Global consolidation hits Indian contract drug manufacturing cos
NEW DELHI: Mergers & acquisitions in the global pharmaceutical industry that have led to reduction in outsourced research work have hit Indian contract drug manufacturing and research services or CRAMS companies.
The impact is being felt by both large firms such as Jubilant Life Sciences as also mid-sized firms such as Dishman Pharmaceuticals and Shasun Pharmaceuticals. Analysts say global consolidation poses a challenge for Indian CRAMS firms revenues for the future.
“When global drugmakers cut cost, the pre-clinical and early phase drug development outsourced to Indian firms are among the easy targets,” said a Mumbai-based pharma analyst with a global brokerage firm.
The impact is visible in the financial performance of handful of CRAMS firms. Ahmedabad-based Dishman Pharmaceuticals & Chemicals scrip sank to its 52-week low at the Bombay Stock Exchange on Wednesday after its profit for the quarter ended December 2010 was almost wiped from 33 crore a year ago.
Another large CRAMS company Shasun Pharmaceuticals that also has bulk drug business saw consolidated loss increase almost fivefold to 9.7 crore for the third quarter.
The country’s largest CRAMs firm Jubilant Life Sciences saw its revenues from its research services drop almost by a third shrinking its profit more than half to 44 crore for the third quarter. The services business segment which constitutes 20% of its total revenue fell to 167 crore due to consolidation in global pharma space and delay in certain milestone linked payments, executive director finance R Sankaraiah said.
There has been several M&A deals in the pharma sector in the past two years as global companies have chosen to merge their operations to compensate for an imminent loss of revenues as their patent for their top-selling drugs expire.
These include Pfizer’s $60-billion buyout of Wyeth and Merck’s acquisition of Schering Plough for $41 billion. On Wednesday, Sanofi Aventis announced it is buying American biotech firm Genzyme Corp for $20 billion.
Hitesh Gajarai, pharma analyst at consultancy firm KPMG said after a mergerm where two firms consolidate their independent activities, the new company may stop research on molecules in same therapeutic area, rejig its research portfolio or re-negotiate contract suppliers with their preferred firms.
Many global research firms, such as Pfizer , GSK and Merck , have announced massive cost-cutting measures, including expenses in R&D. For instance, Pfizer, that has the biggest research expenditure in the pharma industry, plans to cut R&D spends in 2012 by as much as $2 billion from a planned $8-8.5 billion.
J R Vyas , managing director at Dishman, said since these are huge companies it takes a long time to integrate and outsourcing takes a back seat. “But this does not mean they will stop outsourcing. We expect to maintain a 15-20% growth next year onwards,” he said.
Ranjit Kapadia, VP Institutional Research at brokerage firm HDFC Securities , said those Indian companies that have larger contract manufacturing business and less exposure to clinical research services are better off.
“We do little contract research work and most of our business revolves around manufacturing,” said Swati Piramal , director at Piramal Healthcare . The Mumbai-based company’s sales from its CRAMs business grew 23.7% to 233 crore even as its research services revenues which accounts for about a 10th of its total CRAMs revenues remained flat.
Quebec creates seed fund for biotechnology
The Quebec government announced Friday the creation of a seed fund for the biotechnology sector.
The fund, called AmorChem, consists of $41.25 million from Investissement Québec, FIER Partners and the FTQ’s solidarity fund. There’s also an $8.25-million investment from the private sector, of which $6.8 million has come from pharmaceutical giant Merck.
This is the last of three new venture capital funds the Quebec government has created. Late last year, the government announced the creation of Real Ventures, a $50-million fund that will invest in high-tech startups, and last month, Cycle Capital was launched with $41.5 million dedicated to develop new companies in the clean tech sector. The government hopes the investments will boost Quebec’s sagging venture capital industry.
Louis Lacasse, who will serve as president of AmorChem, said this new seed fund will follow an unconventional method he believes will reduce risk: Rather than funding individual companies that are each based on research projects, the fund will finance several pressing projects at the same time, and they will share research facilities. Projects that continue to show promise will either be grouped with similar ones and formed into a company, or the work will be licensed to investors from pharmaceutical companies.
Lacasse explained this is a far less risky way of creating companies than in the past. However, there is still much risk investing in the industry.
“Most projects fail, that’s just the nature of the business,” he said. “You have to be very good, and you have to be very lucky to have a project that becomes successful.”
Shares of KV Pharmaceutical Get a Boost, Up 10.8% (KV.A)
KV Pharmaceutical (NYSE:KV.A) is one of today’s notable stocks on the rise, up 10.8% to $9.51. The S&P is currently trading fractionally higher to 1,343 and the Dow Jones Industrial Average is trading 0.3% higher to 12,355.
KV Pharmaceutical is in SmarTrend’s Drug Manufacturers- Generic industry and this industry is currently in an Uptrend according to our research. We are monitoring many other stocks on the move within this industry.
In the last five trading sessions, the 50-day MA has climbed 16.92% while the 200-day MA has risen 6.45%.
In the past 52 weeks, shares of KV Pharmaceutical have traded between a low of $0.60 and a high of $8.73 and are now at $9.51, which is 1472% above that low price.
SmarTrend currently has shares of KV Pharmaceutical in an Uptrend and issued the Uptrend alert on February 04, 2011 at $3.42. The stock has risen 151.2% since the Uptrend alert was issued.