Gearing up for tough bouts in an uncertain market

Barely has the New Year begun and developments in the pharmaceutical universe are flowing thick and fast. This week saw the sector’s largest transaction in about 10 years as Bristol-Myers Squibb announced a $74-billion deal to acquire biopharmaceutical firm Celgene — a deal that industry-watchers are seeing as “strategies for survival” as pharmaceutical companies wax and wane, acquiring or shedding businesses, to sharpen their focus and keep their head above water.

In fact, even as 2018 wound down, GlaxoSmithKline said it would split to create two global companies. GSK’s own business focussed on drugs and vaccines and the other involving a collaboration with Pfizer to create a consumer healthcare giant. In India, the year closed with Lupin announcing a research deal where it out-licensed a prospective blood cancer drug to AbbVie.

On a policy level, the year has started with the Indian Government stirring the pot by exempting patented drugs from price control for five years — a move that will raise the hackles of the domestic industry as it grapples with increasing price control on drugs.

The operational environment for Indian drug companies will be challenging, given the market conditions in their two key markets, the US and India, says Sujay Shetty, PwC India Partner, doing some crystal-ball gazing into the year ahead. Indian companies who have transitioned to become speciality-focussed, and forged overseas acquisitions towards this purpose, are now tasked with making these deals work, says Shetty.

With many local companies entering the dermatology space, for instance, there is a risk of it getting commoditised and companies will need to differentiate and build-in value-adds, he observes. And this needs to happen alongside the pricing pressures, consolidation and regulatory scrutiny in the US, the world’s largest pharmaceutical market.

In India, it is an election year, so there could be announcements that could go either way for the pharmaceutical industry. With health insurance programmes like Ayushman Bharat having got under way, companies would be looking at where they could fit into it, he says.

And given GST requirements, there could be changes in business models underpinned by cost, as companies look to squeeze out efficiencies. Hence, initiatives in the digital arena and automation to effect more productivity with less, are steps that will be taken, says Shetty.

Deal revival

Echoing similar concerns, Amit Mookim, IQVIA’s Managing Director (South Asia), observes that companies will have to play to their strengths. “The wave where everyone grows has passed and now they have to be focused on their strengths, their specialisation,” says Mookim, agreeing it is not an easy environment.

Companies will look to build brands and bring out more focused products into the market, for instance. However, with the pharmaceutical industry bouncing back to show a reasonable 10-odd per cent growth even in a year that was expected to be bad, Mookim is optimistic. Last year saw a revival in private equity interest in healthcare, he says, adding that the appetite is likely to continue.

Multinational companies are watching how Ayushman Bharat pans out and the speed of its implementation could see companies work their strategies into it, he says.

Regulatory uncertainty

All of this plays out in a fluid regulatory environment — a matter made worse by the churn at the top in critical regulatory authorities. The National Pharmaceutical Pricing Authority has seen two changes in less than a year, including the posting of one Chairman being an additional charge. The Drug Controller General of India’s post is also an interim one, extended every three months. Add to this, the Centre’s flip-flop when it comes to the drug policy or the inertia on increasing healthcare spending.

In a market that is already on shifting sands, marked by a vigilant civil society that pushes for greater corporate accountability and transparency, the lack of regulatory stability will queer the pitch further for pharma and healthcare companies this year.

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