Tuesday, April 17, 2012


Investment bankers across the nations are biting nails to find investments opportunities in 2011.It has become quite difficult for the investment bankers to find feasible projects where return on investments can be achieved with an big jump. The year 2011 was quite difficult year for the IB segment. The objective of this article is to dig out the opportunities in Indian pharmacy business over the next decade.The revenue of investment banks in India has declined to $515 million in 2011, down 30% from the $741 million generated last year, according to data from Dealogic Holdings Plc. The decline is revenue in backed by poor performance of the Stock market and stringent interest rate policy imposed by RBI affecting the margins and overall performance of the Indian companies. Equity capital market transactions slumped 67.26% to $9.76 billion this year and debt capital market volume fell 13% to $39.48 billion. Domestic M&A volume stands at $13.8 billion this year, down significantly from the record $45.9 billon announced in 2010, Dealogic data shows.

This is also the lowest level since 2005, when domestic deal volume was $12 billion. Inbound M&A volume has reached $30 billion, slightly behind the record volume of $34 billion announced in 2007.Macro economic situation has damaged the prospects of the Investment Bankers. In fact last time I covered a brief note on the performance of the PE in Indian economy and their pains of struggle. Please click here to read the previous article on PE in Indian economy.http://ianalysis.blogspot.in/2011/12/indian-pe-funds-consolidationbegins.html

Despite of these pains for the investment bankers I find one sector which will continue its growth journey despite of all tremors. India is having a population size 3 times of the US population. Hectic life schedule followed with modernized living styles has increased the complexity of the diseases resulting more stringent problems for the doctors to find remedy. Indian pharmacy sector is poised for an huge growth where within the next 8 years from now (2020) Indian pharmacy sector will grow to an will grow to an US$ 74 billion sales by 2020 from US$ 11 billion now.

In my research I went through few hospitals where I interacted with many doctors to find the real growth areas and the possible avenues which will attract the flow of capital. Cancer has become one of the most common disease among the gen-next. The real pain of cancer is much less as compared to the price of the medicines required for treatment of the same. The price of one of the cancer drug manufactured by Bayer's is Rs 2.8 lakh. Well now one can understand the pain of the treatment. Rising inflation along with an jumping health cost is eradicating the wealth of middle class and making the poor more poor.India is not an cash rich wealthy citizens country.60% of the population of India still struggles to have a full fledged meal twice a day.There is another most common and increasing disease called Liver cancer (hepatocellular carcinoma). According to the patent office if the drug department there would be about 20,000 such cases in the country.

Most of them are in the age group of 45 to 50 years who are suffering with the disease and moreover many of them the sole bread winners for their families. The more common cancers in India are oral, cervical, breast, blood and colon. There are many diseases for which, just like cancer, you have to be on expensive, long-term medication. Low cost treatment and medicines are the demand of the situation. The price of medicines has rose due to flow of foreign medicines. Indian pharma sector has failed to identify the potential growth opportunity in India. The US, which has a cancer registry segment, built under its government reports 1.5 million new cases of cancer each year. India does not have a national cancer registry.

The need for low-cost treatment is seen not just in cancer care but also in liver diseases like Hepatitis B and C. Pegylated Interferon, a medicine used to treat Hepatitis, costs Rs 16,500 a dose. Biotech-based breast cancer drug Herceptin, made by Swiss company Roche, the world's largest maker of cancer drugs, is sold for close to Rs 1 lakh a vial. The total treatment, depending on the severity and dose, could cost up to Rs 15 lakh. How costly is treatment is now well clear.India needs not only good numbers of hospitals. They need medicines and that at an low cost. In many cases, even generic versions, while cheaper than their patented counterparts, cost thousands of rupees for a dosage. Recently the Indian government has changed the policy for drug patents. Under the new National Pharmaceutical Pricing Policy 2011, by the Department of Pharmaceuticals (DoP), which see the government fixing and regulating prices of all 348 essential drugs and their combinations, included those on the new National List of Essential Medicines. These include 33 anti-cancer drugs. Further Indian pharmacy will find within the next two years, launching Herceptin and Avastin-like drugs in India at a low cost. But in order to make this dream come true Indian pharmacy needs PE and IB attentions.I have such details of medicines in order to enable the PE and IB to identify the areas of the real pains where investments needs to be made.
Data from World Bank confirm that among the comparable BRICS nations, which have similar socio, political and economic influence in the globe, India spends the least on public healthcare. The Government's expenditure on healthcare as a percentage of GDP between 2004 and 2009 was well below that of other BRICS nations. While healthcare spends of BRICS were at less than 3% of their overall expenditure, corresponding values for US and the UK were 15% and 8.5%, respectively. While the yearly average between 2004 and 2009 for BRICS nations as a whole is 2.4% in India it was a meager 1.3%. The chart above shows the health spending.

This difference in spending is even more daunting against the background of growth rate of population during the period which was 1.36% for India, but only 0.7% for the BRICS group as a whole. India's per capita out-of-pocket expenditure to pay for health care costs has gone up from Rs 41.83 in 2005 to Rs 68.63 in 2010. Hospitalization costs, which rose 11.20% in 2004/05, rose 22.47% in 2009/10. At Rs 30,702 crore, the health allocation in the Budget for 2012/13 is 15% higher than the previous year's. But as a proportion of the GDP it has been stagnant at 0.3% for several years. Hence PE and IB can understand very clearly about the investment opportunities in Indian healthcare. Now don’t expect robust growth in 2 or 3 years. Good things take time hence one should stay invested to reap the growth from growing Indian economy. A balanced path" between discovery [research] and "regular" business will continue to draw the interest of private equity firms. Hospital chains will attract capital, as well as niche and therapeutic area-focused players. The growth in tier 2 and 3 cities will provide large opportunities. PE and IB should focus on long-term growth projects by focusing in specialized therapeutic areas and/or more complex molecules.

SMALL THOUGHT.We often find that US companies imposes many restrictions and raises voices over the Indian companies related to medicines patent and copy right issues. I would like to ask one question to my readers that when the business deal is being executed across the globe for Weapons of mass destruction then we spend thousand billions of funds but why can’t we apply the same theory for the Drug segment across the globe. Why joint collaboration research projects are not being executed to develop low cost medicines. Well this might sound like a philosophical thought but I request to think over.


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