“Indian pharma companies are interested in acquiring good biotech products and business models to spruce up their pipeline.”
It’s a strategy that has worked well for China: If the expertise cannot be found on home turf, go overseas. But whereas China gained technology largely through joint ventures with Western companies, the Indian life sciences industry is getting it by acquiring these companies.
The Indian biotech industry has been growing at more than 25 percent annually for four consecutive years—the fastest anywhere—and it hit $2 billion in revenue for the fiscal year ending March 31. Indian pharma is also in expansion mode, reaching $7.3 billion in sales in 2006, according to global market research firm IMS Health. But because India’s track record is in generics, many firms lack the experience of taking a new biological entity all the way to regulatory approval. Now, to remain in high gear as well as move higher up the innovation food chain, companies are turning to strategic growth.
Acquisitions represent a long-term strategy for companies wanting to break in to new markets, add new technologies and skills, and gain size and scale, analysts say. “Besides hiving off their R&D arms into separate entities to de-risk research, Indian pharma companies are interested in acquiring good biotech products and business models to spruce up their pipeline,” says Alok Gupta, country head of life sciences at Yes Bank in Mumbai.
Some deals in recent months include:
In July, Bangalore-based Biocon sold its enzymes venture to Novozymes of Denmark for $115 million. Biocon, which got its start nearly three decades ago by making industrial enzymes, a business that contributed just 10 percent to its total revenue last fiscal year, now intends to focus on biopharmaceuticals. It is looking to acquire a few overseas companies with good marketing, distribution, and clinical trial capabilities.
In the same month, Bangalore-based Avesthagen, a research-driven biotech with products in pharmaceuticals, nutraceuticals, agbio, and diagnostics, acquired Chatsworth, California-based dietary supplements company Renaissance Herbs. In October, it snapped up Berlin-based biological company Siegfried Biologics through Avestha Biotherapeutics, its joint venture with Indian pharma company Cipla. In May, Avesthagen, along with its French partner Limagrain, acquired majority stakes in two Indian seed companies for about $5 million. Since raising $32.5 million in a Series C round in January, Avesthagen has made four strategic acquisitions, largely to ramp up its manufacturing and marketing capabilities.
On October 15, Hyderabad-based Ocimum Biosolutions, a life sciences R&D enabling company, bought the genomics division of Gaithersburg, Maryland-based Gene Logic for $10 million.
In July, New Delhi-based RFCL Limited acquired Wipro Biomed, a division of the software major Wipro Technologies. RFCL said the acquisition would propel it into the fast-growing in vivo diagnostics market, fully automated clinical chemistry, and hematology sectors.
In October, one of India’s largest drug companies, Gurgaon-based Ranbaxy Laboratories, paid $53 million to Hyderabad-based Zenotech Labs to increase its stake from 7 percent to 45 percent. Zenotech has a strong pipeline of biotech and specialty drugs, whereas Ranbaxy rules the market in generics.
Moreover, competition is tightening, meaning consolidation is inevitable. “We’ll see more acquisitions as the industry has begun consolidating,” says Villoo Morawala Patel, founder and managing director of Avesthagen. Many biotech companies started during or after the dotcom doldrums are now in merger and acquisition mode to either exit or build on existing expertise, she adds.
Meanwhile, international investors, perhaps finally bored with the Indian technology sector, are beginning to turn their attention to the life sciences industry, which suffers from a lack of “specialized investors,” according to Gupta, who was involved in the Ranbaxy-Zenotech deal. He won’t say which companies with “mind-blowing business models” are the favorites, but he assures that several global investors are evaluating Indian biotech startups’ IP assets.
The biotech trade body Association of Biotech Led Enterprises (ABLE), based in Bangalore, says the industry will attain the targeted $5 billion in revenue by 2010. About half a dozen new molecules are in the pipeline, although they are a few years away from reaching the market, including Biocon’s oral insulin (insulin in a tablet form), which completed a Phase I study in India last month. But nobody, not even ABLE, is willing to predict when India will have a homegrown blockbuster drug.