The multinational drug companies seem to be all set to recapture the Indian pharmaceutical market they lost to the domestic pharma companies in the eighties. One after another the MNCs are tightening their grip over the Indian market by grabbing every opportunity by either hiking the stake in their Indian arms or acquiring large Indian companies.
Crash in the stock market over the last one year has helped the MNCs to realize this dream as the share prices are at a relatively low level. While increasing stake, these companies are also considering factors like the huge Indian market size, cost effective outsourcing, better infrastructure and strong R&D base. The higher stake will also help to cope up with rising cost in highly regulated markets.
During last couple of months there were increasing number of public offers by the MNCs like Abbott India, Novartis India and now Pfizer Ltd to raise equity stakes. The trend is likely to gain momentum in the near future with stock prices of pharma companies show no significant upward movement.
Pfizer Inc, a US$ 48 billion pharma giant, has decided to raise its equity stake in its Indian arms from present 41.23 per cent to 75 per cent through an open offer from public shareholders at a price of Rs 675 per share. This worked out to investment of Rs 680 crore for Pfizer. The Indian sales of Pfizer touched to Rs 682 crore during the year ended December 2008, but its net profit declined sharply to Rs 300 crore from Rs 340 crore in the previous year. The analysts said that the higher stake will help Pfizer to take decisions about market expansion in the domestic market.
Novartis AG is planning to acquire an additional stake of upto 39 per cent in its majority owned Indian subsidiary, Novartis India Ltd., from public shareholders at a price of Rs 351 per share. At present Novartis AG has a controlling stake of 50.9 per cent in its Indian arm. The offer is likely to open in May 2009. This will increase the stake to over 90 per cent with investment of Rs 440 crore.
During September 2008, Abbott India has completed its buy-back offer of 7,97,500 fully paid-up equity shares of the face value of Rs 10 each from the existing owners of shares through a tender offer at a price of Rs 630 per share with aggregate amount of Rs 50.24 crore. With this offer, the promoters have increased their stake from 65.14 per cent to 68.94 per cent.
There is good scope for promoters of other MNCs to increase their stakes. Currently, the parent holdings in GlaxoSmithKline stood at only 50 67 per cent, Aventis Pharm at 60.39 per cent, Merck Ltd at 51 per cent, Wyeth Ltd at 57.15 per cent, Solvay at 68.85 per cent and Fulford India at 53.93 per cent. The parent companies of these MNCs have every right reason to hike their states in near future considering their low share prices on Indian stock exchanges.
The current share price of Pfizer is moving around Rs 690 on BSE and the parent company is planning to purchase shares at Rs 675 each under its tender offer. Considering the current higher price, the promoters' may increase the purchase price to complete its tender offer. Similarly, Novartis will also have to increase their tender offer price of Rs 351 as its current price is around Rs 370. The public shareholder will get better returns if the promoters stepped up their offer price.
The analysts are of the view that there will be more and more such cases likely to happen in India as the world's leading pharma corporations are facing a serious crisis. The low returns from R&D activities and tremendous pressure on margins on account of generic competition will make situation worse for them. Unless there is huge sales volume, the margins will be under pressure and likely to slowdown further. In this situation, Indian market looks very promising one with huge untapped rural market. MNCs are likely to focus on this with their Indian arms. It is easy to tap ready market and strengthen R&D capabilities with very little cost for cash reached MNCs.
The analysts from foreign broking firm expressed the view that it is high time for Indian government to enforce all provisions of the new Patent law in the country. Though the cost of product will play a key role in Indian market, MNCs will manage the same by introducing cost effective products made in India. Regarding Pfizer acquisition of additional stake, the analyst said that it is a part of its worldwide consolidation of its activities. The acquisition of Wyeth and raising its stake in India are just signals of this strategy.
At present there are 13 pharma MNCs operating in India and listed on the Indian stock exchanges, which includes Ranbaxy Laboratories, a subsidiary of Daiichi Sankyo of Japan with effect from November 2008, Matrix Laboratories, a subsidiary of Mylan Inc. from January 2007 and Fresenius Kabi Oncology, which acquired major stake during August 2008 of Dabur Pharma. Daiichi is holding over 65 per cent in Ranbaxy, Mylan is holding 71.16 per cent in Matrix and Fresenius over 91 per cent in Fresenius Kabi Oncology Ltd.
After acquisition of statutory stake, it is easy to delist the company from stock exchanges. Matrix management is now considering the delisting of shares from BSE and NSE and the trend is likely to continue.
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