Sanofi Drug Hits New Hurdle With Indian Knockoffs

Sanofi-Aventis SA's "Acomplia" the weight- loss pill, linked to suicide, is becoming popular in generic form from India which may end the product's chances of ever reaching the U.S., where it has been delayed by regulators.

Cipla Ltd. and Ranbaxy Laboratories Ltd. are among six drugmakers exploiting a loophole in India patent laws, selling copies of the medicine under names like Slimona and Defat. The pills are sold without prescription for as little as 12 cents. Sanofi had predicted Acomplia would generate $3 billion a year. Sanofi's earnings have dropped for four straight quarters. The drugmaker is losing patent protection on older medicines such as the sleep pill Ambien. Sanofi withdrew its U.S. marketing application for Acomplia on June 29 after the FDA raised safety concerns.

Under Indian intellectual property law, pharmaceutical companies can use a process called reverse engineering to make drugs patented before 1995. The patent on Acomplia, which regulates hunger impulses, dates to 1994. Sanofi received approval to sell Acomplia in India in May, the same month as the generic-drug makers.

The Indian regulator approved rimonabant, or generic Acomplia, requiring patients get a prescription and medical advice on its risks. Those include depression and anxiety --side effects that were serious enough to prompt an FDA panel of advisers to reject the pill.

India is growing obese. Almost a third of women and more than a fifth of men living in urban areas are considered overweight, according to a government survey last year.

Obesity can lead to high blood pressure and diabetes, to which South Asians have a genetic predisposition. Indian men are three to four times more likely than East Asian, African American, Hispanic or Caucasian men to develop insulin resistance that leads to diabetes, according to a study last year in the Proceedings of the National Academy of Sciences.

Torrent Pharmaceuticals Ltd. started selling its version, Rimoslim, two months ago and aims to sell 100 million rupees' worth within 12 months. Rimoslim is an extremely affordable therapy for the masses.

Bloomberg

Are India Inc`s global M&A's worth it?

Most of the big-ticket acquisitions made by Indian companies were through the leveraged buy-outs (LBO’s) route funded partly by private equity funds, financial institutions and, of course, through internal resources. It has to be borne in mind that for takeovers by India Inc worth several billion dollars, the outflow of dollars has been minimal. At the same time, the charge of the private equity funds and others on the profitability and assets of the merged or acquired company will be substantial, which has to be paid through the future profits or cash flow of the company.

The pertinent question is whether our corporations have overstretched themselves. First, we feel that India Inc is now in an unprecedented trajectory of growth, where it focuses on both domestic and global markets somewhat in a similar manner. The concept of a dominant leader in the domestic market will soon undergo a change thanks to a gradual reduction of the tariff wall. Sooner or later, imports are going to be cheaper than what they are now. That would mean that corporations, to stay in the race, should be competitive both domestically and internationally. The effort of India Inc to go global is not only symbolic of its strength and reach but also a calibrated policy to shore up its competitiveness by achieving economies of scale and scope.

Secondly, in many areas, especially in the knowledge-driven industry, we have to consolidate ourselves. Our IT majors are reckoned everywhere. Yet, their size and scope are small compared to Microsoft, Dell or IBM. The result is that many-a-time, we have to be content with the status of a vendor or sub-contractor to large American and European corporations. That stage should change and in certain areas, we can emerge as global players and prove our worth in executing high-end projects. M&As are the preferred route to achieve that position.

Thirdly, a paradigm shift is taking place in the image of India, which has been considered mainly as a supplier of goods and services, including software services. We have to emerge as a strong manufacturing hub, capable of producing high quality and price competitive manufactured goods. Slowly, we are making progress towards that. We are reckoned as a major player in steel, foundry, auto components and so on, thanks to some of the LBOs carried out in recent months.

That list has to expand and can be accomplished through the M&A route rather than by setting up greenfield projects in an alien land.

The flip side of the spectrum is what happens when there is a global recession? We cannot become a global player and also insulate ourselves from its fallouts. It is a cyclical reality. Fortunately, now India have enough foreign exchange reserves to bail us out in case of a global slowdown.

BS

Free cash flow: Is it free after all?????

The best things in life are said to be free and the same holds true for cash flow! Investors love companies that produce plenty of free cash flow (FCF). It signals a company's ability to repay debt, pay dividends, buy back stock and facilitate the growth of business all important undertakings from an investor's point of view.

How and what of FCF
The formula for calculating Free Cash Flow (FCF) is as:

Net Profit + Depreciation - Capital expenditure - Changes in working capital - Dividend

FCF takes into account not only the earnings of the company but also the past (depreciation) and present capital expenditures, capital inflows and investment in working capital. Growing free cash flows are frequently a prelude to increased earnings. Companies that experience surging FCF due to revenue growth, efficiency improvements, cost reductions, share buy backs, dividend distribution (from subsidiaries) or debt elimination can reward investors in the future. Better free cash flows are therefore a reason for the investment community to cherish. On the other hand, an insufficient FCF for earnings growth can force a company to boost its debt levels. Even worse, a company without enough FCF may not have the liquidity to stay in business

From a companys point of view
A better FCF definitely indicates better efficiency on the part of the company. But what is pertinent for investors to note is that simply assessing the FCF on the basis of its absolute value is not prudent. It is imperative to also assess as to what components have contributed to the same.

Let us take a hypothetical example of two companies, A and B, both of which have garnered the same FCF for the current financial year.

Estimated free cash flow

(Rs)	Company A	Company B
Net profit	75	120
Add: depreciation / amortisation	20	5
Less: Capital expenditure	5	15
Add/ (Less): Decrease /(Increase) in wkg capital	10	(10)
Less: Dividend	20	20
Free cash flow	80	80

Prima facie although appearing similar, if you delve a little deeper there is a stark difference in their performances. While company A, despite having lower earnings has benefited by adding back depreciation and decrease in working capital, company B has invested in capex and working capital. This indicates that while company B is investing for future growth, company A is not sufficiently geared up for the impending challenges. This also means that investors in company B can expect rewards in future while those in company A should sit up and take notice of what is ailing it.

From a sectors point of view
As explained earlier, cash flows are dependant on the capital expenditure and working capital liabilities borne by the company. This however, differs as per the dynamics of the sector in which the company is operating and should be seen in that light. While sectors like banking require minimum expenditure on capex (as a % of their turnover) those in pharma, engineering, FMCG or commodity sectors require to invest a substantial amount in R&D and capacity expansions.
To conclude...
FCF is not only a mirror image of the present but also a sneak preview into the future. The implications of the components of cash flow may not be explained in the annual reports, but is left to the investors prudence to diligently scrutinize the same and try to read between the lines. The legendry investor Benjamin Graham once said, The individual investor should act consistently as an investor and not as a speculator. This means that he should be able to justify every purchase he makes and each price he pays by impersonal, objective reasoning that satisfies him that he is getting more than his money's worth for his purchase.

Free cash flow, is not free after all!