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?