After the UK parent of GlaxoSmithKline Pharmaceuticals announced an open offer to increase its stake from 50.3 percent to 75 percent at a cost of Rs 6,400 crore, CNBC-TV18 spoke with an industry veteran, Former Pfizer India MD Kewal Handa to get his views.
Also read: Parent co announces open offer for GSK Pharma at Rs 3100/sh
Handa talked about the business intent of the MNC pharma companies in India and issues that have plagued the sector recently.
Here is the verbatim transcript of his interview.
Q: One way of looking at this is that GSK is more bullish about India and hence has decided to consolidate its stake. Is there any other way of looking at it? Anything else that strikes you as clear reasons for why they would be wanting to do this?
A: If you look at GSK’s history, it’s a more “Indian” MNC pharma company than any other. It has been launching products at local prices. It was in the top-three for so many years.
It has had some reversals recently: it is coming out of the price decreases, its Tykerb patent got turned down and finally the new pricing charges order that came to GSK. In spite of that, [GSK Plc CEO] Andrew Witty is very positive about the Indian volumes. He is very positive about the story of India and Brazil in the emerging markets.
To be on top in all emerging-market countries to my mind is GSK’s top priority.
Q: This is seen to be an industry that is very unfriendly to foreign investors and companies. There is drug price control yet you have seen this. Do you expect this to happen with others, there are other who could hike stake -- Sanofi, Merck, AstraZeneca -- do you see others following suit?
A: We have Sanofi almost on the same side as GSK. It is quite bullish in terms of inorganic acquisition in India and Sanofi has also been talking about increasing its footprint in India.
Merck, though it came out with a policy of having products at local pricing, it has somehow not yet shown their intention to invest in India. The other big pharma companies are not doing anything that requires more investment in India except GSK, Sanofi and Astrazeneca. These are three companies we need to watch.
Q: The management says it intends to keep the company listed but I wonder if that is really their longer-term intent. Wouldn’t most MNCs prefer their subsidiaries to be closely-held and not publicly-listed?
A: Absolutely right. If you see globally, MNC companies are not listed they are just branches. It is only in India that these companies get listed. I am sure once they acquire 75 percent there is always that greed to go out and get de-listed.
I am not sure it would continue to be a listed company but the fact still remains that they are going to invest in this country. They have already committed to invest about Rs 850 crore and you need to watch out for an acquisition by GSK in India.
Q: An acquisition in specifically what area? What would they be looking for?
A: GSK is strong in anti-infectives but it does not have a very strong presence in cardiovascular or gynecology. It just started in oncology. It would be looking for a company, which gives it a strong presence in these therapeutic categories. Once it identifies such companies, I am sure it will go for it.
Q: Would you be able to list companies that could be potential takeover targets within the criteria you laid out?
A: There are many such companies but now the challenge is that even the Indian big companies are going to compete with the multi-national companies and take over.
We just saw what happened with Elder. Torrent came out from nowhere and acquired it. So, you would have these challenges. There are companies with specialized gynecology portfolio and trying to sell it for a pretty long time though there are has some legal challenges.
Q: Who are you referring to?
A: There is another company in the South, which is more than about Rs 1000 crore. It is a pretty good company as a target company. I guess there are companies, which are available with this portfolio. You will not get 100 percent that is for sure. Even if you are around about 60-70 percent, I think it is an ideal bet to go for.
Q: Talk to us about the potential of the Indian pharmaceutical space because a lot of the cues in the recent past have been very negative. You spoke about Torrent coming out of nowhere but one of the reasons why we thought it went only to an Indian player was because the FDI policy towards MNC takeovers of Indian companies has been very negative in the last year or so. You spoke of drug pricing, which has had considerable negative impact on several companies in this space. So investors need to figure out whether they should stay invested with a stock like this over the long term?
A: The issue on brownfield and greenfield is more or less settled except that you are to go through the process of getting approvals but I don’t think it debars you now from taking over an Indian company. I think that uncertainty is gone.
The issue on pricing has also been settled, we are very clear now on what is going to be the future landscape on pricing.
The patent issue everybody knows what can be launched and what cannot be launched and therefore GSK is one company, which has realized that if you want to operate in India you have to live with these issues and then you have to find a niche how to really market the products and make bigger bets.
I think it is going to be a case of acquiring big brands, it is going to be case of drawing geographical-area strengths and it is going to be a case of acquiring distribution in rural areas. If you get those types of companies which have these types of strength, I think companies like Sanofi, GSK are definitely going to acquire companies.
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