India’s huge pharma/consumer health market in crosshairs of world’s biggest drugmakers. China, Japan, Korea lurking as Asia joins fray with West.

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The News:

GlaxoSmithKline PLC‘s (London) Indian consumer health unit is drawing the attention of more big-name suitors as the magnitude of the potential there is coming into clearer focus.

After earlier reports that Danone (Paris), Nestle (Vevey CHE) and others were on the verge of a bidding war, Kellogg (Battle Creek MI) and Reckitt Benckiser (Slough GBR) are said to be suiting up for the fight. The cereal giant and consumer behemoth are the latest to jump into the fray, according to The Economic Times, which also lists Unilever, Mondelez and Coca-Cola as potential buyers. Both new suitors have wrapped up initial evaluations.

The addition of Reckitt is no surprise, considering CEO Rakesh Kapoor’s worldwide growth strategy and penchant for M&A. Its last big buy in the Indian market was Paras Pharmaceuticals back in 2010, but more recently, it landed its largest-ever trophy in US baby formula business Mead Johnson.

Reckitt has also been looking for more. Earlier this year, it chased Pfizer Inc.’s (NYC) consumer health business, only to pull out once it was clear it couldn’t strike a bargain for just one piece of the unit. But GSK’s Indian consumer business, which analysts say could procure $4 billion, would be much easier to swallow than Pfizer’s entire unit, which the New York drug titan expected to bring $20 billion, says FiercePharma.

Kellogg, on the other hand, is more of a surprise to industry watchers after its conservative history in India. But the company is looking to diversify away from cereal–which some markets now perceive as overly sugary and artificial–with more health-focused buys, TET notes. GSK’s popular drink brands Horlicks and Boost, which fall under the health umbrella, could help it do just that.

Meanwhile, a spirited bidding contest would be welcome for GlaxoSmithKline, which is looking to sell off its share in the Indian GlaxoSmithKline Consumer Healthcare Ltd. to help it fund its own consumer crusade. It announced that it’d be shopping the stake at the same time it revealed a $13 billion agreement for Novartis’s share of the pair’s consumer joint venture.

The British pharma giant has been clear that it doesn’t intend to back away from India in general. The country “remains a priority market for GSK investment and growth,” the drugmaker said in March, adding that it would continue to back OTC and oral health brands and invest in pharmaceuticals and vaccines there.

Steve’s Take:

The times; they are a changing. And Asia arguably is leading the charge. Whereas China has garnered the headlines recently, and it’s not all been positive with vaccine recalls and regulatory debacles, let’s look briefly at the continent, focusing on India.

Indian names, including colossus Sun Pharmaceutical Industries Ltd. (Mumbai), dominate the top sales rankings for Asian pharmaceutical companies. Much of this has come from aggressive pushes into overseas markets such as the US through mergers and acquisitions.

Steve's Take: While #China gets the headlines, #India #Pharmaceutical companies are quietly making their move. Click To Tweet

Chinese companies, meanwhile, are expanding their sales mostly within China, a market that’s been on the rise as its population ages and incomes grow. There are now four Chinese drugmakers with market capitalizations of over $10 billion. There were none five years ago, according to Nikkei Asian Review.

Simply put, Asia’s drug market has been expanding rapidly. The combination of large populations and rising incomes is drawing attention from makers the world over. According to Quintiles IMS Holdings, an American consultancy specializing in the pharmaceutical industry, China last year overtook Japan as the world’s second largest drug market, worth $116.7 billion. The US remains the biggest market.

Since 2011, India has climbed two places to 11th. Both the Chinese and Indian drug markets are growing at an average 12% annually. Markets in leading Western countries are mostly growing at single-digit rates.

Sun Pharmaceutical, which topped the sales ranking, had $4.6 billion in sales in the year to March. The company’s sales have grown 2.8-fold in the past five fiscal years thanks to a series of acquisitions, including that of domestic rival Ranbaxy Laboratories in 2014. As a maker of generic or patent-expired drugs, the company is now one of the world’s top five drugmakers.

Sun Pharma generates 70% of its sales outside of India.

Taiki Motoda of Mizuho Bank’s industry research department said: “Generic drugs all have the same effect, and it’s a battle of cost. [Sun Pharmaceutical] took advantage of low labor costs at home and boosted its overseas presence.”

India’s Lupin Ltd. (Mumbai), in third place, and Cipla Ltd. (Mumbai), in fifth, also grew by purchasing rivals.

But the situation might become more difficult for Indian companies operating in the US. Price competition has been intensifying in the here since last year’s presidential election, in which the lowering of drug prices became a campaign issue. Sun Pharma struggled in the US in the 12 months to March.

Home-field advantage

Chinese drugmakers held six of the top 10 spots in the sales ranking for Asia. Their sales are growing at faster rates than those of their Indian rivals. Some, such as Shanghai Fosun Pharmaceutical Group, in fourth, and Guangzhou Baiyunshan Pharmaceutical Holdings, in second, saw sales more than double and even triple in the past five years.

Four Chinese drugmakers, including Shanghai Fosun, Jiangsu Hengrui Medicine and Shanghai RAAS Blood Products, which ranked 60th by sales, had market capitalizations of over $10 billion. Though they are often eclipsed by major Western and Japanese rivals in terms of sales, they still receive high valuations by investors.

“Chinese pharmaceutical companies are doing well chiefly thanks to their own expanding market,” Mizuho’s Motoda said.

On top of rising income levels and an aging population, these makers are benefiting from the Chinese government’s efforts to reform the industry, such as simplifying the process of approving new drugs. Most major Chinese drugmakers make less than 10% of their sales overseas; their domestic market guarantees growth.

Indonesia’s Kalbe Farma came in 11th place with $1.4 billion. Kalbe is Indonesia’s largest drugmaker and is the largest listed drugmaker in Southeast Asia. It also sells health foods.

South Korean companies are also increasing their presence. The ranking included Green Cross Holdings, 17th, Yuhan, 18th, and Daewoong Pharmaceutical, 20th. Celltrion, despite being below 30th, has launched various new drugs in developed countries, including a rheumatoid arthritis drug in the US and a blood cancer drug in the UK and Germany. And micro-cap ViroMed just bought a GMP plant in San Diego to develop its DNA-based investigational drugs.

Bottom Line:

The steep price erosion and the increasing scrutiny by the US Food and Drug Administration have been worrying the Indian pharmaceutical sector, says The Pharma Letter. In order to drive growth and profit margins and confront the impact of declining generic drug prices, the government has been nudging Indian drugmakers to venture into manufacturing more specialty or complex medicines and expand their existing pipeline, as well as making a mark in the new chemical entity zone.

Citing some advantages to the specialty range of medicines, officials said the existence of complex diseases including chronic ones which require personalized medicines, complex procedures and technological advancements have enabled such specialty range of medicines to be a priority in the USA.

“Specialty range of medicine, oncology injectables, nasal sprays, vaccines and transdermal patches have better margins. Sales of oral solid, for instance, crossed $30 billion in 2016, representing 50% of the total US generics market, excluding branded generics,” said an official, according to TPL. “High end drugs and complex treatment procedures for chronic and niche-acute conditions have given birth to specialty generics which have the potential to capture half of the market by 2020.”

KOLs were all ears at a recent conference organized by the Karnataka Drugs and Pharmaceutical Manufacturers Association, the Indian counterpart to the PhRMA in the US. Present was Dr. S. Eswara Reddy, Drugs Controller General of India. He pointed out it was long overdue for India to move from generics to innovative molecules.

As the youngest Drugs Controller General ever appointed to that crucial position and, having worked for all the positions of the pharma regulatory hierarchies, Dr. Reddy is likely to have a powerful voice in the future direction of Indian drug policy. Let’s hope so for India’s sake.

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