Mumbai: Temasek Holdings (Pvt.) Ltd, an investment firm based in Singapore, has invested more than $600 million to buy stakes in three Indian drug makers over the past six months, raising its bets on the Indian pharmaceutical industry that has given investors among the highest returns over the past few years.

Two of these deals were in publicly traded firms—Sun Pharmaceutical Industries Ltd and Glenmark Pharmaceuticals Ltd. The third investment was in Intas Pharmaceuticals Ltd. The three transactions were ranked among the top five private equity (PE) deals in the pharmaceutical sector over the last five years, according to data from researcher VCCEdge.

India’s pharmaceuticals industry is likely to grow at an average annual pace of at least 14%, aided by a rapidly growing domestic market and emerging export opportunities as patents of at least a dozen blockbuster drugs in the US expire in the next three years, according to a 10 September report by CARE Ratings. About $92 billion worth of patented drugs are expected to go off-patent in the US during 2014-2016, according to the report.

The domestic formulations market continues to demonstrate high single-digit growth on a sustainable basis and hence will attract PE players to invest in fast growing pharma companies with a focus on the domestic market, said Shiraz Bugwadia, managing director at o3 Capital Global Advisory Pvt. Ltd, a boutique investment bank. “Most PEs have made multi-bagger exits from their investments and some of them are eyeing similar returns in the next round of exits, too."

In its most recent transaction on 21 April, Temasek bought in 20.2 million shares in Sun Pharmaceuticals through its investment unit Aranda Investments Pte Ltd, when Japanese firm Daiichi Sankyo Co. Ltd sold 215 million shares of Sun Pharma in the open markets. The transaction details are based on data from the National Stock Exchange.

The deal was worth $298.58 million, according to VCCEdge.

On 17 April, Mumbai-based Glenmark Pharmaceuticals raised 945 crore by selling shares to Aranda Investments and a wholly owned indirect subsidiary of Temasek Holdings (Pvt.) Ltd.

In November, Temasek had bought a 10.16% stake in Ahmedabad-based Intas Pharmaceuticals. VCCEdge pegged the deal at $160 million in which PE fund ChrysCapital had sold its stake.

“India is important as the market is aligned with our investment themes. Sectors such as financial services, consumer, healthcare and agri-businesses are good proxies for the needs of transforming economies and growing middle-income populations, both of which are a part of our investment themes," a spokesperson for Temasek said in an email, declining to comment on specific deals.

As at 31 March 2014, Temasek’s total exposure to India was approximately 4% of its portfolio. At the end of March 2014, Temasek’s net portfolio value stood at Singapore $223 billion.

“PE investors have always been keen to invest in the pharma sector, but now people are even more enthused to invest in the sector because there is visibility for long-term growth prospects of their
business models," said Abhishek Sharma, an analyst with
domestic brokerage India Infoline Ltd.

Listed firms in the healthcare sector have outperformed the broader markets in recent years. In 2013, the BSE Healthcare index gained 22.55%, outperforming the benchmark BSE Sensex’s 8.98% increase. In 2014, the outperformance was starker, with the BSE Healthcare index gaining 47.4% against the Sensex’s 29.9% advance. Over the last two years, shares of Sun Pharma have almost quadrupled, while Glenmark Pharmaceuticals has almost tripled.

Since January, Indian drug makers have collectively raised $464.37 million through PE investors across five transactions. In 2014, PE investors committed $526.29 million across 21 deals in the pharmaceutical sector. The investment activity in the first four months of this year has already surpassed investments made individually in calendar years 2011, 2012 and 2013.

“Pharma companies have produced more value for investors and the generic drug market presents huge growth opportunities for the bigger companies, and in the last two years, pharma shares have provided best returns as compared to other sectors," said Sujay Shetty, leader, pharma, life sciences and medical devices sector, PricewaterhouseCoopers India Pvt. Ltd.

Among existing investors, PE firms ChrysCapital and Blackstone Group LP have been able to sell stakes in their portfolio companies with huge returns.

Chryscapital, which had invested 350 crore across two tranches to acquire a 16% stake in Intas Pharma, sold a 10.16% stake in the drug maker for nearly 880 crore, Mint reported in November.

According to a December 2013 Mint report, Blackstone made threefold gains while exiting its investment in Pune-based Emcure Pharmaceuticals Ltd by selling its stake to Bain Capital.

In 2006, Blackstone had invested nearly $50 million in Emcure. Bain Capital has paid nearly 700 crore for the stake.

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