Pharma companies optimistic on Indo-US deal corridor: Report

Mumbai : Despite the increasing protectionist tendencies in the US, domestic pharma sector, which saw 51 deals worth $4.6 billion in 2016, is cautiously optimistic about the inbound deals from the American shores this year, says a report.

According to an EY report, outbound and domestic transactions drove most of the deal activity in 2016, with 21 deals each. In terms of disclosed deal value, the deal size stood at $2.1 billion each.

Domestic deal making was dominated by smaller value bands with an deal value of $342 million, of which $272 million (four deals) were restructuring ones, it said.

"Given the recent policy announcements in the US on drug price control, bidding processes for generics, a potential border adjustment tax, and degrees of outsourcing/offshoring by US pharma companies, we remain cautiously optimistic on the US-India inbound deal corridor at this time," says the report without putting a number.

On the outbound deals, it says 2017 may be promising for outbound activity from India to the US, given that US valuations have significantly corrected and there aren't too many US-based acquirers with adequate financial strength.

India continues to offer competitive advantages to US pharma as a development and manufacturing base for generics and the country continues to enjoy a prominent position in the global generic pharma space, due to the large number of USFDA approved sites coupled with low capex and operating costs.

The recent change in FDI regulations also augurs well for deal sentiment, the report says as brownfield investments of upto 74 per cent, up from 49 per cent earlier, are now allowed under the automatic route.

"This presents domestic pharma firms with a much- needed opportunity to step in and close portfolio gaps at reasonable prices," says the report.

On the domestic front, the report sees consolidation attempts gathering speed despite increasing price controls and lack of product pipelines.

The year could also be good for private equity buy outs in the country as inbound strategic interest is selective, it concluded.