Sushrut’s sale to Smith & Nephew : what it says, and what it doesn’t

8 May

On May 2, UK-based trauma care products company Smith & Nephew said it would acquire Pune-based Sushrut Surgicals, a homegrown closely-held maker of orthopaedic implants such as bone plates and screws used to correct fractures and deformities, for an undisclosed sum, from the Pitre family.

The move took me by surprise. After all, Ajay Pitre, MD, Sushrut was the man who, six years ago, goaded me to write about India’s homegrown medical devices sector and its potential.

“It’s like we don’t exist”

I remember meeeting him at the Businessworld office (where I then worked) in 2007. He spoke composedly but convincingly about the government’s indifference to the local medical devices sector.

Until my meeting with him, medical devices lay at the periphery of my journalistic scope. I was focused on pharmaceuticals, the bigger, richer and more visible sector of the two.  That changed, in part thanks to him.

During the meeting, Pitre told me that Sushrut and a clutch of other local companies were having trouble with the drugs regulator which per force had started using the Drugs & Cosmetics Act to regulate them. There was no law written specifically for their sector but a 2 year-old court order required that devices be regulated. Drug inspectors were discovering “deviations” which were relevant for drugs but had very little bearing on the quality and safety of a device.

Initially, it looked like I was being primed for a typical corporate whinge on government inefficiency.

But this was more than that. It was more like a fight to be acknowledged.

Pitre’s company had been operating in India for nearly four decades. Starting from a cleared-out cow shed in Maharashtra in 1973 it had grown to win the trust of local orthopaedic surgeons for providing quality products that were less expensive than those of MNCs. It was exporting product, in small quantities no doubt, to western countries. But for the Indian government, “it’s like we don’t exist.”

Given the poor state of oversight, there were companies selling without valid licences, he said. But he didn’t want to be one of those. Besides by doing so he could get doctors who used his products into trouble as well, he said.

Potential vs reality

As I met other companies and doctors, the need for, and potential of, indigenous medical technology in India where imports dominate over 80 per cent of the market came through clearly.

The potential was being skewered in large part by bad policy – whether it was regulatory, tax, or manufacturing. (Though not just that).

Pitre believed that all was not lost. An overhaul of regulations, and a slew of incentives such as state-backed clusters for design, testing, fabrication and so on were called for to realise the potential, he felt. And however tall an order, it was doable.

Since then, there have been many calls for creating a vibrant med tech industry, much like the local pharma industry. In 2012, a joint report by Ernst & Young and industry federation FICCI titled “Universal Health Cover for India -Demystifying financing needs” argued that it was “imperative to promote indigenous medical technology in low resource settings to drive down the cost of care” and “crucial to invest in local Indian technologies to radically value engineer cost, reduce operator dependence and increase consumerization potential.”

Pitre, as chairman of the Confederation of Indian Industry (CII)’s medical equipment division, has repeatedly advocated the possibilities of turning India into a cost-effective manufacturing and research base before different audiences in India and abroad.

That has yet to happen. And now, Pitre has decided to sell his company.

Strategic alignment?

He tried to explain his decision in a conversation after the announcement. “We were always clear that we were not going to be ‘the cheap Indian company'” he said. “The first step was always to get (the product) right and the next step to figure out how the offering could be cost-effective.”

But this takes a huge amount of investment and risk-taking, he said. “We could take only small steps at a time.”

In the absence of an eco-system around medical devices, it’s quite a struggle for companies to put together all the necessary elements that go into a successful product offering  such as the design, materials, clinical data requirements and so on.  And of course, capital. At some point, you have to look outside. “You can get this from many discrete partners or just go to one,” said Pitre in a telephone conversation after the sale was announced. “We chose the one.”

Pitre sees no contradiction in his latest move. Smith & Nephew is interested in growing the so-called “mid-tier” segment of quality, affordable medical devices for the Indian market and is not simply looking at Sushrut as a marketing vehicle for premium offerings, he said. “It’s an alignment of strategy.”  (Think Abbott’s buyout of Piramal Healthcare’s pharma unit or Daiichi Sankyo’s acquisition of Ranbaxy).

This was echoed in the Smith & Nephew press statement.

Sushrut will operate as an independent subsidiary of Smith & Nephew and its head will report to that company’s president of emerging markets. It will continue exports.

Besides, Pitre argued, Sushrut would have the wherewithal to impact a much larger patient base and give its managers more avenues to grow in their careers. Smith & Nephew is a leading player in orthopaedics globally.

As of now, Pitre and the current management are set to run the company even after shareholding changes hands.

This blog has always held that the provenance of a company’s ownership is not as important as its strategic intent and its actions. It has opposed the recent caps on foreign direct investment in pharmaceuticals, for instance. Dispassionately, I would think Pitre has kept it real – he has acknowledged his limits and let someone else take over.

Yet, when flag-bearers of a sector change ownership out of Indian hands, one irrationally feels a twinge. Pitre continues to be upbeat about “India’s ability to create global solutions.”  He believes there is a movement in the government towards wanting to address this.

But he ain’t no longer putting his money where his mouth is. And that, excuse the slang, is the bummer.

Pic sourced from http://www.sushrut.com

This post has been corrected to alter the date on which Smith & Nephew announced the acquisition of Sushrut Surgicals from May 4 to May 2.  The error is regretted.

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5 Responses to “Sushrut’s sale to Smith & Nephew : what it says, and what it doesn’t”

  1. Gauri Pathak May 8, 2013 at 11:44 am #

    Beautifully expressed, Gauri.

    Like

  2. Srinivas May 8, 2013 at 3:56 pm #

    Well, the government has other priorities than take care of promising and important industries. Right now, it has to figure out how to use its current crop pf ministers to raise funds for next year’s elections – by crook or by crook! So that’s the pressing need right now, not to encourage homegrown firms with vision to go out there and compete.

    Like

  3. Mukul Bagga May 26, 2013 at 5:29 pm #

    This case is another in a string of sellouts by the posterboys of Healthcare – We saw the Singh brother exit Ranbaxy – after raisng visions of making it the first Indian proprietory drug company , Shantha Biotech sold out to Pasteurmeriuex & now this. Industry has been crying hoarse about the need for improving the ecosystem for healthcare . Healthcare needs 3 pillors – Strong IPR ( receant cases of compulsory licensing are not helping…), Strong regulatory ( provide a leve playing ground to MNC vs Domestic) & Funding opportunities ( Lowest priority ofn most VC funds lists)
    Till these pillars fall in place – Domestic Healthcare players are going to struggle – we need stronger lobbying platforms to get the Governments attention and support

    Like

  4. Girish Desai. July 6, 2013 at 3:56 pm #

    This is very sad story a true Indian grown company in the field of Orthopedic Implants is forced to sale out his unit to MNC due to govt apathy towards Indian grown Medical Devices Co and indifferent treatment of Drug Controller office.

    In a way govt should know well that 80 % Medical Devices – Equipments – Instruments – Machines, Medical Disposables are Imported in india.

    Govt. must insist Drug Controller office to provide suitable support and encouragement to domestic medical devices company as done in case of Indian Pharma Co’s.

    Pesently many MNC has misguided the officials of NABH, NABL etc with their US / EU / EPA / CDC / CE, registration and forcing local Hospitals to buy such items,

    In Indian manufacturers follow the approvals of DCGI, CDSCO and local Hospitals says will follow only NABH guidelines other wise will be rejected.

    First MNC influences the Indian regulatory body to adopt the their authority approvals and make local co’s. helpless and in turn sale their unit to MNC.

    Health Care segment is growing very rapidly and if no proper support is extened to local co’s. in a few years time lot many co’s. will be in hand of MNC and after 15yrs no Indian Co’s. will be found in Hospitals.

    I have written all above as i can imagine the likely reasons of selling unit to MNC keeping in view of future difficulties.

    Like

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  1. Sushrut's sale to Smith & Nephew: what it says and what it doesn't -- Apothecurry | STARTUPCENTRAL - May 8, 2013

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