Managing bottomlines without losing sight of patient needs – The Hindu BusinessLine

Clipped from: https://www.thehindubusinessline.com/specials/pulse/managing-bottomlines-without-losing-sight-of-patient-needs/article66346814.ece

Recent acquisitions are raising concerns on public health priorities of financial institutions

As the industry balances its act between an evolving Covid-19 situation and growth, 2023 could throw-up more of such transactions

It’s never over till its over, can well be said of the $50 billion domestic pharmaceutical industry that inked one of its biggest deals, with barely days to go for 2022 to bow out.

Late in December, private equity (PE) firm Advent International agreed to acquire 50.1 percent in Suven Pharmaceuticals for an estimated ₹ 6,313 crore; to be followed-up with an open offer to mop-up another 26 per cent, for ₹3,276 crore.

As the industry balances its act between an evolving Covid-19 situation and growth, 2023 could throw-up more of such transactions, say industry voices. While that may have its upside for the industry, it brings with it concerns on the endgame for such non-strategic transactions, driven by financial investors rather than strategic ones (like another drug company), say public health voices. Their apprehension being, the new owners would be driven by bottomlines, building value for shareholders and stakeholders, but insulated from the needs of patients.

About three years ago, hospitals had seen similar PE-driven transactions – raising concern on whether financial institutions would indeed keep health as their priority. PE top-brass countered this, saying financial well-being and patient-centric services were not divergent paths.

Primed for M&As

Explaining why the situation seems primed for mergers and acquisitions (M&A), Satish Reddy, past President with the Indian Pharmaceutical Alliance and Chairman of Dr Reddy’s Laboratories says, the industry has achieved scale and reach over the years, especially during the pandemic. It’s now on the lookout for growth and M&As are part of that strategy, that would have been outlined earlier, he says. The reasons remain the same: it’s a fragmented sector and there is room for consolidation, he adds.

The Active Pharmaceutical Ingredients (API), domestic formulations and the CDMO (contract development and manufacturing organisation) segments of the pharmaceutical sector present attractive opportunities to those scouting for a buy, observes Sujay Shetty, PwC’s Global Health Industries Advisory Leader.

APIs have seen activity, as companies sought to grow and pursued a China+one strategy, he says. The domestic formulations (finished medicines) sector, continues to be attractive to strategic buyers/drugmakers, looking to expand their India footprint, given the challenges of the US market. And PEs are drawn to the CDMO market, though they are omnipresent across the three categories, says Shetty.

Responding to whether patients and health would be a priority for the new owners, Shetty says, they would look to bring in operational efficiencies and run a tight ship on issues like maintaining quality, for example.

Giving an insight into the Suven Pharma transaction, Shweta Jalan, Managing Partner and Head of Advent International (India) says, the CDMO segment holds out an attractive prospect, as companies look for diversified markets to source from. In fact, Advent expects its combined entity (Cohance and Suven) to be the third largest in the CDMO space.

Allaying public health apprehensions on investor priorities, Jalan said, they were in it for the long haul; investing in the acquired companies and in having a professional management.

PE buys

The Cohance Lifesciences backstory, gives a peep into the PE driven journey. Wholly-owned by Advent, it was formed in November to create a new brand identity for its CDMO and API platform. It brought together three companies it had bought into — RA Chem Pharma, ZCL Chemicals and Avra Laboratories.

Advent’s API journey began with a controlling stake in RA Chem Pharma in October 2020, followed by controlling stakes in ZCL Chemicals in March 2021, and Avra Laboratories in April 2022. Advent is also invested in Bharat Serums and Vaccines and internationally, it has invested over $10.4 billion across 51 companies in healthcare.

A snapshot of other recent transactions on pharma’s deal street, include The Carlyle Group’s decision to pick up 74 per cent in SeQuent Scientific, for over ₹1,500 crore (May 2020). In June, the fledgeling Piramal Pharma offloaded 20 percent to The Carlyle Group for $490 million (approximately ₹3,700 crore). And in July 2020, KKR agreed to pick up about 54 per cent stake in JB Chem, one of India’s older drugmakers, for a reported consideration of about ₹3,100 crore.

Some promoter-run companies are seeing succession-related issues, as indicated by Suven Pharma’s promoter, as well. S.Srinivasan of Locost (a producer of less expensive drugs) and representative with Aidan (All India Drug Action Network) is concerned that such transactions would push-up medicine prices. “We could end up sacrificing healthcare and self-reliance in pursuit of a free market,” he says. A concern that overhangs deal street, even as it buzzes with activity.

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