Indian companies are gearing up their resources to tap up-coming opportunities in the international markets. The mergers and acquisition (M&A) is playing a crucial role and Indian companies are considering inorganic growth through M&A. Through M&A activities, the Indian companies are getting easy entry into new markets, ready manufacturing facilities, R&D base and ready product pipeline. With M&A, pharma players are saving cost and time.

The latest most competitive trends in the industry over the last decade have been mergers and acquisitions (M&A). Deals involving major players have been growing in size, and have created a new tier of mega companies. The companies undertake these deals for strengthening its pipeline, gaining economies of scale, and improving research and development activities. The faster integration of acquired company is important from the point of 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. The standalone companies on the other hand 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 couples of year 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 mergers and acquisitions environment remains in a constant state of change with companies continuing to exercise caution. The pharmaceutical sector has performed and kept broader market significance over the last two years. There were a couple of big deal happened in the last two years.

Dr Reddy's Labs (DRL), Sun Pharma, Ranbaxy Laboratories, Matrix Laboratories and Wockhardt have done major 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 German based Betapharm Group for a total consideration of US$ 570 million, the largest acquisition by any Indian pharma company. This was followed by Sun Pharma's plan of acquisition of Israel company - Taro Pharmaceutical for US$ 454 million. To achieve inorganic growth, several Indian pharma companies like Ranbaxy Laboratories, Matrix Laboratories and Wockhardt have also invested large amount for acquisition. Recently, Mylan of US has acquired 71 per cent stake in Matrix Laboratories and now it became a multinational pharma company.

View Table Merger & Acquisition

DRL boosts operation by integrating Betapharm
DRL has completed the acquisition of Germany based Betapharm Group during March 2006 with the total consideration of US $ 570 mn and it became the No 1 company in India with consolidated revenue of Rs 6,510 crore. Betapharm markets high-quality generic drugs with focus on long-term therapy products with high prescription rates. Betapharm is the fastest growing generics company over the past five years in the top 10 in Germany with a strong track record of successful product launches. Commenting on the acquisition, Satish Reddy, chief operating officer of the company, 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 to complete Taro acquisition
Sun Pharma is investing US $454 million to acquire Taro Pharmaceutical Industries Ltd, together with its subsidiaries. It has signed definitive agreements to acquire Taro Pharmaceutical Industries Ltd, during May 2007. Taro Pharma is a multinational generic manufacturer with established subsidiaries, manufacturing products across the US, Israel and Canada. North America represents more than 90 per cent of Taro's sales. The company intends to fund this US$ 454 million acquisition with internal accruals and proceeds from its earlier US$ 350 million FCCBs. This deal values Taro's equity at 230 million.

"We look forward to working with Taro. 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 increasing 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, and two of its subsidiaries, Taro Pharmaceuticals Inc., or Taro Canada, and Taro USA. Taro 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 the US alone. One NDA as well as 26 ANDAs are awaiting approval with the 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 which complement our current manufacturing and development capabilities in the US.

Additionally Taro manufactures APIs, including complex chemistry and steroids that are made at its site in Israel an integral component in being vertically integrated on difficult to replicate products. Over US$ 225 million have been invested by Taro in capex in the last three years which provides the company with additional capabilities. Its intention to capitalize on the talent has supported the company within and outside of the US.

At 12-16 per cent of sales, Taro has invested over USD 190 million in R&D so far. Among active projects in drug discovery, is 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 vide a lice treatment which is another interesting product in their portfolio of proprietary products.

Ranbaxy Labs strengthening 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 (USD 70 million). The deal was completed in May 2007 and making Ranbaxy 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 of Ranbaxy's global pharmaceutical division, who signed the deal on May 4 said, "The acquisition of Be-Tabs will ensure that Ranbaxy develops deeper roots in SA and 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 of Ranbaxy South Africa, says, "The company's decision to manufacture locally will not only help to provide quality medicine at an affordable price to the Southern African market, but will also mean a further investment of approximately Rs 100 mn in the local economy." Ranbaxy is also planning a major upgrade of the Be-Tabs manufacturing facility to bring its factories in line with new standards. With the re-vamp of the 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, Ranbaxy's Regional Director Africa and Latin America, added, "Ranbaxy entered South Africa with a business model that aimed to meet the country's need for access to affordable healthcare for a wide cross-section of the population. This acquisition with its market presence and substantive manufacturing capabilities is another step towards achieving this goal."

Wockhardt Ltd puts strong 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 spread over UK, Ireland and Germany," The company's chairman Habil Khorakiwala said, "European business will now exceed $200 million, accounting for almost half of Wockhardt's total sales." The acquisition gives the company an entry and leadership in the last genericising market of Ireland. As almost half of Pinewood's sales come from the UK, the acquisition will reinforce the company's position in the 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 strategic 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 established retail business
Natco Pharma Ltd has acquired the assets of SaveMart Pharmacy, in July 2007. A multi-utility drug store based in Lancaster County, Pennsylvania State in the United States of America. 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 partly through internal accruals and partly through debt.

Natco is strategising to establish its retail business in the USA as a significant business segment with which is plans to garner an income of around US $100 Million over a period of time. "We are looking at US $100 million retail business in the US and if something good comes across, we will definitely think about more acquisitions in coming years", Rajiv Nanapaneni, director of Natco Pharma told Pharmabiz.

SaveMart Pharmacy, is said to be one of the leading stores in the Lancaster Country clocked approximately US $18 million sales during last year. This year Natco expects to clock US $25-30 million from the retail business. The store caters to local population and sells pharmaceutical products.

Last year the company acquired a $20 million chain based 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 around US $28 million in a full operation year. He also hinted about unveiling a separate entity that would completely concentrate on retail business, once the acquisitions are in place in the US.

Strides Arcolab consolidate its fermentation capacity
Strides Arcolab Ltd has completed the acquisition of Diaspa S.p.A, Italy; in August 2007and acquired its fermentation assets including its ongoing business. Diaspa S.p.A based in Milan, Italy has a fermentation capacity of 925 m3 and produces a range of niche pharmaceuticals. The facility has a long track record of EU and US FDA approvals with the recent 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 of Strides Arcolab Group said, "The acquisition gives Strides immediate access to a US FDA and EU approved facility and provides 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 [APIs]. Kumar has further commented that we are delighted with the strong technology, the product pipeline and the management bandwidth Diaspa brings along with this acquisition".

Elder Pharma established marketing platform in Europe
Elder Pharmaceuticals Ltd has finalized a 20 per cent strategic stake in Neutra Health PLC, in July 2007. An AIM listed company in the United Kingdom. Elder's subscription for shares in Neutra Health, worth about Rs 47 crore. This is Elder's first investment in European markets 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, which has established directors like Gulam Noon, the curry entrepreneur of UK and Martin Gatto, a former CFO of Hilton International, the hotel group. Among the companies directly owned by NeutraHealth are BioCare Limited, Nutrigold Limited and Brunel Healthcare Limited. 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 the 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 the 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 to 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 that process. NeutraHealth has strong market positions in the vitamins, minerals and supplements sector of the United Kingdom. Its business covers all the aspects of the distribution channels viz. ethical (doctors), large format retails stores, independent retailers and direct to consumer. In the long run, Elder plans to grow organically as well as through acquisitions, 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."

Says Michael Toxvaerd, chief executive, NeutraHealth, "The infusion of funds through Elder's equity investment and Elder's 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."