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Volume:01, Number:08, Dec-2011 : RJSSM Page 41 www.theinternationaljournal.org
GROWTH THROUGH ACQUISITION
(A CASE STUDY OF WOCKHARDT)
Dr. Mohender Kumar Gupta Associate Professor, Department of Commerce,
Government P. G. College (Affiliated to Maharishi Dayanand University, Rohtak),
Faridabad-121002, Haryana, India.
Mehak
Associate Professor, Department of Finance,
D.A.V. Institute of Management (Affiliated to Maharishi Dayanand University, Rohtak),
Faridabad-121001, Haryana, India.
Abstract
The paper is a case study of an Indian pharmaceutical company-Wockhardt. It is based on the
acquisitions made by the company since 2000. Wockhardt is ranked amongst the top 5
pharmaceutical companies in India. The company is known for developing Asia’s first
recombinant insulin-Wosulin. Further it is also the largest Indian pharmaceutical company in
UK. Through a series of acquisitions in Europe it has established a very strong foothold there.
The paper tries to analyses how the acquisitions have helped the company grow over the
years. It also involves the opinions of the employees working at various levels in the
company. Further, ratio analysis has been used as a statisitical tool.
Volume:01, Number:08, Dec-2011 : RJSSM Page 42 www.theinternationaljournal.org
INTRODUCTION
With the easy availability of capital and increased global interest in India's research and
development capability, the country's pharmaceutical industry offers a good climate for
mergers and acquisitions. Pharmaceutical companies have discovered that it is
more economical to buy out or merge with another company than to invest in a start-up,
because the element of uncertainty is always there. During 2005-06, the Indian
pharmaceutical market at $5.5 billion represented 1.8 per cent of the global market and
ranked fourth in terms of volume and thirteenth in value1 (Mr Cesar Menezes, Managing
Director, Wallace Pharmaceuticals Ltd, and Chairman, India Pharma Inc, November 2006).
More and more Indian companies are opting for acquisitions abroad in the regulated market.
This has many benefits. First of all they get a ready market for their products without getting
entangled in any legal hurdle. Secondly they are able to gain control over the latter companies
manufacturing facilities. These facilities have the required regulatory approval from their
respective countries’ (UK, France and Ireland) governments. Also they are able to gain
control over the profitable products of those companies. Further, acquiring already
established companies in the regulated markets is helping Indian companies increase their
knowledge base. This knowledge base i.e. the R&D expertise is helping them develop newer
and better drugs.
Table1
Merger and Acquisition deals by Indian companies in the past 10 years
S.No. Announcement
date
Target
Company
Acquiring
Company
Deal
Value
(In
crores of
Rs.)
Motive for
merger
Target
Country
1 June, 2008 Zandu
Pharmaceutical
works
Emami 5.8 To gain control
over products
India
2 May, 2008 Dow pharma
small molecules
business
Dr.
Reddy,s
Lab
NA To gain control
over contract
manufacturing
business of UK
UK
3 May, 2008 BASF
Pharmaceuticals
Dr.
Reddy,s
Lab
NA To gain control
over
manufacturing
site in S. Africa
South
Africa
4 April, 2008 Draxis Health Jubilant
Organosys
2.5 To enter North
American
market and
overcome legal
barriers
Canada
5 May, 2007 Taro Pharma Sun
Pharma
454 To gain control
over R&D
facilities
Israel
6 May, 2007* Negma
Laboratories
Wockhardt 265 To enter the
French market
and overcome
legal barriers
France
Volume:01, Number:08, Dec-2011 : RJSSM Page 43 www.theinternationaljournal.org
7 April,2007 Nippon
Universal
Pharmaceuticals
Ltd.
Zydus
Cadila
12 To enter
Japanese
market and
overcome legal
barriers
Japan
8 Mar,2007 Liva Healthcare Zydus
Cadila
15 To acquire
products
India
9 Oct, 2006* Pinewood
laboratories
Wockhardt 686 To enter the
Irish market
and overcome
legal barriers
Ireland
10 June, 2006* Dumex India Wockhardt 100 To gain control
over the
products
Indian
subsidiary
of Royal
Numico
NV of
Netherlands
11 May, 2006 BeTabs
Pharmaceuticals
Ranbaxy 70 To enter S.
African
marketv
South
Africa
12 April, 2006 Pfizer’s
manufacturing
site in UK
Nicholas
Piramal
India
Limited
NA To gain control
over the
manufacturing
site and also
the customers
13 March, 2006 Terapia Ranbaxy 324 To acquire
manufacturing
units, an R&D
center and gain
control over
products
Romania
14 Feb, 2006 Betapharm Dr.
Reddy’s
Lab
570 To enter
German market
and overcome
legal barriers
Germany
15 Dec, 2005 Bouwer Bartlett Glenmark NA To enter South
African market
and overcome
legal barriers
South
Africa
16 Dec, 2005 Able Labs Sunpharm 23 To gain control
over research
molecules
US
17 Nov,2005 Nihon Pharma Ranbaxy NA To enter
Japanese
market and
overcome legal
barriers
Japan
18 Nov,2005 Roche’s API
facility in
Mexico
Dr.
Reddy’s
Lab
58.97 To gain control
over
manufacturing
site
Mexico
19 Oct, 2005 Servycal SA Glenmark NA To gain control
over oncology
South
Africa
Volume:01, Number:08, Dec-2011 : RJSSM Page 44 www.theinternationaljournal.org
products
20 Oct, 2005 Target Research Jubiliant
Organosys
33.5 To gain control
over contract
research
business
NA
21 Oct, 2005 Avecia
Pharmaceuticals
Nicholas
Piramal
India
Limited
9.5 To establish
itself in UK
and also enter
the contract
research
business in UK
UK
22 Sept, 2005 Explore Labs Matrix
Labs
NA To gain control
over products
Switzerland
23 Sept, 2005 Valeanc Mfg. Sun Pharm NA To gain control
over
manufacturing
facilities in US
US
24 July, 2005 Trinxy Labs Jubiliant
Organosys
12.3 To enter US
market and
overcome legal
barriers
US
25 June, 2005 Heumann
Pharma GmbH
& Co Gen
Torrent NA To enter
German market
and overcome
legal barriers
Germany
26 June, 2005 Doc Pharma
NV
Matrix
Labs
2.63 To enter the
Belgium
market and
overcome legal
barriers
Belgium
27 June, 2005 Biopharma Srides
Arcolab
1 To enter the
Latin American
market and
overcome legal
barriers
Latin
America
28 May,
2005*
Esparma GmbH Wockhardt 49 To enter the
German market
and overcome
legal barriers
Germany
29 March, 2005 Uno-Ciclo
Hormonal
Brand
Glenmark 4.6 To enter
Brazilian
market and
overcome legal
barriers
Brazil
30 Feb, 2005 Strides Latina Srides
Arcolab
6 To enter
Brazilian
market and
overcome legal
barriers
Brazil
31 Feb, 2005 Mchem Pharma
Group
Matrix
Labs
NA To enter
Chinese market
and overcome
legal barriers
China
Volume:01, Number:08, Dec-2011 : RJSSM Page 45 www.theinternationaljournal.org
32 Dec, 2004 Rhodia
Anesthetics
Business
Nicholas
Piramal
14
33 Dec, 2004 Global
inhalation
anaesthetics
business of
Rhodia
organique Fine
Ltd.
Nicholas
Piramal
India
Limited
61.5 To enter the
UK market and
overcome legal
barriers
UK
34 June, 2004 Psi Supply NV Jubiliant
Organosys
NA To gain control
over products
Belgium
35 May, 2004 Trigenesis
Therapeutics
Inc.
Dr.
Reddy’s
Lab
11 To gain control
over research
facilities
US
36 May, 2004* Esparma GmbH Wockhardt 11 To enter
German market
and overcome
legal barriers
Germany
37 April2004 Laboratories
Klinger Do
Bras
Glenmark 5.2 To enter
Brazilian
market and
overcome legal
barriers
Brazil
38 Feb,
2004*
Canere
Activities and
Fine Chemicals
Nicholas
Piramal
India
Limited
116.2 To gain control
over
manufacturing
facility
India
39 Dec, 2003 RPG Aventis Ranbaxy 84 To gain control
over products
France
40 July, 2003 Alpharma Cadila 6.2 To enter French
market and
overcome legal
barriers
France
41 July, 2003* CP
Pharmaceutical
Wockhardt 17.7 To gain control
over R&D
facilities
UK
42 April, 2003 Global Bulk
Drugs and Fine
Chemicals
Nicholas
Piramal
India
Limited
52 To gain control
over
manufacturing
facilities
India
43 Jan, 2002 ICI Limited Nicholas
Piramal
India
Limited
70 To gain control
over products
India
44 April, 2000 Rhone Poulenc
India Limited
Nicholas
Piramal
India
Limited
236 To gain control
over
manufacturing
facilities and
products
associated with
it
Indian
subsidiary
of a UK
firm
(Source: Details collected from websites of various companies)
Volume:01, Number:08, Dec-2011 : RJSSM Page 46 www.theinternationaljournal.org
Table 1 shows some of the major pharmaceutical deals by Indian companies in developed and
developing countries in the recent past. All the acquisitions have been done in the developed
countries. The deals have helped the Indian companies to establish their presence in the
foreign markets. The present study is based on the acquisition deals done by an Indian
company - Wockhardt. Wockhardt has acquired a few companies in the regulated markets in
the recent past. Through the study an effort has been made to find out how far these mergers
and acquisitions are successful.
OBJECTIVES
The present study throws light on the way Indian companies are acquiring foreign companies
to establish their presence abroad. It further attempts to find out how far such deals are
successful. Thus the main objectives of the study are-
1. To find out the reasons for acquisitions by Indian firms abroad.
2. To find out whether these acquisitions prove useful for the acquiring company.
RESEARCH METHODOLOGY
For the purpose of study a company has been taken as a sample. The name of the company is
Wockhardt. Wockhardt is ranked amongst the five largest pharmaceutical companies in
India2. The reason for selecting Wockhardt as a sample company is because Wockhardt has
in the past six years acquired 5 companies. All the deals were made in Europe and today
Wockhardt is the largest Indian pharmaceutical company in UK (www.wockhardtin.com). It
has acquired this status only through acquisitions. The data for the study is both primary and
secondary. The primary data is based on the personal interview of employees of Wockhardt.
The employees selected belonged to the sales, human resource, administrative and finance
section of the company. The interview was conducted with the help of questionnaires. Further
some employees were also approached through e-mails. The area for collection of primary
data was mainly the regional office of the company in Delhi. Sales employees working
Faridabad, Gurgaon (Haryana), Noida (Uttar Pradesh) were also approached. Table 2 shows
the relevant details of the employees interviewed.
Table 2
Details of the employees surveyed Particulars Number of Employees
Total Employees approached 27
Employees personally interviewed 25
Employees interviewed in Delhi 9
Employees interviewed in Faridabad 8
Employees interviewed in Gurgaon 5
Employees interviewed in Noida 3
Two employees who were contacted through e-mail were working in the Head Office of the
company in Mumbai. Secondary data has been analysed using ratio analysis.
Volume:01, Number:08, Dec-2011 : RJSSM Page 47 www.theinternationaljournal.org
LIMITATIONS OF THE STUDY:
The study is based on secondary data. These are collected from the annual reports of the
company. The financial calendar of the company is from Ist January to 31st December each
year. The annual reports of the company are released by the end of April or beginning of May
each year and hence the annual report for the year 2008 has still not been released. Due to
this limitation the financial data for the same year (2008) could not be incorporated in the
study as the annual report had was not been released by the company by the time this study
was submitted.
ABOUT WOCKHARDT
Wockhardt is a global, pharmaceutical and biotechnology company that has grown by
leveraging two powerful trends in the world healthcare market - globalization and
biotechnology. The Company has a market capitalization of US$ 1.3 billion and an annual
turnover of US$ 285 million (Rs. 12.39 billion). Wockhardt has a strong and growing
presence in the world’s leading markets, with half of its revenue coming from Europe and the
United States. Wockhardt’s market presence covers formulations, biopharmaceuticals,
nutrition products, vaccines and active pharmaceutical ingredients (APIs).
Acquisitions by Wockhardt
CP Pharmaceuticals
Objective of acquisition-
1. To enter the UK market.
2. To have access to the manufacturing facilities of CP pharmaceuticals as these had the
required regulatory approval from UK and US authorities.
On July 10, 2003, Wockhardt Ltd announced the acquisition of the UK-based CP
Pharmaceuticals Ltd for a total consideration of Rs 82.46 crore. The acquisition was funded
through internal accruals and borrowings. With this acquisition, Wockhardt was able to
establish a significant presence in the European Union and especially the UK market. CP
Pharma had strategic relationships with some of the leading international pharmaceutical,
biotechnology and drug delivery technology companies, for whom it undertook contract
manufacture in injectables, freeze dried products, solid dose tablet formulations as well as
liquids, creams and ointments. This was the largest overseas acquisition by an Indian
pharmaceutical company and had brought Wockhardt amongst UK's top 10 generic
pharmaceutical companies. It also made Wockhardt the largest Indian pharma company in
UK.
Esparma Gmbh
Objective of acquisition-
1. To enter the German market. Germany is the largest branded generics market in
European Union (Habil Khorakiwala, CMD Wockhardt Limited, in an interview to
rediff.com, May 4, 2005).
2. To gain control over the marketing and sales team of Esparma. Further, Esparma had
9 international patents and 94 trademarks.
Volume:01, Number:08, Dec-2011 : RJSSM Page 48 www.theinternationaljournal.org
Wockhardt Ltd acquired Esparma Gmbh, a German pharma company for Rs. 49 crore on
May 6, 2004. The acquisition did not include the company's manufacturing facility but
covered the businesses, sales and marketing organisation and the name of the company.
Wockhardt continued manufacturing at Esparma facilities, which were sold to another buyer.
The toll manufacturing agreement was for a period of two years, after which Wockhardt
shifted its manufacturing to its other existing facilities in the UK and India. Wockhardt had
set up a company called Wockhardt Germany, GmbH to facilitate the acquisition. The
acquisition was funded through internal accruals and borrowings.
Negma Laboratories
Objective of acquisition-
1. To enter the French generics market.
Negma had 172 international patents. The company also had leading positions in the various
therapeutic segments in France.
On 3 May 2007, Wockhardt Limited announced the acquisition of Negma Laboratories, the
fourth largest independent, integrated pharmaceutical group in France with sales of $ 150
million. Wockhardt acquired Negma Laboratories in an all-cash deal worth $ 265 million.
With this acquisition, Wockhardt became the largest Indian pharmaceutical company in
Europe with more than 1500 employees based in the continent. Negma was the first research
based pharmaceutical company, with 172 patents, acquired by any Indian company so far.
The acquisition allowed Wockhardt to extend this patented portfolio to other European
markets where Wockhardt enjoyed a strong presence. Further, it also provided Wockhardt the
right entry vehicle to enter the French generics market. Negma had a strong research and life
cycle management capability. It owned a rich portfolio of 172 patents and an exciting range
of products in various stages of development. The acquisition was mainly funded through
internal accruals and borrowings.
Pinewood Laboratories
Objective of acquisition-
1. To enter the Irish market.
2. To gain control over the marketing and sales distribution system of Pinewood.
Wockhardt Ltd acquired Pinewood Laboratories Ltd, an Irish generic-drugs maker in an all-
cash deal worth Rs 686 crore on October 3, 2006. The deal gave Wockhardt a larger footprint
in Europe spread over the UK, Ireland and Germany. The acquisition reinforced Wockhardt's
position in the UK where it was already the largest generic company from India and the
second largest player in hospital sales. The acquisition was a strategic fit with Wockhardt, as
Pinewood's liquids and creams business complemented Wockhardt UK's strengths in
injectable and solid dosages. Pinewood manufactured liquids, creams/ointments and powders
under its own licenses in Ireland, which were distributed to its international markets directly
from its facility located in Tipperary. Pinewood also supplied contract manufacturing from
this facility for the international market.
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Dumex India
Objective of acquisition-
1. To gain control over the two leading brands in the Indian Nutrition market-Protinex
and Farex. Through this acquisition Wockhardt wanted to become the market leader
in this segment.
2. To obtain technical know-how for manufacturing specialised sugar-free infant food
products from the parent company-Royal Numico.
On 30 June 2006, Wockhardt acquired Dumex India Pvt. Ltd. from Royal Numico NV of The
Netherlands, for approximately Rs.100 crores. Wockhardt acquired the company mainly to
gain control over latter’s two main products- Protinex and Farex. These two products have
over 50 years of brand equity in India. Protinex is the market leader and the largest prescribed
brand in the nutrition segment. The two brands are a natural fit that complement Wockhardt's
product range. Wockhardt plans to double its nutrition products sale with this acquisition.
Wockhardt has market leadership with a 15-per cent share of the Indian nutrition market
(http://www.wockhardtin.com/). The acquisition made Wockhardt the leader in medical
nutrition business in India (http://www.wockhardtin.com/). Under the agreement, Wockhardt
also got the technical know-how to manufacture specialised sugar-free infant food products
currently being marketed in India and internationally, under its brand names Dulac and
Dupro. Currently these products are imported from New Zealand and Malaysia.
Analysis of motives of acquisition
During the course of study it was found that in the past 5 years Wockhardt has made 5
acquisitions. There were certain features that were common in all acquisitions. For e.g.- All
the five acquisitions were done in quick succession. Wockhardt acquired companies that were
based in Europe or had roots in Europe. This shows that the company was specifically on an
acquisition spree. Moreover all the five companies acquired belonged to different countries
and were profit-making concerns. None of them was a sick or loss making company. Hence
this shows that Wockhardt wanted to strengthen its roots in Europe
All the 5 companies acquired had patent protected drugs. In case of Dumex it said that apart
from the products (Farex and Protinex) it also wanted to get the technical knowhow from the
parent company (Royal Numico). This shows that Wockhardt wanted to enrich its R&D base
After each acquisition the company said it wanted to gain control over the marketing facilities
of the acquired company. Wockhardt openly said that it wanted to use the marketing base of
the acquired company to sell its products in the native country’s market. This shows that the
main objective of all the acquisitions was to expand its marketing base. In case of Dumex, the
acquisition was mainly driven the desire to gain control over the products that have been the
market leaders in India-Protinex and Farex. This shows that no matter the acquisition is in
India or outside India; Wockhardt was in a quick hurry to increase its marketing base and
hence increase its sales and profits.
Table 3
Response Opinions of company employees towards acquisitions
Statement Yes No Can’t say
Do you think Wockhardt could have grown better without these five
acquisitions?
28% 67% 5%
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The respondents belonged to finance section and the sales section of the company. The result
has been expressed in percentages in Table 3 for easy understanding. The respondents who
said yes to the above statement said that acquisitions have become the central focus of the
company. Instead of growing organically the company is focusing more on the inorganic
growth. However, during the primary data collection the sales head of the North region of
Wockhardt was interviewed. He defended these acquisitions and said that Wockhardt is
acquiring companies in Europe only to ease its regulatory hurdles. He said that when any
company wants to enter a new country, there are many regulatory hurdles that it has to cross.
Getting settled with the economic and legal environment of that country may take time.
During this span the company may miss out some of the great opportunities. Hence
acquisitions are only a way to save time. Acquiring already established companies in foreign
countries gives a foothold to the parent company. He further added that Wockhardt is
working hard and apart from making acquisitions abroad, the company is also strengthening
its roots. In defense of his opinion he gave us a list of some of the main achievements of the
company in the recent past. They have been illustrated as follows:
In February 2005, Wockhardt set up majority joint ventures in Mexico and South Africa. In
both the joint ventures Wockhardt had 51% shares. The company also established a wholly
owned subsidiary in Brazil. The joint ventures and the subsidiary were established to market
the company’s pharmaceutical and biopharmaceutical products in the native country markets.
In February 2005 Wockhardt launched India’s first automatic insulin delivery device. The
device made injecting insulin in the body almost painless for the diabetic patients.
In April 2005, Wockhardt inaugurated its formulations plant in Himachal Pradesh. The plant
is a world-class facility and has the capacity to manufacture 2 billion tablets and capsules a
year.
In April 2004, Wockhardt launched its own marketing and sales organisation in US by the
name of Wockhardt USA Inc. to enter the US market.
In June 2004, Wockhardt received USFDA (United States Federal Drug Association)
approval for 6 plants. The plants are located in Aurangabad, Waluj and Ankleshwar. The
Aurangabad facility also received the approval from MHRA (Medicines and Healthcare
products Regulatory Agency) of UK.
In August 2004, the then President of India Dr. A.P.J. Abdul Kalam inaugurated the
Wockhardt Biotech Park. It is India’s largest biopharmaceutical complex. The plant has the
capacity to cater to 10%-15% of the global demand for major biopharmaceuticals.
Statement : Are you satisfied with the company’s R&D capability?
The respondents were asked to express their views on the company’s R&D capability.
Towards this the respondents said that the company has some of the most talented scientists
in the country. They said that the Biotech Park, which was inaugurated in 2004, has some of
the best facilities in the country. The company has also been able to achieve some initial
successes in R&D like the launch of Wosulin, Asia’s first recombinant insulin. They also
cited the example of Wosulin Cartridge that enables injection of the exact amount of insulin
required by the patient. They said that the company has further also developed the Wosulin
Pen, using third generation technology. The pens have been certified under ISO 11608.
Wosulin Pen is a device developed for injecting insulin in the body by arthritic patients and
Volume:01, Number:08, Dec-2011 : RJSSM Page 51 www.theinternationaljournal.org
those having poor visibility. On an overall basis the company is putting efforts towards its
R&D process. However they further added that till date the company has not been able to
manufacture any product patented medicine. Through its acquisitions in India or abroad, the
company has increased its market share and is launching off-patent drugs. Although the
company has been able to launch some ANDAs but a product patent is still awaited. To
verify the arguments of the respondents I made an analysis of some of the product launches
by the company in India, US and Europe in the recent past. The result that came forward has
been tabulated below in Table 4.
Table 4
Product launches in US and Europe S.No. Date Name Usage Description
1 Jan, 2009 Enalapril Maleate
Tablets (10mg and
20mg)
To treat high blood
pressure
It is the generic version of
Vasotec of Merck of USA
2 Jan, 2009 Lisinopril Tablets
(2.5 mg and 40mg)
Hypertension Generic version of Zestril of
Astra Zeneca of UK
3 June, 2008 Ranitidine Tablets
(300mg)
To heal and prevent
ulcers
Generic version of Zantac of
GSK (UK)
5 June, 2008 Cimetidine HCl
Oral Solution
To prevent ulcers Generic version of Tagamet
of GSK (UK)
4 July, 2007 Sertraline HCl
Tablets (100mg)
For depression and
obsessive compulsory
disorder
Generic version of Zoloft
manufactured by Pfizer
(USA)
7 December ,
2006
Ondansetron To control nausea and
vomiting following
cancer chemotherapy
It is the generic version of
GSK’s Zofran injection The
patent for the product expired
on December 24, 2006.
8 August 31,
2006
Cefotaxime
injection
Antibiotic Generic version of Sanofi
Aventis’ Claforan injection.
9 June, 2006 Divaloproex
Sodium
Anti-epileptic drug Generic version of Abbott’s
Depalrote DR tablets. Patent
expires on June 29, 2008.
10 June, 2006 Vitix Treatment of
leucoderma – a skin
disorder
In-licencing agreement
signed with LSI, a UK based
company to market the
product in India
11 June, 2006 Clarithromycin
tablet
Antibiotic Generic version of Abbott’s
Biaxin tablet
12 February,
2006
Ranitidine’s OTC
version
Anti ulcer drug Generic version of Pfizer’s
Zantac tablet
13 September,
2005
Cefuroxime Axetil Antibiotic Generic version of GSK’s
Ceftin
(Source: Annual Reports of Wockhardt)
Wockhardt entered the European market in 2003 and the US market in 2004. In these two
years the company did not launch any new product. From Table 4 it is quite clear that the
company has not been able to launch any product patent in the regulated market. Now let us
take a look at the Indian market. Table 5 shows that the company has been able to file patents
every year but all of them are process patents. Here it needs to be mentioned that the figures
below indicate the number of patents filed in the respective years. But the company has not
revealed information on the number of patents secured in the year 2006. This is because after
Volume:01, Number:08, Dec-2011 : RJSSM Page 52 www.theinternationaljournal.org
2005 the Patents Act was amended and the government response to the patents filed in the
year 2006 is still awaited.
Table 5
Patents filed in India
Year 2001 2002 2003 2004 2005 2006 2007 2008
Number of
patents filed
22 29 50 30 10 200 204 150
(Source: http://www.wockhardtin.com/)
Hence the argument put forward by the company employees that the company has not been
able to manufacture any product-patented medicine turns out to be true.
Table 6
R&D Expenditure of the company
Year 2000 2001 2002 2003 2004 2005 2006 2007
R&D Expenditure (Rs. in millions) 316 360 428 469 529 598 512 355
(Source: Annual Reports of Wockhardt)
Graph 1
R&D Expenditure
360.6
468.61
529.29
597.5
512.08
316
428
0
100
200
300
400
500
600
700
2000 2001 2002 2003 2004 2005 2006
Year
Rs
. in m
illio
n
Table 6 shows the R&D expenditure pattern of the company over the years. The pattern has
been graphically shown in Graph 1. The R&D expenditure of the company has increased over
the years but has come down for the years 2006 and 2007. Looking at the achievements of the
company in the development of insulin injecting devices like Wosulin cartridge and Wosulin
Pens, the company’s R&D efforts cannot be ignored completely. However, the company can
afford to invest even more as its profits are increasing.
Sales Analysis of the firm
An analysis of the sales of the company in the past few years has been made. Following are
the findings of the study-
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Table 7
Sales and Profit trend of the company
Year 2000 2001 2002 2003 2004 2005 2006 2007
Sales for the year
(Rs. in millions)
5585 6494 7658 7416 8955 10092 11586 12520
Profit before tax
(Rs. in millions)
770 1086 1194 1460 2404 2654 2526 2731
(Source: Annual Reports of Wockhardt)
Graph 2
Graph 2 and Table 7 show the sales revenue and the profits before tax earned by the company
over the years. They show that the company has been successful in increasing its sales and
profits over the years. However what is important to know is that whether this increase in
sales and revenue is a result of the acquisitions made by the company or are they the result of
the natural growth of the company. For this I made an analysis of the sales of the company
outside India and compared it with sales of the company in India. Graph 3 and Table 8
highlight this. The figures down show that the sales in India have remained almost the same
throughout the period but the sales in regulated markets have increased tremendously. The
company’s focus has shifted from domestic sales to USA and Europe.
Table 8
Sales Trend in India and USA
Year 2002 2003 2004 2005 2006 2007
Sales in India (Rs. in
millions)
5160 4568 3555 3768 4533 3631
Sales in USA and
Europe(Rs. in millions)
1326 1818 4509 4947 5902 8013
(Source: Annual Reports of Wockhardt)
Sales and Profit Trend of Wockhardt
0
2000
4000
6000
8000
10000
12000
14000
2000 2001 2002 2003 2004 2005 2006
Year
Am
ou
nt
(Rs
. in
mil
lio
ns)
Total sales for the year Profit before Tax
Volume:01, Number:08, Dec-2011 : RJSSM Page 54 www.theinternationaljournal.org
Graph 3
Sales trend in India and USA
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
2002 2003 2004 2005 2006
Ye a r
Rs. in
millio
n
India USA/Europe
The division of US and European sales and that of sales in India could not be made available
for the years prior to 2002, hence have not been shown. This is because the company made its
first major acquisition abroad in 2003 by acquiring CP Pharmaceuticals. Before that foreign
sales formed only a meager portion of the total sales of the company. This is very much clear
from Graph 3. The graph shows that there has been a phenomenal increase in the foreign
sales of the company post 2002. Further, the company employees were also interviewed over
this issue. During the primary survey a question was asked from the respondents about the
sales pattern of the company. The statement put forward to them was-Statement- Give your
comments on the performance of the company in terms of growth.
The respondents were asked their opinions on the general progress of the company. Here the
question that was asked was subjective. The respondents were asked to comment whether the
company’s journey from the year 2000 to 2007 has been a success or a failure. They were
also asked to cite examples in support of their views. Towards this not even a single
respondent said that the company is a failure. In fact each one of the respondent gave his own
views citing why the company was a success. Most of the respondents said that the increase
in sales year after year was an indication of the success of the company. Few said that the
company’s ability to acquire other companies in US and Europe in quick succession was an
indication of the financial soundness of the company. During the primary data collection, I
visited the company’s regional office in Delhi from where I gathered the following relevant
data-
Table 9
Wockhardt India Business vs. Indian pharmaceutical business
Year Indian pharmaceutical Industry business Wockhardt India Business
2004 7% 13%
2005 9% 10%
2006 18% 28%
2007 13% 15%
(Source: Company office, Delhi; data collected by ORG IMS )
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Table 9 shows that Wockhardt has been performing better if compared to the overall growth
of the Indian pharmaceutical industry. Each year the company has been growing at a rate
higher than the industry’s average rate.
Now let us find out how far the company has been successful in utilizing its funds using ratio
analysis. For this purpose, two ratios have been used
Return on Equity Shareholders Funds
Return on Capital Employed
Return on Equity Shareholders Funds
Return on Equity Shareholders Funds = Profits available to equity shareholders
Equity shareholders funds
Here,
Profits available to equity shareholders = Net Profits after Interest, Taxes and Preference
Dividend.
Equity shareholders funds = Equity share capital, Reserves and Surplus, Share premium,
P&L Account Balance – Accumulated losses, if any.
Table 10
Trend Analysis of Return on Equity Shareholders Funds Particulars 2000 2001 2002 2003 2004 2005 2006 2007
Return on Equity
Shareholders Funds (%)
30.8 32.1 31.2 29.49 36.5 32.7 25.56 23.97
Graph 4
Trend Analysis of Return on Equity Shareholders Funds
0
10
20
30
40
2000 2001 2002 2003 2004 2005 2006 2007
Year
Fig
ure
s i
n
%
Return on Equity Shareholders Funds
The trend can be seen from the above table and graph. The ratio has started declining after
2004. Hence the company needs to take look at the above position. Although the sales and
profits are increasing but the benefit is not being transferred to the shareholders.
Return on Capital Employed
Return on Capital Employed = Net Profit before Interest and Taxes
Average Capital Employed
Volume:01, Number:08, Dec-2011 : RJSSM Page 56 www.theinternationaljournal.org
Here,
Capital Employed = Equity shareholders funds + Preference share capital + Long term debt +
deferred taxes + Minority interests.
Average Capital Employed = Opening Capital + Closing Capital
2
Table 11
Trend Analysis of Return on Capital Employed
Particulars 2000 2001 2002 2003 2004 2005 2006 2007
Return on Capital
Employed (%)
20 28.9 32.13 24.2 20.6 17.52 17.19 14.5
Graph 5
There is an initial increase in the ratio. However, after 2002 there is a slump in the ratio. This
is due to the fact that although profits before interest and taxes increased, but the capital
employed by the company increased tremendously from 2003 onwards. The following points
are important:
During the financial year 2003-2004, the company made a bonus issue of 36332002 shares at
Rs. 5 each.
During the financial year 2004-2005, Wockhardt launched its maiden Foreign Currency
Convertible Bond issue of US $ 100 million with a Greenshoe option of US $ 10 million. The
company used the proceeds of the issue for funding its acquisitions in Europe.
The decrease in both the ratios is the impact of acquisitions done by the company. As a result,
the capital has increased more than the profits. The company should either try to reduce the
capital employed or invest it in a more reasonable manner. This shall help it to improve both
the above ratios
0 5
10 15 20 25 30 35
2000 2001 2002 2003 2004 2005 2006 2007
Fig
ure
s in
%
Year
Trend Analysis of Return on Capital Employed
Return on Capital Employed
Volume:01, Number:08, Dec-2011 : RJSSM Page 57 www.theinternationaljournal.org
FINDINGS
The study has the following main findings-
The main reason for acquisitions abroad, is establishing a foothold in the foreign markets.
Regulated markets offer a huge opportunity for sale of generic drugs. The study shows that
Indian companies do not want to waste their time in establishing themselves in the foreign
market. To simplify they are simply acquiring already established companies in regulated
markets.
During the course of study it was found that Indian companies have not been successful in
launching product-patented drugs. To establish themselves in the foreign markets they do not
have any patented drugs. Hence they are acquiring companies that have product patents so
that they have products to sell.
The study also shows that acquisitions by Wockhardt were prompted either by the need to
gain control over the manufacturing facilities or to gain access to technological know-how as
in the case of Dumex India Ltd. Indian companies are using the manufacturing units abroad
so as to avoid setting up their own units. This may be because they do not want to get
entangled into the regulatory hurdles. Wockhardt acquired companies that had manufacturing
units approved by legal authorities like MHA of UK and USFDA.
A careful study of the ratios- Return on shareholders funds and return on capital employed
shows that the capital invested by the firm is more than what is required. Due to this, there is
a falling trend in these ratios despite the sales and profits increasing each year.
SUGGESTIONS
The sample company Wockhardt can be taken as a good example in the Indian
pharmaceutical industry as to how inorganic growth can be used to its best. Wockhardt has
leveraged the acquisitions method to its best. From being almost non-existent in Europe to
being ranked amongst the top 10 most profitable companies of Europe and that too in a span
of just 8 years is a great achievement. The study thus aims to suggest that acquisitions can be
used as a means of growth for firms that do not want to waste their time in establishing
themselves through organic methods. However here it needs to be mentioned that apart from
doing acquisitions Wockhardt has been working at the R&D forum also. The company has
been able to achieve some initial breakthroughs like discovering Wosulin, Asia’s first
recombinant insulin or establishing the R&D laboratory, which is India’s largest bio-
pharmaceutical laboratory. The company has been doing all this to establish itself in the
Indian market and to support its inorganic growth. Hence the study also suggests that apart
from adopting the acquisitions mode pharmaceutical companies should also focus on
strengthening their basic roots i.e. their R&D. Had it not been the case Wockhardt would not
have invested so much in its R&D. Further the capital employed by the company in the
business is more in proportion to the profits being earned. For this, either the company should
reduce the amount of capital or try to invest it in a better way so that the profits earned out of
it are even more.
Volume:01, Number:08, Dec-2011 : RJSSM Page 58 www.theinternationaljournal.org
CONCLUSIONS
The above analysis is based on the case study of a pharmaceutical company Wockhardt. The
company has acquired established companies in Europe at a very fast pace in the recent past.
The main effort has been to establish itself in the European market. Wockhardt was a
profitable company before 2000 also. It could have established itself in the European market
without these acquisitions also but that would have taken much time. It seems that the
company did not want to miss out the opportunities in the regulated markets. Hence it took
the shorter route. It adopted the acquisitions method and funded all the acquisitions through
its retained earnings and profits. Through the acquisitions the company has been able to
position itself amongst the top 10 companies in UK market whereas it did not have any
position before 2000. This shows that the company’s strategy of acquiring other companies in
regulated markets has been a success.
REFERENCES
1. Business World, November 2007
2. Rankings by Indian pharmaceutical Producer’s organisation, 2008
3. Annual Reports of Wockhardt-2000-2007
4. IMS Data
5. Indian Industry: A Monthly Review, Centre for Monitoring Indian Economy. Various
Issues, 2003-2004.
6. Prowess Database Center for Monitoring Indian Economy, 2002-2003.
7. “Potential and Emerging Opportunities in Biotechnology”,2004, 4-5 February,
Confederation of Indian Industry (CII) Conference, New Delhi, India.
8. “17th National Conference on In-house R&D in Industry, 2007, 10-11 November,
Department of Scientific and industrial Research, New Delhi, India.
9. http:// www.ims_global./com.
10. www.wockhardtin.com
11. Financial data for the year 2008 could not be incorporated as the same had not been
released by the company by the time the report was being written.
***
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