Mumbai: Consolidation in India’s pharmaceutical industry is likely to continue in 2009, with at least three large international deals in the pipeline, said people involved in corporate negotiations and due diligence.
“Though the expansion strategy and the time frame may vary from company to company, as the priorities of both the buyers as well as sellers are different, certainly there are talks on cross-border deals taking place in the sector,” said an executive with a foreign drug firm based in Mumbai, who declined being named like others quoted in the story, citing ongoing talks.
GlaxoSmithKline Plc. is said to be in talks with domestic firm Piramal Healthcare Ltd, while two other drug multinationals looking to expand India businesses through acquisitions are France’s Sanofi-Aventis SA and Germany’s Merck KGaA.
Strategic moves: GlaxoSmithKline CEO Andrew Witty (left Andrew Harrer / Bloomberg) and Wockhardt chairman Habil Khorakiwala. Madhu Kapparath / Mint
In June last year, Japan’s Daiichi Sankyo Co. Ltd acquired India’s Ranbaxy Laboratories Ltd in a $4.6 billion (Rs22,954 crore) deal.
GSK’s global chief executive Andrew Witty, while announcing the firm’s annual results for 2008, had emphasized the group’s increased focus in emerging markets, including India, for future growth.
Commenting on the talks with Piramal, a spokesman from GSK India said, “We do not comment on market speculation.” A Monday email query to Piramal remained unanswered. The company had last week denied any talks with GSK, calling such reports unfounded.
In January, Merck’s India chief Marek Dziki had said the company is hopeful of signing a couple of acquisition deals later in the year. The company is currently in advanced talks with a few domestic drug makers, and also keen on local acquisitions in its core businesses of food and chemicals.
While announcing 2008 earnings on 11 February, French multinational Sanofi-Aventis’ global chief executive Chris Viebacher had said the company is looking towards consolidation opportunities in India, where it lags growth compared with other emerging markets.
The process will get expedited now in India after the global merger of Pfizer Inc. and Wyeth Inc., which was announced in January, since a few domestic players who are likely to exit from the sector were expecting a higher valuation from Pfizer, as it was keen on an Indian buy, according to an investment banker who heads the India investment banking arm of a global financial services firm. With the global takeover of Wyeth, Pfizer will also acquire its Indian subsidiary, Wyeth Ltd.
According to two other investment bankers, at least three Indian drug firms—Mumbai-based Wockhardt Ltd, Ahmedabad-based Torrent Pharmaceuticals Ltd, and a Hyderabad-based active pharma ingredient manufacturer—have been approached by deal advisers of large multinational drug firms for equity partnerships.
Wockhardt’s chairman Habil Khorakiwala told Mint last week in an interview, “The company is currently exploring various options to tide over the funds crunch.”
The firm had earlier mandated the Indian investment banking arm of Swiss bank UBS AG to help it sell assets.
In an email response, a Torrent spokesperson said, “There is no move as of now on the part of the promoters of Torrent Pharma or its management to sell their stake, in part or in whole, to any players, national or global.”
Consolidation in the Indian drug space is a strategic move for most top global companies, who are eying its market to sustain growth.
The prevailing low valuations of many local drug makers also make them attractive targets. At the same time, slow growth and financial pressures in a credit-starved environment may also push some of the potential targets to make a quick deal.
Sector analysts and industry executives say the end-game in pharmaceuticals will be consolidation, similar to what has happened in other markets globally.
“Since the generic market is going to be more and more competitive, the growth prospects for companies that fails to focus on innovation seems bleak in the future,” said an analyst with a foreign brokerage firm who tracks the Indian drug sector.
“This will make their sustainability as a single market player difficult, and the final solution is to get merged with a larger group, or to exit for a reasonable price,” the analyst said.