M&A and Partnerships in Pharma

Rising opportunities

Sujay J Shetty

Sujay J Shetty

Associate Director Pharma Life Sciences Advisory Corporate Finance PriceWaterhousecoopers India

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Because R&D productivity is a problem for pharma the partnering opportunities are basically seen in licensing and acquisitions.

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Where do the current partnering opportunities lie for Pharma and biotech?
Because R&D productivity is a problem for pharma the partnering opportunities are basically seen in licensing and acquisitions. There are many opportunities because this year itself you have seen the speed of deal making in the US and in Europe between all kind of companies on one side. You have seen Roche, Merck, GSK, all deals were best which were based on this.

With more multinational companies showing interest, the M&A activity in India is expected to go up in the near future. What does this mean for the Indian pharma sector? Do you think was long overdue?
I don’t think it is long overdue. It is just that now after Daiichi Sankyo bought Ranbaxy a lot of Indian promoters began to think about should we sell or should we hold on. Because if we hold on, it would require a lot of investment and in far away future generics may become increasingly difficult to make money from. It is a big business, but may be if the big pharma enter, the returns may go down. So it is better to sell now when the value is high than later. So one thinking like that has come. In terms of foreign multi-national companies, they also have started thinking last two to three years that India and China are the most attractive markets.  And they need to do more to increase the size of their companies here which is actually small. So both from MNCs who want to increase the size in India, and from Indian promoters who may want to cash in, that means that there is a likelihood that the deal may be done.

With smaller firms being targeted, where does this leave the big pharma acquisitions that were so rampant not so long ago?
Both small and large firms are being targeted. If you see in recent days there was lot of talk about Wockhardt, Nicholas Piramal in the press. Talking from an Indian perspective, those are large firms. And in the global level, you have seen some billion dollar mega mergers between Pfizer and Wyeth, Merck and Schering Plough. On the contrary, big firms are equally in demand.

India, along with other developing countries in the Asia-Pacific region, holds huge potential for drug makers. Do you think market is finally getting ready for major players?
I think it is getting ready because lot of developments are taking place which, for example, will enable more investment in infrastructure, better quality of pharmacy retail, there are a lot of regulations and legislations in IP that the government is promoting in order to give more IP protection such as in data exclusivity, clinical trail establishment which will afford more protection and more transparency to outsource and compete in pharmaceutical sector. The environment is and enabling environment at the policy level and at the infrastructural level it is getting much better.

Compared to their European and American counterparts, Indian firms are considered to be undervalued. Do you think this is one of the major factors in bringing multinationals to India?
Not at all. I don’t think Indian firms are undervalued. In fact, we are hearing that the valuations are rich. So that is actually one of the reasons for the deals have not been done as much as they should have been done. So, we feel the opposite of this question is true, that, Indian firms are highly valued. In fact because promoters expect unrealistic valuations and now sensex have been gone up in the last few days, they will continue to expect very high valuations. Indian firms are very richly valued or highly valued. That is one of the reasons why as many deals as should have taken place have not taken place due to promoters wanting excessive valuation / big valuation.

From and Indian biotech / pharma company’s point-of-view, what is better, a partnership or an acquisition?
It is difficult to answer because it is different for each company. It depends on the strategies and the objectives of the acquirer. If they feel they have specific skills that they can tap into which can be better addressed in partnership, for example drug discovery, if they want to do drug discovery then may be partnership is better. But if they want to gain scale and gain size in India, then may be acquisition is better. So it is directed towards the objective.

Has the global recession had any effect on this trend?
No, because pharmaceutical companies are kind of defensive and anti-cyclical. So they have been seen in a safe bets in this economy. And we have seen that even big mergers like Pfizer-Wyeth, Merck-Schering Plough, which are tens of billions of dollars, have had no problems in raising money for those acquisitions. So, we haven’t seen that much of an impact.

Any other comments you would like to make?
I think this is very fertile time for M&A environment in India  because the market is growing and there is a lot of interest from MNCs both in India and in generic companies. While the pace of deal making may be slow, it can’t be denied that Daiichi and Ranbaxy was a watershed event and we do expect such deals in due course of time.

AUTHOR BIO
Sujay Shetty leads India Pharmaceutical & Life Sciences Advisory practice of PricewaterhouseCoopers, based out of Mumbai. His role involves assisting MNC & Indian clients of the firm with respect to  Corporate Finance, Mergers & Acquisitions, Strategy Consulting and outsourcing for the Research, Development & Manufacturing. Sujay is a member of Pharmaceutical Committee of FICCI and OPPI.

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