Mumbai: Piramal Healthcare Ltd, which sold its pharmaceutical formulations business for Rs 17,000 crore to the US drug maker Abbott Laboratories in 2010, is on the prowl to build its pharma business again.
The company has set up a mergers and acquisitions (M&A) team to buy pharma companies, led by chief operating officer Vijay Shah, considered a business turn-around expert and a confidant of chairman Ajay Piramal.
The three-member team includes the group’s chief financial officer Rajesh Laddha and another senior executive in the pharma side.
Rebuilding business: Piramal Healthcare chief operating officer Vijay Shah, who will head the M& A team. Photo by Abhijit Bhatlekar/Mint
The M&A team is already in talks with some contract manufacturing companies in Europe and the US for possible acquisitions, Shah said, without disclosing more details.
“Contract manufacturing and services is a widely fragmented segment in the pharma industry at present and there is enough scope for consolidation,” Shah said in an interview last week.
Contract research and manufacturing services, or Crams, was one of the three businesses Piramal Healthcare retained when it sold its domestic drug formulations and diagnostic services arms to Abbott and Super Religare Laboratories respectively.
The other two businesses Piramal retained were the smaller over-the-counter and the critical-care products segments, which it wants to scale up using the money it got from the divestment.
“We want to scale up this business (custom manufacturing) to make it to the top five in the world. It will be through acquisitions and organic growth. In fact, we had looked at couple of companies in India for acquisition but the deals didn’t work out due to high valuation,” Shah said.
Piramal Healthcare is looking to build its pharma business again. Mint’s C.H.Unnikrishnan says the company has set up a team to buy pharma companies, and is already talking to some manufacturing firms in Europe and the US.
Switzerland-based Lonza Group Ltd is the world’s largest contract manufacturer in the drug industry, followed by Catalent Pharma Solutions Inc. and Patheon Inc. of the US. Other leading companies in the sector are India’s Dr. Reddy’s Laboratories Ltd, Divis Laboratories Ltd, Jubilant Pharmaceuticals and Dishman Pharmaceuticals and Chemicals Ltd.
Piramal’s pharma solutions business, which includes Crams, had an annual revenue of Rs 890 crore last year and is ranked tenth globally.
Custom manufacturing businesses take up manufacturing contracts from drug companies leaving them free to focus on brand building, marketing and research. For instance, a significantly high component of the drug manufacturing work for most of the world’s top pharma companies including Pfizer Inc. and GlaxoSmithKline Plc. is outsourced to such firms.
The global contract manufacturing industry grew at 9% annually in the past five years, and the industry’s size is estimated to touch $33 billion by 2014, according to data compiled by market researcher Visiongain Ltd.
Piramal has seven contract manufacturing plants in India, Europe and the US. It is looking to expand its capacity of manufacturing facilities approved by the US Food and Drug Administration so it can pitch for more business in the US market.
“The pharma solutions business, one of fast-growing segments in Piramal’s portfolio, has the potential to be scaled up globally in the coming years, though the net margin in this business is bit of a concern for non-specialized players,” said Ranjit Kapadia, a sector analyst and senior vice-president (institutional research) at Centrum Broking Pvt. Ltd.
“There is a high potential of growth in contract manufacturing as the demand is on a rise globally,” he said. “Many big pharma companies are closing down their own plants in the US and Europe due to high cost and environmental issues, and the best alternative for them is to outsource the manufacturing to custom manufacturers who operate from low-cost locations.”
Shah said valuations of contract manufacturers in the US and Europe have dropped.
“There is a trend among the big pharma companies globally to limit the outsourcing to a maximum of four to five reliable and large-scale vendors. This will all the more help us as there will be more consolidation taking place,” he said.
“We are not exactly interested in the pure generic play in this business. But would concentrate more on the niche products with some value additions provided by us for the principal,” Shah added.
Shah, who was managing director of the group’s glass bottle-making arm, Piramal Glass Ltd, before returning to Piramal Healthcare, had turned around the troubled glass unit.
He was also instrumental in turning around several other pharmaceutical units acquired by Piramal Group.
The company recently made two other pharma-related acquisitions, including a research compound for brain cancer detection from Bayer HealthCare AG, and the US-based Decision Resources LLC, a pharma market analytics company.