Outbound acquisitions by Indian drug companies slumped 67 per cent during the year as a global credit crunch squeezed liquidity. The less-than-anticipated results of a few big-ticket acquisitions made in the previous year earlier also acted as a dampener.
Piramal Healthcare, Biocon and other drug makers spent about Rs 1,800 crore in 2008 for acquiring assets abroad, compared to more than Rs 5,500 crore spent in 2007 in 14 such major deals, according to Business Standard data.
The number of deals in 2008, however, doubled compared to a year earlier. Drug companies concluded 30 deals this year compared to 14 a year earlier. A key reason for the drop in the acquisition value is because the drug companies have stayed clear of big ticket acquisitions unlike the previous year. Also deals were sporadic.
Industry body Assocham’s study on ‘M&A Trends in Jan-May 2008’, had revealed that although the number of overall deals went up from eight in the corresponding period of 2007 to 17 this year, the valuations went down by half due to bearish market sentiments and cash crunch.
| CHILL PILL Major deals in 2008 | |||
| Company | Target | Value (Rs cr) | When |
| Piramal Healthcare | Minrad International | 195.00 | Dec-08 |
| Opto Circuits | Critical care Inc | 270.00 | Feb-08 |
| Biocon | AxiCorp, Germany | 188.00 | Feb-08 |
| Bilcare | Singular ID, Singapore | 79 .00 | Jan-08 |
| Piramal Healthcare | ‘Haemaccel’ brand | 52.60 | Jul-08 |
| Piramal Healthcare | 2 brands of Khandelwal | 116.00 | Apr-08 |
As a testimony to this, two of the largest deals in the current year - medical equipment company Opto Circuits’s buyout of US based Critical care Inc for Rs 270 crore and Biocon’s foray into Europe by acquiring 70 per cent stake in German pharma distribution company AxiCorp GmbH for about Rs 175 crore - happened in February 2008. The next major pharmaceutical sector buyout during the year happened only three days ago, when Piramal Healthcare bought out Minrad International of the US for about Rs 195 crore.
“Overall slowdown will largely affect capital raising opportunities for Indian companies, leading to overall reduction in the deployment of capital,” a recent Yes Bank study had noted.
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Interestingly, 2007 had witnessed large deals such as Rs 1814-crore Sun Pharma-Taro deal, Wockhardt buying out Negma Laboratories of France for Rs 1060 crore, contract manufacturer Jubilant Organosis buying out Holister-Steir USA for Rs 450 crore and healthcare outsourcing company Apollo Health Street’s acquisition of Zavata Inc, an Atlanta-based business process outsourcing company for over Rs 700 crore.
As against this, 2008 became a landmark year in the history of India’s 101-year old pharmaceutical industry, in terms of two of the largest ever inbound acquisitions. India’s largest drug maker Ranbaxy Laboratories became a unit of Japanese drug major Daiichi Sankyo in a deal worth Rs 19,780 crore, in the largest ever inbound acquisition.
Similarly, Burmans sold off Dabur Pharma to Fresenius Kabi, a business segment of German health care group Fresenius, for Rs 878 crore. As against these, the largest inbound pharmaceutical acquisitions so far were the US based Mylan Laboraties acquisition of Matrix Laboratories for Rs 3425 crore in August 2006 and Biocon’s sale of its enzymes business to Novozymes for Rs 460 crore in July last year.
“Indian companies are now concentrating on strategic investments in technologies, brands and assets than going in for fancy big-ticket acquisitions of facilities,” said Sarabjit Kaur Nagra, vice president, research with Angel Broking.
Deals such as the acquisition of US based Minrad International by Piramal Healthcare in a bid to become one of the top three manufacturers of global inhalation anesthetic producers,and Dr Reddy’s Laboratories’s acquisition of BASF’s pharmaceutical contract manufacturing business, are two examples ofsuch strategic deals.
Another emerging trend was the investments made by companies in the drug discovery space. The major examples are Actis Biologics’s buyout of some cancer research products of CellPoint Diagnostics of USA.