Local pharma players storm multinational bastion

Domestic pharmaceutical companies are going global with direct presence in multi-locations in the world. The number of local pharma multinationals has gone up to 12 in 2004-05 and 2005-06 owing to rising global buyouts and organic expansion.

The new entrants are Dr Reddy's Laboratories, Wockhardt, Nicholas Piramal, Sun Pharmaceuticals, Glenmark, Orchid Chemicals and Pharmaceuticals, Unichem, Torrent Pharmaceuticals, Cadila Healthcare, Lupin and Cadila Pharma.The drug sector had only one Indian multinational, Ranbaxy Laboratories, till 2004.

While Ranbaxy is still the largest in terms of geographical presence and number of global subsidiaries (25 countries), Dr Reddy's is second in the rank with presence in 10 countries.

In the third and fourth positions are Sun Pharmaceuticals (eight countries) and Wockhardt (seven countries). These companies also have more subsidiaries which are not registered in their name.

Although, most of the overseas subsidiaries were set up through global expansions. The number of global acquisitions has also increased substantially in the last two to three years.

On the M&A front, the year 2005 had been quite significant for the domestic pharmaceutical sector. Since the Indian companies have adopted new strategy of acquiring medium and small companies overseas, the estimate worth of global acquisitions in the last three years is more than Rs 4,500 crore.

Recently, Dr Reddy's ¤480 million acquisition of Germany's betapharm, $324 million buyout of Romania's Terapia and Matrix's $263 million grab of Docpharma have marked a new chapter in the world pharma consolidation.

Also, Nicholas Piramal acquired a Pfizer unit in Europe for about $50 million and Avecia Pharma for $ 16.25 million. Earlier, Ranbaxy had taken over RPG Aventis for a price of $80 million. DRL had also bought the Mexican API unit of Roche for a consideration of $59 million in 2005.

Analysts expect the M&A activity to intensify as the consolidation will play a crucial role in future. The size and economic scale does matter in the highly competitive environment.

During the the last two years, major acquisitions were engaged in marketing, but some domestic companies had invested in building manufacturing capacities in developed markets. Indian companies have already installed plants in the US, Europe, Brazil, Russia and China.

Analysts pointed out that the medium scale domestic companies will first strengthen their marketing activity in these countries and then they will set up manufacturing units to improve the supply chain. At the same time, the companies are also setting up capacities in the domestic locations to explore the generic boom.

The domestic pharma companies have created their brand image in the regulated markets, which is evident form the success of the fund raising initiatives through securities and commercial papers.

Several companies issued foreign currency convertible bonds to part-finance their expansion and acquisitions. With strong financials, those issues received overwhelming response from foreign investors.