Indian Pharma Contract Manufacturers to Benefit from Global Consolidation

Strategic Insights -

A recent wave of consolidation in the pharmaceutical industry is expected to benefit Indian contract manufacturers such as Piramal Healthcare, Jubilant Organosys, Divis' Labs, and Dishman Pharma. The consolidation is driven by global pharma companies' efforts to reduce costs and increase revenues, which could lead to more contract deals for Indian companies. Outsourcing helps Big Pharma cut costs by 30-50% due to cheap labour in India, and Indian pharma contract manufacturers are likely to play a significant role in this trend.

Key Takeaways:

  • Indian pharma contract manufacturers such as Piramal Healthcare, Jubilant Organosys, Divis' Labs, and Dishman Pharma are expected to benefit from the global pharmaceutical industry's consolidation.
  • The consolidation is driven by global pharma companies' efforts to reduce costs and increase revenues, which could lead to more contract deals for Indian companies.
  • Outsourcing helps Big Pharma cut costs by 30-50% due to cheap labour in India, and Indian pharma contract manufacturers are likely to play a significant role in this trend.
  • The Obama-led US government and European nations are pressuring companies to cut down prices of medicines, which is expected to benefit the Indian pharma contract manufacturing sector.
  • Several India-based companies are well-positioned to leverage their competitive advantages in terms of low-cost business models, knowledge-based talent pools, efficient innovative technologies, and large patient populations to deliver cost-effective solutions for global pharma companies.
  • Indian contract manufacturers are at the end of their capital expenditure cycle, which means they have minimal requirements for new capacities.
  • Big Pharma's focus on rationalizing working capital needs and reducing stocks from the system may result in lower offtake of sales in the next couple of quarters, but it will lead to more outsourcing in the long term.
  • Pharmaceutical analyst Rohita Sharma at Enam Securities expects the trend of consolidation and collaborations to continue, which is likely to have a positive impact on the Indian CRAMS sector.

Statistics:

  • The recent wave of consolidation in the pharmaceutical industry includes Roche's $47 billion buyout of Genentech, Merck's $41 billion deal to combine with Schering-Plough, and Pfizer's $68 billion buyout of Wyeth.
  • Indian pharma contract manufacturers such as Piramal Healthcare and Jubilant Organosys have seen growth rates of 61% in the first nine months of FY09.
  • The phrase Big Pharma is often used to refer to companies with revenue in excess of $3 billion.
  • Outsourcing helps Big Pharma cut costs by 30-50% due to cheap labour in India.
  • Pfizer-Wyeth combine expects to save $3 billion by 2010 end.

Sources:

  • Kumar Shankar Roy, "Consolidation in pharma industry spells good news for Indian contract manufacturers", Business Standard, February 2009.
  • N Santhanam, Chief Operating Officer, Piramal Healthcare, as quoted in Business Standard, February 2009.
  • R Sankaraiah, Executive Director (Finance), Jubilant Organosys, as quoted in Business Standard, February 2009.
  • Rohita Sharma, Pharmaceutical Analyst, Enam Securities, as quoted in Business Standard, February 2009.