Explore how Indian pharmaceutical companies are leveraging substantial financial reserves to pursue strategic acquisitions, enhance their portfolios.
Indian pharmaceutical giants are amassing substantial financial reserves, estimated at around ₹30,000 crore ($3.6 billion), positioning themselves for significant acquisitions to enter new markets, enhance their portfolios, and climb the value chain. This strategic accumulation of funds has been ongoing since FY21, reaching approximately ₹28,100 crore, or 15% of the capital employed, according to Ambit Capital Research.
Strategic Moves and Expanding Horizons
Recently, Mankind Pharma approved raising ₹7,500 crore and increased its borrowing limit to ₹12,500 crore to prepare for both large and small acquisition opportunities. Mankind Pharma is reportedly in the running to acquire Bharat Serums and Vaccines. Similarly, Cipla has expressed a willingness to pursue large acquisitions within India to address gaps in its therapy segments and consolidate its leadership position. Cipla is also exploring product-specific opportunities in the U.S. market.
Drivers for Acquisitions
The primary motivations behind these acquisitions are to consolidate market position and gain market share within India, where profit margins are high and cash flows are robust. Overseas acquisitions are aimed at gaining market access, enhancing product capabilities, and obtaining specialty products.
Anshul Gupta, Managing Director and Head of Healthcare Investment Banking at Avendus Capital, noted, “There are a couple of large, big-bang M&A targets that are currently in the market after a gap of many years. They are attracting significant interest from pharma companies. Generally, pharma companies have been taking a strategic approach with small, niche buys to fill portfolio white spaces or to gain select market access.”
Evolution and Value Chain Advancement
The Indian pharmaceutical sector is predominantly generic, characterized by low barriers to entry and the constant threat of competition. As a result, organic growth has its limitations, prompting companies to seek value chain advancements.
“Indian companies have always been keen on M&A to move up the product value chain and stay ahead of competition in generics,” explained Prashant Nair, Analyst at Ambit Capital. “This involves moving from simple to more complex generic products as well as areas such as biosimilars and specialty. Doing all of these internally is tough.”
Nair added, “It’s the need to keep evolving and move up the value chain that drives M&A, not so much scale or making up for lack of volumes. Companies are now more focused on organic growth and acquisitions to add capabilities.”
Recent Trends in Healthcare Mergers and Acquisitions
In 2023, the healthcare sector witnessed over 30 tie-ups, licensing agreements, partnerships, and marketing collaborations. However, mergers and acquisitions saw a 17% decrease in deal value and a 5% decrease in deal volumes, according to Deloitte. The proportion of pure pharma deals dropped to 25% from 56% the previous year, reflecting a shift from acquiring full-fledged businesses to selecting specific drug portfolios. The focus has increasingly been on bolstering core portfolios rather than diversification.
A notable deal in September was Nirma’s acquisition of a 75% stake in Glenmark Lifesciences for $680 million. In the first quarter of 2024, the sector saw 24 M&A deals totaling $456.3 million, as per the GlobalData Deals Database. One significant merger involved Suven Pharmaceuticals combining with Cohance Lifesciences to enhance contract drug production, specialty chemicals, and API manufacturing capabilities.
Future Prospects and Increased Deal Activity
The pace of deals is expected to accelerate. “With the kind of cash that most companies have at their disposal, they can be more aggressive,” said Nair. “They can buy assets rather than just look for licensing deals or tie-ups. As long as they have adequate cash flow, there will be more inclination to buy assets.”
Gupta highlighted a growing interest among pharma companies in diversifying into adjacent sectors such as point-of-care diagnostics and medical devices, leveraging their strengths in interactions with doctors, hospitals, and clinicians.
Indian pharmaceutical companies are strategically building up their financial reserves to pursue acquisitions that will enable them to enter new markets, enhance their product offerings, and advance up the value chain. This proactive approach is poised to reshape the industry landscape, driving both domestic consolidation and international expansion.
Source: More than 90% of pharmacies say medicines shortages have got worse over the past year
Indian Pharmaceutical Companies
Indian Pharmaceutical Companies
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