New Delhi: Buyout firm Baring Private Equity Partners (India) Pvt. Ltd has set aside $130 million, roughly Rs540 crore, for investments in pharmaceutical companies as it sets up its third India-dedicated firm with a corpus of $400 million.
About $30 million of such investments will come from its second fund and $100 million from the new fund.
Baring is eyeing smaller drug firms with therapeutic niches with the idea that these units can then be aggregated into a player with a bigger presence in the Rs55,000 crore Indian pharmaceutical sector.
New venture: A nurse displays a flu vaccine in London. Baring PE is looking at aggregating small speciality businesses in segments spanning paediatrics, vaccines and less capital-intensive biotech products.
“We are looking at buying and later aggregating smaller speciality businesses that have special technology, products or access to raw materials,” said Akhil Awasthi, partner (pharmaceuticals & healthcare practice), Baring Private Equity. “The segments could span from paediatrics, vaccines, bio-similars (off patent biological drugs) to low capital-intensive biotech products.”
Unlike typical mergers that focus on vertical integration—bringing the entire production and distribution line together to profit from synergies—Awasthi said the Baring model of aggregation will be more horizontal in nature but, as is typical of mergers, amalgamating dissimilar business units with distinct cultural identities will be a daunting task.
“We are talking to some managers to put together a team that will implement this business model. We would rather have expert managers sitting ready to start off rather than scramble for them once we have bought something,” he added.
Baring has begun scanning the market for such targets, speaking to a few promoters who have invested in manufacturing capacities or who may have easier access to raw materials, but Awasthi was unwilling to name them.
Explaining his company’s strategy, Awasthi said the days of reaping big returns out of traditional business models in pharmaceuticals were over, where companies would file for drug approvals in the developed markets of the US and Europe and export generic variants of drugs.
The charm of patent challenges with expectations of a six-month selling period with limited competition was over, too, he added.
Besides niche speciality segments, Awasthi said, Baring saw promise in the pharmaceutical services space. For instance, Baring acquired a 30% stake for Rs15 crore in Siro Clinpharm Pvt. Ltd, which is the largest Indian clinical research firm specializing in late-stage human clinical trials. Its second investment in the health-care business was a 42% stake, acquired for Rs50 crore, in sales and marketing analytics company PharmARC Analytic Solutions Ltd.
Awasthi didn’t rule out investments in drug research, be it start-ups by enterprising scientists returning from abroad or hived-off divisions of Indian drug firms. “We will invest in individuals who have previous experience of bringing a molecule all the way to the market and now want to strike out on their own,” Awasthi said.