P B Jayakumar/Business Standard

Mumbai, Jun 12: Daiichi Sankyo's acquisition of Ranbaxy Laboratories, India's biggest drug maker, may spur hostile takeovers and mergers in India's Rs 50,000 crore pharmaceutical industry, experts and industry leaders said.

"Indian generic players with established global businesses are definitely a target for multinational companies to beef up their businesses," said Ranjit Shahani, vice-chairman and managing director, Novartis India. "

This deal will unlock the real value of Indian generic pharmaceutical companies and will trigger more such deals. Drugs worth more than $90 billion are going off-patent in the near future. At the same time, many leading multinational companies are yet to have a portfolio of generic drugs."

Indian drug makers were prevented from bringing out generic versions of patented drugs after the country introduced the product patent regime in 2005.

The drug discovery process involves investment of billions of dollar and, hence, it is impossible for most domestic drug makers to pursue the original drug discovery process. Margins are thin in the global generic business mainly due to intense competition, noted the experts.

Already, Aurobindo Pharma, Cipla and Orchid Chemicals and Pharmaceuticals usually, among others, figure on the list of companies that are takeover targets for multinational pharmaceutical companies. However, valuations have detered these deals, they said.

"Small players will be compelled to exit the business and only those with a strong business model can remain in the generic business in future," Glenn Saldanha, managing director and CEO of Glenmark Pharmaceuticals said in a telephone interview from the US.

Hasit Joshipura, managing director of GlaxoSmithKline Pharmaceuticals, said: "The Mylan-Matrix deal, Dabur's acquisition earlier and now the Ranbaxy deal show that global pharmaceutical companies are looking at India in a big way, recognising the country as an important pharma destination. Whether those companies prefer to set up units from scratch, through acquisitions or strategic alliances will vary from one company to another."

Big pharma companies are shutting down facilities and moving manufacturing to countries where costs are low. "Another reason for them to close down manufacturing facilities and move to low cost countries are strict effluent treatment norms," noted Ranjeet Kapadia, head (pharmaceutical research), Prabhudas Liladhar.

"If the promoters of India's largest drug company felt it better to exit business after many years of attempts to make it one of the largest in the world, then there must be serious issues with our drug policy," Swati Piramal, director (strategic alliances), Nicholas Piramal, said in a phone interview from France.

"The government and other authorities should seriously should think about it. We have always maintained that pharma companies should be allowed to invest their profits in research rather than squeezing them with more price controls for more drugs. Nicholas Piramal always felt the generic business model is unsustainable in the future," she added.

India's ability to manufacture drugs at almost one-eighth of global cost, availability of quality English speaking scientific personnel with chemistry skills are some of the important factors that attract big pharmaceutical companies to India. As against this, the rising manufacturing costs and dwindling pipeline have forced global pharma companies to off-shore manufacturing to locations such as India.

"It is unfortunate and shocking to believe that Ranbaxy is going to become part of a Japanese pharmaceutical company. Its promoters may have thought of exiting this business with the handsome premium they are getting than going through the rigours of complex pharmaceutical manufacturing processes. This deal will, at least for sometime, end the euphoria on Indian pharma going global and conquering the world," said a leading industry expert, who preferred not to be quoted.