Pharmabiz
 

Northern path to growth

Joseph Alexander, New DelhiThursday, August 28, 2008, 08:00 Hrs  [IST]

The pharmaceutical sector in the national capital region, like many other industry sectors, seems to have turned the trend-setter for the rest of the country's pharma players with their global consolidation moves. As if from nowhere, a new wave of consolidation hit the pharma majors in this northern part of India, with the country's most valuable pharma player Ranbaxy Laboratories going into the hands of the Japan's third biggest pharma player Daiichi Sankyo at a high price. The Japanese firm Daiichi Sankyo struck the deal to take over 34.8 per cent of stakes controlled by the Singh family for $4.6 billion dollars. In addition, they have made an open offer to acquire an additional 20 per cent of shares to take the total stake in Ranbaxy above 50 per cent. The Ranbaxy- Daiichi Sankyo deal is the biggest ever of its kind in the Indian pharma sector. Also, in another ground-breaking deal, German multinational Fresenius Kabi completed the takeover of Dabur Pharma, another leader from the north, further cementing the consolidation trend stronger. In fact, Dabur Pharma, an associate company of Dabur India Ltd, kicked off the trend ahead of Ranbaxy's deal. Dabur promoters sold 73.27 per cent of shares in the company to Fresenius Kabi (Singapore) Pte Ltd at Rs 76.50 a share. The Singapore firm is a unit of German healthcare firm Fresenius SE. No doubt, these deals would act as an eye-opener for such transactions as this in the future. Indian promoters, who were considered to be sentimentally attached to their businesses, are now analysing their business portfolio and willing to cash out at right values. If market observers are to be believed, several more Indian pharma companies are expected to swim along with this consolidation wave in the long run. "A wave of consolidation will hit low-cost Indian drug makers over the next three years, as companies seek global scale to survive," Ranbaxy Laboratories Ltd chief executive Malvinder Singh rightly puts it. "This might make people revisit their strategies and look at various options they have to enhance the growth of their organisations. This (deal) to me is another sign of India's businesses being more integrated globally and recognising that globalisation is a two-way street," he said after the deal. If these deals are any indication, Indian drug makers, who were on acquisition sprees of their own until recently, with their research and development (R&D) expertise, presence in regulated and semi-regulated markets, and low-cost manufacturing base are now seen as attractive targets for foreign firms seeking entry into the fast growing pharma markets across the globe. During the last two decades the pharmaceutical industry in the North India, which consists of Himachal Pradesh, Punjab, Jammu and Kashmir (J&K), Uttarakhand, Haryana and Delhi, like its counterparts in other parts of the country has made huge investments in plants and machinery, new technology and R&D, apart from entering into tie-ups, mergers and acquisitions with multinational companies. Besides, the central as well as state governments' special concessions further boosted the growth of the pharma industry in this part of the country. The North India has also created a strong manufacturing base for the pharmaceutical companies. With special concessions from the government, Baddi in Himachal Pradesh has emerged as a major manufacturing hub and almost all the pharma companies have invested here to create assets during last decade. Also, most of the Northern states have witnessed the influx of hundreds of pharma companies from different parts of the country, including far away states like Tamil Nadu and Maharashtra after the central government announced Himachal Pradesh, Uttarakhand, J&K and Sikkim as excise free destinations to give a fillip to the industries in these industrially poor states in 2002. Though there were not much takers for the scheme in the initial years, the migration to tax free zones picked up momentum when the central government introduced maximum retail price (MRP) based excise in the country in 2005. The major pharmaceutical units like Ranbaxy, Panacea Biotec, Venus Remedies, Ind-Swift, Ind-Swift Laboratories, Surya Pharma, Dabur Pharma, Jubilant Organosys, Nectar Lifesciences, IOL Chemicals and Pharma have established their registered offices and manufacturing facilities in North India. The net sales of these 10 companies in 2007-08 reached at Rs 13,255 crore, while their net profit amounted to Rs 1696 crore. Also, the companies like Medicamen Biotech, Fortis Healthcare, Apollo Hospitals, Punjab Chemicals and Drugs, and Indraprastha Medical Corporation are present in the region. Besides, several other major companies have also put up plants on account of exemption of 100 per cent outright excise duty and income tax exemptions, single window clearance in Himachal Pradesh, capital investment subsidy of 15 per cent on plant and machinery. To add to the success story of northern pharma industry, Apollo Hospital and Indraprastha Medical Corporation have emerged as major players in the region for offering treatment. Recently, the Himachal Pradesh government has decentralised the state drug department by appointing assistant drug controllers at Baddi, Solan and Daramshala regions of the state. These assistant drug controllers have been vested with manufacturing and sales license issuing powers. With the appointment of assistant drug controllers in these three different locations of the state, the drug manufacturers in the state do not have to go to the state capital Simla for every work related to manufacturing and sales licensing. They can now approach the assistant drug controller in their respective regions for the purpose. However, the headquarters of the drug department will remain in Simla. According to industry estimate, there are more than 300 pharma companies in Himachal Pradesh. Though these companies are spread all over the state, the concentration of the pharma companies is in the three regions of Baddi, Solan and Daramshala. Manufacturers in the state said that the appointment of licensing authority in these locations will go a long way in helping the industry. "Earlier we had to go to Simla for every work and it is not necessary one will find the officers concerned in the office every time. The new move will help us save time and money," they said. However, the tax free zones offered by the central government in Himachal Pradesh has put up severe pressure on Punjab, as several pharma units moved from this northern state to Himachal Pradesh. Even some other states also experienced the same case, resulting in huge revenue loses. But as ill luck would have it, the prices of several products in the excise free zones increased significantly, as the producers fixed higher MRP to generate higher margins.

 
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