Mid-cap pharma firms on MNCs' buyout radar

Domestic mid-cap pharmaceutical firms, which are into manufacturing of generic drugs, may turn out to be major mergers and acquisitions (M&A) targets of big multinationals after 2005 when many drugs will go off-patent.

Several multinationals are rumoured to have started scouting for such medium-sized firms to strike outsourcing deals to begin with, and then pick up a stake or go in for an M&A.

According to analysts, off-patent generic drugs will put tremendous pricing pressures on global majors and will force those biggies to find a partner which can offer a cost-effective way of making those drugs.

For this, the overseas players are eyeing India to set up low-cost manufacturing facilities which will mainly act as outsourcing centres for their global operations.

According to industry sources, the international giants are mainly looking at the M&A route for their proposed Indian entry and are believed to be in the market scouting for prospective targets.

Many European firms, too, are planning to set up shop for sourcing out bulk drugs from here.

Industry sources said the global generic drug makers are planning to have manufacturing bases in the country to take advantage of the low production costs and highly-skilled labour pool.

They added that the global firms are targeting those domestic companies which have manufacturing plants that comply with and are approved by the US Food and Drug Administration.

The prospective targets for M&As include Tasc Pharma, Aarti Drugs and IndSwift Laboratories.

Tasc Pharmaceutical is the second largest manufacturer of Ciprofloxacin in the country and is an established manufacturer of active pharmaceutical ingredients in the highly specialised areas of Quinolones and anti-ulcerants.

The company is known for its skills in process chemistry and developing cost-effective and complex processes for bulk drugs and intermediates.

The company produces Ciprofloxacin, Enrofloxacin and Ranitidine group of pharmaceutical products. It is being targeted for acquisition as there is an immense opportunity for the makers of Ciprofloxacin, which is a $1 billion market. The patent of Ciprofloxacin, which is with Bayer, is set to expire in June 2004.

Aarti Drugs, another mid-cap drug firm, has also filed for certificate of suitability (COS) for three products (Tinidazole, Ticlopidine HCL and Ranitidine HCL) for the European markets.

Its management has indicated that it has already received the COS for Metronidazole and Diclofenac Sodium.

This year, Aarti Drugs has commenced the production of Ciprofloxacin and is targeting to capture at least 20 per cent market share which could add Rs 80-100 crore to its top line. At present, there are only five Ciprofloxacin makers in the country.

Drug firm Ind-Swift Laboratories has entered into agreements with eight international pharma firms based in US, UK, Germany, Spain, Greece and Mexico.

Under these agreements, the global firms would source their requirements of four major products - Clarithromycin, Fexofenadine, Atorvastatin and Candesartan -exclusively from Ind-Swift, once these products go off-patent in there respective countries.

The company is also in the process of developing non-infringing processes for the blockbusters that will go off-patent in the next 5 to 10 years, as well as those molecules which don't have patents.

Meanwhile, share prices of these mid-cap firms are on a climb. Shares in Tasc Pharma gained 14 per cent from Rs 34.95 on November 3, 2003, to Rs 40 on February 21, 2004 on the Bombay Stock Exchange.

Shares in Ind-Swift appreciated by 20 per cent from Rs 32.55 to Friday's close of Rs 39.05, while those in Aarti Drugs declined by 11 per cent from Rs 88.80 to Rs 80.