Hyderabad: Aurobindo Pharma Ltd, a mid-sized Indian drug maker, has quietly emerged as an indirect contender in the race for the non-patented drug business of German pharmaceuticals giant Merck KGaA.
Aurobindo, which reported revenues of Rs1,517 crore in the last three quarters this financial year, has teamed up with private-equity fund CVC Capital Partners (Deutschland) GmbH to extend manufacturing and management support if the buyout firm succeeds in acquiring the Merck division, according to people familiar with the bids.
“The low-cost advantage of manufacturing in India is one of the factors that CVC is looking for in an Indian partner,” said one industry executive who didn’t want to be named. Hyderabad-based Aurobindo refused to confirm or deny the partnership with CVC.
CVC, formerly a Citigroup venture funding affiliate, also declined to comment citing company policy.
“CVC Capital will announce its partnership with Aurobindo and other drug makers, if any, at a presentation scheduled for Thursday,” said this person. And Aurobindo may not be the sole Indian partner with which CVC Capital will work. “There could be a couple of more drug makers in the team,” this person said.
Merck, with the help of its investment banker, Bear Stearns, began a second round of discussions with shortlisted bidders this week.
Aurobindo, which has augmented its Indian generic manufacturing facilities in the last year, is currently utilizing just a quarter of its production capacity.
“Aurobindo can make use of the balance capacity for the European markets if CVC acquires Merck’s assets. It will offer milestone profits to Aurobindo, apart from rewards for regulatory services offered by the Indian firm,” this person said.
Aurobindo could see annual revenues of up to €400-500 million (Rs2,300-2,880 crore) in two-three years’ time if CVC wins bidding for the Merck business and decides to shift a big part of its non-patented or generic-drug manufacturing to India. However, it will take at least 12-18 months for Aurobindo to complete regulatory formalities to manufacture those drugs in India for sale in Europe.
The low cost of manufacturing in India was driving private equity firms to tie up with Indian generic-drug firms, an industry expert said.
“Most Indian drug makers have strong expertise in the generics business, but do not have a large balance sheet (to make large acquisitions),” said Sanjiv D. Kaul, managing director of New Delhi-based private equity fund Chrysalis Investment Advisors.
After Dr Reddy’s Laboratories announced it was withdrawing from the race for Merck’s assets earlier this month, India’s largest drug maker, Ranbaxy Laboratories Ltd, too, opted to quit this week over price issues. Cipla Ltd had also teamed up with a group of private-equity firms for the bid but is no longer in the race.
Analysts suggest bidding for the Merck division could go up to $6.5 billion (Rs28,730 crore), as global generics market leaders pursue the business. Israel’s Teva Pharmaceutical Industries, Mylan Laboratories of the US and Iceland’s Actavis Group are three companies still in the fray, apart from some private-equity players.
Shares of Aurobindo gained 1.13% and closed at Rs611 on the Bombay Stock Exchange. The shares have fallen 15.4% since 8 January.
The BSE health-care index has shrunk 7.6% in the same period and the BSE Sensex lost 5.17%.