India calling: Betapharm goes the Reddy way

The highest bidder doesn't always win. And today's loser may not look like one a few years down the line. Those are conclusions you're likely to reach after talking to the head honchos of India's rapidly globalising pharmaceutical majors. "It is not a much publicised fact, but we were not the highest bidders for betapharm," says G.V. Prasad, Vice Chairman & CEO, Dr Reddy's Laboratories (DRL). One of his Indian competitors was the top bidder, he adds. Earlier in the year, DRL acquired betapharm, the fourth-largest pharmaceuticals company in Germany for $777 million. So, did the highest offer come from Ranbaxy, unarguably the most aggressive acquirer in Indian pharma? Unlikely, as Malvinder Mohan Singh, CEO & MD, Ranbaxy Labs, quips: "Sometimes walking away is also winning."

The stakes in the Indian pharma sector have never been higher. To be sure, overseas acquisitions aren't a novelty for the domestic drug industry. It's puny size ($6.5 billion) when compared to the global market opportunity of $500 billion has for long ensured that Indian pharma companies kept their eyes trained on overseas markets. What's changed of late, however, are the ambitions, reflected in larger deal sizes, at higher valuations. Small wonder, pharma heads the list of sectors that made the most overseas investments in the past one and a half years, as a CRISIL-CII report on "Creating the Indian MNC" reveals (see Indian Medicine ...). However, the data also indicates the buyout burst has slowed down in the past six months, thanks largely to negative court rulings and severe competitive pressures in the space of generics (drugs going off patent). "It will be another 6-8 months before any Indian pharma company announces a big-ticket deal," says Sanjeev Krishan, Executive Director, PricewaterhouseCoopers.

Indeed, since the late nineties, Indian drug companies have been acquiring foreign companies primarily to get immediate access to overseas generics markets. That makes more sense than starting afresh in those lands, which would involve getting regulatory approvals, and which don't come easy. "The primary reason for all our earlier acquisitions was market access and it continues to remain so," says Habil Khorakiwala, CMD, Wockhardt. His company has made four overseas acquisitions pumping in $300 million till date. "An acquisition adds firepower to growth. In betapharm, the asset we bought has the ability to gain around 10-15 per cent market share in the first wave on any product that is introduced into the German market," adds DRL's Prasad. However, the rationale driving overseas investments is changing. "It is as much about technology and the therapeutic areas one intends to be present in," says Ranbaxy's Singh. Keep a watch out for the next scene in the Indian Pharma takeover act.