India’s tepid over-the-counter (OTC) market scene got an electrifying jolt recently, as nearly a dozen pharma multinationals entered a fierce race – along with native firms – to acquire a stake-on-sale in Paras Pharma. Based in Ahmedabad, in the western Indian state of Gujarat, this mid-sized player owns some of fast-selling brands in the OTC space. Paras, perhaps, is the only Indian company in the segmentthat could successfully make a range of OTC products big hits with little to no presence in the pure play prescription drugs.

Paras’ balms and creams for body aches, cold and cough, etc. are closer to fast-moving consumer products than medicaments in the true sense. In spite of this fact, the temptation to acquire these assets appears overwhelming for pharma MNCs. GlaxoSmithKline (GSK), Sanofi-Aventis, Novartisand Johnson & Johnson submitted their bids immediately after the announcement that Sequoia and Actis, which together hold nearly 70% equity in Paras, wanted to sell out, reports said.

Soon, more and more players, including Japanese drug major Taisho Pharmaceuticals, along with a host of consumer products companies like Procter & Gamble Hygiene and Health Care and Reckitt Benckiser India, also reportedly joined the fray. If the aggressive multinationals looked for a foot-hold in India’s OTC market, the domestically operating players viewed the acquisition as a bolstering of portfolios through augmenting Paras product line. Aspirants like Taisho, in the meantime, considered it as a gateway to enter the Indian pharma market which is projected to grow to $55 billion by 2020, as per a recent report by McKinsey & Company.

Rx-OTC Divide: The Thin Line

Paras became a hot target for different players because OTC bridges the gap between a pure pharma play and consumer goods. “Globally, pharma MNCs have approx 15% of their revenues coming from OTC and so some of these companies may like to replicate this balance in India,” commented Sanjiv Kaul, managing director, ChrysCapital, a leading investment firm based in New Delhi.

FMCG companies had not been active participants in India so far in the OTC segment. This was either because “they lacked the DNA of a pharma or wellness company” or due to the norms inthe current drug rules that restricts the use of mass media platform for promoting OTC drugs, Mr. Kaul pointed out.

Estimated to be worth around $1.8 billion, India’s OTC market is still a fledgling. Regulations to streamline the business are yet to be set and the current provisions in India’s Drug and Cosmetics Act do not recognize the OTC drugs. Despite the absence of the defining and governing laws, the promise of OTC is huge.

Since there is no clear demarcation between OTC and Rx medicine, they often mix and merge in India. Many of the medicines can be procured “OTC” and chemists do not always insist on a prescription.

“The difference between Rx and OTC is purely ornamental in India. While the Drugs and Cosmetics Act mandates Rx (Schedule-H) drugs to be sold only against prescriptions, consumers are able to buy any Rx drug from a pharmacy without a prescription,” said V. Krishnakumar, executive director & head, Healthcare Group, Avendus Capital Pvt. Ltd,a financial services provider from Mumbai.

According to him, the only difference between Rx and OTC in India is that one cannot advertise Rx products directly to consumers. But for all practical purposes, patient buying behavior is largely OTC in nature.

More M&As On Way?

Therefore, it is not the price factor but the volume-growth in the Indian pharma market that attracts most MNC pharma companies to expand their presence in India – some organically and some inorganically. Paras Pharma has large and established brands like Moov, D-Cold, Krack, Itchguard, RingGuard and Dermicool, which are focused on human health. Hence it makes for a very interesting target for large pharma companies, Mr. Krishna Kumar said.

MNCs can expect more out of Indian market as the dynamics of the drug consumption patterns are rapidly changing, believe industry observers. Low levels in literacy, lack of disposable income spend and limited awareness of lifestyle diseases and wellness programs used to impede the growth this market. “But all this is now changing and increasingly our regulators have recognized and accepted the need to promote self-medication and wellness products that offer ‘a desired and positive outcome’ to the consumer who is now becoming more aware of his choices, is conscious of lifestyle changes, and is willing to pay a fair price,” said Mr. Kaul.

Clearly, the OTC drugs market itself is readying for big transformation in the years to come. Still, ready access through inorganic entry could be difficult. Assets like Paras Pharma are not many. But the Paras story could definitely spur further the hunt for other OTC players like Zydus Wellness, Mankind Pharma and Piramal, in the near term.

S. Harachand is a pharmaceutical journalist based in Mumbai.He can be reached at harachand@gmail.com.