| The group chairman of the Rs 1,200-plus-crore drug major, Wockhardt, Habil Khorakiwala is a conservative businessman, not known for flamboyant statements. But mention the epidemic of overseas acquisitions in the Indian pharma space, and he is euphoric, "This is only the beginning; you will see a lot more." Credible, considering his firm has acquired three medicine companies in Europe in as many years. Armed with a warchest of $800 million (approximately Rs 3,570 crore), the pharmaceutical heavyweight recently declared it was combing the US for a fresh acquisition target. Wockhardt is not alone. Since January 2005, Indian drug firms have collectively bought more than 30 overseas companies for over $1.3 billion (approximately Rs 5,802.5 crore). Actual investments will be higher since not all deal sizes are being disclosed. A deal is announced almost every week. On March 4, Dr Reddy's Laboratories (DRL) snapped up Germany's fourth largest generics company betapharm for $572 million (approximately Rs 2,553 crore). On March 29, Ranbaxy, India's largest pharma company and also among the global top 10, wrapped up the largest Romanian generics firm, Terapia, for $324 million (approximately Rs 1,446 crore). That brings us to the question of why these companies are gobbling up targets in quick succession. The takeovers being inked across the world are part of an overall strategy to dominate the global generics space. India produces more than 20 per cent of the world's generics, with 60 per cent of its factories bearing the US Food and Drug Administration's (FDA) stamp of approval. Over 200 drugs are scheduled to go off patents in the next three years, opening the floodgates to a global generics opportunity worth nearly $50 billion (approximately Rs 2,23,175 crore). Indian drugmakers appear poised to grab it. Generics is based purely on pricing as the same product is replicated by every competitor in the field, affording little room for slips in quality. Thanks to a law in 1972 that allowed production of drugs still under patent, so long as a different process was used, Indian pharma companies can now boast of three decades of expertise in reverse-engineering of novel drugs and launching copycat versions. Add to that the low-cost advantage-Goldman Sachs estimates that a new drug factory can be set up and run in India at one-fifth the cost in the West.  | BUYOUT PRESCRIPTION
Shopping carts of Indian pharmaceutical firms are full to overflowing as they acquire global companies in quick succession | | | | | The takeovers will boost expansion in lucrative markets like they did during the first round of takeovers a couple of years ago when the deals were mostly small ($5-10 million, or Rs 22-44 crore approximately) and less frequent. DRL's first overseas acquisition was UK's BMS Laboratories Limited & Meridian Healthcare for $12 million (approximately Rs 53 crore) in 2002. Since then, DRL's generic sales in the UK have more than doubled to £19 million (approximately Rs 148 crore). Following the round two acquisition of Docpharma in May-June last year, Matrix expects the share of international business in its revenue to go up from 50 per cent in 2004-05 to 80 per cent in 2007-08. It's also hoping its revenues will rise from $142 million (approximately Rs 631 crore) to an estimated $452 million (approximately Rs 2,007 crore). | THE PREDATORY FOURSOME
Surging ahead in the race to capture foreign markets are these four giants of the Indian pharmaceutical industry | |  |  | MALVINDER SINGH: CEO & MD, Ranbaxy
"Acquisitions could change the pecking order and determine the winners of the next decade." | | HABIL KHORAKIWALA: Chairman, Wockhardt
"The Indian pharma industry is the world's most efficient. We have talent, skills, low costs." | |  |  | N. PRASAD: Executive Chairman, Matrix Labs
"Explora accelerates our entry into niche and high growth potential segments." | | | ANJI REDDY: Chairman, Dr Reddy's labs "Betapharm gives us critical mass in Europe: size, product portfolio and pipeline." | | | | | |  Aims to become one of the top five global generics player by 2012
World's second largest producer of Cefaclor-an antibiotic | | | | | | Overseas acquisitions for over £20 million (Rs 156 crore approx.)
Recently completed Phase I clinical trials for a sepsis treatment | | | | | | Finalised three acquisitions in 2005 in China, Switzerland, Belgium
Holds 58 per cent of South Africa's HIV/AIDs treatment programme | | | | | | Overseas acquisitions for over $654 million (Rs 2,905 crore approx.)
Conducting Phase II trials on a drug for colorectal cancer | | This time, there are other trophies, too. The acquisitions will provide access to approved product lines and marketing set-ups. Again, most markets require generic drugs to be registered prior to sale. By virtue of the clearances enjoyed by the firms they are acquiring, Indian companies will be able to sell the drugs produced cheap here in the fast growing overseas markets. For instance, in addition to Ethimed NV's share of the $7.6-billion (approximately Rs 33,922-crore) Benelux market, the acquisition of the tenth largest Belgian generic company will get Ranbaxy over 20 product registrations. The company is looking at three broad streams for its overall strategic direction for M&As. In critical markets like the US, it will seek acquisitions to gain dominance and scale. The company is hunting for opportunities offering technology advantage or diversification into a new segment. It also wants to invest in markets such as Japan, which may not yield immediate returns but hold long-term potential. Says CEO and MD Malvinder Singh: "Our string of acquisitions marks the beginning of an explosive phase of inorganic growth. We will continue to look at opportunities in Europe, the US and India." Indian drug firms aren't just good copycats. Goldman Sachs estimates that they spent $142 million (approximately Rs 631 crore) on R&D in 2004. The bulk of this was spent on developing new formulations-the real gold mines since companies get to sell these unfazed by competition during the patent period. PricewaterhouseCoopers (PWC) estimates there are around 37 drug candidates in the pipeline. Both DRL and Ranbaxy have developed about 10 molecules each. Nicholas Piramal has finished preclinical studies for a diabetes compound. But Indian companies cannot afford the cost of launching a new drug. By the time a drug reaches the market, it costs over $1 billion (approximately Rs 4,442.5 crore) on an average-more than the annual turnover of a majority of the Indian firms. For every formulation that reaches the market, about 20 fail. That is why they out-licence to multinationals for co-development. For instance, Wockhardt is ready to take India's first antibacterial drug candidate to Phase II clinical trials but Khorakiwala says: "We can probably take it to the final stage for launch within India, but will need to partner global majors to introduce it in international markets." But that's just one of the minor hiccups compared to major roadblocks like the generics squeeze in 2005. Brands worth $10 billion (approximately Rs 44,425 crore) saw genericisation for the first time in 2005, versus $15 billion (approximately Rs 66,637.5 crore) in the previous year. Indian companies took only 22 per cent of the pie. The fewer approvals for new products led to more approvals for existing products and intensified competition in base products. Even industry leaders had only two approvals each but they captured market share in key launches. "Though the gigantic sizes of European and US firms dwarf Indian companies, we have broken into the top three pharma industries of the world over the last four to five years," says Rajesh Vig, associate partner, PWC. "Success of these acquisitions will be critical also because significant percentages of the acquirers' revenues and networths are going into these buyouts," says Harish H.V., partner, corporate advisory services, Grant Thornton India. Right now the motto for the industry is: Go West and take your medicine chest with you. -with Amarnath K. Menon Index
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