I was interviewed today by The Deal about the current state of cross-border M&A in India and the US. We focused specifically on Pharmaceuticals where there is a lot of opportunity but challenges as well. My next post will focus on my predictions for the future in this area.
Sarah Hashim-Waris, from The Deal, wanted to know:
What advice do you have for foreign VCs looking to invest in Indian pharma firms?
Most merger and acquisition deals fail because of business culture differences. This problem is magnified by a thousand times if the two companies are from different countries. We have seen many, many deals fail or simply hobble along because of India and US business cultural differences. Address these differences from the start of the engagement from negotiations down to delivering the first joint product, by educating the deal team and the staff in global competencies.
Why is India’s pharmaceutical market so attractive to American Venture Capitalists?
India’s market has 3 important factors: Talent and Demographics of growing middle class that can pay for medical remedies.
Talent: India has a history of ayurvedic and homeopathic medicine and for thousands of years has pursued remedies for ailments. There are established pharmacy schools. This talent pool can be tapped by multi-nationals seeking a 24/7 research development cycle or start-ups that want to acquire cheaper labor for a new project. These opportunities are not being leveraged as aggressively as is possible because of challenges in safely sharing IP. This is why many firms make direct acquisitions instead of considering alternatives. Developing systems to leverage global research networks while avoiding the difficulty of intellectual property exchange is the next step in these deals.
Demographics: Emerging middle class, an estimated 300M by 2020, will have resources to pay for remedies to well known health problems. Click here for a video on the third factor: health demographics in the Indian genetic map cause an increase in Diabetes, Heart Disease and High Blood pressure.
On the flip side, we’ve also seen Indian firms investing in U.S. pharmaceutical firms – why?
Indian firms are looking to invest in the US for three primary reasons:
- Purchasing access to FDA approved facility that can be immediately leveraged to make generics the firm is already making in India.
- Access to retail channels such as Walgreens, Rite Aid, Walmart, that can be leveraged to bring Indian products (medicinals) from India.
- Acquire pharmaceutical IP from the US that can be sold into the Indian market.
Last year, Abbott Labs acquired Piramal Healthcare Ltd.’s generic-drugs unit…How is M&A in India’s pharma sector looking?
Last year almost every major Western pharma firm such as Pfizer, Abbot, Glaxo made an acquisition in India. The trend for this year from the US to India has slowed because most major players made a move last year.