Daiichi Sankyo in buyout talks with 3 mid-sized companies

Japan's biggest pharmaceutical company Daiichi Sankyo has initiated buyout talks with at least three mid-sized firms in India, nearly four years after it acquired a majority stake in the generic drugmaker Ranbaxy Laboratories. 

The target firms have a product portfolio straddling anti-diabetes, rheumatology and woman's healthcare, persons familiar with the matter told ET. The promoter of one such firm also confirmed the development on the condition of anonymity. Daiichi Sankyo is focusing primarily on firms with an annual turnover of 300-500 crore and it has appointed IMS Consulting Services for the purpose.
While IMS refused to comment, Daiichi did not respond to an email query. "Daiichi is looking to expand in the Indian market and it believes that an acquisition of a company or specific brands will help it gain significant market share," a person referred to earlier said. In 2008, it had acquired a little more than 60% stake in Ranbaxy Laboratories for $4.6 billion.

The Japanese firm is looking to buy out smaller firms at a time when Ranbaxy is locked in a dispute with the US Food and Drug Administration (USFDA) for data tampering and poor manufacturing practices at two of its facilities in India. After three gruelling years, Ranbaxy reached an agreement with the FDA last year to improve its manufacturing practices, while the justice department filed a consent decree outlining pretty stringent settlement terms.

Daiichi had to write off $500 million from its books due to the Ranbaxy settlement. It posted a loss of $255million in the third quarter and its directors took a pay cut, following which the company revised its projections for net income from 26 billion yen to 15 billion yen. "It will take one to three years for Ranbaxy to come out of the consent decree in the US, and the European market is also dull as there is no growth in those markets," says Ranjit Kapadia, vice president, Centrum Capital.

Ranbaxy has been faring well in the domestic market, though, clocking a turnover of 2,689 crore and recording an 18% growth in 2011, against the industry's 15%. It has a strong presence in the anti-infective, cardiovascular and anti-inflammatory segments, and some of its antibiotic brands like Cifran and Sporidex have been very successful. However, analysts say, the company is looking to beef up its presence in segments such as woman's healthcare, diabetes and rheumatology.
Daiichi's move is in line with other multinational companies that have been focusing on buying mid-sized companies with niche product portfolios over the past year. Sanofi Aventis' acquisition of Universal Pharma and Zydus Cadila's buyout of Biochem are two such examples.

"Mid-sized companies typically have a large presence in the domestic market, so any company that wants to expand in the Indian market targets these companies," says Sujay Shetty, head of pharmaceutical and life sciences at PWC. Abbott Pharma, which clocked the biggest acquisition in India when it bought Piramal Healthcare, leads the domestic market with a turnover of 3,500 crore, while Cipla, which is growing at 11%, reported a turnover of 2,500 crore in 2011.