Drug companies bet on global M&As in growth pursuit: Moody’s

The report also mentioned that M&As can also enhance the expertise of Indian pharma companies in sophisticated and high-entry barrier products such as sterile injectables

Indian drug companies will continue to scout for acquisition of overseas assets over the next two years to enhance their presence in developed and emerging markets, according to Moody’s Investors Service.

“Indian pharmaceutical companies will continue to seek growth through the acquisition of overseas assets or companies in the next 18-24 months with the aim of deepening their geographic and product diversity, and increasing their presence in developed and emerging markets,” Moody’s Investors Service said in a report titled Pharmaceuticals — India: Inorganic Expansion to Drive Generic Majors’ Growth.

The push for overseas expansion comes amid a global pharma industry consolidation, driven by drug companies’ desire for product and pipeline diversity, scale and pricing power, it said.

“The Indian pharma sector is not immune to this global trend and we expect Indian companies to benefit from asset/ drug sales resulting from industry consolidation,” the report said.

M&As can also enhance the expertise of Indian pharma companies in sophisticated and high-entry barrier products such as sterile injectables, it added.

Moody’s said the US is a natural choice for Indian drug companies’ expansion.

“Although growth is moderating, we expect the US generics market to grow around 10 per cent over the next 18-24 months, supported by around $20-25 billion worth of brands going off-patent and the government’s increasing focus on reducing healthcare costs,” it said.

The US is already a key market for Indian drug companies, which derive 40-50 per cent of their revenues from the country.

Meanwhile, consolidation in the drug distribution chain, which reduces drugmakers’ pricing power, will constrain US revenue growth and prompt large global generic companies to explore M&A, the report said.

Besides, emerging markets consisting of Russia, the CIS, Latin America and Africa continue to offer strong growth opportunities due to current low healthcare penetration levels and rapidly growing income levels, it added.

“Indian companies are well placed in terms of financial flexibility and their ability to raise funds for potential M&A. The companies have much stronger balance sheets versus leading global generic peers,” it said.