The increasing competition, expiration of patent protection and high cost of R&D as well as marketing has put pressure on pharma companies across the globe during the last decade. The Indian companies are taking advantage of the situation and gearing their resources up to tap future opportunities in the international markets. In this context, mergers and acquisitions (M&A) are playing a crucial role and Indian companies are on path of inorganic growth through M&A. Through M&A activities, the Indian companies are getting easy access to new markets, ready manufacturing facilities, R&D base and a ready product pipeline. Also, M&A help pharma players to save cost and time.
The latest most competitive trends in the industry over the last decade have been mergers and acquisition (M&A). Deals involving major player have been growing in size and have created a new tier of mega companies. The companies undertake these deals for strengthening their pipeline, gaining economies of scale and improving research and development activities. The faster integration of acquired company is important to stimulate growth rates. However, the size of these organizations is creating substantial management complexity. Some of the merged companies are finding the expected saving and improvement elusive. On the other hand, the standalone companies are actively working for attractive options. The pharmaceutical industry is all set to make M&A its trump card to fine-tune research abilities and reach out to global markets.
The number of M&As in the last couple of years shows that the Indian pharma industry is all set to take on the global markets. An increase in M&A activity in the pharmaceutical and related healthcare sectors predict a huge market potential in the future. The merger and acquisition environment is not stable with companies who are exercising it with a caution. The pharmaceutical sector has performed and kept broader market significance over the last two years. There were a couple of big deals in the last two years.
The domestic pharma companies, including Dr Reddy's Labs (DRL), Sun Pharma, Ranbaxy Laboratories, Matrix Laboratories and Wockhardt have inked major M&A deals in the last two years. The M&A activities are likely to move ahead in the coming years with easy availability of funds and strong financial position of Indian companies.
DRL has acquired Germany-based Betapharm Group for a total consideration of US $570 million, the largest acquisition by an Indian pharma company. This was followed by Sun Pharma's plan of acquisition of Israel-based Taro Pharmaceutical for US $454 million. To achieve inorganic growth, several Indian pharma companies like Ranbaxy Laboratories, Matrix Laboratories and Wockhardt have invested large sums for acquisition purpose. Recently, Mylan of US has acquired 71 per cent stake in Matrix Laboratories, transforming Matrix into a multinational pharma company.
Betapharm boosts DRL's operations
DRL has completed the acquisition of Germany-based Betapharm Group during March 2006 with a total consideration of US $570 million and it became the number 1 company in India with consolidated revenues of Rs 6,510 crore. Betapharm markets high-quality generic drugs, focusing on long-term therapy products with high prescription rates. Betapharm is one of the top ten generic companies in Germany with a strong track record of successful product launches. The company has achieved fastest growth over the past five years. Commenting on the acquisition, Satish Reddy, chief operating officer, DRL, said, "We have successfully completed the acquisition of Betapharm. The strategic investment in Betapharm is a step forward towards realizing Dr Reddy's strategic intention of building a global generics business with strategic presence in all key markets."
Sun Pharma on Taro acquisition
Sun Pharma is investing US $454 million to acquire Taro Pharmaceutical Industries Ltd together with its subsidiaries. The company has signed definitive agreements to acquire Taro Pharmaceutical Industries Ltd, during May 2007. Taro Pharma is a multinational generic manufacturer with established subsidiaries and manufacturing products across US, Israel and Canada. The company intends to fund this US $454 million acquisition with internal accruals and proceeds from its earlier acquisition of US $350 million FCCBs. This deal values Taro's equity at 230 million. More than 90 per of Taro's sales are derived from its operations in North America.
"We look forward to working with Taro and its employees. This is a good opportunity for Sun and Taro to work together to create increasing value and add a complimentary multinational organization to Sun's business. We intend to build on Taro's expertise in dermatology and paediatrics, along with specialty and generic pharmaceuticals and over-the-counter products. With the addition of 170 talented scientists to our team, we look forward to increase the number of product filings of higher complexity," said, Dilip Shanghvi, chairman and managing director, Sun Pharma.
Taro operates mainly through three entities - Taro Pharmaceutical Industries Ltd or Taro Israel, Taro Pharmaceuticals Inc or Taro Canada and Taro USA. Among these, Taro Pharmaceuticals Inc and Taro USA are subsidiaries of Taro Pharmaceutical Industries Ltd. The company has a strong franchise in dermatology and topical products, in addition to product baskets in cardiovascular, neuropsychiatric and anti-inflammatory therapeutic categories.
Taro US has more than 190 ANDA drug approvals in US alone, while the company is awaiting one NDA as well as 26 ANDAs approval from US FDA. The company has large, world-class sites with necessary regulatory approvals in Canada and Israel that manufactures topical creams and ointments, liquids, capsules and tablets dosage forms, complementing the company's current manufacturing and development capabilities in US.
In addition, Taro manufactures APIs, including complex chemistry and steroids that are made at its site in Israel. During the last three years the company has invested over US $225 million in capex, which provides the company with additional capabilities. It is the company's intention to capitalize on the talent that has supported the company within the country and abroad.
At 12-16 per cent of sales, Taro has invested over US $190 million in R&D so far. The company's active projects in drug discovery include its lead molecule T-2000, which is a non-sedating barbiturate that is being developed for essential tremors. T-2000 is in additional phase II studies in Canada. This is in addition to projects in formulation development for ANDA filing and process chemistry for APIs organic and steroid chemistry. A novel formulation of ovide a lice treatment is another interesting product in the portfolio of proprietary products.
Ranbaxy strengthens South African operations
Ranbaxy Laboratories has acquired Be-Tabs Pharmaceuticals, the largest manufacturer of penicillin formulations in South Africa, at a price of Rs 50 crore (US $70 million). The deal was completed in May 2007. The transaction helped Ranbaxy to become the fifth largest generic pharmaceutical company in South Africa. As part of this acquisition, Ranbaxy has concluded a Black Empowerment transaction with a Community Investment Holding (CIH) group company. Peter Burema, president, global pharmaceutical division, Ranbaxy, said, "The acquisition of Be-Tabs will ensure that Ranbaxy develops deeper roots in SA with a strong local flavour." A key element of the Be-Tabs deal is that it gives Ranbaxy local manufacturing capability, making the company one of the few generics pharmaceutical companies to invest in and develop local manufacturing functionality.
Desmond Brothers, CEO, Ranbaxy South Africa, said, "The company's decision to manufacture locally will not only help to provide quality medicine at an affordable price to the South African market, but will also mean a further investment of approximately Rs 10 crore in the local economy." Ranbaxy is also planning a major upgradation of Be-Tabs manufacturing facility to bring its factories in line with new standards. With the revamp of Be-Tabs facilities, the company expects to lead the way for generics manufacturing in South Africa.
The acquisition of Be-Tabs substantially strengthens the basket of products that Ranbaxy brings to the market, especially in the acute and over the counter product streams. The company expects to use the brand equity that Be-Tabs has acquired to leverage market share among wholesalers, pharmacies, dispensing doctors and consumers.
Ranjan Chakravarti, regional director, Africa and Latin America, Ranbaxy, added, "Ranbaxy entered the South Africa with a business model that aimed to meet the country's need for affordable healthcare for a wide cross-section of the population. The acquisition of Be-Tabs, a company with great market presence and substantive manufacturing capabilities, is another step towards achieving this goal."
Wockhardt to establish footprint in Europe
Wockhardt Ltd has acquired Ireland-based largest and fastest growing branded generic pharmaceutical company Pinewood Laboratories Ltd in May 2007. The all-cash deal was worth $150 million on an enterprise value basis. Pinewood reported sales of over $70 million for the year ended June 2006.
"This acquisition gives us a larger footprint in Europe - UK, Ireland and Germany. The company's business in Europe will now exceed $200 million, accounting for almost half of Wockhardt's total sales," said, Habil Khorakiwala, chairman, Wockhardt. The acquisition gives the company an entry and leadership in the emerging generic market in Ireland. As almost half of Pinewood's sales come from UK, the acquisition will reinforce the company's position in UK, where it is already the largest generic company from India and the second largest player in hospital sales.
"The acquisition offers us enormous opportunities to unlock value of our enlarged customer base in UK and Ireland, by offering them a wider range of products," Khorakiwala said. The acquisition is a strategically fit for Wockhardt UK, as Pinewood's liquids and creams business complements Wockhardt UK's strengths in injectable and solid dosages.
Pinewood is the company's fourth European acquisition after Wallis, CP Pharmaceuticals and Esparma in Germany. UK and Germany are Europe's leading generic markets.
Natco Pharma rides on retail business
Natco Pharma Ltd has acquired the assets of SaveMart Pharmacy, a multi-utility drug store based in Lancaster County, Pennsylvania, US, in July 2007. The acquisition was through Natco Pharma Inc, a Delaware-based wholly owned subsidiary of Natco. The total acquisition amount has been valued at US $3.45 million. The acquisition was funded through internal accruals and debt.
Natco is set to establish its retail business in USA to garner an income of around US $100 million over a period of time. "We are looking at US to earn $100 million retail business and if something good comes across, we will definitely think about more acquisitions in coming years", noted, Rajiv Nanapaneni, director, Natco Pharma.
Natco expects to clock US $25-30 million from its retail business in US this year with SaveMart Pharmacy, one of the leading stores in the Lancaster Country with approximately US $18 million sales in the last year, in its kitty. The store caters to local population and sells pharmaceutical products.
Last year the company had acquired a $20 million Nick's Drug Store. "The earlier acquisition added around US $14-15 million business to our total revenue and we are expecting more this year," said Rajiv. As of now, with the two acquisitions, net accretion to Natco's revenues would be around US $28 million in the current financial year. He also hinted about unveiling a separate entity that would completely concentrate on retail business, once the acquisitions are in place in US.
Strides consolidates fermentation capacity
Strides Arcolab Ltd has completed the acquisition of Diaspa S.p.A, Italy, in August 2007, including its fermentation assets and ongoing business. Diaspa S.p.A, based in Milan, Italy, has a fermentation capacity of 925 million and produces a range of niche pharmaceuticals. The facility has a long track record of EU and US FDA approvals. The company has bagged approvals of Deferoximine in 2007.
The company will make additional investments at Diaspa to meet its growing demands of captive fermentation pharmaceuticals, mainly vancomycin and tecoplanin. Commenting on the acquisition, Arun Kumar, vice chairman and managing director, Strides Arcolab Group, said, "The acquisition gives Strides immediate access to a US FDA and EU approved facility, apart from the technology leadership necessary for Strides to grow its sterile injectable business. A significant part of Strides' sterile dosage form business is based on fermentation active pharmaceutical ingredients." Kumar has further added that the company is delighted with the strong technology, the product pipeline and the management bandwidth that Diaspa will bring along with.
Elder Pharma establishes marketing platform in EU
Elder Pharmaceuticals Ltd has finalized a 20 per cent strategic stake in Neutra Health PLC, an AIM listed company in the United Kingdom, in July 2007. Elder has subscribed Rs 47 crore worth shares of Neutra Health. This is Elder's first investment in European market in respect of 3,51,97,026 equity shares having a face value of 10 pence at 16 pence per share. The acquisition offers Elder an established platform for rolling out its products through all its key channels to the European nutraceutical market.
NeutraHealth has a turnover of £23 million and a market capitalization of close to £16.8 million. NeutraHealth has established directors like Gulam Noon, the curry entrepreneur of UK and Martin Gatto, a former CFO of Hilton International to its credit. The companies directly owned by NeutraHealth are BioCare Ltd, Nutrigold Ltd, and Brunel Healthcare Ltd. These companies market and distribute a range of nutraceutical products such as vitamins, specialised health supplements, over the counter medicines and detox in a box health treatments, as well as TravelGuard range of travel-related health products.
NeutraHealth intends to use the proceeds of the subscription for shares by Elder to reduce existing debt and develop its business interests in the high growth, niche area of expanding functional foods sector. The dietary supplements sector is also growing in popularity, as consumers become more health conscious. It is estimated that half of the population take vitamin supplements. Overall, the nutraceutical sector is growing by 10-15 per cent a year and this is likely to increase with the aging population.
Alok Saxena, Director (International), Elder, said, "We have been looking for the right opportunity to invest in the regulated markets and this transaction begins the process. NeutraHealth has strong market positions in vitamins, minerals and supplements sector in UK. Its business covers all the aspects of the distribution channels, including ethical (doctors), large format retails stores, independent retailers and direct to consumer. In the long run, Elder is expected to resort to organic and inorganic ways of growth, both within and outside India. We will continue to look for companies with notable market presence and which are profitable, cash generative and growing. We continue to seek and investigate acquisition opportunities."
According to Michael Toxvaerd, chief executive, NeutraHealth, the infusion of funds through Elder's equity investment and its expertise in mass scale distribution should position NeutraHealth to grow at a much faster rate. "Our strategy to date has been to build a group of companies within the nutraceutical market, which will deliver growth through organic expansion and through strategic acquisitions. Whilst we plan to continue to make strategic acquisitions that complement our existing businesses, we also plan to expand our production innovation, direct-to-consumer sales channels, export networks and supply chain synergies," he added.