Top Indian Pharmaceutical companies are all set to grow by way of acquisitions and mergers in India and abroad by shelling out huge sums in the coming years. Investment by Indian companies for acquiring companies in Europe and Americas worked out to more than Rs 2000 crore during last couple of years. The cash rich companies like Ranbaxy Lab, Matrix Laboratories, Dr Reddy’s Laboratories, the major players in this business is strengthening their market presence to overcome the stiff competition. This trend is expected to push up M&A activities in the next few years.

Ranbaxy, Dr Reddy’s, Matrix Laboratories, Nicholas Piramal India, Sun Pharmaceuticals, Jubilant Organosys and Strides Arcolab spread their business operations with mergers and acquisitions during the last couple of years. The investments in M&A activities for these companies have already started yielding results.

The M&A activity by Indian pharma companies got momentum during last couple of years only. However, at present, M&A activities are restricted to very few companies with major focus on marketing and distribution rights rather than taking over the liability of manufacturing facilities. The analyst pointed out that there are large opportunities to go for inorganic growth through M&A route. Instead of investing in creating new facilities and waiting for outcome, consolidation of activities through M&A is offering quick results.

However, the size of the M&A by Indian pharma companies is very small as compared to global M&A activities like Reckitt Benckiser-Boots, Teva-Ivax, Sanofi-Aventis, Novartis-Hexal and Eon Labs, Pfizer-Vicuron, and so on.

To finance M&A activity, companies are raising funds by issuing FCCBs or GDRs. Venture Capital (VC) funds have also started funding takeovers or commercialization of products. Indian companies will gear up to take advantage of funds from venture capitals in near future.

Matrix Laboratories, the Rs 650-crore Hyderabad-based company, acquired 46.45 lakh shares (95.51 per cent) of Docpharma, a Belgian generic drugs distributor company during September 2005. Matrix paid Euro 34 for each equity share and the total amount worked out to Euro 158 million. Further, Matrix has entered into a share purchase agreement with the promoters of Mchem Group, China for the acquisition of controlling stake of about 60 per cent in the Mchem Group. This will help to backward integrate into China for manufacture of intermediates and supply APIs worldwide.

Dr Reddy’s Laboratories acquired Trigenesis Therapeutics Inc, a US-based privately owned dermatology company, for a consideration of US $ 11 million during April 2004. This will help DRL to provide access to certain products and proprietary drug delivery technology platforms for the development of a pipeline of differentiated specialty products in the US dermatology prescription segment.

Recently, Dr Reddy’s Laboratories established Perlecan Pharma with equity capital commitments of US$ 52.5 million from Citigroup Venture Capital International Growth Partnership Mauritius Ltd and ICICI Venture Funds Management Company. Perlecan Pharma will be engaged in the clinical development and out-licensing of NCE assets. The company chose new financial way and entered agreement with ICICI Venture with a total consideration of $ 56 million for the development and commercialization of generic drugs filed in the US. Over the years, DRL has created strong reserves position, which will help to invest in takeovers. DRL also entered into an agreement with Rheoscience A/S of Denmark for co-development and commercialization of DRF 2593.

Nicholas Piramal completed its first international M&A transaction by acquiring the Inhalation Anaesthetics business of Rhodia Organique Fine Ltd for a consideration of Rs 57.98 crore. The business was acquired w.e.f. January 11, 2005.The income from this new business reached Rs 9.33 crore in the first year. The company also acquired 17 per cent stake in Biosyntech Inc, a Canadian biotech research company. Earlier, it has bought out a contract for the manufacture of two high-value, anti-glaucoma APIs from Alpex International Pvt Ltd including all fixed assets, agreement rights, and process IPR for a consideration of Rs 13.3 crore.

Meanwhile, Nicholas has returned the diagnostics business to Roche Diagnostics Gmbh, Germany, in 2004-’05 for a consideration of US$ 22 million. NPIL has set up two 51:49 joint ventures viz., Allergan India Ltd and Boots Piramal Healthcare Pvt Ltd with Allergan Inc., USA and Boots Plc.UK respectively.

Dishman Pharmaceutical acquired Synprotec Ltd, UK, through its 100 per cent wholly owned UK-based subsidiary company Dishman Europe Ltd during April 2005. The assets base of Synprotec Ltd stood at British Pound 2 million. Synprotec has contract R&D and manufacturing capabilities in UK and has created a strong intellectual property.

Wockhardt Ltd acquired esparma GmbH in Germany during May 2004. It acquired the esparma business only with its brands, and sales and marketing infrastructure, without the manufacturing facility. The company is expanding its operations in other parts also. Wockhardt has setup joint ventures in Mexico and South Africa.

Wockhardt has taken over CP Pharmaceuticals of UK for a consideration of Rs 85.98 crore during 2003 and Wallis Group of UK and integrated both the companies into Wockhardt UK Ltd. As cost cutting measures, Wockhardt has shifted various products from UK to India. The company is set to expand its US and Brazil operations in the near future.

Wockhardt is acquiring Alpharma, a leading US pharmaceutical company with a strong portfolio of products in the respiratory, cough and women-health segment with manufacturing facilities in US, Europe and Asia.

Sun Pharmaceuticals and Industries acquired a stake in a Hungary-based pharmaceutical company, ICN Company Hungary Ltd, through its US subsidiary, Valeant Pharmaceuticals International. It is investing round US$ 10 million for acquisitions in US and Hungary.

The company achieved better results from its 100 per cent subsidiary Caraco Pharmaceuticals in US. Currently, Caraco has a basket of 19 products, of which 15 are sold actively. Further, 10 more products are in pipeline for approvals. Caraco has generated sales of $ 60 million for the year ended December 2004.

Strides Arcolab is planning to acquire Polish pharmaceutical facility and acquired 70 per cent stake in Italian venture Beltapharm SpA, with a total investment of Rs 44 crore.

Jubilant Organosys acquired Trinity Laboratories, Inc (Trinity) along with its wholly owned subsidiary, Trigen Laboratories, Inc, a US-based generic pharmaceuticals company. Jubilant will hold 64 per cent equity stake in both the companies for a cash payment of US$ 12.25 million. It will pay US$ 8.25 million to the existing shareholders and balance retained for growth capital. Jubilant is planning to invest another $ 8.42 million until December 2006. This will increase its stake from 64 per cent to 75 per cent.

The acquisition of Trinity will give Jubilant a ready cGMP compliant manufacturing facility in Maryland in USA with an annual production capacity of 650 million tablets. Trinity has six approved ANDAs and it filed 2 more ANDAs for which it is expecting approval in short time.

Jubilant acquired Belgium company during 2003-’04 to established presence in European market. The company raised Rs 325 crore during 2004-05 through placement of FCCB. It is planning to use this fund for acquisitions, investments in overseas subsidiaries or capital expenditure. Recently Jubilant acquired clinical research organization (CRO) in USA for a consideration of US$ 33.5 million.

Ranbaxy Laboratories, the leading Indian pharma company with consolidated global sales of Rs 5313 crore, acquired French RPG Aventis, a generic arm of Aventis, during the year 2003 and re-christened as Ranbaxy Pharmacie Generiques. Its sales in France touched to US$ 73 million during 2004, which constitutes the largest operation of Ranbaxy in Europe.

Cadila Healthcare acquired Alpharma’s France unit during 2003, which is now known as Zydus France SAS. The company entered joint venture agreement during 2004-’05 with Mayne Group, a leading injectable specialty pharmaceuticals company based in Australia to set up 50:50 joint venture to manufacture Generic injectable, Cytotoxic (anti-cancer) medicines for global market. Further, Cadila tied up with Mallinckrodt Pharmaceuticals Generics, a business unit of Tyco Healthcare in US, for marketing Zydus Cadila’s products under a joint label.

Unichem entered the marketing tie up with Lannett Company Inc., US during 2004-’05 and exploring for acquisition of marketing company in US. The company is now planning to acquire the minority stake from the foreign partners in its UK subsidiary Niche Generics to make it a wholly owned subsidiary. After completing the acquisition it will use this company as a beachhead for all its future western European forays.

Besides M&A, Indian companies have tie-ups with international giants for marketing, manufacturing, research and contract manufacturing. Indian companies have established manufacturing facilities in foreign countries to create easy supply chain.

Glenmark Pharma’s Brazilian subsidiary, Glenmark Farmaceutica Limitada (GFL) had acquired Laboratorios Klinger in the year 2004 for a consideration of US$ 6.25 million. Klinger is a leading, privately-owned Brazilian company with a work force of 176 employees. It has 21 approved product registrations in Brazil, to which 3 more brands were added in FY 2005. The true benefits will accrue in FY 2006. Further, GFL purchased a leading hormonal brand, Uno-Ciclo from Instituto Biochimico Industria Farmaceutica Ltda for US$ 4.6 million.

Click to View Major Mergers and Acquisitions

Over the years, few Indian companies have built up strong reserve base and collected huge funds from the investors. These companies are in a position to acquire other companies to push business operations. To fight competition and established brands the corporate needs effective economic size. Important factors like improved financial health, strong R&D base and more desire for higher market share will push M&A activities in near future competition.

Indian research-based pharma companies have proven their ability in the global markets of the US and the Europe and stepped up their market share. The M&A activity increased significantly on account of development of generics for off-patented products. However, Pharma analyst from international broking firm asserted that there would be large-scale opportunities for contract research and contract manufacturing for Indian companies as they have set up strong R&D centers as well as manufacturing base. Instead of M&A activity, CRAM activity will be more profitable for Indian corporates in the present situation.

The pharmaceutical segment is currently passing through challenging time with neck-to-neck competition in every field. The new patent regime may create new opportunities, but affect few players with loss of product exclusivity. The consolidation, integration and specialization will be the key words for the future growth.