| Europe is fast emerging as a risk diversifying measure for Indian pharma majors which have suffered reverses in the US generics markets. It is also becoming a hub for acquisitions to those who want to establish an international presence. |
| Not just rookies, but stalwarts too, have been focusing on Europe as the US market has seen price erosions of up to 95 per cent in certain generic drugs segments. |
| While most companies believe these losses to be cyclical and await the massive pipeline of drugs going off patents in the next 2-3 years, they have been bullish on lapping up European pharma companies. |
| Consider this: Matrix Laboratories has acquired controlling stake in Belgian Docpharma at $263 million while Strides Arcolab, its merger partner that was not meant to be, has a sterile manufacturing unit in Poland and 70 per cent stake in Italian Beltapharm SpA. Both Lupin and Torrent are bidding for Polish major Jelfa Pharmaceuticals. |
| Sun Pharma has already gone ahead to buy manufacturing operations of Valeant Pharmaceuticals of Hungary. Ranbaxy, which was among the first to seize the opportunity, already has RPG Aventis in France, the generic portfolio of Spanish Epharmes and Docktor Mom in Romania under its belt. It is looking at acquistion targets all over Europe, especially in Germany. |
| What is it about Europe that companies find irresistible? |
| "US generics market crashed towards the end of 2004. That acted as a wake-up call for the entire industry. In Europe, companies can still expect 15 per cent growth and can hedge the risk," says an industry analyst. |
| Sanjiv Kaul, management adviser, Chrys Capital, explains, "It balances the risk for companies if they are doing badly in one and well in another." |
| US ranks very high on the risk reward investment return matrix, whereas in Europe, a company can experiment on a more moderate basis, adds D S Brar, chairman, GVK Biosciences Private Ltd. |
| Little wonder then, that Malvinder Singh, president (Pharmaceuticals), Ranbaxy, says, "The US is the first engine of growth, Europe is the second engine of growth while the BRICS countris are the third." |
| Europe is a fragmented market that makes for acquisition-heavy strategy. Moreover, acquisition provides scale, access to their dossiers, drug master files, and USFDA approved facilties. |
| Generics ultimately, is a game of scale and a bigger product portfolio makes one a stronger contender in US too. "Some routes to the US pharma markets go through Europe and companies have realised it", believes Kaul. |
| Another interesting dimension in this tryst with Europe is the interest East Europe is generating. Long renegaded to the status of western Europe's poor cousin, it is now firmly on the radar for pharma firms with Strides and Sun Pharma having taken over manufacturing facilities. |
| "With lower manufacturing costs, companies may just end up establishing their supply bases there", says an analyst. Though Brar doesn't exactly concur with the 'supply base argument', he mentions that when we talk of East Europe, we 'look at a very ripe market of almost $ 8-10 billion with growth rate and profitability ratios exceeding 15 per cent". |
| Tapping potential |
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