomberg, $60 bil­lion in rev­enue was lost by phar­ma­ceu­ti­cals to cheaper generic com­pe­ti­tion be­tween 2010 and 2012. An­other $50 bil­lion may be lost in the next five years.

On the other hand, the big pharma play­ers fac­ing patent ex­piry are cut­ting down on hu­man re­source and r&d costs, and are thus flush with funds. This ex­tra fund is be­ing used to buy small com­pa­nies or get­ting in­vested in them.

This is lead­ing to a sit­u­a­tion where sev­eral generic and small biotech­nol­ogy com­pa­nies are be­ing bought or merged with ex­ist­ing com­pa­nies. “We see merg­ers and ac­qui­si­tions (m&a) in the health­care sec­tor be­ing up ma­te­ri­ally in 2014 at all size lev­els and across all sub­sec­tors,” Jef­frey Stute, J P Mor­gan’s head of health­care in­vest­ment, told Bloomberg. For ex­am­ple, the big com­pa­nies that are go­ing to lose patents are, in fact, ready to pump in money to buy new generic com­pa­nies. Bris­tol-My­ers, flush with bil­lions in cash, has al­ready de­clared its in­ten­tion to buy com­pa­nies man­u­fac­tur­ing drugs for can­cer, vi­rol­ogy and spe­cialty drugs. Merck is look­ing for sim­i­lar ac­qui­si­tions. “Based on the strong stock price reac- tion to strate­gic m&a an­nounce­ments, share­hold­ers are telling com­pa­nies they want them to do m&a,” Stute said.

The bull run con­tin­ues. But the ghost of 1999-2000 bub­ble still haunts the sec­tor. Is the new boom a bub­ble that might burst?

“There is some hype but it is not a bub­ble at all and won’t burst. This sec­tor is not fac­ing a sit­u­a­tion sim­i­lar to what the in­for­ma­tion tech­nol­ogy sec­tor faced in early 2000s. It is need-based and has to solve many prob­lems,” says an op­ti­mistic Mazum­dar-Shaw. But there is a rider. “In In­dia, no in­vestor or gov­ern­ment is even in­ter­ested in re­search, which is very im­por­tant for the growth of the sec­tor,” says Mazum­dar-Shaw.

Mu­rali also give his thumbs up to the boom. “There will al­ways be ups and downs. Ini­tially, the sec­tor was hyped but now it is com­ing close to what is called re­al­ity. Now real eval­u­a­tion of the field is com­ing,” he says.

But mar­ket as an in­di­ca­tor is al­ways frag­ile and un­pre­dictable. For ex­am­ple, there are some crit­i­cal voices that raise con­cerns over the not-sose­ri­ous play­ers jump­ing onto the bandwagon to make quick bucks. In such a case, at the slight­est sign of a down in the mar­ket, there will be a crash as such in­vestors will quit the sec­tor. How­ever, de­spite the cur­rent boom, biotech­nol­ogy shares have not been over­val­ued as in 2000. This is an in­di­ca­tor that the past may not play out in 2015.

But there are over­all apprehensions about the in­dus­try. Ar­jun Ke­jri­wal of Ke­jri­wal Re­search & In­vest­ment Ser­vice Pvt Ltd, a Mumbai-based or­gan­i­sa­tion pro­vid­ing fi­nan­cial so­lu­tions, down­plays the sec­tor’s em­i­nence in In­dia while hint­ing that public in­vest­ment may not be as big as it is made out to be. “As of now, there is no big en­thu­si­asm to in­vest in the sec­tor. What­ever in­vest­ment has been made is be­cause an­a­lysts have termed it as a sun­rise sec­tor,” he says. It is pop­u­larly said money is meant to cir­cu­late. Who knows which way it will cir­cu­late this time around?

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