<article>A few years ago, Indian companies made acquisitions to expand manufacturing capabilities and increase their portfolio of generic drugs, which are copycat versions of branded medicines.</article>

A few years ago, Indian companies made acquisitions to expand manufacturing capabilities and increase their portfolio of generic drugs, which are copycat versions of branded medicines.
However, in the past couple of years, the emphasis has shifted to buying companies, assets or products in the specialty, complex generics or branded space as these acquisitions have the potential for much higher returns.
“Big Indian pharma companies are giving more and more focus on developed markets and specialty portfolios. That trend is going to continue next year as they look to strengthen their business. The US will remain the key market for such acquisitions,” said Amit Mookim, general manager, South Asia, QuintilesIMS, a healthcare research and services company.
Leading Indian drug makers are trying to build a pipeline of differentiated high-value and high-margin products in the specialty and complex generics space by increasing investments in research and development and through acquisitions, as the growth rate in the bread-and-butter generic drugs business is slowing due to pricing pressure in the US, the biggest market for most companies.
“With increasing competition and pricing pressures in global markets, companies are looking to launch specialty drugs/complex therapies which will remain the key M&amp;A theme for the top Indian pharma firms. Inorganic expansion may also be pursued to enter new geographies or gain scale in new markets,” said Gautam Kothari, associate director, Equirus Capital Pvt. Ltd, an investment bank.
India’s largest drug maker, Sun Pharmaceutical Industries Ltd, has been the frontrunner in making strategic acquisitions in these segments. In 2016, Sun Pharma acquired 14 branded drugs from Novartis for the Japanese market for $293 million, bought US-based Ocular Technologies for an upfront payment of $40 million and branded cancer drug Odomzo from Novartis for an upfront payment of $175 million.
Other pharma majors such as Lupin Ltd, Dr. Reddy’s Laboratories Ltd and Cipla Ltd have also indicated that they will watch out for strategic M&amp;A opportunities in differentiated products and drug delivery systems.
“I think we are very well set on generics as well as geographies, so I think the focus is on specialty. The top priority for acquisition will remain specialty in the US. Second will be specialty in Europe and then Japan,” Nilesh Gupta, managing director of Lupin had told Mint in a post-earnings interaction in November.
According to experts, a large chunk of M&amp;A deals in the pharma sector next year will continue to be outbound, mainly in the regulated markets of the US, Europe and Japan, and some in emerging markets, while domestic deals are likely to be in the area of over-the-counter products and active pharmaceutical ingredients (APIs). Inbound acquisitions will be few, although Chinese firms are showing interest.
“Outbound acquisitions by Indian companies would continue in the emerging and developed economies in the form of acquiring brands/portfolios of large MNCs or acquiring distribution/marketing network in respective markets to expedite go-to-market strategies,” said Narayan Shetkar, director, Singhi Advisors.
In 2016, the key outbound deals included Ahmedabad-based Intas Pharmaceuticals Ltd buying Teva Pharmaceutical Industries Ltd’s generic business under Actavis for $769 million and Dr. Reddy’s acquiring eight abbreviated new drug applications (ANDAs) from Teva for $350 million.
The two big inbound deals were Chinese firm Fosun Pharmaceuticals buying 86% stake in Gland Pharma for $1.26 billion and US-based Baxter International acquiring the generic injectables business of Claris Lifesciences Ltd for $625 million.
According to data from Grant Thornton Advisory Pvt. Ltd, there were in all 54 M&amp;A deals in the pharma space in 2016 in India with total value of $4.87 billion, while private equity or venture capital investments in the sector totalled $653 million.
Hitesh Sharma, partner and sector leader, lifesciences, at Ernst &amp; Young LLP, said Indian pharma companies will focus on acquiring niche technologies, which will support them in either getting into markets more effectively or help in getting their capabilities advanced to be able to meet with the regulated markets’ requirements.
“Acquisition of brands, products and everything else is going to be more opportunistic depending on what is available, whether it fits and compliments the company’s business and the valuations,” he added.
Apart from M&amp;As, the other trend would be alliances or joint ventures for biosimilars, as some of Indian companies that are building biosimilars portfolio will look for a marketing front end in developed markets, Mookim of QuintilesIMS said.
Meanwhile, the healthcare space, including hospitals and diagnostics clinics, will continue to garner interest from private equity players next year but investors will be more cautious regarding the quality of the asset or sustainability of the business in which they are investing, experts said.
“2016 has been a big year for healthcare with total number deals at 88 valuing close to $400 million. There is lot of traction that healthcare got in 2016 and we will see this momentum travel through 2017,” said Vishal Bali, chairman and co-founder of Medwell Ventures.
On 14 December, Mint had reported quoting data from Investec that India’s healthcare sector will see investors looking to exit close to $3 billion of primary investments in the next two-three years through secondary sales and public market listings.
<h4 style="text-align: justify;">This article was first published on <a href="http://www.livemint.com/Companies/HA2OS43DSvRqSc47ReERIJ/Specialty-drugs-to-remain-focus-of-pharma-deals-in-2017.html">Livemint.com</a></h4>

Leading Indian drug makers are trying to build a pipeline of differentiated high-value and high-margin products in the specialty and complex generics space 

India 2017: Specialty drugs to remain focus of pharma M&As

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