Global Insight Perspective | |
Significance | Indian drug-maker Lupin has acquired a majority stake in Belgian firm Dafra in a foray into the anti-malarial market. Dishman Pharmaceuticals sealed a deal to buy the pharmaceutical services unit of Swiss firm Solutia Inc. |
Implications | The deals reiterate Indian drug-makers’ thirst for expansion against the backdrop of an increasingly difficult and competitive US market. The increased interest of Indian firms in Europe has pushed up the valuations of target companies. |
Outlook | Pressure to keep up with growth rates will undoubtedly push Indian pharma firms to continue seeking newer markets and the current fascination with Europe is unlikely to die down in the short term. |
Indian Pharma Inc. Goes Shopping in Europe
A slew of European acquisitions by Indian pharma firms has been the highlight of the first five months of 2006. With the big guns of the industry such as Ranbaxy Laboratories and Dr Reddy’s providing impetus for the acquisition spree, others on the top ten list have joined the fray. The latest entrant is Lupin Ltd, which entered into an agreement with Belgium’s Artifex Finance to acquire a 51% majority stake in Dafra Pharma. Reuters reports that the agreement will pave the way for the Indian firm to increase its presence in the African markets, since Dafra has an established distribution network in 25 African countries. Ranbaxy on its own took over three companies; namely, Belgium’s Ethimed, Romania’s Terapia and GSK’s Italian unit in a short span of two weeks during March 2006 (see India: 31 March 2006: Ranbaxy Makes Another European Acquisition, in Form of Belgium's Ethimed and India: 29 March 2006:Ranbaxy Scores Double Success in Europe, with Acquisition of Romania's Terapia). Dr Reddy’s, on the other hand, bought out Germany’s Betapharm (see India: 16 February 2006:Indian Pharma Makes Further Inroads into German Generics Industry). Aurobindo Pharma acquired UK generics firm Milpharma in February (see India: 10 February 2006: Aurobindo Pharma to Acquire U.K. Generics Firm).
Not to be left behind, mid-sized firms have also joined in with Shasun Chemicals, Matrix Laboratories, Unichem and Dishman Pharmaceuticals all striking significant deals. Dishman Pharmaceuticals made its second acquisition in Switzerland, buying the assets and business of Swiss-based Solutia Inc for a total consideration of US$ 74.5 million. Outlining the details of the deal, the Hindu Business Line quoted J R Vyas, Dishman Managing Director, as stating that the firm expects the acquisition to strengthen further its contract research and manufacturing business. Dishman will inherit the Carbogen and Amcis AG arms of Solutia, which posted a combined revenue of US$ 66 million in 2005.
Acquisitions By Indian Pharma in Europe During 2006 So Far | ||
Acquirer | Target Company | Country |
Ranbaxy Laboratories | Terapia | Romania |
Ethimed | Belgium | |
Allen | Italy | |
Dr Reddy’s Laboratories | Betapharm | Germany |
Aurobindo Pharma | Milpharm | UK |
Shasun Chemicals | Rhodia Pharma’s Solutions unit | France |
Dynamics of the deals
One of the major reasons behind the increasing mergers and acquisitions (M&A) activity in this part of the world is the rising difficulties of breaking into and sustaining activity in the U.S. markets. With generic competition intensifying, it is becoming much harder for Indian drug-makers to keep maintaining the promised growth rates. In contrast, Europe offers untapped potential, with companies such as Wockhardt and Ranbaxy only just making inroads into the U.K. market before getting distracted by the enormous prospects of the U.S. market. These companies are now training their eyes elsewhere in Europe seeking to benefit from governments promoting the generics industry. Countries that have attracted the most interest are Belgium, Germany, Switzerland and France.
Outlook and Implications:
The trend is not likely to slow down and the Indian firms have already started budgeting for their European acquisitions. Aurobindo Pharma, Nicholas Piramal, Wockhardt and Cipla are some of the firms still keen on picking up potential targets, in spite of the surge in valuations for potential target companies. It is interesting to note that the Indian companies have looked at European companies controlled by investment firms seeking to make a quick profit. The flip side of this is that valuations have skyrocketed, leading to some Indian companies bowing out of the bidding war (see India: 2 February 2006:Wockhardt Finds Germany's Betapharm Too Costly for Acquisition). Although the financial details of Lupin’s deal have not been disclosed, it can be noted that the growing Indian interest will undoubtedly inflate valuations of the majority stake for Lupin as it conducts due diligence on Dafra.
In their endeavour to widen their geographical reach, Indian firms will look at making use of their low-cost manufacturing and research strengths. Expanding product portfolio and entry into newer markets with an established distribution system are the gains to be had. But the success of these acquisitions will be evident once streamlining of the new businesses take place.
Related Articles
See India: 24 April 2006:Zydus Cadila Eyes Spanish Market, Sets Aside US$500 Million for Acquisitions
See India: 4 April 2006: Aurobindo Earmarks US$300 mil. for European Acquisitions
See India: 29 March 2006:Serum Institute in India Plans Launch of Overseas Operations