Smaller pharma cos outperform MNCs
People who said that the new WTO-compliant product patent regime would kill cheap, local unbranded medicines and favour costly drugs made by multinational companies may need to think again.
According to a study conducted by Avendus Advisors, India’s fifth ranking mergers and acquisitions advisory, small Indian pharma companies have consistently outperformed their big brothers, as well as mega-multinational counterparts in the stock markets in terms of returns over the last two years.
While multinational pharmaceutical companies such as Glaxo, Sanofi-Aventis and Wyeth have underperformed the BSE Healthcare Index (HCI) small research-driven Indian companies Glenmark, Divi’s Labs and Lupin Pharma have outperformed the bellwether Sensex.
The Sensex has outperformed the HCI over the last two years. The healthcare index is a 23-member index of India’s top pharma companies listed on the Bombay Stock Exchange (BSE).
The study shows that investors are basing their investment decision on the performance and business models of individual companies, rather than the overall sector that the companies belong to.
The findings indicate that MNC pharma’s continued reluctance to launch novel products driven by concerns around IP protection has been a major speed-breaker for them. Despite high profile launches in the last two years including drugs like Pfizer’s Viagra and Novartis’ Glivec, the domestic market is still primarily generics-focused.
A primary reason for the lacklustre performance of MNCs, says the report, is the lack of aggressive deal-making or expanding their India presence in terms of large proportions of global R&D and manufacturing.
Incidentally, at least seven of the top ten pharmaceutical companies in the world are either planning, or have already set up manufacturing or R&D facilities in China.
While the clustering of MNC returns below the HCI, the report did not find any clustering of Indian companies with similar business models. Large generics companies are represented evenly above and below the HCI in terms of their returns and are not clustered together.
This indicates that the market is differentiating company-specific strategies rather than betting on the broader generics business model. A similar pattern is repeated across biotech, CRAMs, hospitals and medical devices sectors.