Drug firms line up $2.5 bn for shopping abroad

Indian pharmaceutical companies are sitting on a war chest of at least $2.5 billion for overseas buys, mostly in Europe. This is after they acquired companies worth almost $1 billion in the continent this year.

Ranbaxy, which is bullish on acquisitions the world over and especially in Europe, has a board approval for raising another $1.06 billion after a foreign currency convertible bond (FCCB) issue of $440 million.

Pharmaceuticals major Wockhardt, too, is touring the continent with a purse of billion dollars and Aurobindo Pharma has set aside about $300 million for 4 to 5 smaller European acquisitions. Dr Reddy's, Sun Pharma, Torrent and Jubilant Organosys, too, are eyeing generic companies abroad.

"Our recent takeover of Terapia of Romania for $324 million has been our biggest acquisition so far, but bigger ones will follow. Funding is not going to be a problem for future acquisitions as there is enough money in the market that can be raised for good quality assets," said Malvinder M Singh, managing director and chief executive officer, Ranbaxy Laboratories Ltd.

Much of this money is likely to be invested in Europe, which has seen a spate of acquisitions by Indian companies.

While 2004 saw Indian companies spend $139.11 million on shopping in Europe, the figure increased 2.5 times to $340.8 million in 2005 and stands at a staggering $904 million in the first four months of the current calendar year with buying of German Betapharm by Dr Reddy's Labs and Terapia by Ranbaxy. The two acquisitions came at $580.8 and $324 million, respectively.

There have been four other acquisitions this year "" two by Ranbaxy and one each by Shasun Chem and Aurobindo "" whose payouts have not been disclosed.

Even as big Indian pharmaceutical companies have been breaking their own records of big-ticket acquisitions in Europe, the trend is set to become stronger as firms are now aspiring to become global players, no longer fighting shy of raising money to create war chests.

"Europe has smaller companies which fit the country-specific strategies of companies besides giving them access to other countries, products and market authorisation. US valuations are too high right now," said DS Brar, chairman, GVK Biosciences.

A sector analyst, who expects many more European buyouts, especially until the pricing pressures in US generics market peter out, commented, "Any generic company going global has to build scale and achieve deeper penetration in under-realised markets. Europe, which is acting like a hedge to the US market currently, has companies of all sizes and valuations and hence, fulfils both the objectives." The first engine of growth was the US while the second was Europe, explained Singh.

But the pharmaceuticals industry is facing issues like more and more Indian companies indulging in competitive bidding and promoters of overseas companies beginning to sense this desperation.

"There is some truth in it as companies are getting into the game to outbid each other and driving up valuations. Another ignored issue is that of integration of the acquired entity and companies have a mixed record on that account," added Brar.

The issues largely pertain to homogenizing the value chain, management, product portfolios and costs. "As of now, there is too much heat and dust. Once that settles, only then can the real value from an acquisition be ascertained to the acquirer," said an industry expert.