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Rediff.com  » Business » The rise of the Indian pharma cos

The rise of the Indian pharma cos

By Business Standard
April 04, 2006 12:51 IST
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The rush of international acquisitions by the leading Indian pharmaceutical firms marks the latest phase in the development of companies like Ranbaxy, which has just completed a triad of acquisitions, the highlight being Romania's largest generics drug firm Terapia for $324 million.

A few days earlier, the company had announced the acquisition of Allen SpA, the unbranded generics division of GlaxoSmithKline in Italy. Earlier this year, Dr Reddy's acquired Betapharm, the fourth largest German generics player, for euro 480 million (Rs 2,100 crore).

Such acquisitions of sizeable businesses began in the 1990s, and have been gathering momentum, involving even players other than the big two - like Matrix Labs, Torrent and Sun Pharma.

Most of the acquisitions are of generics firms, and intended to give Indian drug firms wide geographical footprints. The acquisitions will mostly allow the Indian firms to have manufacturing facilities in common trade areas like the European Union, from where they can roll out products in competition with local firms.

But in individual instances, like Torrent's takeover of the German generics firm Heumann Pharma from Pfizer, the aim is also to acquire established generics businesses.

It is not often remembered that Indian pharmaceutical companies established their competitiveness through exports long before software companies stole the limelight. The pharma companies have been building on this and, as their dollar earnings have grown and Indian restrictions on overseas investments have eased, they have gone about acquiring carefully selected companies in markets as diverse as the US and China, thus giving their manufacturing presence a global span.

Indian and Chinese firms are now the least-cost producers of generic medicines. With patent pipelines thinning out and health care costs rising, the world's most efficient generics producers with the necessary regulatory approvals are stepping into an attractive corner of the market.

The rise of Indian pharmaceutical companies, though pretty dramatic in phases, has not always been smooth. Early in the 1990s, the leaders among them adopted new drug discovery programmes so as to grow even in the stricter patents regime that was emerging.

They adopted various routes, which included licensing out the development of discovered molecules, and finding new uses for (and non-infringing ways of producing) patented molecules.

But the biggest players have recently met with setbacks along both the drug discovery and patent challenging routes. There have been a string of adverse court verdicts, and decisions by licensees to not continue with the development of new candidate drugs.

Recovering from these setbacks, the better Indian drug firms now follow multiple routes. They are licensing in patented products so as to keep their facilities going, and addressing the growing Indian market.

They are also forging research alliances with global leaders for joint discovery. Plus, as their string of global acquisitions indicates, they seek to become mid-sized generics players across all geographies.

This last route does not have the high risk-reward character of the first, but a good business fit is possible with smaller, financially troubled firms in developed markets, if Indian managements can make them part of a lower-cost global business model.

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