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Year of mega M&A pharma deals abroad and USFDA scrutiny at home

Till end of November, over 170 inspections were held in India as against over 70 inspection and certainly much less than 100 conducted five years ago by the US regulator in India.

Year of mega M&A deals abroad and USFDA scrutiny at home

Till end of November, over 170 inspections were held in India by USFDA. (Photo: Reuters)

All the major Indian pharma companies will look back at 2015 as the year when most of them felt the heat from the US Food and Drug Administration (USFDA).

With the US drug regulator pulling up one company after another for lapses either in manufacturing practices or in documentation. The list of companies coming under the USFDA scrutiny included leading Indian companies like Sun Pharma, Dr Reddy's, Cipla, Lupin and IPCA to name a few. At least half a dozen top Indian pharma companies were in the spotlight. In fact, going by the USFDA data, till end of November, over 170 inspections were held in India as against over 70 inspection and certainly much less than 100 conducted five years ago by the US regulator in India.

Some like Sun Pharma which got the observations (called the FDA's form 483 in industry lingo) in 2014 but were coping with the impact in 2015, others like Dr Reddy's, which were also dealing with such a problem got further hit with a warning letter issued by the US regulator this year. These were issues, Indian companies could very well do without considering that US is a very important market for Indian companies. It is still the largest market in terms of share in revenue from a geography contributing roughly 40 to 50 per cent of revenues for any of the leading player in Indian pharma comes from the US and around 20 per cent from India. For instance, it was 47 per cent for Dr Reddy's and 45 per cent for Lupin in FY 2015. And to get a sense of the importance of the US market and that of these companies, consider this: broadly around 75 per cent of all pharma exports to the US from India in terms of value happens from about 10 to 12 leading Indian pharma companies like Sun Pharma, Dr Reddy's Lupin, Cipla, Zydus Cadila, Aurobindo and others.

Second area of concern for the Indian pharma industry in 2015 was a continuation of the slowdown in new approvals by the USFDA for launch of generics in the US market. The cause for this was either because of regulatory issues with some facing the problem because their plants, were found wanting in terms of good manufacturing practices and were still in the process of putting in place a remediation plan, or the slow approvals were due to the heavy backlog of applications with the USFDA. The year also upset some of the leading Indian pharma companies upbeat on the emerging markets. The currency volatility and devaluation, especially in markets like Brazil and Russia caused a major concern in 2015. These markets constituted about 20 to 25 per cent of total sales for many leading Indian companies including the likes of Cipla, Dr Reddy's, Glenmark, Torrent and Sun Pharma, the last one thanks largely to the market it gets due to acquisition of Ranbaxy.

As the year drew to its close a third area of concern emerged on the pricing of drugs both within the country and in the US. The presidential elections in the US only got the issue of generic drug pricing into sharper focus. Finally, at a global level, there was clear noise on mergers and acquisitions. Some of the biggest global pharma deals happened in 2015. Teva, the world's largest generic company in terms of sales got even bigger when this Israeli company with over $9 billion in sales acquired Allergan PLC's generics unit, Allergan Generics, for a $40.5 billion cash and stock deal.Then, there was the biggest takeover deal in pharma that Pfizer made with Allegan.

A deal that made The New York Times observe:  "Pfizer has clinched a blockbuster merger with a fellow drug maker, one worth more than $150 billion, that can best be described in superlatives." It is another matter that the global deals did not have a direct impact on Indian companies. For instance the deal between Pfizer, which has its presence in India and Allergan, which is really known for its ophthalmology products in India (like 'Refresh Tears,' an eye-lubricant, though globally, Allergan is also known as the "Botox maker") was a deal between innovator companies while the focus of Indian companies is on generics. It was not as if Indian companies were silent on the M&A front. For instance, Sun Pharma had in announced in September that it was acquiring US-based InSite Vision Inc for $48 million through one of its subsidiaries. InSite Vision develops new specialty ophthalmic products, including three late stage programs, in other words, in advance stage of development. While the Sun Pharma's acquisition was for innovative products, most of the other acquisitions are for generic business. For instance, in July, Lupin announced the acquisition of US-based GAVIS Pharmaceuticals - a niche generic drug specialist - for $880 million, its sixth acquisition in 18 months. Cipla too acquired two generics companies in the US, InvaGen Pharmaceuticals and Exelan Pharmaceuticals, for $550 million in September.

But still, come 2016, all eyes will still be on the way ahead with the USFDA scrutiny and how the companies impacted, make progress. Another development that will need to be watched in 2016 and holding immediate interest on the domestic front will be what the government does about its plans for setting up a separate ministry for pharmaceuticals industry and one that covers all the departments that today deal with the sector. Currently, Indian pharma is open to interventions by both the health ministry and the ministry of chemicals and fertilisers.

IPOs & PE Deals Steal The Limelight In Indian Healthcare

As the year 2015 draws to a close, a flurry of activity on the primary market listing by some of the leading Indian healthcare providers took centrestage. Be it the initial public offer (IPO) by Bangalore-based HealthCare Global Enterprises, one of the largest cancer care chains in the country or the IPO of Bangalore-based healthcare provider Narayana Hrudayalaya or the drug maker Alkem Laboratories or the IPO of diagnostic chain, Dr Lal PathLabs, tapping the market for funds was clearly on the minds of some of the leading Indian healthcare providers. With some of the issues doing well in the market, analysts feel it may be worth watching if the coming year will encourage other players - be it the likes of SRL Diagnostics and Metropolis India in the diagnostics space or even other healthcare providers to perhaps also consider listing. While some took to the market, others were busy negotiating deals that sold controlling stake to some well known global investors. It was the year that saw some major International M&As with Malaysia's IHH Healthcare picking up major stakes in Hyderabad-based Continental Hospital and also in Global Hospitals. Plus, as this is being written, there is talk of Singapore's Temasek Holdings replacing Advent International, with its upwards of 70 per cent stake in the company.

Other than the deals and resource mobilisation, at a more fundamental level the concerns over of quality of healthcare delivery remained during the year, specially under the government set up. For instance, a year after 11 women had died at a sterilisation camp in Bilaspur in Chhattisgarh, allegedly because the post-operative drugs they were given had rat poison mixed with them, is far from becoming a closed case with the guilty getting punished as the process of review is still on. Equally, the year saw worries continue on the growing bug resistance to antibiotics.

Now, there is reason for big worry with the 'Klebsiella' pathogen or bug that is becoming resistant to Colistin, the last antibiotic available in the world for dealing with infections that all other antibiotics are unable to treat. And this is still a problem of hospital acquired ailment, typically in cases where patients tend to have a long stay in hospital (more than one week) exposing themselves to this risk. If that is not all, the age old worries of some combination drugs and spurious drugs in the market remained a concern.  

Interestingly, the year saw a new segment of healthcare service emerge and grow - while there are already players like Dabur, Portea and Medwell Ventures with its Nightingales brand growing, there was Apollo Hospitals that made a foray into this space and there emerged a new player in transition care (between hospital and home) also come up with SuVitas in June in Hyderabad, with plans now to enter Bangalore by June 2016 and in Mumbai by December 2016.

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