By Ruma Dubey

The morning business newspapers screamed the headlines about Cipla looking out for buyers. Though the promoters later clarified that they are not selling off, it set off a thinking process about what exactly is happening in the Indian pharma sector. Why these intermittent rumours of stake sell in major Indian pharma companies?

But more than the rumours, it is this sudden spate of sell offs by thorough Indian bred pharma companies to MNCs which needs more pondering. Ranbaxy selling to Daiichi, Piramal to Abbott, Shantha Biotech, Matrix Labs and controlling stakes in Dabur Pharma have also been sold off. So the big question is – why are the Indian pharma companies in an exit mode? And the companies are exiting at a time when around 61 drugs worth over $80 billion will go off patent in the USA between 2011 and 2013. As such the MNCs are ruling the roost in India. Of the top 5 drug makers, top three places belong to the MNCs. And of the top 10 brands, seven brands come from MNC stables.

A lot of talking to industry experts and scrounging the internet for answers led to eventual enlightenment. It is a case of opportunity for both the MNCs as well as Indian companies. How? Well, for MNCs, this out-of-patent period for 3 years now means they can acquire Indian companies and get a better foothold at this opportune time. And Indian companies feel that the price which they can get today and or till 2013 may be the best and naturally they do not want to miss the bus now. So it is more about getting best valuations and getting the highest value in terms of market capitalization.

Also MNCs are scouting around for business as their research pipelines are running virtually dry and many patents of blockbuster drugs are nearing expiry; so for them if they do not grow inorganically, they could die.

Another issue is that of succession. Many of these pharma companies have grown old and the new generation which has taken over does not really want to run the same old business. Globally educated, they have new ideas and want to run new companies and in many cases, in new sectors. Like Malvinder Singh of Ranbaxy, after selling his stake, started finance company Religare and hospital chain under the name of Fortis. The promoter of Paras Pharma sold off his family business to British company Reckitt Benckiser for Rs.3400 crore. He now plans to start a PE fund company, looking to fund mid-sized family run businesses.

So how does all this buy and sell affect you and me? The biggest fear for Indian patients, in this major pharma rejig is probability of drug prices going up. There will be Govt intervention but how much can it curtail the MNCs from making their buck?

But many in the industry say that MNCs will not be foolhardy to increase prices as they will actually lose out their markets. They will have no option but to adopt the Indian pricing standards and that is a good thing. What will also happen is that the existing Indian companies, who have managed to hold their steed will have better market shares as domestic desi competition goes down.

The Indian pharma sector is going through a paradigm shift and what we are witnessing today is consolidation of this highly fragmented sector. The biggest weakness we have is poor R&D and challenges in terms of long term funding by banks.

Let us see how this new prescription for the pharma sector works out – does it make the sector healthier or does it get terminally sick?