The big news today is Daiichi Sankyo’s acquisition of a controlling stake in Ranbaxy, India’s largest pharmaceutical company, for $4.6bn.
Analysts have been quick to predict many more such deals which will see international pharma majors entering the generic space.
Indian generic players have been steadily expanding their presence in markets in the developed world, which had for long been the preserve of international pharma majors. Falling prices have put pressure on these giants to looks for low cost manufacturing opportunities and also expand their footprint in developing markets.
At the same time, Indian companies have realised that they need to develop as research-based organisation to grow bigger and this requires huge investments. The earlier strategy of copying drugs does not work in the new product patent regime and many Indian companies are currently struggling with legal battles.
Indian companies are also facing a cost push as prices of chemical intermediates have hit record highs. Margins for the small players are said to have fallen from 25-30% to 10%. Prices of drugs are fixed by the central government making it difficult for Indian companies to pass cost increases.
Consolidation makes sense especially if it marries the strengths of two companies.