Fund-raising, shopping fever grip drug firms

The spate of acquisitions by Indian pharmaceutical companies has found an echo in frenzied fund-raising by them, both through equity as well as debt.

However, industry analysts stand divided on how this will pan out, with fears being expressed on the possible consequences if the acquisitions do not bear fruit in the long term.

Since January 2004, pharma companies have spent over $424 million on acquisitions and raised $400 million. This does not include Sun Pharma, which has raised $350 million through foreign currency convertible bonds.

Although it has not clinched any acquisition; it is believed to be on the lookout. Then there is Ranbaxy Laboratories, which has just obtained an approval from its board of directors to raise up to $1.5 billion through a listing in the United States and is looking for acquisitions in the US and Europe.

Ranbaxy President (pharmaceuticals) Malvinder Singh says the company could even acquire a firm as big as itself. Wockhardt, which has raised $ 110 million through an FCCB issue and has acquired Esparma in Germany last year, has already established its presence in Europe through a network of subsidiaries. Both Ranbaxy and Wockhardt are said to be eyeing America's Alpharma Inc.

The biggest acquisition till date has been that of Belgian DocPharma by Matrix Laboratories, which had raised $74.9 million through preferential shares to Temasek of Singapore and NewBridge Capital.
 

ON A HIGH
Company	Acquisition target	Deal size ($ million)	Money raised ($ million)
Wockhardt	Esparma (Germany)	13.3	110.0
Matrix Labs	Docpharma (Belgium)	263.0	74.9
Strides Arcolab	Strides Latina(Brazil)	16.0	40.0
Glenmark Pharma	Laboratories Kilinger (Brazil)	5.2	70.0
Jubilant Organosys	Trinity Labs (US) & Psi Supply NV (Belgium)	28.8	105.0
Ranbaxy Labs	Efarmes Sa (Spain) & RPG Aventis (France)	98.0	1,500 *
Total		424.3	399.9
Source : Company annual reports and sites * As approved by the board but yet to be raised. This figure is not added in the last cell.

Analysts vacillate between scepticism and optimism. "If the strategic route-map doesn't pan out as planned, all the money raised through the capital market is going to stare them back in the face. Not only will their borrowings be heavy on them, there might be a value attrition instead of value creation," says ChrysCapital Managing Director Sanjiv Kaul.

"Just carrying out acquisition for the sake of the top line and the bottom line won't be good for the Indian companies. They have to look for synergy in portfolios and add to their basket of drugs," an analyst says, adding that returns would not come immediately as there was usually a gestation period of two years.

WestBridge Capital Partners Managing Director Sandeep Singhal hopes that the acquisitions are in line with aspirations. "With an eye on the medium-term growth, they are mopping up companies with gross assets and value propositions. It's a calculated bet with risks involved. A lot will depend on the companies' drug pipelines, strategic alliances as well as on the financial standing," he says.

The challenges, however, are manifold. The US generics market is witnessing 95 per cent price erosion and Indian companies may lose out on bulk drugs supply contracts of big companies as they are fast turning rivals.