BV Mahalakshmi, Sudhir Chowdhary
Posted: Monday, Aug 03, 2009 at 2346 hrs IST
Updated: Monday, Aug 03, 2009 at 2346 hrs IST
Updated: Monday, Aug 03, 2009 at 2346 hrs IST
Indian vaccine makers seem to have entered good times. As France’s largest drug maker, Sanofi-Aventis, agrees to buy a majority stake in Hyderabad-based Shantha Biotechnics, a sense of excitement combined with renewed confidence has rejuvenated the domestic vaccine makers.
Investor interest has shifted back to the vaccine sector and there is widespread excitement in industry circles that the product portfolios of Indian vaccine companies are niche and less susceptible to competition and are hence attracting global recognition. The Sanofi-Shantha deal has highlighted the increasing potential of Indian vaccine companies in the realm of drug research. Excitement is also on account of the fact that intellectual property and manufacturing facilities of Indian companies will attract strategic investors in the times to come.
The deal has again brought into focus the strong value proposition that Indian vaccine makers such as Serum Institute of India, Panacea Biotec, Indian Immunologicals, Shantha Biotechnics, Bharat Biotech bring with them in terms of strong discovery research, combined with good manufacturing capabilities. They have made their mark as reputed vaccine producers in the world, exporting to a number of countries. The fact that Shantha Biotech was able to attract Sanofi with its intellectual property and good manufacturing facilities is a sign of the maturity of the Indian vaccine industry.
No sooner was the deal announced that the stock prices of domestic vaccine makers skyrocketed, riding on investor interest. A rich product pipeline along with several vaccines under advanced stages of development at domestic companies add to the glitter. Indian vaccine makers have a long history of supporting WHO and UNICEF in developing and supplying affordable vaccines such as, oral polio, measles, combination vaccines etc. Products in the pipeline include vaccines for rotavirus, swine flu, typhoid, various forms of cancer and other adult vaccines.
Perceived as low growth and uneconomical earlier, vaccines have been in focus for global drug companies during the last few years; the sector is currently estimated at $20.6 billion and is said to be growing at 10% compared to the 3-4% growth for the overall global pharmaceutical industry. Hence global drug majors facing patent expiry and shrinking product pipelines are increasingly looking at this segment to maintain their topline and profitability. The vaccine segment continues to enjoy good profitability—thanks largely to the high entry barriers—and hence has been drawing renewed attention of the drug majors.
The US and European vaccine majors have targeted emerging markets as sales in the mature markets of America and Europe slow. For instance, Shantha’s buyout is part of Sanofi-Aventis CEO Chris Viehbacher’s strategy to aggressively grow the company’s vaccine business. As on date, he has inked four vaccine deals—three in emerging markets—since he became the company’s CEO last year. These include a deal for Mexico’s generic maker Laboratorios Kendrick, Brazilian generic drug company Medley, and California-based cancer specialist BioPar Sciences. Sanofi is trying to refill a development pipeline seen as lacking new drugs to replace blockbusters such as Plavix, which is used to prevent blood clots that will soon come off patent and face competition from generic drugs. Moreover, vaccines are considered to be increasingly important as they are typically ordered by governments in bulk and can be administered to large populations.
No wonder, the Shantha Biotechnics buyout did not surprise many. But what left many astounded was the size of the deal. At a buyout price of Rs 3,778 crore, the transaction even exceeded the combined Indian vaccines industry’s revenues of Rs 3,587 crore for the fiscal 2008-09. Equally shocking was the valuation more than eight times of its projected sales of Rs 440 crore for the current year. Analysts reckon the deal has catapulted Shantha Biotechnics into the big league. It is now one of the top 15 drug companies by market valuation, ahead of even the Indian subsidiaries of global vaccine majors in terms of market value.
“The deal sends a strong signal that Indian pharmaceutical and biotech companies are well respected. The high valuation is due to our quality conscious products at low prices. We have been focusing mainly on good quality and developing new products for affordable healthcare,” says KI Varaprasad Reddy, managing director, Shantha Biotechnics. “The valuation comes at a historical cost which created and then distributed wealth in the form of employee stock options. Even the lowest employee got about Rs 4-5 lakh on an average,” he adds.
According to Nitin Deshmukh, head of private equity at Kotak Mahindra Bank, the valuation is justified and the Sanofi-Shantha Biotech deal is not a one-off deal. “Finally, there is recognition for intellectual property being generated by an Indian vaccine company. There are a number of biotech companies which are not in the public domain and yet, they are doing some significant work. As they approach the market with their product, I am sure we could expect similar valuations for them too,” he adds.
Without any doubt, the deal is seen as a strategic fit for both Sanofi-Aventis and Shantha. While the French firm would benefit by acquiring a slew of new vaccines under development at Shantha facilities, the Indian company would gain access to new technologies and the global market. “Shantha would provide Sanofi Pasteur with a portfolio of new vaccines in development which complement Sanofi Pasteur’s current vaccines, positioning the company to accelerate its growth in strategically important emerging markets,” says Viehbacher. “Shantha’s manufacturing facilities allow Sanofi Pasteur to gain high quality capacity in order to enable us to provide important vaccines at affordable prices to many people around the world,” he reiterates. Clearly, it is the lure of the rich product pipeline of Shantha Biotech which attracted Sanofi-Aventis to go for the acquisition. The Indian company is developing generic biologicals, therapeutic antibodies, proteins and vaccines in the fields of oncology, infectious diseases and platform technologies. The new products being developed at the Hyderabad facility include rotavirus vaccine for infant diarrhoea, conjugated typhoid vaccine and human papillomavirus vaccine for cervical cancer.
In addition, most of the existing vaccines in the Indian company’s pipeline are ready for use. Besides, Sanofi will also be able to take advantage of Shantha’s manufacturing facilities in Hyderabad. Nevertheless, this deal will definitely have a positive outlook for the Indian vaccine sector. There are other companies such as Biocon, Panacea Biotec, Serum Institute, Bharat Biotech to name a few among the major ones, which boast of a rich product pipeline.
Post Sanofi’s buyout of Shantha Biotech with such a good deal, other companies may not mind looking for such a deal if they get such a valuation, opines Bibhuti Bhusan Kar, programme manager, South Asia & Middle East, healthcare—pharmaceuticals and biotechnology, Frost & Sullivan.
Krishna Ella, chairman, Bharat Biotech says, “There is a good recognition for Indian vaccine manufacturers. Companies manufacturing vaccines from the country are being approached world over as there is a huge demand.”
The key drivers for global vaccines market has been mass immunisation programmes in emerging markets like Brazil, Cuba, India and Russia and various developed countries agencies stocking up in anticipation of diseases. Besides this, developments occurring in pediatric vaccines have been astounding.
The sector has also been boosted by funding from various governments and private agencies as well as better and more innovative combination products/delivery systems being developed, informs Navroz Mahudawala, associate director with Ernst & Young’s health sciences practice.
There are two important strategic reasons because of which the interest in India and Indian markets would continue. India is slowly emerging as a global manufacturing base for low cost vaccines. “From a demand angle, while the emerging markets currently represent around 75% of volumes; they actually contribute less than 25% in value. This dichotomy will get corrected over a period of time; with increasing purchasing power and increased spending from organisations like UNICEF,” says Mahudawala.
Besides most Indian manufacturers have a robust product pipeline with several products in advanced stages of development. This is expected to be well received in various developed markets.
The other factor is India’s domestic market potential itself. According to industry sources, the Indian vaccines market is currently Rs 3,587 crore in size and is expected to grow at a CAGR of 20-25% over the next few years. Although the size of the market is relatively low, it is expected to grow owing to factors like government immunisation programmes and increased disease awareness. India offers huge potential to offer products from their global portfolio. Given the above factors, it is expected that global vaccine majors will look to increasingly expand their presence in India either organically or through strategic alliances or even acquisitions. The action seems to have just begun.
- Source: The Financial Express, Aug 03, 2009
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