See Indian drug cos growing inorganically in 18-24 mnths:Moody's

Regaring Donald Trump’s rhetoric, he said that  not all Indian companies based in the US export from the country “We expect 10 percent growth over the next 2-3 years, he said.Below is the verbatim transcript of Kaustubh Chaubal’s interview to Reema Tendulkar and Nigel D’Souza on CNBC-TV18.

Reema: If you could run us through very quickly the key takeaways of your report?A: Over the next 18-24 months, we expect mergers and acquisitions (M&A) to be the myntra for the Indian generic companies in terms of growth. When they look for growth in terms of deepening their geographical diversity, enhancing product diversity, I think US would be a key market that they would look at. US remains the world’s largest pharmaceutical market as well as the world’s largest generic market in terms of penetration and in terms of opportunities. It is a market that pharmaceutical companies cannot avoid.The Indian companies would also look at M&A opportunities in other emerging markets such as Russia, CIS countries. In this, their strong financial profiles in terms of balance sheet leverage will afford them the flexibility to take on more debt if they pursue debt funded acquisitions. That is broadly the theme of the report that we have written.Nigel: With US President Elect Donald Trump coming in there, do you see it change things a bit, he was pretty stern in terms of his commentary that came in last week and that is what really saw a big cut in the pharmaceutical index not only domestically but also internationally?A: The Indian pharmaceutical companies that operate in the US, not all export from the US. They also have manufacturing facilities, some of them have manufacturing facilities elsewhere or also in the US. So, what we expect is that given the depth of the US market, given the growth potential of the market, we expect around 10 percent growth over the next two to three years given around USD 50 billion drugs going off patent. That is an important market that companies can’t avoid.So, if there would be pressure in terms of the new legislations for non-US companies to operate in the US, the M&A route is always there, they could explore M&A opportunities within the US as well. So, it is not just M&A opportunities elsewhere catering to the US market but they could also look at acquiring manufacturing facilities or companies with Abbreviated New Drug Application (ANDA) pipelines in the US itself.Reema: Why not domestic homegrown companies in terms of acquisition targets? Why will Indian companies not acquire other smaller Indian companies to add their capability and niche?A: If you look at the Indian pharmaceutical space, most of the companies are largely promoter held. There are large promoter holdings and those promoters are actively involved in the businesses. So, with the exception of Nicholas’ generic business that was sold or Ranbaxy that was acquired by Sun Pharmaceutical, we have not seen a large M&A activity in India.In terms of context, the entire Indian pharmaceutical market is USD 14 billion. Teva, which is the largest generic company in the world, has global revenues of USD 20 billion. So, India in terms of value, it is a very small market. The kind of opportunities, the kind of growth potential and the kind of profitability that Indian companies can have by expanding overseas, I would say is much higher than within India itself. So, I think that would deter consolidation in the Indian space.Reema: Any companies you believe could be on the prow if you like to give us some names of any listed companies?A: All Indian companies or rather all companies that have US as a focus would continue to explore for M&A opportunities, would continue to explore for growth anyways. The R&D productivity is coming down so to get to that next level you need an acquisition and with large global generic companies consolidating there is always this overlap of products that are available for sale and I think that is where the Indian companies can participate.Earlier this year we saw Dr Reddys acquiring eight ANDAs from Teva, last month we saw Intas Pharmaceutical which is another Indian company acquiring the Irish business from the Allergan acquisition that Teva did. So, I would not drill down to any specific names but I think all companies that are looking at the global landscape as a growth opportunity would look for M&A.