NCPA - National Center for Policy Analysis


June 18, 2008

Even five years ago, it would have seemed unimaginable for a Japanese pharmaceutical company to pay nearly $5 billion to acquire one in India.  Daiichi Sankyo's bid for Ranbaxy last week shows how rapidly the global competitive landscape has changed.  We are at the beginning of a new wave of globalization, says Vivek Wadhwa, a Wertheim Fellow at Harvard Law School and executive in residence for the Pratt School of Engineering at Duke University.    

The pharmaceutical sector is the latest example of India's and China's climb up the value chain, says Wadhwa.  Indian and Chinese companies are becoming increasingly important players in the global mergers and acquisitions game, both as targets and as acquirers.

According to a new study by the Kauffman Foundation:

  • In 2006, 8.5 percent of all pharmaceutical patent applications filed through the world Intellectual Property Organization included at least one inventor in China.
  • Some 5.5 percent included one or more in India.
  • This proportion has increased fourfold since 1995.

As they gain scale, Indian and Chinese companies are increasingly shifting their focus to domestic markets.  These developments bring the promise of cheaper drugs, says Wadhwa. 

For example: Dr. Reddy's Labs is developing a "poly pill" which combines the four most common medications taken by heart patients into a single pill, which may be marketed for less than $30 per patient per year in the United States.

We are likely to see more deals like the Ranbaxy/Daiichi Sankyo merger -- in a diverse set of industries, says Wadhwa.  Western multinationals will increasingly look for acquisitions in India and China.  As Indian and Chinese companies gain greater confidence and scale, they will likely buy their way into global markets.

Source: Vivek Wadhwa, "Welcome, Global Pharma," Wall Street Journal, June 17, 2008; based upon: Vivek Wadhwa et al., "The Globalization of Innovation: Can India and China Cure the Global Pharmaceutical Market?" Kauffman Foundation, June 11, 2008.

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