In economic literature, it has been observed that fragmented industries consolidate as they mature. Deans et al. (2002) in their paper titled, ‘The Consolidation Curve’ published in Harvard Business Review had stated that once an industry forms or is deregulated, that industry will move through four stages of consolidation. With emergence of a single start-up or monopoly, competitors come up thereby affecting the concentration. To defend first mover advantage, industry players go in for consolidation. This is opted to build scale, to create global footprint, and to establish entry barriers. 2nd stage of consolidation is mainly for building scale. In third stage, companies focus on expanding their core business and attempt to outgrow the competition. In the 4th stage, the growth becomes challenging so large companies may form alliances with their peers.
1st stage of consolidation was observed in e-Pharmacy. NetMeds became the first player in this space as NetMeds.com was founded in 2015. The Dadha family as founders had many firsts to their credit. Sri Lalchand Dadha founded the group and ran pharmaceutical business. In 1926, he was instrumental in the formation of the Chemists & Druggist Federation that became All India Organization of Chemists & Druggists (AIOCD). It was M/s Dadha & Co. which was known as Tamil Nadu’s first registered importers of drugs, pharmaceuticals and patented medicines from different parts of the world. Another first to their credit was the import of penicillin. 1mg was also founded in 2015. Within interval of few months, Dhaval Shah and Dharmil Sheth founded PharmEasy. Medlife was another prominent player specializing in the healthtech sector that was established by Ananth Narayanan, Prashanth Singh and Tushar Kumar.
Then came the wave of consolidation in the sector. In August 2020, Reliance Retail Ventures Limited, a wholly owned subsidiary of Reliance Industries Limited acquired a majority equity stake in Vitalic Health and 100% direct equity ownership its subsidiaries. Subsidiaries included Tresara Health Private Limited, Netmeds Market Place Limited and Dadha Pharma Distribution Pvt. Limited. Medlife was acquired by PharmEasy in May 2021. In June 2021, PharmEasy also acquired majority stake in diagnostics chain – Thyrocare. In June 2021 itself, Tata Digital Limited, a 100% subsidiary of Tata Sons, had entered into an agreement to acquire majority stake in 1MG Technologies Private Limited. By September 2023, Tata 1mg had a 31 per cent market share whereas in October 2022, market share of Tata 1mg was 19 per cent. In contrast to this, market share of PharmEasy went down to 15 per cent in September 2023 from almost 33 per cent in October 2022.
Recent trends in Indian Pharmaceutical Industry reveal that the industry is in consolidation mode. As on May 29, 2020 there were 8,532 pharmaceutical units present in States and Union Territories in India. Gujarat was the leading state with 3,332 pharmaceutical units followed by Maharashtra with 929 pharma units. Other states which had pharma units in three units included Himachal Pradesh (555), Telangana (523), Tamil Nadu (514), Uttar Pradesh (408), Karnataka (376), Madhya Pradesh (267), Andhra Pradesh (261), Uttarakhand (220), West Bengal (180), Punjab (156), Rajasthan (128), and Kerala (100). It is widely cited that India has more than 3,000 pharma companies with over 10,500 manufacturing facilities (Invest India). This shows that industry is highly fragmented. No single player holds market share of Indian pharmaceutical industry in two digits.
Most recent example pointing towards consolidation is of Mankind Pharma that completed acquisition of 100 per cent stake in Bharat Serums and Vaccines Limited for an enterprise value of about Rs. 13,630 crore (Press release of Mankind Pharma dated July 25, 2024) thereby establishing Mankind Pharma as a market leader in Indian women’s health and fertility segment. In March 2024, Nirma completed the acquisition of a 75 per cent stake in Glenmark Life Sciences (GLS). Through this acquisition, Nirma strengthened presence in the pharmaceuticals and life sciences sector as GLS was the manufacturer of active pharmaceutical ingredients (APIs).
There are many examples from similar transactions in recent years which signal consolidation in the pharmaceutical industry in India, e.g., in May 2022, Eris Lifesciences acquired 100 per cent stake in Oaknet Healthcare, and Oaknet Healthcare became a wholly owned subsidiary of Eris Lifesciences. In September 2022, Torrent Pharmaceuticals entered into definitive agreements to acquire 100% of Curatio Healthcare for Rs. 2,000 crores. Curatio had a strong presence in the cosmetic dermatology segment with a portfolio of over 50 brands. Dermatology accounted for 82 per cent of Curatio’s revenue. In February 2024, Novartis announced strategic review of Novartis India, its listed entity in India. In September-end of 2024, Alkem Labs was said to be in talks to acquire Novartis India. Prior to that, Dr. Reddy’s Laboratories was also said to be in fray for acquisition of 70.6 per cent stake in Novartis India from Novartis AG. As per media reports, private equity firms such as Apollo Global Management, Kedaara Capital, ChrysCapital and Multiples Equity were also evaluating acquisition of Novartis India’s stake.
The failure of small and medium pharma enterprises to meet quality management systems is an important development that can have impact on consolidation of pharmaceutical industry. This includes lack of documentation, and validation processes, or absence of quality control laboratories to name a few. Micro, Small and Medium Enterprises consider quality management systems as a part of entry barriers. In June 2024, while the Drugs Controller General of India (DCGI) was speaking at Global Pharmaceutical Quality Summit, 2024 conducted by the Indian Pharmaceutical Alliance, the DCGI stated that about 400 pharmaceutical units were inspected and nearly 36 per cent had to be closed as those units failed to meet the standards. Further, he stated that of those units which had to temporarily shut down, around 10 per cent of the units were permanently moved out of the system. Units which came back had put in place corrective and preventive action plans. Indirectly, it lowered the count of the sub-standard facilities. But it has implications for the industry consolidation given the fact that about 80 per cent of about 10,500 manufacturing units, are micro-small and medium-scale facilities.
Since December 2022, risk-based inspections of manufacturing facilities were initiated by the Central Drug Standards Control Organization (CDSCO). More than 300 measures which included production halt order, suspension, cancellation of liences/products licences among others, were ordered based on the risk-based assessment of the drug firms by the State Licensing Authorities and the Central Drugs Standard Control Organization. It is pertinent to understand the background that ‘Good Manufacturing Practices and Requirements of Premises, Plant and Equipment for Pharmaceutical Products’ rules were announced in July 2023 and these rules were notified on December 28, 2023. As per these rules, drugmakers termed as ‘larger manufacturers’ with an annual turnover of more than ₹250 Cr. had to compulsorily follow these rules within six months. Drugmakers with turnover less than ₹250 crore termed as small and medium manufacturers, were expected to follow these rules within a 12-month period. The revised version of the Good Manufacturing Practices (GMP) was more comprehensive and stringent. Pharma industry associations from different states appealed to the government for extending the deadline to meet the revised Schedule M norms of GMP. Their key argument was regarding investment only as it was felt that there was need for securing additional financing for the required upgrades. Industry associations feared the closure of numerous small units in absence of extension of deadline for SMEs.
Indian Pharmaceutical Industry has a wide range of therapeutic categories and has numerous players. Consolidation in the industry has implications for stakeholders such as the patient as end-user, Competition Commission of India (CCI) due to impact on competition intensity, and regulatory bodies. Product market concentration, pace of consolidation, merger & acquisition deals, stringent enforcement of GMP norms for SMEs, are going to be key drivers for consolidation.
Dr. Anil Kumar Angrish, Associate Professor (Finance and Accounting),
Department of Pharmaceutical Management,NIPER S.A.S. Nagar (Mohali), Punjab
Disclaimer: Views are personal and do not represent the views of the Institute.
