Home / Industry / Manufacturing /  Make it large—a significant trend in the Indian pharmaceutical industry

The pharmaceutical sector recorded deals worth over $2.1 billion so far in 2018, compared with $1.9 billion across the 12 months of 2017. The spike in activity could be attributed to Aurobindo Pharma Ltd’s agreement to acquire the dermatology business and three manufacturing units of Sandoz for $1 billion, which is the largest outbound deal by an Indian pharmaceutical company.

This transaction will make Aurobindo the second-largest generics company in the US by prescriptions and the second in the dermatological drugs segment.

Inorganic growth through large deals

While the pharma segment witnessed a decline in deal volumes, a key trend emerging is the inclination of investors to place selective, yet large bets, to support inorganic growth.

Focus on outbound deals to widen reach

Strategic M&A (mergers and acquisition) deals alone accounted for nearly 70% of the deal activity in 2018, with outbound deals continuing to be the dominant focus area for Indian companies. These acquisitions provide access to new markets or further scope of value addition in existing markets. The US market remained a strategic priority as demonstrated by the big-ticket acquisitions by Lupin and Cipla in recent years.

Large global pharma companies also seek to extract value and reshape their portfolios through divestments, while at the same time strengthening their balance sheets. The monetization of non-core assets allows these companies to focus on key areas and utilize the sale proceeds to enhance shareholder returns through share buybacks and dividends.

Indian companies in their quest to achieve scale and category leadership, will evaluate outbound acquisition opportunities, which provide quality manufacturing assets and complex generic product portfolios. They are also evaluating in-licensing opportunities of tying up with companies with mid-to-late stage pipeline candidates or interesting technologies.

PE participation is encouraging

Tailwinds in the sector have accelerated private equity (PE) deal activity with 14 deals aggregating nearly $700 million, till date, compared with $600 million during the previous year. Sovereign wealth funds have also demonstrated their confidence in the segment, having been a part of the largest PE deal this year—ChrysCapital, GIC and CPPIB’s $350 million investment in Mankind Pharma.

Excluding the Mankind transaction, average deal values for PE transactions have increased from $20 million in previous years to $26 million this year. Further, PE transactions were witnessed across various segments of the pharma space. TPG’s $135 million investment in Sai Life Sciences, a drug discovery, development and manufacturing services company, is a case in point. The $40 million Series-C funding from a consortium of investors led by Northpond in Mitra Biotech is also worth a mention.

Platform plays in domestic Pharma

An emerging trend in the PE segment is the creation of platform plays in the domestic pharma sector. These platforms have the potential to scale organically, and through bolt-on acquisitions (a bolt-on acquisition refers to a target that is added to a PE backed platform company to enhance value). A recent example is True North’s collaboration with Glenmark for their domestic orthopedic and pain management business for $92 million with a long-term objective to build a domestic specialty pharmaceutical company. In 2016, Samara Capital had acquired Adcock Ingram’s business in India and has added to the portfolio through acquisition of select brands of Novartis in 2017.


Indian companies will remain acquisitive as they prepare for the next leg of specialty generics-driven growth and will evaluate cross-border deals to acquire brands and capabilities in niche therapies. Major domestic consolidation is unlikely due to the reluctance of promoters to sell and high valuation expectations. Smaller divestments of tail-end brands or manufacturing facilities will continue as companies streamline their portfolios and focus on their core strengths. Also, some consolidation is expected in the mid-sized firms due to the prevailing growth challenges and to address succession issues. PE interest in the sector has increased considerably with some large bets being placed in proven companies and the establishment of domestic specialty platforms that is being complemented by several bolt-on acquisitions. Globally, pharma companies have used M&A as a standard lever for growth as it provides access to specialty products and, now, Indian companies are using this lever boldly and decisively.

Rajesh Vig, partner, corporate finance and investment banking, Pwc India, and Sanjeev Krishan, partner and leader, deals, PwC India

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