Mergers and acquisitions in the pharma sector are expected to pick up as promoters of high leverage companies cash out amid rising compliance costs and pricing pressures in the domestic and the US market.
Indian strategic buyers are increasingly acquiring domestic assets, while private equity (PE) biggies like KKR, Caryle, and Advent are getting aggressive and building platforms in both high-growth domestic formulations and API businesses – as in the case of recent deals such as JB Chemicals and Suven Pharma. The PE activity that started just before the pandemic will accelerate over the next few years, industry experts say.
Over the years, promoters have been cashing out in the wake of increasing price control, higher regulatory scrutiny in the US, and the disappearing lucrative Para IV opportunities, leading to a tough business environment, said PwC India’s global health industries advisory leader Sujay Shetty.
Incidentally, some of these factors also triggered the sell-out of pharma biggie Ranbaxy by the Singh family in 2008. Ranbaxy’s promoters, led by Malvinder Singh, decided to sell their entire family stake of nearly 35% to Japan’s Daiichi Sankyo for Rs 10,000 crore – one of the largest deals in Indian pharma.
Now, the promoters of Cipla – India’s third-largest drug firm – are planning to divest the family’s stake, with the second generation not keen to continue running the business. Recently, Mumbai-based Glenmark Pharma announced a divestment of 75% in its subsidiary, Glenmark Life Sciences, to Ahmedabad-based detergents-to-cement conglomerate Nirma for Rs 5,652 crore, and in another deal, US-based Viatris (erstwhile Mylan), is selling its active pharmaceutical ingredients and women’s healthcare businesses in India for a combined value of $1.2 billion (nearly Rs 10,000 crore), as part of a $3.6-billion global divestment.
Further, large domestic players are doubling down on India as an attractive diversification from a US generics market beaten up heavily by price erosion. As a result, several deals were inked where Indian companies snapped up high-growth brands from local sellers at attractive valuations. For instance, last year, Mankind Pharma swooped on Panacea’s domestic formulations’ business while three years ago, Dr Reddy’s acquired some Wockardt brands, and Torrent Pharmaceuticals bought Unichem’s branded formulations assets in 2017 (see graphic).
As against this, a decade back, mainly foreign firms like Abbott, Daiichi Sankyo, Sanofi made headlines with sizeable buy-outs of domestic firms like Piramal Healthcare, Ranbaxy and Shantha Biotec, respectively.