Acquisitions and Regulatory Mechanisms

Indian pharmaceutical companies gained their stature by selling generic drugs in a market previously dominated by MNCs. However, post-2005 it became difficult to sustain their growth, with the advent of product patents. Reverse engineering of patented drugs became extremely difficult with the advent of product patents.


#1 – Exits from the sector by key players:

The companies are exiting the business in entirety  or selling certain brands , so we have complete and partial acquisitions. While those companies which are being acquired completely are exiting the business to invest in other non-related sectors like energy , financial services. Those which are selling only certain brands leading to partials acquisitions are the ones which aspire to stay and grow in the pharmaceutical sector itself. The pharma industry is plagued by many top-notch industry bigwigs quitting the sector. Ranbaxy was sold to a Japanese company  Daichii Sankyo for US $4.6 bn in 2008. Abbot bought Piramal healthcare for US $ 3.7 bn making it the market leader and it gained access to 350 brands of Piramal healthcare & trademarks. Since 2001, 100 % FDI was allowed in the Pharmaceutical sector both in Brownfield & Greenfield investments.   However mostly brownfield investments have taken place. A controlling share was acquired by Sanofi-Aventis in the unlisted Hyderabad company Shanta Biotech.

The reason why these companies are exiting is because their base was built in a protected market where generic production was their staple source of revenue. However post-2005 they have realized the issues they are facing now that they must directly compete with international players, even if they have less resources to spend on research and development.

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Also not all Indian companies have a structured marketing chain like some of the foreign brands have in the global market. The mouth watering valuations of the companies are lucrative enough for the owners to give it a thought. The problem is that it is difficult for these companies to grow selling only generic drugs and neither do they have the money or the infrastructure to produce new, original drugs on a mass scale. While Sun Pharma is looking at the energy sector as it has untapped potential and growth opportunity , the owners of Ranbaxy – the Singh brothers already had Religare- an investment company & Fortis – a successful chain of hospitals. Thus, the money that these pharma companies will get from selling of their units will be invested into something that has a better return and will probably take less time than developing R&D and passing through the gestation period before these new drugs even if approved will take to become a top-selling one.

However, with the Indian companies bailing out, it is possible that the price of low-cost generic drugs will go up both in the Indian and probably also the global market .

A few companies have not entirely exited from the pharma sector, but have tried to focus on their core products. For example, JB chemicals , a company valued at 871 cr sold its most successful brand “doktor mom” on which it became a runaway success story in Russia, because its revenue did not match its spends. The money JB chemicals got through divesting its business in Russian medical market to Johnson & Johnson will help the company grow. The step was taken expecting to help the company invest into R&D and also to help increase the stock value of the company in the long run.


#2 – Government regulations

One point of concern is the regulatory framework. Under Indian law, all drugs which qualify as ‘bulk drugs’ must have an end-price that is regulated by the government – the recent DPCO 2013 (Drug Price Control Order)  seems to have increased the number of bulk drugs from 74 to 348. This may prove to be a deterrent to Indian pharma corporations leading to a lot of exits.


#3 – USFDA checks

Recently Ranbaxy had to pay $500 million fine as a result of its non-compliance of generic drugs. This is what essentially has sparked off the USFDA (United States’ Food & Drug Administration) to go in for more surprise checks and even open up an additional office at Hyderabad (to check if Indian pharma companies which export to the US are compliant with US law and manufacturing standards). Though allegations have been made towards it for taking on Indian pharmaceutical companies more harshly than those of its other global counterparts, it cannot be denied that India is one of the topmost places for generic drug production. It accounts for about 40% of the generic products in the US market.


Survival strategy for Indian companies

There are certain hindrances to the development of Indian pharma Industry , especially in the wake of the sell-offs that have happened off late.

Indian companies are facing competition from generic medicine producers from developing countries. Selling only generic drugs will not yield enough for their growth and sustenance. The Indian companies are looking towards developing innovative drugs. Right now the bulk drugs contribute to a minority of their income but it may increase and open up a new dimension. The ‘generic’ model is slowly getting changed as more and more companies are gradually carrying out R&D in original drugs. Some of the pharma companies like Dr.Reddy’s, Glenmark had already started investing money in the R&D sector as early as 90’s. Today 40% of Dr.Reddy’s production counts for original drugs and 60% for generic drugs. Companies such as these had an added advantage for companies like Piramal which was based on 100% generic production.  Also the DPCO will lead to a stricter government control at least till a certain extent. Those companies which can risk and keep itself going even in the wake of cut-throat competition by MNC’s and stand the regulatory issues will become grow well and probably give the MNC’s a run for their money but that is only when the ‘original’ drugs will do well while maintaining their status-quo in the generic market. This has already been observed in respect of certain companies who are already competing with the MNC’s in the market share for off-patent drugs. Their successful growth can be estimated by the fact that currently the companies are selling out are getting an amount getting  multiple times the amount of their sales.

Those who do not want to take the risk may indulge in sell-outs once they get a lucrative enough offer. Small to mid-size corporations who are still committed to the sector may have to sell out one of their most successful brands and if they prioritize growth. The sector will especially be difficult for any new entrants. The R&D capacity needs to be diverted from reverse engineering generic drugs towards innovation.


South-East Asia and other emerging trends for Indian pharma companies

However, in spite of all troubles there have been certain developments which can probably help the sector survive and probably make it big in unexplored markets. Also concerns about certain issues have been raised by certain authorities.

However on the brighter side, the South-East Asia market has opened up a  new window for the Indian pharma companies. The finding is the result of a recently carried out survey by the Associated Chambers of Commerce and Industry (ASSOCHAM). They offer cheap R&D opportunities as well as no regulatory uncertainty. Red-tapism in India slows down the process of approval and it typically takes more than year to get the drugs approved by agencies like USFDA, EU.  These two reasons coupled together result in a win-win situation for the pharma companies. Also one more additional benefit is that these countries have a similar patient population and disease profile.


Government measures to prevent domestic pharma companies

However a standing committee of the parliament (April 2013) in the 110th report on FDI in pharmaceutical Industry is seeking a blanket ban on FDI in the pharmaceutical sector as it will surely affect the price, availability of the drugs and  is proving to be disadvantageous for the Indian Pharma industry. If this report is taken into account it will certainly boost up the Indian Pharmaceutical Sector.

This will help India go back to the market which existed before the 2005 amendment resulting in a protected market environment for domestic players.

ASSOCHAM has written to the Health Ministry to prevent the slowdown of the clinical R&D in India which is one of the primary reasons that a lot of Indian companies are thinking of shifting their operations to South-East Asia.



  1. Nice article. Indian pharmaceutical sector is growing rapidly, but there are some issues and that’s why some companies are selling their business partially or entirely. If Indian companies try to manufacture USP, EP, JP, BP grade medicines, then surely they can survive, because they can exports these pharma grade medicines in foreign countries.


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