Indian drug firms go global
Today in New Delhi, India
Feb 19, 2019-Tuesday
New Delhi
  • Humidity
  • Wind

Indian drug firms go global

India's drug industry is flexing its muscles with a series of increasingly ambitious overseas acquisitions.

india Updated: Feb 17, 2006 13:41 IST

India's drug industry is flexing its muscles with a series of increasingly ambitious overseas acquisitions, and analysts expect more to come as companies seek greater heft in generics.

Dr Reddy's Laboratories Ltd on Thursday announced the biggest acquisition by an Indian drug firm, agreeing to pay up to 480 million euros ($572 million) for German generic drug maker Betapharm.

The price paid, equivalent to three times annual sales, was higher than some analysts had expected, with Dr Reddy's having to fight off rival interest from Ranbaxy Laboratories Ltd, which has made no secret of its own M&A ambitions.

The global generic drugs sector had a record year for deal-making in 2005 and industry executives believe the pace of consolidation will continue.

Cheap generic -- or unpatented -- medicines are increasingly popular, as governments seek to cut costs and more branded blockbuster drugs lose patent protection. But prices are under pressure, obliging manufacturers to seek economies of scale.

Indian firms, with their low production costs, are well placed to win share in these tough international markets.

"It's clear that Indian companies are making much more strenuous efforts to internationalise and they are also paying a lot more attention to Europe," said Frances Cloud, an industry analyst at Nomura Code Securities in London.

"They are still heading first for the United States but they are taking much more interest in Europe now."

Morgan Stanley analysts said in a note earlier this month that Indian drug makers were increasingly keen to acquire assets directly in both the United States and Europe.

String of deals

There have already been a string of smaller deals, such as Matrix Laboratories Ltd buying a controlling stake in Belgium's Docpharma last year, Torrent Pharmaceuticals Ltd buying Heumann Pharma, Wockhardt Ltd buying Esparma, Shasun Chemicals & Drugs Ltd purchasing Rhodia Pharma Solutions and Jubilant Organosys Ltd. acquiring Target Research Associates.

Other Indian drug makers such as Cipla Ltd are also likely to look for acquisitions, analysts said.

"Indian firms are getting into a position to take on the large generic firms," according to Utkarsh Palnitkar, an analyst with Ernst & Young.

Most attention, however, is focused on the two leading players -- Ranbaxy and Dr Reddy's.

Dr Reddy's Chief Executive GV Prasad said his company had the "bandwidth" for further small and medium-sized acquisitions in Europe, while Ranbaxy announced on Thursday it had raised $400 million in convertible bonds, boosting its firepower.

Ranbaxy's new Chief Executive Malvinder Singh said he was now actively pursuing acquisition opportunities.

"The way the industry is moving, there is consolidation ... so we are looking actively at targets in the United States and Europe," he said.

India's biggest drugs group had worldwide sales of $1.2 billion in 2005 and aims to reach $5 billion by 2012, becoming one of the world's top five generic drug companies in the process.

A number of foreign rivals, however, are bringing the battle back to India's back yard.

Non-Indian generic companies are increasingly setting up directly in the country, with Novartis AG's Sandoz unit setting up a plant in Mahad, Teva Pharmaceutical Industries Ltd. planning to double the number of scientists it employs in India over the next three years and Watson Pharmaceuticals Inc. recently acquiring an Indian facility.

First Published: Feb 17, 2006 12:29 IST