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Mergers and Acquisitions in Indian Pharma Industry


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M&A in Indian Pharma

Published in: Health & Medicine, Business

Mergers and Acquisitions in Indian Pharma Industry

  1. 1. Mergers andAcquisitions:IndianPharmaceuticalIndustry Naveen
  2. 2. ContentsO IntroductionO Reasons for M&AO Leading M&A dealsO Case study: Abbott- Piramal dealO Future
  3. 3. IntroductionO India ranks 3rd worldwide by volume of production and 14th by valueO India accounts for 10% of world’s production by volume and 1.5% by valueO India continues its growth trajectory facilitated by a dynamic position and a global trend towards consolidationO M&A has become important tool for inorganic growth in Indian Pharma
  4. 4. Contd..O A strong and growing domestic market, a robust pipeline of generic drugs and an ability to service developed markets abroad have suddenly made Indian pharma companies most sought-after in the M&A spaceO The story started in a small way in 2006 with the $736 million Matrix-Mylan deal
  5. 5. What are MNCs looking for?O Presence of strong portfolio of brands which are ranked amongst the top in their respective segmentsO Strong generics portfolio with presence in high growth/ high margin therapeutic categories like CV, CNS, Oncology and anti diabetesO Availability of infrastructure to cater to regulated markets. This will enable them to act as a manufacturing base to meet the demand for regulated marketsO Presence in niche segments like vaccines, biotech, nutraceuticals, OTC etc which has substantial growth potential both in India as well as globally
  6. 6. Why M&A??
  7. 7. Reasons for M&AO Patent cliff: The total value of patents expiring between 2010 and 2015 is expected to reach US $100 BillionO Expanding market is one of the strategies to maintain the flow of revenueO India with high population and growing market, is attracting MNCs to invest in India
  8. 8. 2010 2011 Product 2009 sales Product 2009 sales ($mn) ($mn) Aricept 3,991 Lipitor 12,535 Cozaar 3,561 Advair 7,794 Effexor XR 3,182 Zyprexa 4,916 Taxolere 3,034 Levaquin 2,648 Protonix 2,052 Xalatan 1,737 Flomax 1,970 Concerta 1,326 Arimidex 1,921 Femara 1,292 Gemzar 1,363 Xeloda 1,160 NovoSeven 1,320 Avelox 1020 Coreg 253 Caduet 548 Total 22,647 Total 34,976Year of first available generics; Source: Ken Kaitin, Tufts University, R&DProductivity conference, May 5, 2011
  9. 9. 2012 2013Product 2009 sales Product 2009 sales ($mn) ($mn)Plavix 9,801 Cymbalta 4,660Enbrel 6,575 AcipHox 2,728Diovan 6,013 Humalog 1,959Seroquel 5,126 Zometa 1,469Singulair 4,660 Niaspan 853Lexapro 3,263 Lovaza 705Avapro 3,088 Xopenex 357Actos 2,532 Zomig 166Viagra 1,892 Advicor 80Avandia 724 Fuzeon 26Total 43,674 Total 13,003
  10. 10. Industry Leaders in lost revenuesdue to 2010-13 patent expirations US $ Billions 29.2 12.9 11.3 9.5 8.8 7.2 4.7 4.6 4 3.3
  11. 11. Reasons for M&A(contd..)O High cost of R&D and decreased R&D productivity(Poor returns)O High valuation of Indian firms (Premium Value)O Increase in market shareO Change in mindset of promotersO Generic competitionO High profile product recalls
  12. 12. Reasons for M&A(contd..)O Manufacturing prowess and cost competitiveness of Indian companies (highest no of USFDA approved plants outside US)O Geographical expansionO Emerging markets- future growth driverO Overcome barriers to entryO Product/Brand extension
  13. 13. Reasons for M&A(contd..)O Growing Indian population
  14. 14. Reasons for M&A(contd..)O Growing middle class with higher purchasing power( Increasing market)
  15. 15. Reasons for M&A(contd..)O Increase in chronic diseases
  16. 16. Reasons for M&A(contd..)O Low growth rate of global pharma Source: IMS Health Market Prognosis, March
  17. 17. Higher growth in pharmerging markets
  18. 18. Indian pharma scenario in 2020Area Size in CAGR over 10 Estimated size in 2020 2010 years Base Aggressiv Base Aggressive growt e growth valuation valuation hTotal US $ 12bn 15% 20% US $ 49bn US $ 74 bndomestic marketRural US $ 2 bn 15% 20% US $ 8bn US $ 12 bnmarketOTC US $ 18% 20% US $ 11 bn US $ 13 bnmarket 1.8bnVaccine US $ 524 10% 13% US $ 1.4 bn US $ 1.8 bnmarket mn Source: PwC Analysis
  19. 19. India to enter top 10 markets by 2015
  20. 20. Reasons for M&A(contd..)O Increase in market share
  21. 21. Reasons for M&A(contd..) O High premium offered by MNCsTarget Acquirer Deal value($mn) DV/Revenue sParas Reckitt Benckiser 720.9 8.12XSolvay Abbott 66.88 6.4XPiramal Abbott 3,720 8.47XAventis Hoechst GmbH 91.5 3.96XShantha Sanofi Pasteur 625.2 8.7XPfizer India Pfizer 169.5 3.25XNovartis India Novartis AG 75.57 2.5XRanbaxy Daiichi Sankyo 4,538.6 6XDabur Fresenius Kabi 220 3.73X Source: Datamonitor AG
  22. 22. Reasons for M&A(contd..)O High profile product recalls: MNCs now focusing on pharmerging marketsDrug Company ReasonsVioxx Merck Cardiovascular side effectsAvandia GSK Cardiovascular side effectsMeridia Abbott Cardiovascular side effects
  23. 23. Reasons for M&A(contd..)O Highest number of US FDA approved plants outside US FDA approved plants 120+ 55 27 25 10 8 5 Source: Taking wings, Ernst & Young, 2009
  24. 24. Reasons for M&A(contd..)O Cost efficiency: India rates higher than other countries on cost efficiency Percentage overall indexed manufacturing cost (US FDA approved plants) 150 Cost index 100 100 80 50 35 0 US Europe India Source: Taking wings, Ernst & Young, 2009
  25. 25. Reasons for M&A(contd..)O Growing global demand for generics
  26. 26. M&A Deals O M&A trend analysis: 2007 2008 2009 2010Deal 45 74 35 55volumeDeal 798.1 5,347.7 1,646.7 5,322.3value($mn) Source: Datamonitor
  27. 27. Recent M&A Deals(Inbound)Date Target Acquirer Deal value($mn)May 2010 Piramal Abbott 3,720June 2008 Ranbaxy Daiichi Sankyo 4,538.6Mar 2009 Matrix Mylan 736.0Dec 2010 Paras Reckitt 720.9 BenckiserJuly 2009 Shantha Sanofi Aventis 625.18Dec 2009 Orchid Hospira 400.0Apr 2008 Dabur Frenesius kabi 220.0 Source: Datamonitor
  28. 28. M&A by Indian companiesO Not a one way streetO Indian companies are not only looking to sell but they are also active buyers wherein they are looking to augment their capabilities by expanding their footprints, entering into new geographies or diversifying their business model or moving up the value chainO Several cash rich domestic companies are looking at hitherto unexplored markets like Japan, Australia and East Asia
  29. 29. Drivers of acquisition by Indian companiesO Enhancing revenue through global presenceO Better market accessO Widening product portfoliosO Strengthening R&D capabilitiesO Strengthening distribution networkO Increasing efficiencies through leveraging economies of scaleO Gaining access to new technologiesO Establishing a new area in pharma value chain
  30. 30. Some M&A Deals(Outbound)S. N. Company (Acquirer) Company (Target) For Amount 1 Biocon Axicorp (German) $ 30 million 2 Dr. Reddys Labs Trigenesis Therapeutics (USA) $ 11 million 3 Wockhardt Esparma (German) $ 11million 4 Wockhardt C P Pharmaceuticals (UK) Rs 83 crore 5 Wockhardt Negma Laboratories (France) $ 265 million 6 Wockhardt Morton Grove Pharma (USA) $ 38 million 7 Zydus Cadilla Alpharma (France) EUR 5.5 million 8 Ranbaxy RPG Aventis (France) $ 70 million 9 Nicholas Piramal Biosyntech (Canada) $ 4.85mn 10 Sun Pharma Taro (Israel) $ 500mn 11 Cadilla Healthcare Quimica E Farmaceutica Nikkh -
  31. 31. The Big Deal Abbott + PiramalAt $3.72 bn (Rs 17,500 crore), it’s the second largestpharma deal in India, after the Rs 19,780 cr Daiichi-Ranbaxy deal in 2008What it means for Abbott?• Rights to 350 brands and trademarks of generics, including Phensedyl cough syrup• Market share close to 7%• Strong presence in India(growth rate 13-17%)• Complete product portfolio
  32. 32. The Big Deal Abbott + PiramalO The Piramal group has agreed that for eight years after the deals closing, it will not enter the business of generic pharmaceutical products in India, or make or market them in emerging marketsO Abbott became market leader with the acquisition of Piramal with appox. 7% market share
  33. 33. The Big DealAbbott + Piramal
  34. 34. The Big DealAbbott + Piramal
  35. 35. The Big Deal Abbott + Piramal Piramal OverviewO A leader in the Indian branded generics marketO Strong brand equity and presence in key areas: antibiotics, respiratory, cardiovascular, pain and neuroscienceO ~350 branded generic productsO Significant local footprint – largest sales force in IndiaO One of the largest formulation plants in India
  36. 36. The Big Deal Abbott + Piramal ABBOTT STRATEGY • Abbott will become no 1 in India, with ~ 20% annualFurther growth over next severaldiversify yearssources of • Piramal to add >$500MM inpharmaceutical 2011 sales in India; totalgrowth Abbott pharma sales expected to exceed $2.5BN by 2020 in India
  37. 37. The Big Deal Abbott + Piramal ABBOTT STRATEGY • India is one of the world’s fastest-growingExpand markets; expected topresence in more than double by 2015high-growth • Piramal has the largestemerging sales force in India;markets unique model with dedicated people in high- growth rural areas
  38. 38. The Big Deal Abbott + Piramal • Piramal portfolio has ~350 leading branded genericsEstablish a in multiple therapeuticleading areas • Solvay, Zydus andpresence in Piramal give Abbott criticalbranded mass and agenerics comprehensive leading portfolio of branded generics
  39. 39. The Big Deal Abbott + Piramal • Expect ~20% Piramal sales growth over theDeliver next five yearssustained • Expect transaction to bedouble-digit neutral to EPS over theEPS growth next several years, accretive thereafter
  40. 40. The Big Deal Abbott + Piramal“ Globally, there is a new way of sellingpatented drugs, which we would not havebeen able to do on our own. So as part offuture strategy, we took this decision.Also, at almost 9.5 times the sales, its in thebest interest of our shareholders” Ajay Piramal Chairman, Piramal Group
  41. 41. FutureO India will break into top 5 pharma markets by 2020O Increasing spending on healthcare will drive the MNCs to look for Indian presenceO Indian companies do not have the capital and expertise required for new drug developmentO At the same time, from the standpoint of the MNCs, with the drying up of R&D productivity in the U.S. and developed markets and their search for other sources of innovation ,acquisitions are a cost-effective way to bring in a portfolio of branded generics
  42. 42. FutureO With the availability of 100 per cent FDI through automatic route, Indian companies may witness takeovers by foreign firmsO There has been a gradual shift in thinking of Indian promoters who are now more open to exploring strategic options for their companies which has enabled increased M&A activity in this sectorO The new patent regime, challenges faced by generic companies in regulated markets and the robust valuation being offered by MNCs are some of the key factors which have resulted in this changed mindset of both MNCs as well as Indian promoters
  43. 43. FutureO These are interesting times for the Indian pharmaceuticals industry which offers diverse opportunities with substantial growth potential to both domestic as well as global pharma companiesO This will result in increased M&A activity in this sector as companies are prompted to evaluate their business models and re- align themselves to create value for their stakeholders