Mumbai: GlaxoSmithKline Plc (GSK), which is looking to expand its presence in emerging markets such as India, has engaged investment bank Lazard and Co. Ltd to evaluate potential acquisitions in the country, according to a person familiar with the matter.
The British firm, the world’s third largest drug maker by sales, has narrowed its search to two well-known Indian firms, Piramal Healthcare Ltd and Dr Reddy’s Laboratories Ltd (DRL), added this person, a Mumbai-based investment banker who spoke on condition of anonymity.
In February, The Wall Street Journal had reported that GSK was in talks to buy Piramal for roughly $1.5 billion (Rs7,230 crore), citing people familiar with the matter. That report had added, again citing these people, that the talks were at an early stage and could “still fall apart”. The report carried Piramal’s denial, stating that any talk of the company’s sale was “totally unfounded”.
The Mumbai-based investment banker said his company had approached GSK Pharmaceuticals Ltd, GSK’s Indian subsidiary, with “similar proposals”, but was told that the company is “in talks with the Piramals and some of the promoters of Dr Reddy’s through Lazard”.
A GlaxoSmithKline spokesperson said the company does not comment on mandates given to investment banks.
An email sent on Monday to Alasdair Nisbet, managing director of Lazard in London, remained unanswered till the time this article went to press.
A senior official from Piramal Healthcare said on Monday that the company keeps receiving proposals from merchant bankers, but that the promoters haven’t so far looked at those offers seriously. “Rather, the company wants to grow by itself through orgnic as well as inorganic route in the domestic market,” he added over the phone, asking that he not be identified.
A spokesperson for Dr Reddy’s said in an email that his company doesn’t comment on “market speculation”.
GSK Pharmaceuticals, listed on the Bombay Stock Exchange (BSE), and its London parent have both been looking for acquisitions in India. The Indian firm itself has cash reserves of Rs1,456 crore.
Both Piramal and Dr Reddy’s would be worth at least several times their future revenue, said a senior partner at audit and consulting firm Ernst and Young, who didn’t want to be identified, given the situation.
Shares of Piramal Healthcare on BSE rose 1.44% to close at Rs355.70 each on Tuesday, while those of Dr Reddy’s fell 0.25% to close at Rs863.30 each. The market value of these firms at these closing prices are Rs7,434.60 crore and Rs14,553.78 crore, resepctively. As on 30 June, promoters of Dr Reddy’s hold 25.78% equity in the company and those of Piramal Healthcare, 49.56%.
GSK’s strategy to consolidate its presence in India is similar to that of its global rivals such as Pfizer Inc., Sanofi Aventis SA, and Daiichi Sankyo Co. Ltd.
All these firms want to ensure sustained supply of cheap off-patent drugs or generics from India to cater to the global market. At least $70 billion worth of patented drugs will go off patent by 2012. And Big Pharma doesn’t have a new drug pipeline that can compensate for this. India’s Rs35,000 crore by sales drug market, which is expanding by 14-15% a year, is another reason for multinationals to look seriously at the country.
Pfizer has launched an aggressive generics play here and forged alliances with Aurobindo Pharma Ltd and Claris Lifesciences Ltd to license several of their cheap off-patent drugs for the global market. It is also talking to the country’s sixth largest drug maker Wockhardt Ltd to buy out some of its existing businesses in the domestic market. Sanofi has acquired a majority interest in Hyderabad-based Shantha Biotechnics Pvt. Ltd to strengthen its global vaccine and biopharmaceuticals portfolio. And in 2007, Daiichi Sankyo acquired India’s largest drug maker by sales Ranbaxy Laboratories Ltd.