How Eris gains from Strides' brands
Ahmedabad-based Eris Lifesciences' acquisition of the India brand business of Bengaluru-based Strides Shasun has been in the news. Some even see this as a sign of gathering momentum towards domestic market consolidation. How significant is this deal and are there signals to be read in it?
Here's what was announced. On November 18, the two companies informed the bourses that Strides Shasun (Strides) and Eris Lifesciences (Eris) were entering into definitive agreements for sale of Strides' India branded generics business to Eris for an aggregate cash consideration of Rs 500 crore. Strides' India branded generics business, the note to the exchange said, comprised of a portfolio of over 130 brands in the domains of neurology, psychiatry, nutraceuticals, gastro, among others, along with the employees forming part of the business.
Eris is acquiring the marketing and distribution rights for this portfolio of products in India while Strides will retain the global rights. The key point, it said, was that "with this acquisition, Eris's fourth-and the largest--in the last 18 months, the company will be among the top ten companies in the Central Nervous System (CNS) segment. Eris is already among the top 20 companies in the cardiology segment and ranks among the top ten in the diabetology segment." As is apparent, the focus is on the strength this will add to the CNS portfolio, its recent foray, that it is trying to grow.
Analysts point out that while the deal seems to be an ideal fit for Eris, much would depend on how the company takes it forward from here. They see Eris wanting to build its neurology portfolio but analysts also point out that the Strides portfolio is largely composed of the old Ranbaxy brands that Sun Pharma sold while acquiring the company as some of it was overlapping with Sun's portfolio. Therefore, they would prefer to wait and watch the extent to which these emerge as high-growth brands for Eris.
But on the larger question of consolidation and whether there are signs to be read on a move towards consolidation in the domestic pharma space, the jury is still out. The story so far, as some analysts are reading it, is more about company-specific issues leading to deals and that nothing has really changed fundamentally in the market to trigger consolidation. For instance, these tend to be led more by the investment priorities or the financial conditions of the companies involved in the deal. In the Torrent - Unichem deal it seems to have made sense to Unichem to leverage it to reduce debt/ focus on other businesses. Similarly, for Strides, the drivers could have been more around scaling up led by the need to invest abroad.
The joint note from the companies however says, post-acquisition Eris will break into the league of top 25 companies having a market share of more than 1 per cent in the Indian Pharmaceutical Market. The India branded generics business being divested by Strides had sales of Rs 181 crores in FY 2017.