Pharma companies to tap M&A opportunities to grow business
MUMBAI: Leading Indian pharmaceutical companies, struggling to cope with a slowdown in growth and reduced profitability over the last couple of years, are expected to try and tap inorganic opportunities globally in order to increase scale of business and rise above challenges.
The focus of large Indian drug makers continues to be on acquiring assets in developed markets like the US, Europe and Japan, and they are expected to evaluate opportunities arising out of portfolio rationalisation exercise of multinational companies such Teva Pharmaceutical Industries Ltd, Novartis AG, Sanofi S.A. and Mallinckrodt Pharmaceuticals.
“Most of the large Indian companies are looking at acquisitions as they need to bulk up their product portfolio to improve growth. While focus is more on acquiring specialty products, the companies are also evaluating generic drugs opportunities because expanding product base is critical to offset impact of pricing pressure,” Sujay Shetty, pharma practice leader for India and Asia Pacific at PricewaterhouseCoopers, said.
Teva announced restructuring plans which include plant shutdowns and exiting loss making products. Novartis’ generic arm Sandoz also plans to exit lowend products, Mallinckrodt is looking to divest its US generics business and Sanofi has put its generic business in Europe on block.
In a report dated January 4, brokerage firm CLSA said consolidation will gather steam in 2018 for the pharma sector globally with early signs of consolidation being visible in the recent announcements of mergers and acquisitions (M&As), plant shutdowns and product rationalisation in the US.
“Valuations for M&A (mergers and acquisitions) could become more reasonable. For example: Teva acquired Actavis’ generic business of 6x sales in mid-CY17, whereas reports suggest that Mallinckrodt’s US generic business is valued at 2.5x sales. We expect Indian companies to participate in M&A activities due to their strong balance sheets,” CLSA said.
A report in the Times of India on January 11 said quoting sources that Intas Pharmaceuticals remains the sole contender for acquiring Mallinckrodt’s US generic business. An Economic Times report on the same day said quoting sources Indian firms such as Aurobindo Pharma Ltd, Cadila Healthcare Ltd, Intas Pharma and Torrent Pharmaceuticals Ltd have expressed preliminary interest in buying Sanofi’s European generic business.
While there could be some cross-border deals by Indian companies this year, a major consolidation within domestic pharma market is unlikely due to reluctance of promoters to sell, higher valuations, and limited availability of good quality assets.