X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Pharmaceuticals: A season of weddings - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Dec 26, 2000

    Pharmaceuticals: A season of weddings

    It was the year of mergers and acquisitions for the pharmaceutical industry. The big one, of course came at the fag end of the year when the US Federal Trade Commission approved the Glaxo–SmithKline merger. Along the way, was the sale by BASF of its pharma interests (viz Knoll AG) to Abbott Inc. Meanwhile both Astra Zeneca and Novartis hived off their agrochemical interests and merged them to form Syngenta. Pfizer, emerged as the second biggest pharmaceutical company (after Glaxo Wellcome) when it took over Warner Lambert via a hostile bid.

    In India too, the after effects of this consolidation were palpable. While the Glaxo–SmithKline and Pfizer–Parke Davis (as Warner Lambert is known in India) integration is yet to get underway, Aventis consolidated its interest in India by selling off Rhone Poulenc to Nicholas Piramal.

    Indian companies too got into the act. Dr. Reddy’s announced the takeover of American Remedies and a merger with its sister concern Cheminor Laboratories. Kopran and Alembic also announced the integration of their group companies. Wockhardt’s demerger of its pharmaceutical and agrochemical operations also took effect in the current year. (Wockhardt Life Science was however, one of the worst performers of 2000 as its share price dropped almost 87% from its peak of Rs 263 to Rs 35 currently.)

    Coming to the operations, most of the MNC pharma companies rationalised their field forces, sold off their real estate and consolidated operations in India. Glaxo, for instance sold off its tail-end brands as did Hoechst. Indian pharma companies, on the contrary expanded their R & D set ups, filed abbreviated new drug applications (ANDA) to cater to the generic market overseas and bought brands from smaller companies in India.

    Brand Buyer Seller
    Epilex Knoll Pharma Reckitt & Colman
    Riflux, Clamp Dr. Reddy's Sol Pharma
    Becelac Dr. Reddy's Pfimex
    Mox Ranbaxy Gufic Labs
    Natamox, Coldact, Splanz, Zofer Sun Pharma Natco Pharma
    Omnatax, Haemaccel Nicholas Piramal Hoechst Marion
    Annovate, Derobin US Vitamins Glaxo
    Macraberin, Multivite FM Universal Medicare Glaxo
    Burnol Reckitt Knoll Pharma
    Dinoripe Gel, Deviprost, PG Tab Dr. Reddy's Dai Ichi Karkaria
    Alex Glenmark Pharma Lyka Labs

    The markets gave a thumbs up to these initiatives with the result that the valuations of the top Indian companies viz. Ranbaxy, Cipla and Dr. Reddy’s match their multinational peers. That however, puts added pressure on these companies to deliver topline growth via the overseas market. One of the fastest growing companies in the domestic market Sun Pharma, for instance, found the losses of its US affiliate Caraco affecting its domestic valuations. In this regard, Cipla’s strategy is worth mentioning. The company plans to effect the exports of its anti–ulcer bulk drug omeprazole to the US market via its partner Andryx Corporation without establishing an expensive distribution chain.

    The next year could be critical for Indian companies as they try to move up the pharmaceutical value chain. With a generic market worth over $ 7 bn emerging in the US, 2001 could prove whether Indian companies are able to use their reverse engineering skills and relative lower cost of production to compete in the international market. Domestic growth would however, be driven by introduction of new products in the faster growing therapeutic areas such as anti–diabetes, cardiovascular, cholesterol reducers rather than antibiotics, tonics and mineral supplements.

    The valuations of MNC pharma companies could be driven by the stand their international parent’s adopt on the introduction of new products in India. These companies already have products in the faster growing therapeutic areas but their parents have been loath to introducing them in India citing weak patent laws. An unwanted side effect of the global consolidation is that almost every MNC pharma company has ended up with a 100% subsidiary. There is an apprehension that new products would be introduced through these wholly owned subsidiaries rather than through the listed company. And since for a pharmaceutical company, anywhere between 25 % – 40 % of the turnover accrues from new products introduced over the last three years, it would imply a stagnating topline for the listed companies, a couple of years down the line. The relatively higher valuations that MNC pharma companies have enjoyed over the last 25 years could then be a thing of the past.

     

     

    Equitymaster requests your view! Post a comment on "Pharmaceuticals: A season of weddings". Click here!

      
     

    More Views on News

    Sun Pharma: Bottomline Slips into the Red Amidst Challenging Environment (Quarterly Results Update - Detailed)

    Aug 14, 2017

    A challenging environment and one-time expense pushes Sun Pharma into a loss in the first quarter.

    Lupin: Bigger Challenges or Bigger Margin of Safety? (Quarterly Results Update - Detailed)

    Aug 14, 2017

    GST impact coupled with price erosion in US leads to lower profits for the quarter.

    Dr Reddy's: US Pressure Continues to Haunt (Quarterly Results Update - Detailed)

    Aug 8, 2017

    Profits plunge due to higher raw material costs.

    The Power of 5 Minutes (The 5 Minute Wrapup)

    Jun 16, 2017

    Here's what you can expect from The 5 Minute Wrapup in the coming months and years.

    Biocon: Lower Licensing Income Leads to Muted Growth for the Quarter (Quarterly Results Update - Detailed)

    Jun 23, 2017

    Net Profit lower due to exceptional items in the previous year.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    Proxy Plays: A Smart Way to Bet on 'Off Limits' Companies(The 5 Minute Wrapup)

    Aug 4, 2017

    The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE HEALTHCARE


    Aug 16, 2017 (Close)

    S&P BSE HEALTHCARE 5-YR ANALYSIS

    COMPARE COMPANY

    MARKET STATS