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Pharma deals give double edge

In a second major sell off in the pharma space over the past two years, Piramal Healthcare sold its domestic formulations business to a foreign entity— Abbott Laboratories.

business Updated: May 21, 2010 23:24 IST
HT Correspondent

In a second major sell off in the pharma space over the past two years, Piramal Healthcare sold its domestic formulations business to a foreign entity— Abbott Laboratories.

It raises a question —Why are the Indian companies selling if their foreign counterparts are buying them for higher growth in India?

Experts say that it is a win-win situation for both Indian and foreign players, where the acquirer is getting access to high growth market and the target company is getting good valuation for the company that is in a sector that needs more innovation, which is a challenge for Indian pharma companies.

“India is a growth market and is expected to grow at a compounded annual rate between 14 and 20 per cent as compared to a very small growth in developed economies and the global pharma players are coming for higher generic business growth,” said Muralidharan Nair, partner, life sciences practice, Ernst & Young.

“This will balance out their business which focuses more on innovation and bring growth on the generic front as well,” said Sanjay Singh, associate director, corporate finance, KPMG.

Experts say that the Indian pharma companies have the option of either getting into innovation or cash in on the high valuations now.

“If you continue to focus only on generic then long-term sustenance (after 10-15 years) may be under pressure. The option of getting into innovation is not easy and involves a lot of risk and hence I think it is a smart move to monetise on the situation and focus on the alternate custom research and manufacturing (CRAM) businesses that the company has,” said Singh.

While two big deals have already happened and more are expected to come in the near future, the industry experts say.

“I think more such deals may happen going forward,” said Nair.