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Pharma companies are looking at global acquisitions to boost their product portfolios and growth prospects. Will their strategy pay off? By E Kumar Sharma What Wockhardt is doing in Europe today is arguably closest to what Nicholas Piramal did earlier in India, eventually leading to its eight pharma acquisitions. In May last year, Wockhardt acquired the business of Germany-based Esparma GmbH for US $11 million (Rs. 49 crore), its third such move in Europe. Earlier acquisitions being Wallis Laboratories (UK) in 1998 and CP Pharmaceuticals (UK) in 2003. Talking to shareholders in April this year,
Wockhardt chairman Habil F. It seems to be already reaping the benefits. Today, it calls itself the largest Indian generics firm in the United Kingdom, and also the second largest player in the hospitals business there. Khorakiwala told his shareholders to expect ``to see the full benefit of its transformation during this year.'' Leveraging the Indian advantage, the company shifted manufacturing of large volume products to India, resulting in "substantial savings and adding to our bottom line.'' And now, like in UK, he says, the company has established a strong local leadership in its German subsidiary esparma, which is driving Wockhardt's growth in Europe's largest generic pharmaceutical market. Wockhardt is not alone in harboring global ambitions. Many mid-rung Indian pharmaceutical companies -- Lupin, Torrent, Strides Arcolab, Matrix, among others -- are looking at global acquisitions to bolster their product portfolios and growth prospects. As an analyst puts it: "If Indian players need to ensure survival over the next 10 years they will need to look beyond the domestic market and acquisitions abroad will become crucial.'' On June 27 this year, Ahmedabad-based Torrent Pharmaceuticals announced its decision to acquire Heumann Pharma GmbH & Co Generica KG, a Pfizer group company, engaged in the business of marketing generic medicines in Germany under the brand name "Heumann". Heumann Pharma Generics had sales of euro 50 million for the fiscal year ended November 30, 2004 and is ranked 11th in the German generic market. Will this strategy pay off for pharma players taking this route? Much would depend on the gains. That is if the acquisition helps increase size, provides a growth potential from product licences, gets established relationships, facilitates cross utilisation and integration of operations, provides access to new markets. Much would also depend on whether the focus is merely to shift the manufacturing to India because that in itself may not be enough if the end goal is to grow the business. According to analysts, acquisitions in Europe have yet another dimension-- it is a highly fragmented market and building a base is not necessarily the best option. Here again, Manubhai K Patel, CFO of Cadila Healthcare, points out, "I personally feel Germany and UK are dominated by few players, and therefore to make a dent there one would need to make a big acquisition, which may not necessarily be the case in other regions.'' (Read: If in UK or Germany a respectable acquisition costs Rs 300 crore to Rs 400 crore, in other locations such as France, Italy, Spain and other regions of Europe a company with a respectable size may be available in the region of Rs 100 crore to Rs 150 crore). But then, all this may not be easy. Sun Pharma, for instance, is sitting on $450 million cash but still to make a major acquisition. Says Dilip Shanghvi, chairman and managing director, Sun Pharmaceuticals: "We are looking for an acquisition opportunity in the US. Typically for acquisitions, we seek turnaround opportunities where we can correct a business and bring it back on track.'' Also, he says, ``if you look at the 11 acquisitions in Sun Pharma's history, there have been similar opportunities wherein we corrected a business and put in new products and investments to unearth value. We seek a similar opportunity in the US generic space'' As for the timing, his view is: "We believe that at this point in time the market is in a state of flux. Acquiring a business would be more appropriate once the markets begin to stabilise." In other words, while the company is keen on the US market, it feels the valuations are still high. Or take Cadila Healthcare or Zylus Cadila. In 2003-2004, the company internationalised its operation with acquisition of loss-making Alpharma SAS (it is now Zydus France SAS), and with setting up a subsidiary in US. However, it is still suffering losses from its French business. According to Cadila's Patel, the options before Indian companies would be: either to acquire profit-making entities, which would cost more or to spot good opportunities in select loss-making entities and turn them around. Cadila opted for the latter and the opportunity it saw was the over 90 generic registrations the company had, which has enabled Cadila to come out with 62 generic dosages 15 months. Also, it is now focused on shifting the production to India at the earliest. This is expected to reflect in the financials as the company expects a breakeven in FY07 and a profit in FY08. This could perhaps be room for comfort for those hoping to take a similar path.
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