Patent-obsessed big pharma joining hands with generics competitors

Within days of Japanese company Daiichi Sankyo acquiring Ranbaxy Laboratories, another innovator (essentially, patent holders of blockbuster drugs) company Sanofi Aventis of France said it is making a bid to acquire Czech generics company Zentiva. Does this signal a paradigm shift in the global pharmaceutical space? Last month’s surprise decision of the Ranbaxy promoters to exit the country’s largest pharma company has led to many observers and companies discussing the impact of the decision in the Indian pharma space. Questions are being asked whether this could mark the end of pure generic companies — a model Indian companies have championed for long. Rumours of a few other Indian pharma companies looking to sell out to global majors are now doing rounds. In a move that surprised many, the promoter family of Ranbaxy decided to sell their entire 34.8% stake in the company to the little-known company in India for at Rs 737 per share or around Rs 10,000 crore ($2.4 billion), a 31.4% premium over the company’s closing share price on the day of the announcement. Religare Enterprise MD Sunil Godhwani, a key man who was instrumental in the deal, says, “This is the new hybrid model in which global innovator companies and generic major join hands to leverage on each others strengths.” Changing Paradigms For few years now, Indian companies have been facing margin pressure in the lucrative global markets such as the US and Europe where they have traditionally made their fortune. Says Ernst & Young, Partner Transaction Advisory Services and National Sector Leader (Health Sciences), Utkarsh Palnitkar, “For Indian companies, the challenges in product patent regime, in the generics business are significant: margin pressure, legal issues, parallel launch of authorised generics, accessing the distribution channels and so on. Margin pressures continue to rise in the regulated international generic markets, because of a host of factors, such as increasing competition from India and other low-cost destinations; more aggressive brand defence by innovator companies (via authorised generics, for instance); and increasing bargaining power of large distributors in these markets.” However, it is not just the generic companies that has been facing the heat. The days of innovator companies coming up with multi-billion blockbuster drugs too are over. As the pipeline of innovator products dry up, innovator companies are trying to co-opt their low-cost generic competitors. Or even buy them, even if it meant paying billions of dollars to enter into a segment where they have no presence or expertise. Ranbaxy and GlaxoSmithKline Pharmaceuticals recently expanded their tie-up to develop new drugs. By Ms.Bobby Aanand, Metropolitan Jury.

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