Source: The Economic Times, Dec 13, 2016
NEW DELHI: Indian drugmakers will engage in more mergers and acquisitions (M&As) in the next two years to deepen geographic and product diversity, says US research and risk analysis firm Moody’s Investors Service.
Indian generic pharma majors are expected to explore these M&As amid slowing growth in their global revenue, according to the firm’s latest report on the sector.
Global revenue growth for Indian pharma companies has dropped by around 10% in the last five years — their global sales growth slowed to a compound annual growth rate of 11% between financial years 2014 and 2016 from 21% between FY2011 and 2014, shows the Moody’s report.
“With organic-growth rates moderating and profitability plateauing, Indian companies are exploring M&A that could serve as a springboard for growth,” says the report.
These M&As can be in the form of company acquisitions or, increasingly, acquisitions of assets or overlapping drugs up for sale due to consolidation, it adds. Leading Indian pharma companies will also increasingly focus on complex therapy segments such as injectables and biologics to plug technology or portfolio gaps, according to the Moody’s report.
Indian generic drug makers are not only expected to pursue M&As in the US — already a key market for them — but also gain scale in emerging markets such as Russia, Latin America and Africa, suggests the report.
Acquisitions in these emerging markets, which offer strong growth opportunities due to low level of healthcare penetration and rapidly-growing income levels, would help Indian companies scale up faster, it suggests.
The $75 billion-$80 billion US generics market is expected to grow by around 10% over the next two years, supported by around $20-$25 billion-worth of brands going off-patent and increasing government focus on reducing healthcare costs, states the report.
Indian pharma companies currently derive around half their revenues from the country, it adds. “In our view, Indian generic companies will clock slightly higher growth rates in low-mid teens, on their US sales, given their relatively smaller base and high growth phase,” Moody’s Investors Service vice president Kaustubh Chaubal told ET.
At the same time, increasing scrutiny on quality control from the US Food and Drug Administration poses a key risk for these Indian pharma companies, the report suggests. For instance, of the 20 FDA warning letters issued to global facilities in 2015, 17 were to Indian facilities.