India's outbound investments into the US over the last two years (2004-06) have been showing a positive trend. Healthcare segment comprising of pharmaceuticals, Biotech and Healthcare Services accounted for 17 per cent in volume and emerged as the second largest segment, following Software BPO, while the remaining 25 per cent deals were in other sectors. Healthcare sector clinched 10 out of 60 deals during the period. The number of healthcare deals improved from 14 per cent in 2004-05 to 19 per cent in 2005-06.
Entry into new markets is the primary factor driving investments into the US in the healthcare sector. It is expected that outbound investments and acquisitions by the Indian industry will surge and are going forward. Indian companies will continue to pitch for larger assets overseas according to a recent report on direct investments in the US by Indian Enterprises prepared by FICCI and Ernst and Young.
The pharma sector is expected to continue to drive the overseas investments and acquisitions, in healthcare sector. The highly regulated developed economies of Europe and US are becoming the key markets for most of the Indian companies, with increasing generics opportunity in these markets. Several Indian companies in the sector have declared their intentions to acquire more companies overseas.
Access to foreign markets, production facilities and international brand names have been the key decision drivers for Indian companies to invest in the US. For instance, Sun Pharmaceuticals acquired Able Laboratories' dosage form manufacturing facility and also purchased three niche brands of Women's First Healthcare.
Presence of strong regional clusters in the US is also a key factor. The presence of multinationals in these clusters influences FDI for sub-supply, and aids in pushing the growth of companies located in these clusters. In July 2006, Aurobindo Pharma acquired a manufacturing and warehousing facility in Dayton, New Jersey, located in the heart of Princeton Life Sciences Corridor. This gives Aurobindo the benefit of being located in the vicinity of its potential customers, and also its manpower requirements can be easily met.
Access to technologies is also a key consideration for setting up R&D centres in key locations. For instance, Ranbaxy Laboratories has R&D activities in various countries, including the United States. Natco Pharma bought a 75 per cent stake in Nick's Drug Store to enter the retail market, a move to enter new markets. Foreign purchase helps in expanding product range of the companies, and acquired infrastructure helps entry into new markets, the report pointed.
The Pharma sector witnessed a rise in the outbound investment activity, characterised by large Indian companies acquiring companies overseas to increase their global presence. A growing generic market in the developed nations, sustainable cost competitiveness of Indian companies, need for local operations to satisfy regulatory and market requirements and limited growth opportunities in the domestic market are driving outbound investment in this sector.
In addition, the Government-to-Government High Technology Working Group, a bilateral undertaking is unique to India and the US. This initiative is designed to support and stimulate a thriving commercial nexus to foster innovation and commercialisation of new technologies in the sector.