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Contents
O Introduction
O Reasons for M&A
O Leading M&A deals
O Case study: Abbott- Piramal deal
O Future
Introduction
O India ranks 3rd worldwide by volume of
production and 14th by value
O India accounts for 10% of world’s
production by volume and 1.5% by value
O India continues its growth trajectory
facilitated by a dynamic position and a
global trend towards consolidation
O M&A has become important tool for
inorganic growth in Indian Pharma
Contd..
O A strong and growing domestic market, a
robust pipeline of generic drugs and an
ability to service developed markets
abroad have suddenly made Indian
pharma companies most sought-after in
the M&A space
O The story started in a small way in 2006
with the $736 million Matrix-Mylan deal
What are MNCs looking for?O Presence of strong portfolio of brands which are
ranked amongst the top in their respective segments
O Strong generics portfolio with presence in high
growth/ high margin therapeutic categories like CV,
CNS, Oncology and anti diabetes
O Availability of infrastructure to cater to regulated
markets. This will enable them to act as a
manufacturing base to meet the demand for
regulated markets
O Presence in niche segments like vaccines, biotech,
nutraceuticals, OTC etc which has substantial
growth potential both in India as well as globally
Reasons for M&A
O Patent cliff: The total value of patents expiring between 2010 and 2015 is expected to reach US $100 Billion
O Expanding market is one of the strategies to maintain the flow of revenue
O India with high population and growing market, is attracting MNCs to invest in India
2010 2011
Product 2009 sales
($mn)
Product 2009 sales
($mn)
Aricept 3,991 Lipitor 12,535
Cozaar 3,561 Advair 7,794
Effexor XR 3,182 Zyprexa 4,916
Taxolere 3,034 Levaquin 2,648
Protonix 2,052 Xalatan 1,737
Flomax 1,970 Concerta 1,326
Arimidex 1,921 Femara 1,292
Gemzar 1,363 Xeloda 1,160
NovoSeven 1,320 Avelox 1020
Coreg 253 Caduet 548
Total 22,647 Total 34,976
Year of first available generics; Source: Ken Kaitin, Tufts University, R&D
Productivity conference, May 5, 2011
2012 2013
Product 2009 sales
($mn)
Product 2009 sales
($mn)
Plavix 9,801 Cymbalta 4,660
Enbrel 6,575 AcipHox 2,728
Diovan 6,013 Humalog 1,959
Seroquel 5,126 Zometa 1,469
Singulair 4,660 Niaspan 853
Lexapro 3,263 Lovaza 705
Avapro 3,088 Xopenex 357
Actos 2,532 Zomig 166
Viagra 1,892 Advicor 80
Avandia 724 Fuzeon 26
Total 43,674 Total 13,003
Industry Leaders in lost revenues due to 2010-13 patent expirations
29.2
12.9 11.3 9.5 8.8 7.2 4.7 4.6 4 3.3
US $ Billions
Reasons for M&A(contd..)
O High cost of R&D and decreased R&D
productivity(Poor returns)
O High valuation of Indian firms (Premium Value)
O Increase in market share
O Change in mindset of promoters
O Generic competition
O High profile product recalls
Reasons for M&A(contd..)
O Manufacturing prowess and cost
competitiveness of Indian companies
(highest no of USFDA approved plants
outside US)
O Geographical expansion
O Emerging markets- future growth driver
O Overcome barriers to entry
O Product/Brand extension
Reasons for M&A(contd..)O Low growth rate of global pharma
Source: IMS Health Market Prognosis, March
2011
Indian pharma scenario in 2020Area Size in
2010
CAGR over 10
years
Estimated size in 2020
Base
growt
h
Aggressiv
e growth
Base
valuation
Aggressive
valuation
Total
domesti
c market
US $ 12bn 15% 20% US $ 49bn US $ 74 bn
Rural
market
US $ 2 bn 15% 20% US $ 8bn US $ 12 bn
OTC
market
US $
1.8bn
18% 20% US $ 11 bn US $ 13 bn
Vaccine
market
US $ 524
mn
10% 13% US $ 1.4 bn US $ 1.8 bn
Source: PwC Analysis
Reasons for M&A(contd..)O High premium offered by MNCs
Target Acquirer Deal value($mn) DV/Revenue
s
Paras Reckitt Benckiser 720.9 8.12X
Solvay Abbott 66.88 6.4X
Piramal Abbott 3,720 8.47X
Aventis Hoechst GmbH 91.5 3.96X
Shantha Sanofi Pasteur 625.2 8.7X
Pfizer India Pfizer 169.5 3.25X
Novartis India Novartis AG 75.57 2.5X
Ranbaxy Daiichi Sankyo 4,538.6 6X
Dabur Fresenius Kabi
AG
220 3.73XSource: Datamonitor
Reasons for M&A(contd..)
O High profile product recalls: MNCs now
focusing on pharmerging markets
Drug Company Reasons
Vioxx Merck Cardiovascular side effects
Avandia GSK Cardiovascular side effects
Meridia Abbott Cardiovascular side effects
Reasons for M&A(contd..)
O Highest number of US FDA approved
plants outside US
120+
5527 25 10 8 5
FDA approved plants
Source: Taking wings, Ernst &
Young, 2009
Reasons for M&A(contd..)
O Cost efficiency: India rates higher than
other countries on cost efficiency
10080
35
0
50
100
150
US Europe India
Co
st
ind
ex
Percentage overall indexed manufacturing cost (US FDA
approved plants)
Source: Taking wings, Ernst &
Young, 2009
M&A Deals
O M&A trend analysis:
2007 2008 2009 2010
Deal
volume
45 74 35 55
Deal
value($mn)
798.1 5,347.7 1,646.7 5,322.3
Source: Datamonitor
Recent M&A Deals(Inbound)
Date Target Acquirer Deal value($mn)
May 2010 Piramal Abbott 3,720
June 2008 Ranbaxy Daiichi Sankyo 4,538.6
Mar 2009 Matrix Mylan 736.0
Dec 2010 Paras Reckitt
Benckiser
720.9
July 2009 Shantha Sanofi Aventis 625.18
Dec 2009 Orchid Hospira 400.0
Apr 2008 Dabur Frenesius kabi 220.0
Source: Datamonitor
M&A by Indian companies
O Not a one way street
O Indian companies are not only looking to sell but they are also active buyers wherein they are looking to augment their capabilities by expanding their footprints, entering into new geographies or diversifying their business model or moving up the value chain
O Several cash rich domestic companies are looking at hitherto unexplored markets like Japan, Australia and East Asia
Drivers of acquisition by Indian companies
O Enhancing revenue through global presence
O Better market access
O Widening product portfolios
O Strengthening R&D capabilities
O Strengthening distribution network
O Increasing efficiencies through leveraging
economies of scale
O Gaining access to new technologies
O Establishing a new area in pharma value
chain
Some M&A Deals(Outbound)S. N. Company (Acquirer) Company (Target) For Amount
1 Biocon Axicorp (German) $ 30 million
2 Dr. Reddy's Labs Trigenesis Therapeutics (USA) $ 11 million
3 Wockhardt Esparma (German) $ 11million
4 Wockhardt C P Pharmaceuticals (UK) Rs 83 crore
5 Wockhardt Negma Laboratories (France) $ 265 million
6 Wockhardt Morton Grove Pharma (USA) $ 38 million
7 Zydus Cadilla Alpharma (France) EUR 5.5 million
8 Ranbaxy RPG Aventis (France) $ 70 million
9 Nicholas Piramal Biosyntech (Canada) $ 4.85mn
10 Sun Pharma Taro (Israel) $ 500mn
11 Cadilla Healthcare Quimica E Farmaceutica Nikkh -
The Big DealAbbott + Piramal
At $3.72 bn (Rs 17,500 crore), it’s the second largest
pharma deal in India, after the Rs 19,780 cr Daiichi-
Ranbaxy deal in 2008
What it means for Abbott?
• Rights to 350 brands and trademarks of
generics, including Phensedyl cough syrup
• Market share close to 7%
• Strong presence in India(growth rate 13-17%)
• Complete product portfolio
The Big DealAbbott + Piramal
O The Piramal group has agreed that for
eight years after the deal's closing, it will
not enter the business of generic
pharmaceutical products in India, or make
or market them in emerging markets
O Abbott became market leader with the
acquisition of Piramal with appox. 7%
market share
The Big DealAbbott + Piramal
O A leader in the Indian branded generics market
O Strong brand equity and presence in key areas: antibiotics, respiratory, cardiovascular, pain and neuroscience
O ~350 branded generic products
O Significant local footprint – largest sales force in India
O One of the largest formulation plants in India
Piramal Overview
The Big DealAbbott + Piramal
ABBOTT STRATEGY
Further
diversify
sources of
pharmaceutical
growth
• Abbott will become no 1 in
India, with ~ 20% annual
growth over next several
years
• Piramal to add >$500MM in
2011 sales in India; total
Abbott pharma sales
expected to exceed $2.5BN
by 2020 in India
The Big DealAbbott + Piramal
ABBOTT STRATEGY
Expand
presence in
high-growth
emerging
markets
• India is one of the
world’s fastest-growing
markets; expected to
more than double by
2015
• Piramal has the largest
sales force in India;
unique model with
dedicated people in high-
growth rural areas
The Big DealAbbott + Piramal
Establish a
leading
presence in
branded
generics
• Piramal portfolio has ~350
leading branded generics
in multiple therapeutic
areas
• Solvay, Zydus and
Piramal give Abbott critical
mass and a
comprehensive leading
portfolio of branded
generics
The Big DealAbbott + Piramal
Deliver
sustained
double-digit
EPS growth
• Expect ~20% Piramal
sales growth over the
next five years
• Expect transaction to be
neutral to EPS over the
next several
years, accretive
thereafter
The Big DealAbbott + Piramal
“ Globally, there is a new way of selling
patented drugs, which we would not have
been able to do on our own. So as part of
future strategy, we took this decision.
Also, at almost 9.5 times the sales, its in the
best interest of our shareholders”
Ajay Piramal
Chairman, Piramal Group
Future
O India will break into top 5 pharma markets by 2020
O Increasing spending on healthcare will drive the MNCs to look for Indian presence
O Indian companies do not have the capital and expertise required for new drug development
O At the same time, from the standpoint of the MNCs, with the drying up of R&D productivity in the U.S. and developed markets and their search for other sources of innovation ,acquisitions are a cost-effective way to bring in a portfolio of branded generics
Future
O With the availability of 100 per cent FDI throughautomatic route, Indian companies may witnesstakeovers by foreign firms
O There has been a gradual shift in thinking of Indianpromoters who are now more open to exploringstrategic options for their companies which hasenabled increased M&A activity in this sector
O The new patent regime, challenges faced bygeneric companies in regulated markets and therobust valuation being offered by MNCs are someof the key factors which have resulted in thischanged mindset of both MNCs as well as Indianpromoters
Future
O These are interesting times for the Indian pharmaceuticals industry which offers diverse opportunities with substantial growth potential to both domestic as well as global pharma companies
O This will result in increased M&A activity in this sector as companies are prompted to evaluate their business models and re-align themselves to create value for their stakeholders