Indian Pharma majors prefer the alliance route
April 28, 2013: To expand geographical presence in the emerging markets, the Indian pharma companies are forging alliances with global pharma majors.
After following an aggressive acquisition strategy for the past one decade, Indian pharmaceutical companies are now turning to forging alliances in order to expand their global footprint. Recently announced arrangement like Dr. Reddy’s with Merck Serono (a subsidiary of Merck KGaA) is a clear indicator of this changing trend.
While the alliance between Dr. Reddy’s & Merck was focusing on the biosimilar market, there has been a rise in the number of alliances in the traditional generics market as well. For instance, Indian pharma majors focusing on markets like Brazil, Mexico and South Africa are looking at alliances in order to expand at a fast pace. Popular alliances like Dr Reddy’s-GSK Pharma, Sun-Merck and Cadila-Abbott are the few examples of this changing preference in the pharma landscape.
Since the developed markets are already finding it tough to increase the single-digit growth in the sector coupled with the fast-drying drug patents, the Indian pharma companies are gearing up to tap the potential in the emerging markets. For the record, the emerging markets are expected to move up from $150 billion to $285-$315 billion in three years in the pharma sector, according to an ICRA report. In addition, close to three-fourth of the emerging markets account for branded generics and as a result, offer high margins to the pharma companies, expansion to these regions is very much logical for the Indian companies.
Apart from a handful of acquisitions like Sun-Taro which has been able to give rich returns, a majority of acquisitions made by the Indian pharma companies have disappointed the stakeholders. Market experts believe that since some of the big-ticket acquisitions were announced without testing the waters, the decisions have taken its toll from the bottom-line of the pharma companies.
On the other end, alliances are in vogue since it creates a win-win situation for both – the MNCs and the Indian pharma companies. In other words, since these alliances give MNCs to sell additional products within the existing sales & distribution network, the alliances helps in increasing profitability. Similarly, the Indian companies can expand their geographical reach without adding to their cost-sheets. Analysts believe that the Indian pharma majors will get into many more alliances going forward.
There have been alliances like Pfizer-Biocon and Napo-Glenmark where the actual results didn’t meet the desired end but these sour instances does not deter the enthusiasm of the Indian pharma majors. In fact, it is believed that more and more Indian pharma companies will get into alliances with MNCs in times to come. However, it is expected that the Indian companies would start entering these emerging markets with their own front-end set up in the long-run.